How Should Massachusetts Consumers Look at Curt Schilling’s Bankruptcy?
Curt Schilling, former ace pitcher for the Boston Red Sox, filed a Chapter 7 bankruptcy for his company, 38 Studios. Ok, let’s get some basics down first. A corporate chapter 7 bankruptcy is not the same as a personal chapter 7 bankruptcy. In a personal bankruptcy in Massachusetts, you list your personal assets (house, car, bank accounts) and liabilities (mortgages, car loans, credit card bills) and if you are unable to pay the liabilities based on your income and expenses, you can discharge your debts and get a fresh start.
A corporate chapter 7 bankruptcy is the same thing, but for a company. Curt Schilling, who earned well in excess of $100 million in his career pitching for the Red Sox and various other teams, is not in bankruptcy. His company, 38 Studios, is. Lots of companies go through bankruptcy, either a Chapter 11, which is reorganization, or a Chapter 7, which is also called a liquidation bankruptcy.
Schilling’s representatives say he may have up to $50 million of personal exposure, but only what he committed to the company will be a part of the bankruptcy estate, not his personal wealth; the initial Bankruptcy Court papers indicate that the amount of personal exposure for Schilling is more like $3.5 million.
Our understanding is that the company 38 Studios had $156 million in debt and no ability to pay for it. The reasons this particular bankruptcy is in the news perhaps is twofold: first, it’s Curt Schilling, the star pitcher, who won World Series games and titles with the Philadelphia Phillies in 1993, with the Arizona Diamondbacks in 2001, and with the Red Sox in 2004 and 2007. His post season record is 11 wins and 2 losses, which is the highest winning percentage of all major league pitchers with at least 10 wins! His career record was 216-146, with the 15th most strikeouts in MLB history, at 3116.
After his career in Major League Baseball, he started a company called Green Monster Games, which was later renamed 38 Studios, releasing one game called Kingdoms of Amalur: Reckoning, earlier this year. Unfortunately, it looks like the Curt Schilling of the bloody sock and field leadership was not prepared for leadership of a company. The company, which started in Massachusetts but later moved to Rhode Island, seems like it may have grown too fast. And with too much disposable money. In his case, the state of Rhode Island gave him $75 million to move his company to their state. With interest, it may come to well over $100 million. Sounds like a plan! However, how was that windfall managed? Not well, if you are coming from the perspective of the Rhode Island Economic Development Corporation (RHEDC). It was the RHEDC’s fault, says Schilling, for not giving him more!
The latest news is that Citizens Bank has filed a lawsuit against Schilling claiming over $2 million in damages. They claim that he personally guaranteed loans. Schilling has other personal loan guarantees, it is reported. These may have to be repaid by him personally, albeit negotiations are not out of the question.
We don’t think that Schilling would commit fraud, especially in federal bankruptcy court. The FBI and the US Attorney and the Rhode Island Police are all looking into the case. We suspect it’s because of the World Series Record and the poor decision by the RHEDC. However, it will be interesting for bankruptcy lawyers of Boston to follow this case. And we will; follow our Boston Bankruptcy Blog!