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.

Schilling knew he’d been treated well during his baseball career, and wanted his staff at 38 Studios to feel the same. That meant gold-plated healthcare, for which employees had no paycheck deductions, and top-notch 401(k)s, with the company matching to the legal limit. As 38 Studios grew from 20 employees in 2006 to 42 in 2007 to 65 in 2008, there were plenty of other goodies along the way: free gym memberships, two homes the company rented to temporarily house new out-of-state hires (though that perk was short-lived), and, one year at Christmas, new laptop computers for every employee. Gifts like the computers came out of Schilling’s pocket — he says he spent as much as $2.5 million on that sort of largesse over the years.

With midday Ultimate Frisbee games and a staff that got along remarkably well, the Maynard office appeared downright idyllic. Once, after an IT guy’s rottweiler died, Schilling presented him with a brand-new pup during an all-staff meeting. There was much applause. Former employees say Schilling was an unparalleled cheerleader. He hadn’t originally intended to be in the office full time, but when he got hurt in 2008 and subsequently retired from baseball, he became a permanent fixture. Jesse Smith, a designer, says that at monthly meetings, Schilling would usually give his thoughts after employees presented their work. “There were a couple times that you could tell he was getting choked up,” Smith says. “This was something that was just an idea and a dream to him, and now it’s coming to reality…. It was just powerful.”

Everything at 38 Studios was not, however, perfect. It quickly became apparent that Schilling was new not just to video-game development, but to the basic concept of working in an office. In December 2009 — months before Rhode Island signed on to the $75 million deal — Harvard Business School published a case study about the company titled “Curt Schilling’s Next Pitch.”

Brett Close, who joined 38 Studios as president in 2007 and soon after became its first CEO, put Schilling’s inexperience into perspective for the study’s authors, Noam Wasserman, Jeffrey Bussgang, and Rachel Gordon. “He really needed Company 101,” Close told them. “For example, the whole concept of vacation was foreign to Curt. He actually said, ‘People get weekends off, right?'” Schilling at one point suggested that people work 14 straight days and then take five days off. It jibed with his baseball experience.

That idea was never instituted, but other questionable ones were. Schilling put his wife, Shonda, on the board of directors. Shonda’s father received a job in IT (by all accounts, he performed admirably), and her mother was given the title “philanthropy and charity manager.” Meanwhile, Shonda’s uncle, William Thomas, became COO. Though a seasoned businessman, Thomas had no experience with video games, much less MMOs. Schilling took to calling him “Uncle Bill” around the office, and even in meetings with outsiders. According to the case study, Thomas told Schilling it was making them look bad and to stop. The nickname caught on with the staff, anyway.

Most troublesome of all was the unique profit-sharing plan Schilling devised for his first employees. Wasserman, Bussgang, and Gordon write that, since Schilling was bank-rolling the company by himself, he was hesitant to give up equity in it. So instead of luring early prospective hires with stock options, he promised to share all profits 50-50 with them. Upon arriving as CEO, Close recognized that “investors’ heads would explode” when they saw the model, since they’d be bearing all the risk but reaping only half the reward. Close eventually convinced Schilling to scrap the policy and replace it with stock options.

The CEO also tried to rein in Schilling’s spending, doing away with ideas for company cars and cell phones. But Schilling was adamant about the rest of the perks. According to the case study, between fiscal years 2007 and 2008, the company spent more than $705,000 on “travel and entertainment,” a sum Scherlis, the former Turbine CEO, calls “wildly high.”

“It never had the culture of a startup,” says one former employee. “The message was being sent…that there was plenty of money.”