A Little Perspective on the 38 Studios “Hook”

Like one blockbuster movie released the week after another, rumors from unnamed sources have catapulted Curt Schilling’s Providence-based 38 Studios and its whispered woes past Governor Chafee’s power grab to implement same-sex marriage in Rhode Island.  Following Twitter and the local news, the informed Rhode Islander now knows just about everything there is to know about what’s going on with the video game company… except what’s going on with the video game company. [UPDATE: This situation has started to change.]

For the record, I didn’t support the 38 Studios loan in the first place, and it doesn’t surprise me that a risky investment in an unproven company in a competitive industry may have turned sour.  Despite Economic Development Corp. Director Keith Stokes’s assurances that his organization knew what it was doing and had built in protections (like ownership of assets and intellectual property in the event of a default), a state government has no business taking risks on investment gambles.

Which brings me to my “that said” and a little perspective.  It appears that the state of Rhode Island is “on the hook” for around $112.6 million total, if 38 Studios were suddenly to evaporate, although the hook must come with the disclaimer that the debt is a “moral obligation,” not a credit-rating-determining “general obligation.”  (Which helps explain why bonds would be offering 6-8% return rates — to make up for the risk involved.)

A few weeks ago, I collected some publicly available data to figure out what, exactly, the City of Providence is “on the hook” for when it comes to employee retirements in its locally run pension system.  The answer?  Around $5.7 billion to the amortization date.

So, mostly because I haven’t had a chance to play with Excel much, today, here’s a comparison of the two debts for everybody to consider as we contemplate how much risk it is tolerable for our government officials to commit us to.

Total Promised Obligations, 38 Studios Versus Providence Pensions

  • SaveRInow

    I think it is very disingenuous to compare a astounding loss – $100 for every man, woman and child in RI, to a pension deficit which is built up over decades and which is (mostly) the result of hard work and a lifetime of duty.

    This is worse than bad. RI conservatives, and in fact citizens, would be smart to call this as it is – perhaps the biggest debacle in the recent history of the state. Instead, we see an ugly undercurrent of excuse making.

    Sad, really. This need to be spoken out against in the strongest possible language. If any of you supported it in any way, or failed to speak out harshly enough against it, just say "we were very wrong" and learn from the mistake.

    Attempts at covering the tracks shows there is no different between co-called conservatives and the existing state idiots.

  • justinkatz

    The post merely illustrates the relative weight of two problems currently facing Rhode Island. At a time when every media organization is all-in on the Schilling deal, I thought it worth a quick reminder that there are other issues facing the state, much greater in size than this one.

    The pension problem is not the result of "hard work and a lifetime of duty." It's a result of a poorly planned and managed system based on political calculation rather than solid financial planning. Retirees (current and future) shouldn't be defending it; they should be more upset about it than anybody.

    As for 38 Studios, I can't speak for all RI conservatives, but I spoke against it at the time, and it is a major theme of much of my work that the government should not be picking winning companies or even industries.