How Curt Schilling's video game dreams turned toxic

Editors' note: A day after this commentary was published, Curt Schillings' 38 Studios laid off its entire staff of nearly 400 employees.

For retired Red Sox pitcher Curt Schilling, the Legend of the Bloody Sock is taking a back seat to the tale of bloody dumb loan his videogaming company received from the Rhode Island state government two years ago.

I say this as a diehard Red Sox fan (as you can see from my bio below this post). I say this as someone who popped champagne when the Red Sox won a World Series in 2004. I say this as someone who appreciated the guts Schilling brought to that post-season when he continued pitching through the pain of an open wound in his ankle. Who in New England will ever forget the Bloody Sock?

Now when I see Schilling on TV, he's surrounded by cameras and reporters outside the headquarters of 38 Studios, his videogame company in Providence, R.I. The questioning is hostile: Can his outfit stay afloat? Is he feeling pressure? His answers are routinely vague, the pat cliches of a man who spent his adult life answering mostly adoring sportswriters' questions in front of a locker.

But there's more to this than another sad tale of a former jock who got in over his head in the business world. Schilling, you see, has spent years using his platform as a baseball star to advocate for smaller government. Then, he bolted from Massachusetts when Rhode Island offered a sweetheart, $75 million loan guarantee to prop up his young videogame publishing house, which takes its name from his uniform number.

In return for the loan, Schilling promised to bring more jobs to Providence, where state officials naively hoped 38 Studios would become the center of a new high-tech hub. Now 38 Studios is reportedly laying off workers, an astonishing $49 million of that loan is gone, and the company is having problems making payments due the state. The massively multiplayer online (MMO) game set in a fantasy world the company has bet the bank on isn't expected to be released until next year.

So we have hypocrisy on top of bad business. Schilling is, not surprising to anyone who has followed him over the years, publicly defiant.

"There's so much misinformation out there I cannot begin to clear it up with a sound bite," Schilling told reporters Monday after a meeting with R.I. officials, according to the Boston Herald. "We're not asking the taxpayers for more money."

No one is asking for a sound bite, and no one is offering more tax dollars, either. At least, I hope so.

We could leave it there as a story of hubris because Schilling's bluster makes him an easy villain. But add to this toxic mix state officials, perhaps a bit star-struck, perhaps too eager to one-up Massachusetts, perhaps too hopeful that landing 38 Studios would be the start of a tech industry migration to Providence. Whatever the reason, it's hard to believe they understood how difficult it would be to launch a successful MMO.

I asked Brendan Sinclair, the senior news editor at our CBSi sister site GameSpot, how risky it is to invest in a company working in the fantasy genre that, most likely, would eventually have to compete with "World of Warcraft." His answer: "Tremendously risky."

The nature of the genre is that MMOs get better as they age because there are always new features and content being added for players to enjoy. That made it very hard for anyone to carve out a new space in the genre once Blizzard's "World of Warcraft" pulled away from the pack and became the industry standard.

So 38 Studios' project (also in the fantasy subgenre) would be launching its first project in the genre against a dominant product with a vastly more expansive and feature-packed world that the target audience's social circles would probably be invested in. In some ways, it's like trying to launch a competing social network to Facebook.

Look no further than Electronic Arts' "Star Wars: The Old Republic" to see how hard this sort of thing is, Sinclair said. EA teamed with BioWare, launched the title at Christmas, and sales disappointed. It has about a tenth of World of Warcraft's 10 million or so users. Just yesterday, the developer announced a round of layoffs.

That's not to say 38 Studios was doomed to fail from the beginning. Schilling did bring in some terrific talent, such as "Spawn" creator Todd McFarlane. And 38 Studios did manage to release "Kingdoms of Amalur: Reckoning," a very well-regarded, more traditional role player game that's sold a solid 460,000 copies in one quarter, according to NPD Group. But Sinclair said he was always concerned 38 Studios was too much of a vanity project and going the MMO route may just be too ambitious. One of these games can take tens of millions of dollars to build.

They obviously have some very talented developers at 38 Studios given the critical success of Reckoning, but I don't think they can last long enough to launch their MMO. Reckoning has likely sold most of what it's going to sell at this point, and I can't picture a studio with these kind of cash flow issues lasting the couple extra years it would need to finish a competitive MMO with its 350-plus headcount. I think their only hope at this point is to downsize and focus on a follow-up to Reckoning or other less resource-intensive projects.

The ironies in this story are endless. Critics complain the Obama administration has foolishly tried to pick winners in certain markets, such as the failed solar panel maker Solyndra, and squandered tax dollars in the process. Schilling, a vocal Obama critic who campaigned for John McCain and George W. Bush before him, was the recipient of similar government largesse in R.I.

It remains to be seen whether 38 Studios leaves Rhode Island holding the bag as Solyndra did to the federal government. Hopefully, that won't happen. The state has an 11.2 percent jobless rate, compared to 6.3 percent in Mass. and 8.3 percent nationally. R.I. also faces a $120 million fiscal 2013 deficit, according to Bloomberg BusinessWeek. You do the math on what that loan would have meant to the state budget.

I asked 38 Studios for a comment and I'll update this post if I hear back from them.

My most vivid image of Schilling, other than that night on the mound with the bloody sock, goes back two Novembers. He stood on the stage during Republican gubernatorial candidate Scott Baker's impassioned concession speech about the state of Massachusetts' economy. Schilling, mind you, had already accepted the loan guarantee from Rhode Island and had announced plans to take his company south.

What gall, I thought. Two years later, I'd like to say "serves you right, Curt." But there's nothing to laugh about when a cash-strapped state throws away money and good developers lose their jobs. The only thing to say about that is, what a mess.