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Video Games

IF YOU BUILD IT THEY WON’T COME: KINGDOM OF RHODE ISLAND IS RECKONING TO TAKE OVER ASSETS OF AMALUR CREATOR 38 STUDIOS WHICH SPENT $133 MILLION BEFORE GOING BANKRUPT, INCLUDING $50 MILLION OF PITCHER’S PERSONAL FORTUNE

In 2005, Red Sox pitcher Curt Schilling was a huge fan of massive multiplayer online role-playing games, aka MMORPGs, of which World of Warcraft is probably the most famous example. At a family gathering, Schilling asked his uncle, a retired business executive, about starting their own game company, and begin recruiting friends to join the project. He also recruited famed fantasy author R.A. Salvatore (AD&D) and popular artist/creator Todd MacFarlane (Spawn) to be part of the new gaming company, then known as Green Monster Games, which was announced in 2006 as they leased a 30,000 sq. ft. office space in Massachusetts. Former executives for Electronic Arts and Comcast were also brought in. Apparently much of the initial funding came from Schilling’s personal fortune.

Mr. Schilling had a great pitching year in the 2007 season, taking his team to the World Series Championship. It was the second time in history that a pitcher over 40 had started a winning World Series game. In 2007, Green Monster Games also changed its name to 38 Studios after Schilling’s jersey number, though reports have conflicted over the origin of the name. Shortly after his baseball 2007 season though, Schilling went free agent when his contract expired, signed a one year deal with the Red Sox, then got a shoulder injury which sidelined him for that 2008 season. Though in 2008, 38 Studios brought in the Lead Designer for ‘Everquest’ to work on their project.

Unfortunately, Schilling did not fully recover and announced his retirement from baseball in early 2009. On the videogame front, in 2009, 38 Studios acquired Big Huge Games from THQ, which had developed ‘Rise of Nations’ and had been working on a newsingle-player RPG. Thus, plans were set. R.A. Salvatore had developed 10,000 years of lore and history for the world setting of the Kingdoms of Amalur. It was decided that the project would be done in two stages. First, the single-player RPG that Big Huge Games was working on would be retooled into a Kingdoms of Amalur game which would introduce gamers to the rich world. Then the MMO, codenamed ‘Project Copernicus’ while in development, would be the follow-up release. “Reckoning” was the name of the single-player title to be published by Electronic Arts. At some point, Ken Ralston, the Lead Designer of the outstanding single-player RPG “Elder Scrolls IV: Oblivion,” a critical and commercial success, was also brought in.

In 2010, things began to really be looking up for the retired pitcher/videogame lover. In a deal with the Rhode Island board of Economic Development, a $75 million guaranteed loan was made to 38 Studios in exchange for agreeing to relocate and bring 450 jobs to Rhode Island by the end of 2012. In mid-2011, 38 Studios relocated to Providence, Rhode Island, bringing 160 employees to the new office space. By the end of 2011, 38 Studios had spent $118 million without generating any revenue thus far. A $28.7 million advance for Reckoning had been given by Electronic Arts, thus roughly $90 million of that was attributable to the ‘Copernicus’ project.

Yet, trouble was looming. In spite of the Massive Money Output, Copernicus was still about $60 million shy of being completed. The pressure to bring so many jobs was increasing 38 Studios overhead considerably as the staff was pushed to exceed 400 employees. The soft economy was also taking its toll. The initially popular Star Wars: Old Republic MMO ran into some unexpected trouble retaining subscribers over the winter. Thus, the influx of new investor money was drying up as they became skittish about the long-term success of another MMO. In the first three months of 2012, 38 Studios spent $15.4 million dollars, bringing the total spent on ‘Copernicus’ by end of March 2012 to $104.5 million, which is not atypical since MMO development often exceeds $100 million.

Everything was hinging on the success of Kingdoms of Amalur: Reckoning. Analysts had predicted that 2-3 million units of the game would sell, probably largely due to the all-star team (Salvatore, MacFarlane, Ralston, etc.) behind it. This would be crucial for 38 Studios, as sales would need to exceed 2 million before the company would see any royalties coming in. Yet, when Reckoning released in early February of 2012, just five months ago, it ‘only’ sold 1.3 million copies. Metacritic shows a critic review of 80-81, depending on platform, and user rating of 7.6 (6.1 for PC). Things were grim, and it was too late for 38 Studios to generate any new financing of substance.

Come May of this year, 38 Studios missed a payment to Rhode Island and a payroll to its employees. That same month, everyone left or was laid off, and blood was in the water. The Executive Director of the Rhode Island board of Economic Development resigned, 38 Studios filed for bankruptcy, and it is reported that everyone from the Rhode Island Attorney General to the FBI is investigating the affair, though any wrongdoing on Schilling’s part has yet to be suggested. Late last month, Schilling addressed the failure, stating that he personally lost $50 million in 38 Studios. It is hard deny Mr. Schilling is devoted gamer, whether digitally or in real-life.

This story demonstrates the high-stakes world of videogame development, which is similar to the Hollywood blockbuster movie-making business, in that middle-sized developers are essentially required to bet their company on one big title. Unless you are a massive company, it is impossible to eat a loss in excess of $100 million, which is apparently what it takes to get an MMO off of the ground. Now Rhode Island is looking to take the assets of 38 Studios in bankruptcy court, which at least will probably include the IP rights to the 10,000 years of backstory developed by Salvatore.

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About Nerds in Court

John G. Nowakowski, Esq. (LLMT), is a graduate of the University of San Diego School of Law, and is licensed to practice law in California and Nevada. Christina R. Evola, Esq. is a recent graduate of the University of San Diego School of Law where her studies focused on intellectual property, antitrust, and media law. She is a lifelong gamer and avid cosplayer. DISCLAIMER: ‘Nerds in Court’ is for entertainment purposes only. Nothing should be construed as legal advice, or any advice for that matter, and no attorney-client relationship is formed by reading these posts. Do not consider information provided here as a substitute for obtaining legal advice from a qualified, licensed attorney in your state.

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