End Game: Curt Schilling and the Destruction of 38 Studios

Curt Schilling set out to build the greatest video-game company the world had ever seen, and to get rich — Bill Gates rich — doing it. Instead, the whole thing exploded in his face. Drawing on exclusive interviews with the Red Sox legend and his former employees, Jason Schwartz takes us inside the chaos, arrogance, and mistakes that led to the destruction of 38 Studios and the loss of $75 million in taxpayer money.

Hopeless as things seemed, Schilling remained confident that yet another lifesaving deal was imminent. He still owned 82.9 percent of the company, and says he was willing to part with a healthy chunk of it to save the studio. In April, 38 Studios sent eight employees to China to meet with a potential partner. Then there was a South Korean video-game concern called Nexon, whose executives had recently visited the Providence office and appeared interested in a deal. And finally, Schilling felt that 38 Studios was close to a pact with the company Take-Two Interactive to publish a sequel to Kingdoms of Amalur: Reckoning.

But when May 1 arrived, 38 Studios was unable to make its loan payment. That put it into default and set off a series of private meetings with Governor Lincoln Chafee’s office. Still, most staffers had no idea the company was in trouble until two weeks later, when, on May 14, Chafee told the Rhode Island media that he was working to keep 38 Studios solvent.

Schilling says the deal with Take-Two was ready for “final sign-off” the next day, May 15, but fell apart when the publisher got spooked by Chafee’s comments. Take-Two seems to have had a different impression, however. “I am not aware that there were any negotiations,” spokesman Alan Lewis says. “We do not comment on rumors and speculation.” You’d need a microscope to read between the lines of that statement, but it seems clear that nothing was imminent. Both the Chinese investor and Nexon disappeared, too. (Nexon declined comment.) Meanwhile, according to the Associated Press, 38 Studios’ board of directors voted to authorize the company to go into bankruptcy, in case it became necessary.

May 15 brought more unwelcome news: 38 Studios missed payroll. Company officials assured employees that the salary issue would get resolved. Workers were told that they had the option to stay home, but that the office would remain open. Most everybody kept coming in.

MacLean, on leave since March, officially resigned as CEO on May 17. That same day, 38 Studios tried to make the $1.125 million payment to Rhode Island, but the company had insufficient funds to keep its check from bouncing. The day after that, Schilling tried again, sending the state a second check — a good one this time — to cover the missed payment. It was part of a complicated plan under which Schilling hoped that Chafee would deliver $6.5 million in additional tax credits — which 38 Studios would then sell to a broker for immediate cash. But Chafee declined. He told the press at a news conference that he didn’t want to throw good money after bad. Barring another investor — the very type that 38 Studios had been unsuccessfully chasing for six years — those tax credits would have only kept the company going for a few more weeks, anyway.

At the news conference, Chafee also revealed two pieces of information that to that point had been confidential: the anticipated release date of Copernicus — June 2013 — and that 38 Studios was spending about $4 million a month. Schilling was outraged, believing that the info would help 38 Studios’ competitors plan against the game. Schilling insists that Chafee, who opposed the 38 Studios loan guarantee when he ran for governor, was pursuing a vendetta against him. “There was a concerted effort to make this not succeed,” Schilling tells me.

Meanwhile, as the media swarmed outside the 38 Studios office, employees inside began to realize that the company could be done for. Wanting the world to see their work, a few grabbed an old Copernicus trailer and began to brush it up. As they worked, colleagues crammed into a small set of cubicles, packing in 50 to 60 deep. When the video was ready, someone hit play and “Project Copernicus” came up in gold lettering on the screen, followed by a shot of a foreign-looking world. With haunting music in the background, the camera zoomed in, whooshing through a series of distinct, beautifully rendered landscapes — a forest of trees decorated with ornate hanging lamps; a castle with a base of finely detailed sculptures; a palace topped with golden griffin statues. When the two-minute trailer ended, people lost it. “We’re all leaning on each other,” says Jesse Smith, the designer. “A lot of us were crying, a lot of us were happy. And after it happened, there was just an uproar of applause.”

The trailer was played several times, with new groups of employees cramming in to watch. It was posted online and then played again for the full staff later in the day on a big projection screen. There was a standing ovation.

As the days marched on, most employees continued to come into work. Some figured it was their best chance at getting paid. Others did it out of loyalty. Thom Ang, the company’s art director, says Schilling had always taken care of his employees, so he trusted that he would now. “Any time he was presented with options with how to set up the company, how to treat the employees, he always chose the best,” Ang says.