by Glenn Stout
Schilling disputes much of this, but 38 Studios churned through a litany of executives during its existence. One former employee says Schilling appreciated that there was a lot he didn’t know about video-game development, and “tried to hire some of the best people in the industry to shore up those gaps. The problem is if you don’t listen to those people.”
Whatever the dysfunction at the executive level, most employees at 38 Studios were unaware of it, and remained happy at the beginning of 2012. There was great excitement in February when the company released “Kingdoms of Amalur: Reckoning,” a single-player title produced by Big Huge Games. It did well, selling 1.3 million copies.
Schilling, meanwhile, kept up his free-spending ways. This past Christmas, he personally bought every staffer a computer tote bag with the 38 Studios logo. Add in the company’s high staffing levels, frequent gratis lunches and dinners, and big travel budget, and it was easy to forget the whole thing was a start-up. “We never had that sense of urgency or panic,” Schilling tells me. “I think there was a sense of invulnerability—I don’t want to say invulnerability, but I think we were comfortable.”
Deadlines were frequently missed, something for which staffers say Schilling rarely held anyone accountable. The ex-pitcher had a bigger concern. “The game wasn’t fun,” he says, unprompted, beside the softball field. “It was my biggest gripe for probably the past eight to 12 months.” Visually, Copernicus was stunning, but the actual things you could do in the game weren’t engaging enough. The combat aspects especially lagged. Schilling—who never wavered in his belief that the game would be great—says the MMO was improving, but after six years, it still wasn’t there. When Schilling walked around during lunch hour, he says, nobody was playing Copernicus’s internal demos. They were all on some other game.
By mid-March, a year and a half after moving to Rhode Island, 38 Studios had received $50 million from the state and had burned through nearly all of it. Because of the way the deal was structured, that would be all they ever got. So Schilling put up $5 million worth of gold coins as collateral for another loan, this one from Bank Rhode Island. Despite the money crunch, however, he brought in two new executives in March, one of whom moved from Texas. That same month, 38 Studios stopped paying vendors like Blue Cross Blue Shield. It had already been ignoring bills from Atlas Van Lines for some time.
Adding to March’s chaos, CEO Jen MacLean, who’d been feuding with Schilling, suddenly went on leave. Her colleagues—and the press—were led to believe it was because of her pregnancy (she was roughly six months in), but according to a company source, MacLean’s departure was not for medical reasons.
38 Studios was at its most desperate juncture yet. On May 1, a $1.125 million fee payment on the loan from Rhode Island was set to come due. And both the company and Schilling were all but tapped.
Hopeless as things seemed, Schilling remained confident that yet another lifesaving deal was imminent. He still owned 82.9 percent of the company, and says he was willing to part with a healthy chunk of it to save the studio. In April, 38 Studios sent eight employees to China to meet with a potential partner. Then there was a South Korean video-game concern called Nexon, whose executives had recently visited the Providence office and appeared interested in a deal. And finally, Schilling felt that 38 Studios was close to a pact with the company Take-Two Interactive to publish a sequel to “Kingdoms of Amalur: Reckoning.”
But when May 1 arrived, 38 Studios was unable to make its loan payment. That put it into default and set off a series of private meetings with Governor Lincoln Chafee’s office. Still, most staffers had no idea the company was in trouble until two weeks later, when, on May 14, Chafee told the Rhode Island media that he was working to keep 38 Studios solvent.
Schilling says the deal with Take-Two was ready for “final sign-off” the next day, May 15, but fell apart when the publisher got spooked by Chafee’s comments. Take-Two seems to have had a different impression, however. “I am not aware that there were any negotiations,” spokesman Alan Lewis says. “We do not comment on rumors and speculation.” You’d need a microscope to read between the lines of that statement, but it seems clear that nothing was imminent. Both the Chinese investor and Nexon disappeared too. (Nexon declined comment.) Meanwhile, according to the Associated Press, 38 Studios’ board of directors voted to authorize the company to go into bankruptcy, in case it became necessary.
May 15 brought more unwelcome news: 38 Studios missed payroll. Company officials assured employees that the salary issue would get resolved. Workers were told that they had the option to stay home, but that the office would remain open. Most everybody kept coming in.
MacLean, on leave since March, officially resigned as CEO on May 17. That same day, 38 Studios tried to make the $1.125 million payment to Rhode Island, but the company had insufficient funds to keep its check from bouncing. The day after that, Schilling tried again, sending the state a second check—a good one this time—to cover the missed payment. It was part of a complicated plan under which Schilling hoped that Chafee would deliver $6.5 million in additional tax credits—which 38 Studios would then sell to a broker for immediate cash. But Chafee declined. He told the press at a news conference that he didn’t want to throw good money after bad. Barring another investor—the very type that 38 Studios had been unsuccessfully chasing for six years—those tax credits would have only kept the company going for a few more weeks anyway.
At the news conference, Chafee also revealed two pieces of information that to that point had been confidential: the anticipated release date of Copernicus—June 2013—and that 38 Studios was spending about $4 million a month. Schilling was outraged, believing that the info would help 38 Studios’ competitors plan against the game. Schilling insists that Chafee, who opposed the 38 Studios loan guarantee when he ran for governor, was pursuing a vendetta against him. “There was a concerted effort to make this not succeed,” Schilling tells me.
Meanwhile, as the media swarmed outside the 38 Studios office, employees inside began to realize that the company could be done for. Wanting the world to see their work, a few grabbed an old Copernicus trailer and began to brush it up. As they worked, colleagues crammed into a small set of cubicles, packing in 50 to 60 deep. When the video was ready, someone hit Play and “Project Copernicus” came up in gold lettering on the screen, followed by a shot of a foreign-looking world. With haunting music in the background, the camera zoomed in, whooshing through a series of distinct, beautifully rendered landscapes—a forest of trees decorated with ornate hanging lamps; a castle with a base of finely detailed sculptures; a palace topped with golden griffin statues. When the two-minute trailer ended, people lost it. “We’re all leaning on each other,” says Jesse Smith, the designer. “A lot of us were crying, a lot of us were happy. And after it happened, there was just an uproar of applause.”
The trailer was played several times, with new groups of employees cramming in to watch. It was posted online and then played again for the full staff later in the day on a big projection screen. There was a standing ovation.
As the days marched on, most employees continued to come into work. Some figured it was their best chance at getting paid. Others did it out of loyalty. Thom Ang, the company’s art director, says Schilling had always taken care of his employees, so he trusted that he would now. “Any time he was presented with options with how to set up the company, how to treat the employees, he always chose the best,” Ang says.
On May 24, the entire 38 Studios staff was laid off via email. They hadn’t been paid since the end of the previous month, but their problems were just beginning. In short order, their health care disappeared and their 401(k)s were frozen. Then, MoveTrek Mobility—a company 38 Studios hired during the relocation to Providence to buy and resell employees’ Massachusetts homes—notified seven people that, because it had not yet sold their houses, they were potentially responsible for their old mortgages. And Atlas Van Lines alerted some individuals that they we
re on the hook for bills that management hadn’t paid.
Thom Ang is one of those people suddenly stuck with his old mortgage. With two young kids, no salary, rent due on his Rhode Island home, and now a mortgage in Massachusetts to pay, he’s afraid his credit is about to be ruined. “I wasn’t even aware that this could or would happen,” he says, “and then having it affect where I could possibly live and where I could possibly work?”
At the last minute, Schilling believed he’d found a white-knight investor to inject $15 million into the company. But that deal, too, was dependent on additional tax credits from the state, and fell apart. On June 7, 38 Studios filed for bankruptcy.
One of the company’s final acts—between June 4 and June 6—was to pay COO William “Uncle Bill” Thomas just over $12,000 for his work shutting down 38 Studios, according to bankruptcy documents. Nearly every other employee had not been paid for more than a month. Many local industry veterans and tech investors tell me they’re outraged by how Schilling failed to responsibly unwind the company and transparently communicate the dire situation to his employees long before May.
One former staff member vented his frustrations on Facebook, writing, “I’d like to honestly know why I was hired in the first place on January 16th, 2012 . . . when members of the company knew they were behind on bills and not doing well economically? I moved my pregnant wife, sold my house for a loss of 18k, relocated away from all my family and friends for a company I thought was honest and forthright to their employees. What did I get in return? An unpaid [$10,500] relocation package months after it should have been paid, a pregnant wife who found out our insurance had lapsed from our doctor, a ton of bounced checks and payments to bills when we found out our paychecks had not been paid through the media and a large debt to my unemployed father to help us survive.”
Surprisingly, though, during and after the company’s demise, many former employees continued to stand up for Schilling. When I attended a June 13 mini-reunion at a bar in Waltham, one ex-staffer told me, “I’d still take a bullet for him.” On the phone, even Thom Ang—stuck with his old mortgage—said, “I love the man,” adding that Schilling could not have been responsible for how he and his coworkers were misled and mistreated. “How the business was run? That’s not Curt,” Ang says.
But it was. Schilling acknowledges as much. In the private Facebook postings, executives like MacLean and Mrochek claim they tried to stop Schilling and he wouldn’t listen. MacLean wrote that executives “brought their issues up many times and were largely ignored.”
“You knew we had not been paying all the bills for months,” Mrochek wrote to Schilling. “You bet our lives on the roulette wheel of Rhode Island state politics.”
Schilling disputes that his lieutenants warned him. He says he pushed 38 Studios to the edge because, as ever, he was confident a deal would come through. “I believed with every ounce of my being that everything was going to work itself out,” he says. “I’m $50 million in at this point, so I’m not going to walk away,” he adds. “You could make an argument that that was blinding me, but there was the tenor and the velocity and the content of the conversations with the investors.”
Back at the softball field in Dracut, Schilling is still having trouble fathoming what happened. “I’ll find myself in the middle of the day, just aching,” he says. He concedes that he’d promised his employees 60 days’ warning if the money ever looked like it was going to run out, but argues that the situation was moving too fast for him to keep sending updates. “It wasn’t that I didn’t want to tell anyone,” he says, “it’s I didn’t know what to say.”
His company is now under federal and state investigation. Schilling denies any legal wrongdoing, and while Roger Williams Law School professor Michael Yelnosky says it’s unlikely that Schilling will be held personally accountable for the unpaid salaries under Rhode Island law, there is federal precedent that could force him to pay the wages back, plus damages. Schilling says he would have paid his employees the roughly $1.5 million they’re owed out of his pocket, but he doesn’t have the money. That doesn’t bode well for a lawsuit Citizens Bank filed against him, which seeks to recover $2.4 million in loans to 38 Studios that he’d personally guaranteed. Presumably, either the suit or having to repay lost wages could push him into personal bankruptcy.
As a baseball player, Schilling refused to ever consider the notion of defeat until the final out, even down three games to none to the Yankees. By his own admission, he carried that same attitude into business. One former employee describes it as “rampant and destructive optimism.”
Asked if that’s truly what undid him, Schilling says, “No,” then stutters and pauses. “I don’t know any other way to be,” he says finally, his voice dropping to just above a whisper and his eyes welling up. “I don’t know any other way to be.”
BILL GIFFORD
It’s Not About the Lab Rats
FROM OUTSIDE
IT’S A JOURNALISTIC AXIOM that when your phone rings early on a Monday, from a blocked number, it’s generally not because somebody loves your work. I picked up to hear an angry Lance Armstrong on the line, along with Doug Ulman, the CEO of the Lance Armstrong Foundation—aka Livestrong. It was 8:00 A.M. in Austin. They were calling to berate me about what they considered my bias against Livestrong and Lance.
Which seemed strange, since I wasn’t working on a Livestrong article. Not yet, anyway. Granted, I’d been sniffing around and had posted a tweet or two, but nothing more. One of those posts was written on April 17, 2011, the day 60 Minutes aired its report on Greg Mortenson and the Central Asia Institute. According to allegations made by Steve Kroft and Jon Krakauer, Mortenson had used foundation money to fly himself around and promote his books, which were full of lies about his adventures in Pakistan and Afghanistan. Meanwhile, the charges went, the organization wasn’t operating nearly as many schools as Mortenson liked to claim.
“60 Minutes takedown,” I tweeted, “just goes to show that ‘awareness’ is the last refuge of a scoundrel.” Admittedly, I had both Mortenson and Armstrong in mind when I wrote this: both were facing legal investigations, and both would end up using their philanthropic work as part of their PR defense. The “awareness” wording was a jab at Livestrong, since raising cancer awareness is a major part of the organization’s mission.
A lame joke, perhaps, but that’s all it was. Still, it made Armstrong livid. “You need to come down here and see what we do,” he said sternly. “Ask us the hard questions.” It was more a command than a request. “I know you’re a hater and you’re gonna write what you write, but I just want you to see it.”
At the time, Armstrong was starting to take some serious flak of his own. The Jeff Novitzky–led federal investigation into his past was dragging former teammates and associates in front of a Los Angeles grand jury. In January, Sports Illustrated published an exposé that supported Floyd Landis’s claims that Armstrong had doped to win his seven Tour de France titles. Now 60 Minutes was said to be working on its own, more damaging story.
In the wake of the Mortenson report, bloggers and journalists (not just this one) were asking pointed questions about Livestrong, the disease-fighting charity that Armstrong founded in 1997, during his recovery from testicular cancer. Cynics wondered whether Armstrong was another Mortenson, living large on his foundation’s dime. After all, Armstrong had recently spent $11 million on a personal jet. Was he really rich enough to pay for that out of his own pocket?
“The issue with Lance Armstrong isn’t whether he has done good for cancer victims,” accounting professor Mark Zimbelman wrote on his blog Fraudbytes, in a post comparing Mortenson to Armstrong, “but rather, whether he first cheated to beat his opponents, then used his fraudulent titles to help promote an organization that appears to do good but also enriches a fraudster.”
Others noticed an annoying tendency: whenever questions about doping arose, Armstrong and his supporters changed the subject to his cancer work, a tactic that t
he bicycling website NY Velocity called “raising the cancer shield.” After the 60 Minutes segment on Armstrong aired in May—complete with damning claims from ex-teammate Tyler Hamilton that Armstrong had cheated—Armstrong’s lawyers denied the allegations and quickly invoked Livestrong in his defense. In their one legal brief to date, they blasted the feds over alleged leaks to 60 Minutes that, they said, were intended to legitimize “the government’s investigation of a national hero, best known for his role in the fight against cancer.”
But what did that fight amount to? Did Livestrong actually do much to eradicate cancer, or did it exist largely to promote Lance? If and when any indictments came down, would his good deeds help him escape conviction or jail time? It seemed likely that this theme could come up. Barry Bonds’s lawyers recently asked for probation instead of prison time as punishment for the baseball star’s 2011 Balco conviction, citing his “significant history of charitable, civic, and prior good works.”
Writers who’ve dealt with Lance and his associates are familiar with their aggro style, but it seemed strange that they’d come on so strong that morning. Still, Lance had a point: if I wanted to write about Livestrong, I needed to go see things for myself.
For various reasons, I’m not Lance Armstrong’s favorite journalist. In 2006, I profiled Michele Ferrari, his longtime Italian trainer, for Bicycling. Researching that story left me with serious doubts about whether Armstrong had competed clean, as he continues to insist. In 2009, I wrote a Slate story called “JerkStrong” that likened his media-relations style to Sarah Palin’s. But my skepticism about Armstrong as an athlete did not extend to the cancer arena. More than once, I have given his book It’s Not About the Bike to friends stricken with the disease. Not all of them survived, but I know that none of them cared whether he doped to win the Tour.
