38 Studios laid off its nearly 300 employees in Rhode Island in May and filed for bankruptcy protection in June. The state is likely on the hook for more than $100 million, including the $75 million in bonds it floated as part of the deal, plus interest.
Although Rhode Island was by far the company's biggest investor, officials did not demand a seat on its board or require that 38 Studios raise outside capital according to any timetable, though the firm's success hinged on its ability to bring in the tens of millions of dollars needed to finish its game.
Gaming industry and other experts agreed in interviews with the Associated Press that, in short, the state Economic Development Corp. crafted an agreement under which 38 Studios could fail despite, and in some ways because of, its attainment of every milestone Rhode Island set down.
Gaming industry analyst Michael Pachter of the firm Wedbush Securities said, "You want to believe that the state did their homework and they're sophisticated investors and understood the risks, but clearly they didn't. Obviously they thought they were buying jobs."
Judy Chong, an EDC spokeswoman, said the agency is conducting an "extensive review" of the transaction and could not answer questions until it was done.
A former Philadelphia Phillies ace known for his grit, Schilling became a Boston Red Sox hero in 2004, pitching on an injured ankle in Game 6 of the American League Championship Series.
He founded 38 Studios in Massachusetts two years later. He reportedly met Rhode Island's governor at the time, Donald Carcieri, during a film fund-raiser at Schilling's home in March 2010, and the loan guarantee deal that lured him to Rhode Island took shape quickly over the next few months.