PROVIDENCE, R.I. (WPRI) - 38 Studios laid off all its employees in Providence and Maryland on Thursday as the struggling video game company collapsed into insolvency less than two years after agreeing to move to Rhode Island in exchange for a $75 million taxpayer-guaranteed loan.
"The Company is experiencing an economic downturn," 38 Studios management told employees in an email distributed Thursday afternoon and obtained by WPRI.com. "To avoid further losses and possibility of retrenchment, the Company has decided that a companywide lay off is absolutely necessary."
38 Studios has not responded to requests for comment since its financial crunch burst into public view earlier this month, and Governor Chafee said the state had not been formally informed about the layoffs. The company had 379 full-time employees as of March 15, with 288 of them in Rhode Island, according to a bond disclosure notice.
Most employees walking out of 38 Studios' headquarters on Empire Street in Providence on Thursday afternoon declined to comment on the situation, but a few expressed anger at Chafee for failing to do more to keep the company healthy. Others expressed optimism about their futures and said they enjoyed working at 38 Studios.
"To all my friends and former coworkers, you are amazing," Jen MacLean, who recently revealed her resignation as 38 Studios' CEO, wrote on Twitter. "I miss you and I love you and wish you all the best." MacLean has been on maternity leave since mid-March.
"God Bless you and thank you to everyone sending thoughts and prayers to the team and families of 38 Studios," former Red Sox ace Curt Schilling, the company's founder, wrote on Facebook overnight Friday. Earlier he linked to
leaked artwork from "Project Copernicus," the game 38 Studios is developing with the taxpayer-backed loan. "38
isn't dead yet," the post said.
“I’m stunned, and I’m heartbroken,” R.A. Salvatore, a fantasy author Schilling hired as a consultant in 2007, told
The Boston Globe. “This is one of the best teams I’ve ever seen assembled. They were doing amazing work.” Salvatore is slated to receive $1.46 million from 38 Studios in October, in addition to other royalty payments.
Chafee defended his handling of the 38 Studios situation at a press conference Thursday afternoon, telling reporters he couldn't commit more taxpayer resources to 38 Studios without confidence that the company would eventually become profitable. "Copernicus" is not scheduled for release until June 2013, Chafee said.
"It's not a good situation," the governor said. "I'm not here to share good news." But, he added, "I'm still going to work for 38 Studios." Chafee was a vociferous opponent of the 38 Studios deal when his predecessor, Republican Donald Carcieri, pushed it through in 2010 with the backing of Democratic legislative leaders.
EDC board in disarray
Rhode Island taxpayers
could spend nearly $90 million on principal and interest payments if 38 Studios can't pay. Fallout from the debacle continues to rock the EDC, the agency that gave the $75 million loan guarantee to Schilling's firm and lost its executive director, Keith Stokes, when he resigned last week.
Helena Foulkes, a well-respected executive vice president at CVS Caremark, announced her own resignation as vice chair of the
EDC's board Thursday afternoon. She was put on the board by Chafee after serving on his transition team and was not on the board when it voted to approve the 38 Studios deal in July 2010.
“I have discussed with the governor his plans for the board at the EDC, and I think it is best at this time I resign,” Foulkes said in a brief statement distributed by CVS. “I wish him good luck in this very difficult challenge." She declined a request for an interview.
Chafee told reporters he wasn't surprised by Foulkes' resignation. "We've had different philosophies on the board," he said. Timothy Babineau of Rhode Island Hospital, Stephen Lane of
Ximedica and Dan Sullivan Jr. of
Collette Vacations are also expected to step down from the board.
Schilling's first game 'failed'
38 Studios has sold 1.2 million units of its first game, "Kingdoms of Amalur: Reckoning," since its release in February, according to Schilling. Chafee said experts told him "Reckoning" needed to sell more than 3 million units to keep the company financially healthy. "The game failed," Chafee said. "The game failed."
"I would gladly extend the life of the company if I had confidence it would lead to profitability," Chafee said.
Chafee said he was unaware of any precipitating event that might have forced 38 Studios' management to pull the trigger on layoffs Thursday. "Nothing changed today," he said, adding that there have been ongoing "communication problems" between the state and the company.
Charles Fogarty, director of the R.I. Department of Labor and Training, said his office reached out to 38 Studios' human resources department on Thursday to offer assistance and was told the company might contact DLT on Friday. Jonathan Savage, a Rhode Island attorney who specializes in troubled enterprises and is advising Chafee, said he spoke with Schilling as recently as Wednesday but was not told layoffs were imminent.
Savage said he spoke with other 38 Studios officials on Thursday morning. "There was no discussion of layoffs in any of my conversations," he said.
Taxpayers expected to pony up
Supporters of Schilling and 38 Studios suggested Thursday that the governor's comments scared off investors who were prepared to provide financing for the firm within a month. Schilling, who owns a majority stake in 38 Studios, has
struggled to attract private investors, and it's unclear whether he was having more success this time.
Moody's Investors Service in New York expressed confidence that Rhode Island taxpayers
will pay off bondholders if 38 Studios defaults on the $75 million after Chafee, Treasurer Gina Raimondo, House Speaker Gordon Fox and Senate President M. Teresa Paiva Weed gave the firm direct assurances to that effect.
Rhode Island “has historically lived up to its moral obligation pledge, and we expect would do so in this case,” Moody's analyst Marcia Van Wagner wrote. She maintained her rating on the 38 Studios bonds at A2, three notches below the state's bond rating.
A group of state lawmakers
introduced a resolution on Thursday calling on Chafee and the EDC board “to immediately release all records related to 38 Studios’ financial situation and its $75 million loan guarantee.” Speaker Fox expressed general support for the premise behind the resolution.