Schilling Hurls Losses on $75M Gov't Loan In 38 Studios Bankruptcy

Updated to reflect added media reports of federal, state inquiries

NEW YORK ( TheStreet) -- After hanging up the cleats, former Boston Red Sox pitcher Curt Schilling is throwing in the towel on 38 Studios, the video game developer he founded and received millions in government aid to grow.

Schilling's company, a maker of role-playing video games like Kingdoms of Amalur, filed for bankruptcy on Thursday in a quick demise that's likely to cost Rhode Island taxpayers millions of dollars in losses.

As part of the filing, the company entered a Chapter 7 liquidation in a Delaware bankruptcy court, listing debts in excess of $100 million but assets of just between $10 million and $50 million. Much of that debt is likely owed to taxpayers after 38 Studios took $75 million in government financing to move from Massachusetts to Rhode Island, as part of what was to be a job-creating investment in the struggling state.
Curt Schilling

For the former right-handed hurler, the red ink he's bled on New England may be a stinging memory after he previously won a critical American League Championship Series game against the New York Yankees in the Sox's 2004 World Series run on what looked to be a bleeding ankle.

Under the liquidation filing, a court-appointed trustee will sell off the video game software company's assets and distribute the proceeds to creditors such as the State of Rhode Island, which had an 11.2% unemployment rate as of April, the second highest in the U.S.

In 2011, with the backing of cash and bonds from the Rhode Island Economic Development Corp., Schilling moved 38 Studios from Massachusetts to the state's capital Providence and spent all of the near $50 million received in debt financing, according to Bloomberg reports citing Rosemary Booth Gallogly, the state director of revenue. The remaining $25 million in debt and cash are currently held in reserve accounts, Gallogly said.

The company, founded in 2006 and which released its first game "Kingdoms of Amalur" through video games giant Electronic Arts ( EA) in 2012, had pledged its video-game assets as collateral to repay the bonds.

In its bankrutpcy filing, 38 Studios Providence-based unit listed claims of $151 million and assets of $21.7 million. Its Baltimore division, called Big Huge Games listed $121.4 million of liability and under $1 million of assets. Debt, interest and other liabilities to the State of Rhode Island amount to $115.9 million, the filing shows.

To develop role playing games like Amalur and what was to be a new release called Copernicus, 38 Studios hired fantasy writer R.A. Salvatore and graphic novelist Todd McFarlane to work on the design of games.

The Boston Globe reports that 38 Studios owes workers roughly $1.2 million in unpaid wages and another $1.1 million in paid vacation salary. The company missed its May 15 payroll and last paid employees at the end of April, the Globe reports.

On Thursday, The Providence Journal reported that state police and federal authorities launched an investigation into 38 Studios demise.

The liquidation filing comes after scant signs that 38 Studios would repay its taxpayer backed loan. According to its filing, the company made just one interest payment before its bankruptcy -- a $1.1 million payment to bondholders on May 18. That payment came 17 days late, after what Governor Lincoln Chafee told Bloomberg Television in May was a lack of communication by the company. 38 Studios next payment of $2.6 million is due Nov. 1.

Click here to watch a video Schilling filmed with TheStreet back when he was taking to the mound with the first pitch for his video game company.

In a 23-year major league baseball career, Schilling won three World Series titles, highlighted by the Red Sox dramatic 2004 win, which ended a 86-year drought known as "The Curse."

He retired from professional baseball in 2009 with a 216-146 record and the 15th-most strikeouts in baseball history.

For more on video games, see why Vivendi is looking to sell Activision Blizzard ( ATVI).

-- Written by Antoine Gara in New York.