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Reason On How and Why 38 Studios Went Bust

timothy posted about a year ago | from the other-people's-money dept.

Businesses 227

cathyreisenwitz writes "The 2012 bankruptcy of Rhode Island-based video-game developer 38 Studios isn't just a sad tale of a start-up tech company falling victim to the vagaries of a rough economy. It is a completely predictable story of crony capitalism, featuring star-struck legislators and the hubris of a larger-than-life athlete completely unprepared to compete in business." Reason makes no bones about its view of this kind of public-private "partnership."

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227 comments

blah blah Capitalism Evil blah blah (-1)

Anonymous Coward | about a year ago | (#42464409)

Subject says it all... Seriously? Come on now.

Re:blah blah Capitalism Evil blah blah (3, Informative)

Anonymous Coward | about a year ago | (#42464553)

Neither the article nor the summary says anything that could even be remotely interpreted as an attack on capitalism. And you know it.

Strawman arguments are lies.

Re:blah blah Capitalism Evil blah blah (4, Insightful)

nitehawk214 (222219) | about a year ago | (#42464641)

Neither the article nor the summary says anything that could even be remotely interpreted as an attack on capitalism. And you know it.

Strawman arguments are lies.

Not to mention that this entire deal had nothing to do with capitalism. Government guarantees a giant loan to a business driven by nepotism, greed and lies in an erratic industry headed by a former sports star with no management experience whatsoever? How is that capitalism?

It's capitalism because... (0)

AmazingRuss (555076) | about a year ago | (#42465051)

...despite the tornado of complete cluelessness these people swirled around in, they all thought of it as investment, and the were all going to get filthy stinking rich.

Not to mention the people that hold the guarantee on that 75 million dollar loan, who have already made 25 million.

Re:It's capitalism because... (0)

Anonymous Coward | about a year ago | (#42465515)

So getting "filthy stinking rich" == capitalism?

Re:blah blah Capitalism Evil blah blah (1, Insightful)

crazyjj (2598719) | about a year ago | (#42465073)

How is that capitalism?

Because Shilling was a Republican, of course. That makes him a champion of free market capitalism and all that (until *he* needs a handout from Uncle Sam, of course).

Re:blah blah Capitalism Evil blah blah (4, Insightful)

Archangel Michael (180766) | about a year ago | (#42465397)

And the folks running Solyndra et al were committed Democrats. Selectively portraying only (R) as being greedy evil capitalists is disingenuous at best. BOTH The (D) and (R) parties are corrupt beyond repair. Government should not be making loan guarantees for businesses, period.

Re:blah blah Capitalism Evil blah blah (2)

Impy the Impiuos Imp (442658) | about a year ago | (#42466015)

I hate to use a No True Scottsman argument, but that's not True Capitalism. That's why they use the term "crony capitalism".

Capitalism derives from the right to own and use property, and the right of free association with others. Nothing more is needed.

Insofar as people whine to government for money (or regulation, often to harm competitors) and so on, it is not One True Capitalism.

These things involve using force to get an economic advantage, rather than producing a product that free people choose to buy, which is the glistening city on the hill everybody imagines.

Re:blah blah Capitalism Evil blah blah (5, Informative)

Anonymous Coward | about a year ago | (#42465761)

Not to mention that this entire deal had nothing to do with capitalism. Government guarantees a giant loan to a business driven by nepotism, greed and lies in an erratic industry headed by a former sports star with no management experience whatsoever? How is that capitalism?

Capitalism is the private ownership of the means of production.

When the VCs took a look at Schilling's plan said it sucked balls, that was capitalism in action.

When the RI governor went to lick Schilling's schlong and suck his balls, that was definitely NOT capitalism.

Re:blah blah Capitalism Evil blah blah (4, Insightful)

whoever57 (658626) | about a year ago | (#42465875)

Not to mention that this entire deal had nothing to do with capitalism.

You are correct, this isn't capitalism, it's crony capitalism, which is what the summary identifies it as.

Well done missing out the key word ("crony") and writing your own strawman.

Re:blah blah Capitalism Evil blah blah (-1)

Anonymous Coward | about a year ago | (#42464779)

The term 'crony capitalism' is actually contains ideologically connotations. Laissez-faire advocates prefer the term "crony socialism".

To quote wikipedia on crony capitalism:
"Laissez-faire advocates criticize the term as an ideologically motivated attempt to cast what is in their view the fundamental problem of government intervention or “investments” as an avoidable aberration; free-market advocates refer to governmental favoritism as "crony socialism"

Re:blah blah Capitalism Evil blah blah (0)

Anonymous Coward | about a year ago | (#42464617)

Never heard of Reason.com, huh? Click the link through and tell me what the site's tagline is, then apologize for the knee-jerk. You can't miss it, it's right there under the logo.

Re:blah blah Capitalism Evil blah blah (2)

Runaway1956 (1322357) | about a year ago | (#42465649)

Free minds and free markets? The latter, we've not experienced in our lifetimes. The former is the sign of a terrorist.

Re:blah blah Capitalism Evil blah blah (5, Insightful)

Anonymous Coward | about a year ago | (#42464637)

Reason, a libertarian magazine, is probably the most pro-capitalism publication currently available. The article is about how taxpayer-funded loans are almost always a bad idea. Schilling was unable to find private sector investors - which usually means that the business model is not very good. Crony capitalism is not capitalism, it's a corruption that wastes a whole boatload of our tax money.

Short story: Leave investing to investors and stop risking taxpayer money on ventures that will most likely not succeed.

Come on, son.

Re:blah blah Capitalism Evil blah blah (5, Insightful)

Hatta (162192) | about a year ago | (#42464691)

Crony capitalism is not capitalism

Crony capitalism is what actually happens when you implement captialism in the real world. Capitalism is the theory, cronyism is the practice.

Re:blah blah Capitalism Evil blah blah (1)

Anonymous Coward | about a year ago | (#42464797)

True to a point, but you still miss the big picture. It takes money to make money. Investors invest with the hope of getting a return on their investment. Since investors are investing their money, and not an endless resource like tax money they tend to be choosy about what they invest in preferring something as close to a sure bet as you can get. They tend to talk, stick together, and protect themselves from unscrupulous bastards looking to relieve them of what they have. They like to invest in things that are going to succeed and not leave them in poverty. Wouldn't you???

What we're talking about here is government guarantees to start a business that doesn't a high likelyhood of success funded by taxpayer funding. They don't care whether the business succeeds or not because it's not their money. They can just keep raising taxes and it doesn't matter how much they waste.

Re:blah blah Capitalism Evil blah blah (-1, Troll)

minstrelmike (1602771) | about a year ago | (#42465021)

Capitalism is not Free Market either. A free market forces producers and businesses to pass profits along to consumers in the form of lower costs. A free market would tell Monsanto to advertise their food as genetically-modified instead of hide it. That would force Monsanto to sell the GM food for cheaper. Pass the profits to the consumer. Capitalism just means someone besides the 1st estate (church) and 2nd estate (government) gets to keep large sums of money in their own hands.

Re:blah blah Capitalism Evil blah blah (0)

Anonymous Coward | about a year ago | (#42465381)

If a free market forced people (and/or companies) to do certain things, it wouldn't be free would it?

Re:blah blah Capitalism Evil blah blah (4, Insightful)

bobbied (2522392) | about a year ago | (#42465075)

Crony capitalism is not capitalism

Crony capitalism is what actually happens when you implement captialism in the real world. Capitalism is the theory, cronyism is the practice.

In which real world?

It may have its problems, but capitalism is the best system ever devised for creating wealth and a higher standard of living for a population. Depart from it at your own risk.

Tax payer money was wasted by loaning it to a business nobody else would touch. When you depart from Capitalism, you reap the reward of inefficiency.

Re:blah blah Capitalism Evil blah blah (3, Insightful)

geekoid (135745) | about a year ago | (#42465535)

Wrong.

The regulation we applied to capitalism made higher standard of living for a population.

You might want to actually read up on capitalists.

"Tax payer money was wasted by loaning it to a business nobody else would touch."
while true with studio 38, usually that isn't true.
In fact, a lot of case it as helped. but success in government isn't really reported. You know why? it's not unusual.

Re:blah blah Capitalism Evil blah blah (1)

Slime-dogg (120473) | about a year ago | (#42465847)

Wrong.

The regulation we applied to capitalism made higher standard of living for a population.

You might want to actually read up on capitalists.

"Tax payer money was wasted by loaning it to a business nobody else would touch." while true with studio 38, usually that isn't true. In fact, a lot of case it as helped. but success in government isn't really reported. You know why? it's not unusual.

I think the argument is more one of "should government be investing in not-for-public-use private entities?" rather than one of regulation. Regulation is setting boundaries for capitalism to live within - it's generally a good thing. Government investment in the private sector, however, is something that needs to be monitored. It makes sense when investing in private companies to the end of the public good (military spending, roads, "utilities"), but that's about it.

Re:blah blah Capitalism Evil blah blah (-1, Troll)

Q-Hack! (37846) | about a year ago | (#42465909)

Nice revitionist theory you have there.

Perhaps you should not get your information from Michael Moore, et al.

Regulation applied to capitalism has always made things worse. The capitalist have always had to figure out how to work around various regulations. Many times with very bad unintended consiquences. The great depression comes to mind. The ression of 2007 being another.

But I am willing to give you a chance... go ahead and name a regulation applied to capitalism that made things better. I will prove you wrong in every case.

Re:blah blah Capitalism Evil blah blah (0)

Anonymous Coward | about a year ago | (#42465997)

name a regulation applied to capitalism that made things better. I will prove you wrong in every case.

Rural electrification.

Re:blah blah Capitalism Evil blah blah (0)

Anonymous Coward | about a year ago | (#42466043)

name a regulation applied to capitalism that made things better. I will prove you wrong in every case.

Child labor laws.

Re:blah blah Capitalism Evil blah blah (1)

stenvar (2789879) | about a year ago | (#42466085)

In fact, a lot of case it as helped. but success in government isn't really reported. You know why? it's not unusual.

To use your words: wrong.

First, people talk a lot about this, in particular in economics. The question is: what is the multiplier on government spending? Is it negative, less than 1, or greater than 1? Nobody has a conclusive answer to this, and it depends a great deal on what the money is spent on. Even very simplistic econometric or Keynsian-style estimates often come out less than 1, but those don't even count opportunity costs and other hidden costs of government spending. Nevertheless, government keeps spending large amounts of money in areas that clearly have a multiplier of less than 1.

Success of government spending/investment may not be unusual, but its failure is also very common, and may predominate.

Re:blah blah Capitalism Evil blah blah (1)

tooslickvan (1061814) | about a year ago | (#42465679)

Wrong, capitalism is the most efficient system ever devised for creating wealth not the best system ever devised for creating wealth. Best is a qualitative term and can not be measured subjectively.

Re:blah blah Capitalism Evil blah blah (4, Insightful)

thoth (7907) | about a year ago | (#42465905)

capitalism is the best system ever devised for creating wealth

I can agree with this part of your sentence

and a higher standard of living for a population

But not so much this part. Think mid-19th century industrial revolution, where people worked long hours, with no benefits, no labor restrictions (rampant child labor), no concern for safety, etc. Unrestrained capitalism isn't so great for the workers. It leads to sweatshop conditions we see in other countries.

Re:blah blah Capitalism Evil blah blah (4, Insightful)

HeckRuler (1369601) | about a year ago | (#42466175)

Aye, a horrible system, but the best we have. Under certain conditions it works great.
And that condition is a free market. One with rational informed agents.

But guess what late-stage capitalism looks like? Feudalism. Someone starts to WIN. They own their turf and dictate what happens there. When there's just one guy in a market who bought out everyone else, that's a monopoly. The market is no longer free. It's owned. Sometimes bigger fish try to invade and take over their markets, and everything gets ugly. Now, since monopolies have been an obvious problem, they don't do that anymore. A group decides they're going to kinda-sorta compete and pay lip service the free market because otherwise uncle Sherman whips out his trust busting hammer. But if any of them get rich enough and/or powerful enough you're looking at regulatory capture.

But hey, where there's competition, low barrier to entry, a lack of natural monopolies, and moderately sane customers... yeah capitalism is great.
For everything else, there's regulation. To varying degrees.

Re:blah blah Capitalism Evil blah blah (0)

Anonymous Coward | about a year ago | (#42465119)

Government + Capitalism = "Crony Capitalism" AKA "Corporate Captialism"
From WIkipeida:
Corporate capitalism is a free or mixed-market economy characterized by the dominance of hierarchical, bureaucratic corporations, which are legally required to pursue profit. State-monopoly capitalism was originally a Marxist concept referring to a form of corporate capitalism in which state policy is utilized to benefit and promote the interests of dominant or established corporations by shielding them from competitive pressures or by providing them with subsidies

==============
Lets remove the government part of the equation.

Re:blah blah Capitalism Evil blah blah (4, Insightful)

stenvar (2789879) | about a year ago | (#42465391)

Crony capitalism is what actually happens when you implement captialism in the real world. Capitalism is the theory, cronyism is the practice.

Well, yes, in the sense that crony capitalism is what happens when various people try to "fix" capitalism by "protecting jobs" or "attracting business" or whatever, and politicians (both on the left and the right) have delusions of grandeur of being able to do this.

The solution, however, is not to get rid of capitalism, but to get rid of attempts to tinker with it. Let businesses fail and don't have the government "invest" in companies, period.

I mean, what alternative did you have in mind? If you don't like markets deciding where to put money and resources, and giving the responsibility to government leads to cronyism, who is left to make those decisions?

Re:blah blah Capitalism Evil blah blah (2)

mbunch5 (548430) | about a year ago | (#42465811)

Crony capitalism is not capitalism

Crony capitalism is what actually happens when you implement captialism in the real world. Capitalism is the theory, cronyism is the practice.

Can you think of one -ism where that is not so? I can't. Cronyism is a disease all forms of economics and government seem to be vulnerable to.

Re:blah blah Capitalism Evil blah blah (1)

atriusofbricia (686672) | about a year ago | (#42466075)

Crony capitalism is not capitalism

Crony capitalism is what actually happens when you implement captialism in the real world. Capitalism is the theory, cronyism is the practice.

Crony capitalism is what you get when government gets too big for its pants and big enough to get involved with things that are not the proper role of government. Crony capitalism requires an out of control government and it cannot exist without it.

Government is and always has been the problem and at best a necessary evil that must be constantly kept in check.

Re:blah blah Capitalism Evil blah blah (0)

Anonymous Coward | about a year ago | (#42464753)

Yeah. Just don't be shocked at how many librarians and pro-capitalists won't blink an eye when public funds benefit them or their interests.
Their definition of "Crony capitalism" will start to get awful flexible.

Re:blah blah Capitalism Evil blah blah (0)

Anonymous Coward | about a year ago | (#42464787)

....librarians?

Re:blah blah Capitalism Evil blah blah (0)

Anonymous Coward | about a year ago | (#42464983)

Some government investments do pay off, though. Like the bank bailouts.

Huh? (0, Flamebait)

MrEricSir (398214) | about a year ago | (#42464987)

tReason.com would never post anything that goes against the idea that the free market is perfect and always corrects itself, in spite of an avalanche of evidence to the contrary.

They're sort of like Ann Coulter, but replace the name calling with a smug sense of self-superiority.

Re:blah blah Capitalism Evil blah blah (4, Interesting)

phantomfive (622387) | about a year ago | (#42464999)

Crony capitalism is different than capitalism. Crony capitalism means a company gets special favors from the government that give it an advantage over their competition. Crony capitalism is why, despite a 35% corporate tax rate, some corporations (like Whirlpool [google.com]) paid no or negative taxes last year. Arguably one of the best things Reagan did was to simplify the tax code to get rid of a lot of crony capitalism (to be fair the idea was being heavily promoted by a democrat before being picked up by Reagan).

In general, crony capitalism==bad. Capitalism==good. This is something agreed on by both parties: both sides hate the crony capitalism of the other side, but tolerate it.

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Re:http://breast-enlargement-melbourne.blogspot.co (-1, Offtopic)

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I'm sure the breasts of many on Slashdot are already large enough thank you...

38 Studios? (0)

Anonymous Coward | about a year ago | (#42464541)

Having a name that causes headlines to be interpreted incorrectly doesn't help.

Re:38 Studios? (1)

Dragonslicer (991472) | about a year ago | (#42466017)

Having a name that causes headlines to be interpreted incorrectly doesn't help.

I had no problem with "38 Studios". "Reason", on the other hand...

Victim to a rough economy? (0)

Anonymous Coward | about a year ago | (#42464583)

I fail to see how 38 studio are victims to a rough economy. They asked for money and VC didn't give it to them because they didn't have experienced management. Then they found money elsewhere and in the end, ran out of money and failed to deliver a product. If they had actually delivered a product that was expected to sustain their operational expenses, and if that product had failed to sell due to a rough economy, then I would agree with the comment in the summary.

Re:Victim to a rough economy? (-1)

Anonymous Coward | about a year ago | (#42464715)

You realize that was exactly what the submitter said, right?

The 2012 bankruptcy of Rhode Island-based video-game developer 38 Studios isn't just a sad tale of a start-up tech company falling victim to the vagaries of a rough economy

So actually, you DO agree with the comment in the summary.

Re:Victim to a rough economy? (-1)

Anonymous Coward | about a year ago | (#42464823)

You realize that was exactly what the submitter said, right?

The 2012 bankruptcy of Rhode Island-based video-game developer 38 Studios isn't just a sad tale of a start-up tech company falling victim to the vagaries of a rough economy

So actually, you DO agree with the comment in the summary.

... despite the fact that he did not read the summary.

Re:Victim to a rough economy? (1)

Anonymous Coward | about a year ago | (#42465555)

You realize that was exactly what the submitter said, right?

The 2012 bankruptcy of Rhode Island-based video-game developer 38 Studios isn't just a sad tale of a start-up tech company falling victim to the vagaries of a rough economy

So actually, you DO agree with the comment in the summary.

... despite the fact that he did not read the summary.

The summary says "...isn't just a sad tale...". I guess it's a minor point, but that's not the same as saying "...isn't a sad tale...". In other words, the word "just" implies that it's due to not only a bad economy but other events as well.

That's my take anyway.

Re:Victim to a rough economy? (2)

ak3ldama (554026) | about a year ago | (#42465407)

If they had actually delivered a product that was expected to sustain their operational expenses, and if that product had failed to sell due to a rough economy, then I would agree with the comment in the summary.

You could argue that the gaming economy is always, or has lately (last ~decade) been a rough economy. Perhaps this was merely in reference to the lack of fluid capital in the markets that then pushed them toward the $75 million dollar gauranteed loan - that wasn't fully theirs and that they had to make huge payments on right away... I seem to remember reading an article about it last year that said they only received about half of that money. Anyway, they did deliver a game that was "expected" to sustain their operational expenses and provide the experience and capital to push on to making an MMO. It flopped, and thus did the plan.

Reason is garbage (-1)

Anonymous Coward | about a year ago | (#42464651)

Really slashdot? I know some of you guys lean libertarian (lol) but this article sucks. Reason sucks.

Re:Reason is garbage (1)

SimplyGeek (1969734) | about a year ago | (#42464985)

What a well reasoned argument. You sir, should be a teacher.

Re:Reason is garbage (0)

Anonymous Coward | about a year ago | (#42465041)

You heard the man. Reason sucks, so why on earth would he use it?

spending too much on forgettable games (0)

alen (225700) | about a year ago | (#42464657)

amal whatever was nothing special. and then they spent all that money on a MMO when they are now free to play and a dime a dozen

should have looked at the mobile dev houses. these guys have much lower development and distribution costs. and with in app purchasing they are generating steady revenue for months or years after a game's release. unlike the consoles where you sell it the first week or two and then sales drop to almost nothing

Re:spending too much on forgettable games (0)

Anonymous Coward | about a year ago | (#42464957)

Maybe, but in 2006 MMOs looked like they were a better bet than they turned out to be. Warcraft had been out for a couple years and to some it looked like there was a lot of space in that market if you could release an MMO that competed on that level. But those games simply take too long to make and by the time any of them were ready the audience had largely moved on.

Re:spending too much on forgettable games (1)

niado (1650369) | about a year ago | (#42466191)

But those games simply take too long to make and by the time any of them were ready the audience had largely moved on.

Also none of them ended up being as good as WoW....

How is this Crony Capitalism? (1)

Formorian (1111751) | about a year ago | (#42464671)

Just curious.

I see the Gov't Making another stupid decision and legislators not reading something they passed (Some didn't realize that the package was ONLY for 38 studios). Happens all the time.

But Crony Capitalism? Don't see it.

Here's how... (5, Insightful)

MikeRT (947531) | about a year ago | (#42464801)

Crony Capitalism is when you use the state to get unfair private advantage. It's not like a builder who gets the state to "smooth things out" when building something for public purposes (ex. police station, highway, etc.). There are times when the government needs to help facilitate the work of private parties. This was not one of them. It was the government doing something with a marginal public purpose (the nebulous "it'll create more jobs" excuse).

Put another way, this is precisely the same sort of crap we saw Bush and Obama do with the banking sector (using public funds to secure private losses that were not incurred due to a public purpose). In either case, the government stepped in to do what the market should have done in an otherwise private transaction with minimal to no public purpose.

Re:Here's how... (4, Insightful)

Caffinated (38013) | about a year ago | (#42465317)

Put another way, this is precisely the same sort of crap we saw Bush and Obama do with the banking sector (using public funds to secure private losses that were not incurred due to a public purpose). In either case, the government stepped in to do what the market should have done in an otherwise private transaction with minimal to no public purpose.

To be fair, there's a strong public interest in the banking sector not melting down, so while we might have wanted to go about it differently, ultimately the public was going to have to stabilize the banking system and that was going to take money. The cronyism in the bailout was that we didn't then make the "guilty" parties pay for their damage or significantly fix the system.

The loan guarantees for 38 studios were just worse than usual example of local/state business "incentives" which are unfortunately quite common. They're not cronyism exactly since businesses can (and do) compete without these sorts of things, but they're typically needless giveaways of taxpayer money regardless. That being said, there are certainly areas where government investment makes sense, but this isn't one of those cases

Re:Here's how... (2)

stenvar (2789879) | about a year ago | (#42466161)

To be fair, there's a strong public interest in the banking sector not melting down

There is. But many of the institutions that were bailed out were simply investment houses, not banks, that could have gone under without causing a lot of problems. In addition, the US government didn't have to make the rescue a big tax payer gift; they could have rescued these companies but demanded steep compensation down the road for it.

And the conditions under which the banking sector got into this state were also created by government policies; FDIC and lots of other guarantees meant that banks behaved assuming already that they were going to get rescued. That is, they took on large amounts of risk because they knew they wouldn't have to pay for it if it didn't work out. This disaster had been a long term in the making.

And Obama's changes to banking regulation have failed to address the problems. This is just going to happen again a few years down the road.

Re:Here's how... (2)

geekoid (135745) | about a year ago | (#42465565)

"Bush and Obama do with the banking sector"
sigh, No. THAT was do to lack of regulations and then needing to save the economy.

Re:Here's how... (2, Insightful)

Q-Hack! (37846) | about a year ago | (#42466149)

"Bush and Obama do with the banking sector"
sigh, No. THAT was do to lack of regulations and then needing to save the economy.

Sadly, this tends to be the on going idea popular with the mainstream media. It is, however, incorrect. It was the regulations of the banking sector that caused the banks to look for new ways to make money. ie. sub prime loans. Had the government not regulated banks they would have used the standard model of intrest rates and fees to make money. Instead, the government decided that part of the population that is high risk, needed to be given loans to purchase a home. It was the action of forcing banks to provide those loans that removed the risk to banks and placed it on the tax payers. It wasn't the lack of regulation, but rather the added regulation that put us into the situation that then required a bailout.

Re:How is this Crony Capitalism? (0)

Anonymous Coward | about a year ago | (#42464833)

Just curious.

I see the Gov't Making another stupid decision and legislators not reading something they passed (Some didn't realize that the package was ONLY for 38 studios). Happens all the time.

But Crony Capitalism? Don't see it.

It's simple, really. In this case, it's the economic principle known as "publication with an agenda". Because 38 Studios is dead, AND it was due to bad decisions by a government (can be any government, really), it doesn't take much effort to twist any fact tangentially related to the situation to whatever agenda the publication has to push, and nobody from 38 Studios will be around to refute them.

Re:How is this Crony Capitalism? (4, Interesting)

Anonymous Coward | about a year ago | (#42464889)

Insofar as the governor making the call was a (R), and the ceo of the company involved was a notable (R) campaigner (and there was serious talk of him running as (R) for senate a few years back, for the seat Scott Brown won)... it did indeed smell of "politically motivated favor to a friend of the political party" at the time.

At a minimum, Curt probably had a leg up over other CEOs in getting in to see the governor and talk about his great company, even if the decision itself wasn't biased -- even those who are trying hard not to bias decisions directly have a hard time not having a serious bias in that they talk to their political allies a lot more than their political foes.

The article doesn't go very deep into that aspect of it though.

(disclaimer: I worked at 38, and I disagree with some aspects of the article; in particular, it fails to mention that the new (D) governor of RI jerked the company around by cancelling payments to the company which _caused_ the sudden cash crunch that pushed it off the cliff, as revenge for the above... What the crony giveth, the anti-crony taketh away. But the original deal did smell funny, and management was surely also at fault for dancing so close to the edge of a financial cliff that one failed payment from the state could push them over, so the article isn't too far off the mark.)

Re:How is this Crony Capitalism? (0)

Anonymous Coward | about a year ago | (#42465163)

But Crony Capitalism? Don't see it.

What do you think 'crony capitalism' is, assuming you believe it exists?

Re:How is this Crony Capitalism? (0)

Anonymous Coward | about a year ago | (#42465991)

But isn't that the reason they are supposed to be there? To read the bills they're passing so that we (the taxpaying public) don't get screwed? Maybe I'm misunderstanding how this is supposed to work.

Business article only (1)

Dan East (318230) | about a year ago | (#42464695)

This article only discusses some of the investment money and where it came from. Nothing about technical or software issues, or anything about what the company was actually doing or what went wrong. That would have been the only part of interest to me. Also don't bother going to the second page of the story to read one final sentence. I swear that's done on purpose for more ad exposure or more page hits.

On a side note, entering HTML tags with the stock iPad keyboard is a major pain.

Re:Business article only (1)

Joehonkie (665142) | about a year ago | (#42464777)

The things that went wrong weren't on the technical or software side, so there's nothing to discuss there. They made 1 complete and functional game and were working on an MMO. The money and management ARE the "what went wrong."

Re:Business article only (5, Informative)

Anonymous Coward | about a year ago | (#42465385)

What we made:

      1) A console game -- Kingdoms of Amalur: Reckoning. Published by EA, you should still be able to buy it even with 38 gone (and it's been a year, it is probably discounted at this point; available for xbox360, ps3, pc, though if you play on a pc you should go buy an xbox controller because the keyboard/mouse control isn't that great). Got mostly good reviews, sold pretty well. It's an action-heavy-RPG, think the combat of God of War with a crunchy MMO inspired "gather piles of loot, explore a big world, do quests for lots and lots of people..." backing.

    2) The Big Project the company was working on was an MMO, just titled Kingdoms of Amalur, set in the same world long afterward; you could think of Reckoning as a kind of teaser to get people excited about the world and story to lead them into the MMO. Think WoW, but with a very different art style (I can't really describe it in text, you can search for the screenshots if you care), and lots and lots of refinements. It was approximately a year from release when the company went foomp.

    3) Assorted tie-ins. Yeah, just like you can get the WoW novels and comic books and action figures, there were plans for that stuff too. Obviously, those things don't get launched til after the MMO does, so they were in early-planning stage.

Technical and software issues: MMO software is big, and we were chasing a moving target. With an MMO... it's not hard to write an MMO that's better than what WoW was at launch, lots of people have done that. But to make any headway at all in the market, you've got to make something that's better than WoW is Right Now, because to attract a gamer of an inherently social game, you have to pull them not just away from the gameplay of their current game, you have to also lure them away from the circle of friends in their current game. You don't yet have a raiding guild in our game, so our gameplay/art/story/etc has to be enough better than WoW (or LotRO, or DDO or FFXIV or EVE, or whatever you are currently playing that we're trying to convince you to turn off long enough to try our game), that we can convince you to try us for long enough to get a guild going and establish those friendships in our game. That's a high bar, and in a multi-year development cycle, you have to go back several times, look at the new games and expansion packs coming out, and say "hey, WoW just came out with kung-fu panda expansion... is there anything in there that is really compelling? Is there some new piece of gameplay or UI that is good enough that we ought to match it, or is something that we can see how to do better?" If you compare the WoW UI of today to the UI of three or five years ago, there is a world of difference in usability. You don't notice it at the time, since it's growing in bits and pieces, but if you've played an MMO of today, you'd never go back to one of three years ago. Which means... Those design docs from when 38 studios first formed had to go through a lot of revision. Systems written early, we'd go back and say "oops, this needs to be seriously expanded, otherwise we'll look bad by comparison".

The last week, for example, as we watched the financial axe fall, we were running our one functional raid between sessions of watching the idiot governor holding press conferences about us. And then we'd post-mortem the run, say what was fun, with a lot of comparisons to other MMOs -- "here's why X was more or less fun than it would have been in game Y". That generated a lot of new feature/bug requests; it's often hard to tell what is going to be fun until you actually are running around in the world flinging fireballs... which is great, and very "agile", but unfortunately wrecks havoc with scheduling. In hindsight... Build in more slack in the budget/schedule to pay for revision passes, because with a game (or with art in general I guess), you're likely to do something, look at it, and see a way to improve it. Unless your goal really is to push some crap out the door quickly, you'll be doing a lot of re-dos as you find what is fun and looks good and feels right versus what doesn't. This is particularly true of MMOs, which are still a reasonably experimental form -- something like the console game, we could get a much better handle on; there are a lot more people with a lot more experience writing console games, it's both easier to plan for what to expect, and easier to know in advance what you need.

Which we sort of knew; there were _some_ revision passes built in to the schedule. Just, not enough of them. Despite having recruited an "all-star-team" of people who had worked on pretty much every american MMO ever (we had people on the team from Blizzard, Turbine, Sony, NCSoft...), estimating how long a big project will take is a black art, and, well, apparently we weren't very good at it.

There weren't, as far as I know, any massive technical failures. Lots and lots of small problems, of the sort that will crop up anywhere; you spend some time chasing down why something is slow, or uses way more memory than you think it should, or crashes in really unexpected ways. None of them were epidemics, just the day to day "spend some time writing features, some time writing tests, some time debugging, some time writing specs and plans for the next feature". I guess I spent more time hooking up one bit of middleware to another piece of middleware than I expected, but that beats reinventing the wheel, so that's kind of a wash.

Disclaimer: I worked at 38 for several years.

seems to be some disagreement on the right (2)

Trepidity (597) | about a year ago | (#42464761)

This magazine (Reason) is clearly against public-private partnerships, if anything seeing them as even worse than regular purely-government projects, due to the increased potential for this kind of cronyist corruption (but still inferior, in their view, to purely private-sector endeavors). A lot of free-market conservatives see them as an improvement on purely-government projects, though: public-private partnerships are often promoted as a way to bring efficiencies of the private sector into infrastructure and development (e.g. a pubic-private partnership to build a toll road), rather than having the "big government" do it all.

Are those two different camps of the economic right? Perhaps "libertarians" versus "pro-business conservatives" or something along those lines?

Re:seems to be some disagreement on the right (0)

Anonymous Coward | about a year ago | (#42464965)

Fox News capitalism is about as close to libertarian capitalism as DOS is to Gentoo.

Re:seems to be some disagreement on the right (0)

Anonymous Coward | about a year ago | (#42465025)

Conservatives believe in limited government. Government should focus on its core roles. Law and order, national security, infrastructure, etc. Investing in a private game company is not on this list. Let the private sector decide who should get loans. Conservatives are generally not opposed to public private partnerships in the government's core roles.

Re:seems to be some disagreement on the right (1)

MickyTheIdiot (1032226) | about a year ago | (#42465333)

So apparently we have no real conservatives in our government right now.

Yeah... that's about right. Our "conservatives" are all for government power when it suits them. They are also spending as long as the money is funneled to their corporate buddies.

Re:seems to be some disagreement on the right (1, Insightful)

MarkvW (1037596) | about a year ago | (#42465705)

"Real Conservatives" are lower middle class Americans who have been convinced that conservatism is the reason to vote for candidates who support the very rich.

The very rich are crawling over one another in an attempt to seek individual advantage from the government. They're playing their conservative supporters for suckers.

A whole bunch of selfish people want stuff. The "liberals" want their money from the government and the "conservatives" want laws (and police) paid for by the government to protect and support their businesses. There isn't much difference, when you get down to it--both liberals and conservatives are clamoring for resources.

Give up the liberal-conservative bullshit, and start thinking for yourself--problem by problem. It's hard and you are going to look stupid at times, but fuck it. America is at its best when people of goodwill come together and compromise.

Realizing that the people running things aren't all that much smarter than you is helpful.

When you see the politics of polarization employed (either by that scumbag Jesse Jackson or that scumbag Rush Limbaugh), you are witnessing selfish people trying to sell you a load of crap.

It's all about compromise and working together.

Re:seems to be some disagreement on the right (0)

Anonymous Coward | about a year ago | (#42465069)

Perhaps "libertarians" versus "pro-business conservatives" or something along those lines?

More like "libertarians" versus "social conservative Republicans" who don't give a damn about big government as long as big government keeps you from getting any funny feelings in the privacy of your own home and which have infected the Republican party even to the point where they subverted the Tea Party movement.

Two different things (0)

Anonymous Coward | about a year ago | (#42465287)

One is the idea of traditional government tasks being outsourced to private companies. The other is the government backing loans for things the government doesn't do or need.

Re:seems to be some disagreement on the right (2)

Quila (201335) | about a year ago | (#42465349)

The problem with public-private partnerships is the high likelihood that politics will be used to make business decisions. That will probably not produce very good results. It also opens up a huge channel for corruption, with businesses paying off politicians to send taxpayer money their way.

Even when you build a framework for these partnerships and attempt to instill checks and balances into it, it can go wrong with political pressure. Look at Solyndra. It was done through a system that had the beancounters looking at the books just like a real VC would, then approving or rejecting the deal. Politics and lobbying were not part of the process. Under this system the Solyndra application was about to die near the end of the Bush presidency.

But then comes the Obama presidency, and one of his biggest donation bundlers was an investor in Solyndra. Solyndra started lobbying too. And of course Obama was hot to push his "green" initiatives. So despite the reservations of the beancounters, it was revived and approved, and you know the rest of the story.

Re:seems to be some disagreement on the right (0)

Anonymous Coward | about a year ago | (#42465527)

Gee, it's almost like "the right" is made up of a lot of different people, and they're not actually brainwashed (or perhaps are brainwashed by a collection of different secret masters that don't all agree sometimes?).

Yeah, there are a bunch of folks on the right who see a business-govt partnership as "bringing the good of business into government" and thus a way of improving government -- if RI wants to, say, bring jobs to downtown providence, it's better to do so by showering $$ on some companies and letting them do it, because the government is corrupt and bad at doing stuff. In this view, this kind of deal is great -- instead of an inherently inefficient and corrupt bureaucracy handing out jobs, you just get a video game company to move in, and poof, suddenly you have an actual industry making stuff. And when you're done and the $$ runs out, with any luck, the company remains and so the benefit to the state keeps on going (oops, sorry bout that!). And if you do it _right_, you distribute some of the $ to each of several companies, and then the govt can judge at the end of the year which of them did a good job bringing jobs to the town and thus can get $ next year. In that way, Competition will cause good things to happen, and there is sort of a mini Free Market in doing stuff the government is trying to get done. (note: in this case, the giant loan guarantee went all in one direction, so it didn't quite work that way, oops).

Others on the right say "ack, no! Don't get your icky government on companies!", because, well, the government is corrupt and bad at doing stuff, and these partnerships spread that corruption. As soon as you have companies realizing that they can make more profit by sucking at the government's teat than by actually competing in the marketplace, the whole "free markets do good stuff" theory goes away -- no more apple making cool gadgets that people want, or google making cool apps that people want or whatever, if apple and google know that they can get rich faster by kissing up to some politician. Reason appears to be in this camp; by building a wall between govt and businesses, and saying "ok, the government will deal with businesses only by actually buying stuff from them! RI should only give money to 38 studios if it actually wants to buy a computer game, otherwise no money should go that way", in order to stop the government from destroying the whole "free market in video games causes gaming companies to make stuff consumers want because that way they'll make more money".

let me explain (2)

stenvar (2789879) | about a year ago | (#42465591)

Are those two different camps of the economic right? Perhaps "libertarians" versus "pro-business conservatives" or something along those lines?

Most modern democracies have a fairly standard set of parties (roughly from left to right): communists, social democrats, "classical" liberals, Christian democrats, and nationalists. In the US, Democrats comprise the left end of the spectrum, Republicans the right end of the spectrum, and classical liberals sit uncomfortably in the middle without their own party. Except for "classical" liberals, everybody else believes in big government and government intervention.

Probably what confuses you is that Republicans say that they favor free markets when in practice they don't. (Of course, Democrats also say they stand for a lot of things that, in practice, they don't stand for.)

There is no "disagreement on the right" because "libertarians" and "classical liberals" aren't actually part of "the right". Republicans and Democrats are similar in their level of intervention in the market. The only people who would like less intervention are actual liberals, but both Republicans and Democrats are ganging up on them, trying to give them a bad name (and succeeding). Liberalism has been successfully marginalized in both the US and Europe for the time being.

Some body call... (-1)

Anonymous Coward | about a year ago | (#42464765)

How many times have I read this article on slashdot? I think I need to call Katz about this one.

Article very lacking on how and why. (0)

Orga (1720130) | about a year ago | (#42464781)

Mention of spending 4-5 million per month, but beyond that little in detail. What was this money being spent on? Who walked away with what. A lot of talk about how they got a loan from RI but that has nothing to do with them going bust.

Re:Article very lacking on how and why. (3, Informative)

drerwk (695572) | about a year ago | (#42465183)

The disclosure notice said 38 Studios employed 379 full-time workers as of March 15, with 288 of them in Providence and the rest at its other studio in Maryland. The company also reported 34 full-time contractors and eight interns. The company listed 18 job openings on its website as of Monday evening.

Almost 400 people - I guess average salary must have been in the $30-$40K range.

Re:Article very lacking on how and why. (2)

afidel (530433) | about a year ago | (#42465425)

Let's assume an average weighted salary of $45k, that gives us a fully loaded cost of ~$65k per year, or about $2.2M per month, where's the other $1.8-2.8M per month going?

Re:Article very lacking on how and why. (2)

Squidlips (1206004) | about a year ago | (#42465507)

Rent at some of the most expensive office space in Rhode Island, equipment & toys, travel & entertainment expenses...i.e. they peed it away like most idiots who have never run a business and who all of a sudden have a ton of cash.

Re:Article very lacking on how and why. (3, Interesting)

afidel (530433) | about a year ago | (#42465711)

Average Manhattan commercial realestate is $58/sq ft on an annual basis, round it up to $60 or $5/month. Average cubicle is 8x8, assume a really inefficient layout of half cube half shared space, you get 128sq ft per employee or $256k per month. The numbers aren't coming close unless someone on top is taking a hell of a lot out of the company or they're spending a good part of the loan on bribes.

Re:Article very lacking on how and why. (1)

Anonymous Coward | about a year ago | (#42465903)

Professional software developers, even ones willing to work in downtown providence, go for more than $45k. Even straight out of school ones. Management, also probably more than that.

True, the QA folks, the customer service people, etc go for less than that.

Artists, I have no idea.

But, given that the MMO was over a year out from launch? We had a lot more high-paid software engineers than low-paid QA interns. Even most of our QA department at the time we closed were people who could write automated test scripts and similar skilled stuff, not "throw a high school kid in a cubicle and tell him to try and break the game" (we had some of that, and were just starting to ramp up more when it closed). The art department was huge, as was the design department (the bulk of making an MMO is art and design); while I never actually asked what their salaries were, my impression is that a lot of them were making well over $45k.

38 tried to pay its employees well; certainly better than the average startup. Which... led to a high burn rate, but very very dedicated employees. Turnover was tiny compared to the average gaming studio (I saw more people quit in an average month from Turbine than from 38 in the entire 4+ years I was there). They also had very generous benefits (health, vision, dental, 401k...), which means the gap between cash-salary and weighted is probably more than you're accounting for there.

Disclaimer: I worked at 38. For quite a bit more than $45k.

It wasn't too big to fail (0)

Anonymous Coward | about a year ago | (#42464831)

I love how the small government Republicans refuse to pay for a sick child, but have no problems with crony capitalism and bailouts.

There's a very simple fix for this (1)

MikeRT (947531) | about a year ago | (#42464859)

A constitutional amendment (state and federal as appropriate depending on where the scandal occurs) allowing Qui Tam lawsuits against elected officials whose allocations a reasonable person would say are for private benefit. Let the legislators and governor be personally liable for these costs and suddenly you'll see the entire body militantly opposed to bailouts, "investments," etc.

Heck, it already has precedent in a way at the federal level. If a member of the civil service knowingly tasks a contractor to perform duties outside of their contract, the federal government requires the entire fee from the contractor to be paid by the government employee.

Skyrim killed their game (1)

danparker276 (1604251) | about a year ago | (#42464863)

If it wasn't for Skyrim, that game would have sold a lot more. The game they made was very good, but skyrim was better

besides which (1)

cellocgw (617879) | about a year ago | (#42464873)

Mr. Bloody Sock was a fantastic athlete but a complete meathead. Anyone who invests in any pro athlete's business plan has a financial death wish. You can count the number of really successful jocks-turned CEOs on a digit-challenged hand. (I'm not counting those who get rich off permanent endorsement deals)

Summary (4, Informative)

phantomfive (622387) | about a year ago | (#42465147)

Looks like baseball player Kurt Schilling (who apparently was very good at baseball) decided to start a video game studio, who knows why.

He tried to raise $50million from private investors, but they didn't think he could make money.
He went to the governor to get some money, but the governor didn't think he could make money.
A new, naive governor was elected in Rhode Island, and desperate to improve the economy of the state, he approved some $75million in loan guarantees.

They hired some people, built the game Kingdoms of Amular: Reckoning [wikipedia.org], and did a surprising number of things right considering a baseball player was the founder.

It turns out that in making a modern game, one of the hardest things is getting good developers in the right places, and the game turned out to be buggy. Very buggy. And they didn't have a good level designer, so the levels were kind of boring. These things combined to sink the game.

So, the company failed. And taxpayers now have to pay back the loans.

Re:Summary (1)

Holi (250190) | about a year ago | (#42465369)

A new, naive governor was elected in Rhode Island?

Not so new as he was about to leave office due to term limits.

Re:Summary (1)

phantomfive (622387) | about a year ago | (#42465393)

Oh, you're right, I misread this collection of compound sentences from the article:

Donald Carcieri (R-R.I.), term-limited and searching for a legacy after presiding over one of the worst state economies in the U.S., featuring long spells of double-digit employment and frequent last-place finishes in rankings of business friendliness. In a classic spasm of "do something, anything" government desperation, Carcieri made it his mission to lure 38 Studios from its headquarters in Maynard, Massachusetts to Rhode Island.

Re:Summary (3, Insightful)

VortexCortex (1117377) | about a year ago | (#42465587)

TL;DR: Big shot "idea man" makes the most common rookie mistake by trying to make some huge MMO as his first project. These always fail, no big surprise.

They should have made some smaller less financially risky games first to get some experience, but since he already had money he was able to make it further than most 1st time game devs with stars in their eyes do. You wouldn't believe how common it is to see this same "idea-man" BS anywhere newbie game devs gather: "Guys, I have this amazing idea for my 1st game, it's going to be a MMORPG that blah blah blah" The most common response is: "Can you make a match 3 game yet? Block dropping game? How about a Chase-Maze game? A pixelated platformer? If not, do those first. Put the huge game on the back burner kid until you know how much work that's going to be."

What's ridiculous is that EVERYONE in the game industry but newbs knows that doing something as big as a MMO or Tactical FPS as your first project is folly. Seems to me the Rhode Island investors didn't ask ANYONE with experience in games if they thought it was a good idea to invest. That's the point about "Crony-ism" I'd be driving home. Protip: Don't fund a Kickstarter made by folks with no prototype to show -- a working demo if it's their 1st game; Famous folks are a different story, but only if they got famous doing the kinds of things they want you to fund.

Re:Summary (1)

wisnoskij (1206448) | about a year ago | (#42465695)

Or even more summarized:
Inexperienced guy founds studio.
studio makes a game that was not very good (and required an annoying origin account).
studio goes bankrupt, and nothing of value was lost.

But making software is easy! (1)

rastoboy29 (807168) | about a year ago | (#42465753)

Just hire some nerds to clickety clackety on keyboards and voila--you've got your 5 star video game.

This is way everybody does it and does it so well.

Watson for President! (0)

Anonymous Coward | about a year ago | (#42466233)

From the article:

Each loan guarantee must be approved by the Rhode Island legislature, and when the votes were cast in 2010, only one lawmaker voted against it. Rep. Bob Watson (R-Greenwich) noted "a lot of red flags" in a "very risky" deal that was "too fast, too loose, and frankly, a scandal waiting to happen." Watson added "more often than not, politicians are very poor when it comes to making business decisions." [emphasis added]

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