38 Studios Saga Gets Real As Docs Reveal Massive Spending

At last, substantial information about the collapse of 38 Studios has started to emerge, and though the investigation is far from over, it’s looking more and more certain that when it ends, heads are going to roll.

This latest development comes courtesy of WPRI.com, which has obtained documents related to the ongoing investigation of the matter that shine spectacular light on what has so far been an obscure matter, defined largely by the defiant, and blame-shifting comments from former 38 Studios honchos. These documents paint an uncomfortable picture of inertia and magical thinking on the part of 38 Studios leadership, revealing profligate spending and poor management.

The documents show that between the founding of 38 Studios in 2006 and their collapse last May, the company spent about $133 million. (An itemized accounting of these expenses isn’t available as of this posting, but as expected, WPRI reports they were divided between operating expenses and work on the studio’s two projects, Kingdoms of Amalur: Reckoning, and the aborted MMO ‘Project Copernicus’.) No revenues were collected until 2012, and things only improved slightly at that point. The company finally earned $27m, but this was on top of more than $15m in expenses during the first 3 months of the year.

The majority of development-related expenses appear to have been blown making Copernicus. That’s not a huge amount compared to what a truly massive studio might spend on an MMO. After all, Electronic Arts reportedly spent $150-$200 million on The Old Republic. However, The Old Republic was announced in 2008, meaning it had a 3 year development. 38 Studios began work on Project Copernicus in 2006, and 6 years later they still weren’t done; the game was slated for a 2013 release, giving it an incredible 7 year development period. That’s an awful long time for nothing to show, which forces us to ask yet again: what did they do with all that money?

Industry analyst Mike Hickey told WPRI “That’s a monster number, obviously, but six years of development – most of that’s headcount. … It doesn’t surprise me over six years they spent that much money.” It should be noted that Hickey isn’t a part of 38 Studios, he’s just guessing, so his comments about headcount being to blame may not be accurate. Unfortunately, that didn’t stop WPRI from pointing out that 38 Studios’ loan deal with the state of Rhode Island required the firm to keep staffing levels high, as if to suggest that an inability to fire employees sooner was to blame for the company’s demise. Yeah, those employees.

We might humbly ask Game Front readers to note that 38 Studios only signed that loan agreement near the end of 2010, meaning that they were governed by its terms for just over 1 year, or about 1/6 of the company’s total lifespan. Just throwing that fact out there.

Things don’t look better for 38 Studios when you consider that over the course of the company’s 6 year lifespan, it survived primarily by tapping Curt Schilling’s wallet. Bills were literally paid directly from Schilling’s fortune, until 2010, when the loan they received from the state of Rhode Island was used for the same purpose. While we can only speculate, this is only the latest evidence that from the beginning, 38 Studios was living well beyond its means and using its founder’s money, and later a massive loan from Rhode Island, to obfuscate that petty fact. New infusions of cash, in other words, appear to have been used to pay off old debts. If this reminds you of anything with 4 corners and a point, you’re not alone.

Indeed, comments made by representatives of the Rhode Island Economic Development Corporation are withering. Saul Kaplan, executive director of the R.I. Economic Development Corporation until 2008, offered this observation to WPRI: “The thing that is most amazing to me is their burn rate was about $5 million a month all through 2011, heading into 2012, and it didn’t slow down even when they knew they were running out of cash.” So once again, what did they do with all the money? The documents obtained by WPRI still don’t answer that question. Hopefully, at some point someone will.

In the meantime, I will say this: even I am able to admit that these documents provide some evidence that whatever else we think of Curt Schilling, he may indeed be well and truly screwed. Naturally, we understand that it will be months before we get the definitive explanation of what actually happened at 38 Studios; as always, I’d encourage everyone reading this to delve deep into the available documents for themselves, and take everything you read with a huge grain of salt.

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3 Comments on 38 Studios Saga Gets Real As Docs Reveal Massive Spending

Peggle20

On July 26, 2012 at 11:49 am

OOPS! You used the phrase “BEGS THE QUESTION” in an improper manner!
“Begging the question” (Latin petitio principii) is a form
of logical fallacy in which an argument is assumed to be
true without evidence other than the argument itself. It
does not mean “to raise the question.”

Ross Lincoln

On July 26, 2012 at 11:50 am

ARGH, you’re right! I have corrected. Lame of me. Thanks.

Squidly

On July 28, 2012 at 4:57 pm

“However, The Old Republic was announced in 2008, meaning it had a 3 year development. ”

A game is typically not announced the moment it starts development. SWTOR was in development for years before it was publicly announced. Game development usually starts with very small teams, even on MMOs, and they don’t scale up to 100′s of people until the pipelines and design are pretty solid. Companies (especially publicly traded companies like EA) don’t announce games until they’re quite sure that a) the game will actually be made and b) announcing the game won’t give the competition too much time to prepare a competing product. So, seven years to develop Project Copernicus, while on the high end, is not really outlandish. Remember that 38 Studios were building a company, an IP, and a game all at the same time.