Curt Schilling's Bankrupt 38 Studios Another Example of Big Business Sucking Taxpayers Dry

On Thursday, 38 Studios, which was founded and owned by retired ace pitcher Curt Schilling, terminated its entire staff of more than 400 workers in Rhode Island and Maryland. To make matters worse, the state of Rhode Island had committed $75 million to entice Schilling to move his company from Massachusetts to Providence in 2010. Earlier this month, 38 Studios defaulted on its very first loan repayment, but subsequently paid the $1.1 million weeks late.

However, further repayments do not appear forthcoming, as a Chapter 7 bankruptcy filing is all but certain. Under that scenario, the company will be outright liquidated. Whatever assets it has will be sold to mitigate to the hit to the company’s creditors — namely the taxpayers of Rhode Island — and the doors will be shut for good. A Chapter 11 bankruptcy seems unlikely because 38 Studios looks damaged beyond repair. In that scenario, the company and the state would work to restructure the payment schedule and make other modifications as necessary. Indeed, it is likely that this week’s meetings between company and state officials involved some discussion of a Chapter 11 filing, whereby 38 Studios could emerge from a managed bankruptcy, à la Chrysler and General Motors. But with the state unwilling to commit additional money (as evidenced by its rejecting Schilling’s recent request for more than $8 million in tax credits), and with apparently no private investors willing to pump in some quick capital, 38 Studios will probably close its doors permanently.

That is the last thing the citizens of Rhode Island want to hear.

Of the $75 million committed by the state, the company has spent $50 million, with the remaining $25 million set aside for private bondholders. And of course, the company has only repaid $1.1 million of that plus whatever interest would have accrued. Whatever assets of 38 Studios are sold, it still looks to be a given that the taxpayers of Rhode Island will still end up eating tens of millions of dollars. Less than two years ago, the state thought it was investing in a profitable company that would bring in jobs while it could sit back and watch the interest payments roll in. Instead, it got this:

“Schilling’s company did not inform the governor’s office about the mass layoff. [Governor Lincoln] Chafee said the state hasn’t been able to confirm how many workers were let go. State officials have also struggled to get other critical details since 38 Studios ran into financial trouble.

“‘Communication has been very difficult,’ Chafee said. ‘It’s come to the point where we have to verify what we hear.’”

In other words, those pesky creditors are calling and Schilling isn’t picking up the phone. Except this isn’t an unpaid Visa bill.

For years, Curt Schilling has been extolling the virtues of free market capitalism and small government. He has given unsolicited opinions on a myriad of political issues, and actively campaigned for former president George W. Bush and Massachusetts senator Scott Brown. Now here he is, about to default on a giant government loan after a single payment. What a fraud.

The sad thing is, 38 Studios is just a tiny corporate parasite slurping sustenance from a body that hosts much larger corporate parasites. Schilling’s problem wasn’t that his company failed. It’s that his company was too small and not firmly embedded in its government host.