The 8:30 AM meeting I mentioned in the original story has now concluded and information has been released by the Rhode Island EDC (Economic Development Corporation). 38 Studios requested more money to repay the original loan and keep the company solvent. In order to get what they want, 38 Studios is up as collateral. This means that, if 38 Studios is not able to repay the money they owe to the state of Rhode Island, the entire company and all of their IP, will become state property.
While it's amusing to think of Governor Chaffee developing a game through the studio, which given the history of Providence would be really similar to a Godfather
title, it is more likely that the entire studio would be sold off piecemeal in order to repay the debt.
Analysts agree that the Kingdoms of Amalur
IP will not be worth the total $112.5 million (initial loan plus interest) on its own. Original Story:
Just a few days after expanding our news coverage
, 38 Studios, the developer of Kingdoms of Amalur: Reckoning
, defaulted on their $75 million loan from the state of Rhode Island. The original loan, granted by the Rhode Island EDC (Economic Development Corporation) in 2010 was granted with the promise that 38 Studios would create 450 jobs at their main office near Providence, Rhode Island. Also, that $75 million was a loan and required regular payments in order to pay it back which does not look likely as 38 Studios missed their first payment of $1.125 million this past Monday.
Before 38 Studios failed to make payment, the Rhode Island government was not happy with them as the quota of 450 jobs was not met with only 288 workers in Providence. The other 91 employees are still in Baltimore using their old building as part of Big Huge Games, which was acquired a few years ago by 38 Studios. None of the loan money was used in the Big Huge Games acquisition, and supposedly, none of the loan money was used to fund Kingdoms of Amalur: Reckoning
The $75 million loan was broken down into chunks with $49.8 million converted into cash used by 38 Studios to fund their MMO (Massively Multiplayer Online) set in the Kingdoms of Amalur
universe. $23.4 million was set aside in a Capital Reserve Fund for the purpose of helping to pay back the loan. The remaining $1.8 million was used to float the loan, which means it was used to pay the interest rates that were lower than normal due to its status as a floating loan.
What makes this entire situation far more interesting and far more volatile than a standard studio's financial problems, is that this loan was backed by the state government of Rhode Island. The numbers in the following chart, provided by WPRI, represent what 38 Studios owes and if they can not pay, it represents what the state of Rhode Island owes to their creditors.
Part of the reason 38 Studios is in this situation, aside from the hefty financial cost of starting a MMO, is that Kingdoms of Amalur: Reckoning
failed to set the world on fire. 38 Studios debut title only sold 1.15 million units across all platforms. The Xbox 360 version moved 560,000 units, PS3 sold 400,000 units and PC fell way behind with only 150,000 units. These are world-wide numbers valid as of May 5th, 2012. While they may seem large to me and you, developing a large-scale, cross-platform retail title with a new IP (Intellectual Property) from a brand new studio involves a lot of overhead cost.
In addition to providing steady paychecks for over 300 full-time employees, 38 Studios also owes author R.A. Salvatore $1.46 million in October, with the potential to earn an additional $5 million in royalties based off of the success of Kingdoms of Amalur: Reckoning
and the follow-up MMO, originally slated for a Fall release. The price of research and development, high-end equipment and specifically, the high-end server farms one needs to keep a MMO running have the potential to eat away very quickly at any profits from the below expectations performance of Kingdoms of Amalur: Reckoning
Today at 8:30 AM, Rhode Island Governor Chaffee is meeting with Curt Schilling, CEO of 38 Studios, to try and figure out how the two parties can move on from here. Unfortunately parts of this meeting will be closed with information unlikely to be released, though if it is, you can be assured we will be following this story as it continues to develop.