38 Studios and Big Huge Games – What happened?

On Thursday the 24th of May, employees at 38 Studios and Big Huge Games in Rhode Island, USA received the following notice via email:

The Company is experiencing an economic downturn. To avoid further losses and possibility of retrenchment, the Company has decided that a companywide lay off is absolutely necessary.

These layoffs are non-voluntary and non-disciplinary.

This is your official notice of lay off, effective today, Thursday, May 24th, 2012.

(Sourced from Gamasutra)

That notice send employees packing and effectively closed the gaming company’s doors.

Many in the industry were wondering how troubled 38 Studios was after reports that it failed to make a loan payment of $1.125 million to the State of Rhode Island hit the news.  The company did eventually make the payment, but then failed to meet payroll and asked employees and staff to wait.  Many were put on unpaid furlough before the shutdown last week.

The financial woes were a surprise to many, however, as the 38 Studios subsidiary Big Huge Games released the much-anticipated RPG Kingdoms of Amalur: Reckoning in February and sold 330,000 copies in the U.S. that first month.  These sales figures, a later press conference by Rhode Island Governor Lincoln Chafee revealed, were well below expectations.  The game needed to sell more than 3 million copies.

If you’re in the video game industry in any way, then you realize that expecting a first-release game to hit three million copies in a month is pretty.. well.. optimistic.

The game was said to have sold 1.2 million copies in its three months of release so far, doing much better than its publisher, EA Games, expected.  So where the 3 million expectation comes from is anyone’s guess.

38 Studios had received a loan promise of $75 million to move its headquarters from Massachusetts to Rhode Island.  Of its 379 employees, about 288 had been moved to RI before this closure.

The $75M was earmarked to be released in pieces as the company achieved pre-set milestones.  Of those milestones, the company had met enough to receive about $49.5 million of the loans, according to WPRI.  The last portion was $1.6 million released in November when the studio finished creating 125 full time jobs in RI at $67,500 or more in annual salary.

In August of 2011, the company received $4.1 million after achieving a distribution agreement for the game Copernicus, which was still in development up until last week’s layoffs.

So what exactly happened then?

38 Studios should have had pretty good financial backing.  They had a good-sized credit line – more than enough to secure the needs of a large game making studio for a year, you would think.  The enormous sales success of a first-release like Kingdom seems like it would bode well for the company, not be the impetus for total corporate failure and closure.

According to RI Governor Chafee, the game was supposed to “create an emotional attachment” from players.  He’s probably referring to the sort of core game fans you look for when creating a franchise and game studio brand.  The governor is obviously not a gamer.

But expecting a new release from a studio to hit 3 million copies sold in just a couple of months, unless it’s a sequel or has had unprecedented hype and marketing, is very unrealistic.  In its first year?  OK, that’s possible.  In 90 days?  Comon.  Yet that’s what the governor says Kingdom had to do in order to “break even.”

That seems fishy.  It’s more likely that a combination of higher costs to move to RI than expected, steeper costs to achieve the loan goals given, and a low return on the game after EA’s cut (they’re notoriously high priced) meant that the company was on the block for a lot of loan cash and didn’t see a way to pay it back as promised.

But if the money was gone.. where did it go?  It’s possible to see that kind of money slipping away if the company used it to make payroll, but they didn’t.  They received $6 million in just a few months and it was gone by this month.  Of the $50 million made just from those loans, nothing appears to be left.

Sadly, the employees – developers, coders, secretaries, etc. will be on the unemployment lines.  Rhode Island taxpayers will likely be stuck with the bill too, since the money given to 38 Studios was paid for via state-issued bonds.

The good news to lighten this depressing situation up a little?

The gaming community came out in droves to support the former employees of 38 Studios and Big Huge Games.  Even former BHG employee Ben Walsh, now CEO of Pure Bang Games, tweeted support for them.

The hashtag #38jobs has been actively filled with moral support messages, suggestions for job seekers, links to employment opportunities, and more.  It’s almost assured that most of those employees located in Rhode Island will be leaving now, as they get recruited by companies elsewhere.  Others might just leave to find better markets for employment – many even back to Massachusetts.

The industry changes a lot and morphs as new things come and old things go.  Sometimes, game companies take risks and lose.  It’s part of the business.  In this case, 38 Studios risked a lot to get Rhode Island to join in the gamble and try to make a win for people and the gaming community.  They failed.

It happens.  It affects people, of course, but it’s part of the game and those who are in it realize this (it’s hoped).  Few things are certain in the world of gaming and the industry around it.  The only things you can count on are that some games will be completely awesome and others will totally disappoint.  Behind those games, the people who make them happen are often as unsure about the outcome as the players first installing or booting up the client are.

It’s part of the allure.