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The NY Times offers an infuriating and detailed article about the recklessly stupid Rhode Island politicians who gave $75 million to baseball player Curt Schilling so he could launch a video game company. Predictably, Schilling’s company, 38 Studios, not only failed to deliver the online role playing game it set out to make, it accrued $150 million in debt in just two years before the company collapsed last spring and left the state’s finances in ruin. With so much discussion about government subsidies and incentives for VFX and film production, there’s a valuable cautionary tale in here somewhere:

And yet, you don’t have to dig very hard into the record to find that there were plenty of serious-minded advisers who tried to warn state officials away from 38 Studios. Among them, apparently, was the corporation’s own financial portfolio manager, Sean Esten.

According to the state’s pending lawsuit, Mr. Esten was alarmed that 38 Studios’ worst-case projection for its business seemed to rely on releasing a successful game every two years — a track record that most gaming companies can only dream of.

“I don’t think I can support a $75 million guarantee to any single company in this industry due to the wide volatility in commercial success of game releases,” Mr. Esten told his bosses in an e-mail. “Perhaps we should develop a toolbox of incentives (including loan guarantees) to attract companies into a cluster and not rely on a single company to build the cluster around.” According to the state’s complaint, Mr. Esten’s bosses decided to bury his analysis.

Another skeptic was Gina Raimondo, a Democrat who was running for state treasurer at the time and now holds the office. Ms. Raimondo spent the previous decade working in venture capital, and after reading about the proposed investment in July 2010, sent an unsolicited and eerily prescient e-mail to Keith Stokes, who was then the corporation’s executive director and the deal’s main architect.

“In general, I would proceed very carefully on this,” Ms. Raimondo wrote. The company “is in the Boston area where there are 200 venture capital firms, and it is in a very hot area of gaming so if it were in fact a compelling investment I would have to think it would be well funded already by venture capitalists; the fact that many have looked at it and passed is a red flag.”

Last Thursday, Rhode Island-based 38 Studios laid off its entire staff of nearly 400 people, which presumably included many artists and animators. The unceremonious layoff notice sent to their employees can be read on Gamasutra.

The game studio was started by former baseball player Curt Schilling, and had received a $75 million loan guarantee from the state of Rhode Island, which gambled that Schilling’s company would bring high-paying tech jobs to the state. The company managed to slip out one game before collapsing, Kingdoms of Amalur: Reckoning, which both looks and sounds like the creation of a sweaty-palmed, pimple-faced high school student.

Amalur shipped 1.2 million copies in its first 90 days (at least, according to Schilling). The governor of Rhode Island, Lincoln Chafee, said in a press conference a couple days ago that the game would have needed to sell twice as many copies just to break even.

There’s a lot of lessons to be learned here, the first of which would be that just because you know how to throw a ball doesn’t entitle you to tens of millions of taxpayer dollars so that you can pretend to run a video game technology company. Schilling just made it that much harder for legitimate video game entrepreneurs to receive any type of investment for their companies.

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