38 Studios bet $75M of state money on an MMO — then went bankrupt

Curt Schilling, the star baseball pitcher, founded 38 Studios in 2006 with a grand ambition: build a complete fantasy universe spanning games, books and merchandise. He hired best-selling author R.A. Salvatore to write the world of Amalur and comic-book legend Todd McFarlane to design its look. By 2010 the studio had burned through tens of millions of dollars with nothing to show — no publisher, no game, and local venture capital firms declining to invest.

In July 2010 Schilling struck a deal with the Rhode Island Economic Development Corporation: a $75 million loan guarantee to relocate to Providence. The state's own analysts warned the project was 'high risk' and the loan was approved by a single vote. With the money, 38 Studios acquired developer Big Huge Games and pushed toward two products: Kingdoms of Amalur: Reckoning (a single-player RPG) and Project Copernicus (a massively multiplayer online game, the real bet).

Kingdoms of Amalur launched in February 2012 to solid reviews and sold 1.3 million copies — a respectable number but well below the 2 million needed to break even. Project Copernicus was 75% complete. Rhode Island's new governor, Lincoln Chafee, publicly questioned the loan, which Schilling blamed for chasing off a desperate rescue. A publisher withdrew $30 million in sequel funding; another investor pulled out when the state refused to renegotiate.

In May 2012 38 Studios defaulted on a $1.1 million loan payment — it covered the check by suspending payroll. Days later all 400 employees were laid off without final paychecks or insurance. The company filed Chapter 7 bankruptcy on June 7, 2012, owing $150.7 million to 1,079 creditors. The state of Rhode Island was left holding $115.9 million in secured debt, much of it paid by taxpayers. Schilling lost his own $60 million investment.