New York Times on 38 Studios: Scandal Grew From Political Insiders' Delusions

Apr 20, 2013

The Sunday New York Times is out with Matt Bai's lengthy and well-written overview of Rhode Island's disastrous investment in 38 Studios, former Red Sox star Curt Schilling's bankrupt video game company. Bai's story doesn't offer much in the way of new findings, but it will expose the Ocean State's folly to a broad audience of influentials.

Bai's take is fairly sympathetic to former governor Don Carcieri -- who faced a moribund economy in his waning time in office -- and somewhat sharper toward Lincoln Chafee, for not more closely monitoring the implementation of the state's ill-fated $75 million loan guaranty with 38 Studios.

Bai's story becomes part of the media history documenting the demise of 38 Studio, with a detailed look at some of the key players and the context in which the deal unfolded. Here's the big takeaway:

At bottom, 38 Studios may be that rare political scandal that grew not from any lies that anyone told the public, but from the stories that desperate politicians told themselves.

“Maybe this just came down to everyone wanting it too badly,” [House Speaker Gordon] Fox told me. Or as another legislator, Charlene M. Lima, a Democrat, put it, “The state kind of took itself.”

A few quibbles: in comparing Massachusetts and Rhode Island, Bai notes the Ocean State's "rampant" history of political corruption while ignoring how a string of previous House speakers in Massachusetts have run into legal trouble. The two states are quite alike in their political culture; The key difference is how Massachusetts started rebounding toward a vastly superior economy in the 1970s and 80s.

Bai also credits Carcieri for overhauling the state Economic Development Corporation, populating its board with some of the best corporate brains in the state. He doesn't mention, though, that the EDC was without a leader for about a year after Ioanna Morfessis backed out of the post at the last minute in December 2009.

Some highlights from Bai's story:

-- He notes the embarrassing handover from 38 Studios, writing:

Even in a state that long served as New England’s Mafia headquarters — and a state whose best-known modern political figure, Buddy Cianci, the former Providence mayor, was sent to prison in a federal corruption case known as Operation Plunder Dome — the 38 Studios debacle has registered as a painful embarrassment. (When I called influential Rhode Islanders and told them I was writing about 38 Studios, virtually all of them, even if they had opposed the deal, answered with some version of, “Do you have to?”)

-- In a symbolically rich moment, the cream soured in the coffee of Chafee and Fox when they went to the office of 38 Studios and learned of the bad news in April 2012:

Mr. Chafee recalled that as the two men waited for Mr. Schilling in a conference room, they poured themselves coffee, only to watch the cream in their cups curdle instantly.

“In retrospect, it was symbolic, because at that meeting there was indication that the company was curdling,” Mr. Chafee told me. “Curt was talking about his investment, and how much he’d put into it, and how they were going to need more financing.”

The two politicians tried to take all this in, then stumbled back into the street, too dazed to speak.

Bai is at least a little skeptical about the state's lawsuit against Schilling and other defendants:

To the casual reader [....] the case against Mr. Schilling may not be all that impressive. After all, if people went around suing everyone who accepted a loan for less money than they actually needed, the courts wouldn’t have time for anything else. In the state’s version of events, Mr. Schilling comes off as an arrogant and overexuberant entrepreneur, possessed of grand delusions. But there’s no suggestion that he intended to swindle anyone. He clearly believed he could succeed.

If nothing else, Bai's story will reinforce Rhode Islander's consternation about 38 Studios -- and all the continued publicity sparked by the state's awful investment.