Business of Gaming: 38 Studios Lay Offs

By Rebecca Smith, 4 years ago
The writing was on the wall. Last Sunday, we reported on the financial situation of 38 Studios, Curt Schilling's game development studio responsible for Kingdoms of Amalur: Reckoning. Let's bring you up to speed.

38 Studios has a $75 million bond with Rhode Island. This is the loan that was given to the studio in return for their transfer from Massachusetts to Rhode Island and purportedly creating 450 jobs in the state by the end of 2012. If this loan can't be paid back complete with interest by the studio, Rhode Island Governor Lincoln Chafee is required to ask the General assembly to repay the bonds. In plain English, this means that Rhode Island taxpayers are left to foot the bill. With interest, the grand total reaches $112.6 million and this has to be repaid by 2020.

The studio was struggling to repay these loans to the state of Rhode Island. The first loan payment of $1.125 million was due last week, but the cheque intended to pay off the bill was rejected due to insufficient funds in 38 Studios' bank account. On May 18th, the bill was able to be paid and the studio felt confident enough to release a new trailer for their upcoming MMO set in the world of Amalur, Project Copernicus.

This week didn't start off well at all. On Monday, Chafee confirmed that there had been an unannounced number of staff layoffs at the studio following an emergency meeting aimed at trying to keep the company solvent. Of the remaining staff, none of them had received their last pay-cheques, due on May 15th, and they all faced losing their health insurance coverage on Thursday. Just three days later on Thursday afternoon, 38 Studios and Big Huge Games laid off all of the remaining staff with this internal memo acquired by WPRI:

The Company is experiencing an economic downturn. To avoid further losses and possibility of retrenchment, the Company has decided that a companywide lay off is absolutely necessary.

These layoffs are non-voluntary and non-disciplinary.

This is your official notice of lay off, effective today, Thursday, May 24th, 2012.
As of May 15th, the companies employed 379 full-time staff. All of these people now find themselves without a job in one of the worst layoffs this industry has ever seen. The layoffs have even seen a new Twitter trend with #38jobs being used by many fellow industry workers, PR teams and even journalists to help highlight current vacancies in the industry for those affected. A Facebook page of the same name has also been set up. Those of you who are trying to break into the industry may want to have a quick look too.

Chafee later held a press conference denying any knowledge of the layoffs (although the many Twitter accounts belonging to former-employees stated otherwise) and that the state was still trying to keep the company solvent. However, the cost of success in this endeavour will be "very, very expensive" and will involve marketing costs of "tens of millions of dollars". Chafee remains confident that the studio will be able to hit all of its future repayment deadlines, although without a source of income, I can't personally see how this would be possible. The small silver-lining is that the shuttering of the studio would mean that the Amalur IP would also be owned by the state. At present, the IP is estimated to have a $20 million value, which would offset approximately 18% of the bill.

What exactly went wrong, though? Kingdoms of Amalur: Reckoning sold 1.2 million copies in its first 90 days. This certainly can not be classified as a failure. The only problem is that the game needed to sell three million copies just to break even, let alone make any profit. Amalur never reached the three million mark, therefore the debts to the state could not be paid off using game sales.

Not only has 38 Studios and Big Huge Games effectively been closed, but the consequences for the residents of Rhode Island has meant that head of the Rhode Island Economic Development Corporation, the group who agreed to the $75 million loan, was also fired. The chances for any future deals for studios to claim state tax breaks are now on shaky ground. The whole situation is a mess.
Rebecca Smith
Written by Rebecca Smith
Rebecca is the Newshound Manager at TrueGaming Network. She has been contributing articles since 2010, especially those that involve intimidatingly long lists. When not writing news, she works in an independent game shop so that she can spend all day talking about games too. She'll occasionally go outside.