Rhode Island Governor Lincoln Chafee said the state may be obligated to give former Red Sox pitcher Curt Schilling's troubled 38 Studios millions of dollars in additional subsidies under an incentive program for moviemakers and video game companies.
The company is in financial turmoil as it struggles to bring its major video game, code-named Copernicus, to market; earlier this week the state revealed 38 Studios missed a $1.1 million payment it owed Rhode Island, and then tried to deliver a check Thursday night for the amount but officials refused to cash it after learning the company did not have sufficient funds. It has also not been able to pay its employees this week.
Chafee said 38 Studios did make the $1.1 million payment on Friday, potentially clearing the way for the firm to receive millions of dollars in additional aid under the state’s film tax credit program, which is open to video game companies.
Under the program, video game companies can seek reimbursement for up to one-quarter of their expenses in the form of state tax credits, which companies can then sell to other firms for cash. Chafee indicated the company appears to be eligible for $2.1 million in tax credits for 2011.
On Friday, 38 Studios applied for an additional $6.5 million in tax credits for the same year, which the state is now reviewing. The company has also indicated it may seek another $12 million in state tax credits for the year 2012.
But Chafee said he was struggling balancing helping 38 Studios, while avoiding exposing taxpayers to further losses, particularly in light of the revelations the company is in serious financial trouble.
“My energies are devoted entirely to the conflict of making sure that 38 Studios are solvent and protecting the hard earned taxpayer dollars,” Chafee said. “We’re in deep.”
Chafee said he would prefer that the company raise outside capital to fund the company, but noted it has been having trouble doing so. He said the 38 Studios doesn’t plan to release Copernicus, a large online fantasy game, until June 2013. Such games are very expensive to make, often delayed and it’s difficult to tell how they will fare in the marketplace, making it hard to court outside investors.
“Their excuse is no private capital has materialized,” Chafee said.
Chafee indicated the state is likely legally obligated to provide the additional tax credits under current law. But he proposed new legislation that would bar companies in the future from qualifying for film tax credits if they had productions that were funded by other state funds.
Rhode Island originally offered the company the loan in 2010 to help lure the company from Maynard to Providence in 2010 and eventually create 450 jobs in the state. It now has more than 400 full-time employees and contractors in Rhode Island and Maryland.
Chafee, who opposed the deal when it was made by the prior governor, said he would never approve a similar deal as long as he is in office.
“Never, never—not under my watch” Chafee said. “I said from the beginning it was a risky enterprise.”
Meanwhile, Schilling, the company’s founder and chairman, took to Facebook Friday morning to deny reports that suggested he used state funds to repay money he had poured into the company. “That is not true,” he wrote on his Facebook page Friday.
Late Thursday, Schilling wrote on Facebook, “To all the prayers and well wishes to the team and families at 38, God Bless and thank you! We will find a way, and the strength, to endure.”
Previously, Schilling has said he invested roughly $30 million in 38 Studios, a significant portion of his personal fortune. Separately, the company told investors it used the state-backed funds to help pay off a $2.5 million credit line that the company had taken out and Schilling had personally guaranteed.
Schilling referred further questions to a public relations firm that could not be immediately reached Friday.