38 Studios misses payroll, can't pay RI

PROVIDENCE, R.I. (WPRI) - 38 Studios failed to pay its employees Thursday, then stiffed the state as well.

Curt Schilling's taxpayer-backed video game company was unable to make payroll this week, Judy Chong, a spokeswoman for the R.I. Economic Development Corporation, confirmed Thursday in response to an inquiry from WPRI.com.

Separately, Governor Chafee's office said 38 Studios hand-delivered a check around 5 p.m. for the overdue $1.125 million payment to the EDC, which set off this week's crisis. But Rick Wester, its chief financial officer, told the EDC there were insufficient funds to cover the check, and so the agency returned it.

38 Studios defaulted May 1 by failing to make the payment to the EDC, which is supposed to be paid annually under the terms of its 2010 loan deal. Chafee's office said the EDC is still willing to accept the overdue $1.125 million payment if 38 Studios can find a way to come up with "readily available funds."

• Nesi: RI taxpayers on hook for $112.6M
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• Nesi's Notes: Full coverage of 38 Studios

Chong could not offer details except to say 38 Studios advised the EDC about its inability to pay its workers. The company has not responded to repeated requests for comment from WPRI.com. 38 Studios employed 379 full-time employees as of March 15, including 288 in Rhode Island, bond documents show.

38 Studios employees who were standing outside the company's Providence headquarters on Thursday afternoon looked glum but said they could not comment on whether they'd gotten paid. The EDC was unable to confirm a report by gaming news site Joystiq that 38 Studios has laid off its temporary workers and contractors.

News of the firm's continued cash woes comes just a day after the EDC board held an emergency meeting to discuss whether to take further steps to keep the company solvent. The board took no action after hearing Schilling make his appeal for more assistance and is weighing its options before another meeting on Monday.

Among the casualties of the 38 Studios mess is Keith Stokes, the EDC's executive director since 2010 and an architect of the $75 million loan guarantee Rhode Island taxpayers gave the game company that year - Chafee accepted Stokes' resignation on Wednesday evening and has not named a replacement yet.

Chafee has said that while as a candidate for governor he was strongly opposed to the EDC granting the loan guarantee, he's now "a cheerleader" for the company and is trying to help it survive because taxpayer money is at risk. The EDC said $12.8 million from the $75 million was put aside in case of a default.

38 Studios released its first game - "Kingdoms of Amalur: Reckoning" - in February to solid reviews and sales. But Rhode Island is funding its second game - tentatively named "Project Copernicus" - and the company has yet to offer details about it or schedule a release date.

So far, 38 Studios has received $49.8 million of the $75 million in loan proceeds, according to bond documents obtained by WPRI.com. Officials have not said whether the game 38 Studios is supposed to create in Rhode Island is on schedule. Schilling, who founded the firm in 2006, has refused to answer questions from reporters.

Former Gov. Donald Carcieri, who appointed Stokes in 2010 and worked with him to push through the $75 million loan guarantee for 38 Studios, has not respond to messages or answered the door at his home in North Kingstown. House Speaker Gordon Fox said Tuesday he has no regrets about creating the loan program.

Ted Nesi ( tnesi@wpri.com ) covers politics and the economy for WPRI.com and writes the Nesi's Notes blog. Follow him on Twitter: @tednesi

Brian Butler and Nancy Krause contributed to this report.