Frat Boys and Tech Companies

By James Kwak

Matt Bai’s recent article on how Curt Shilling’s gaming company, 38 Studios, managed to secure a $75 million loan from the State of Rhode Island and then flame out into bankruptcy is a reasonably fun read. Bai’s main emphasis, which I don’t disagree with, is on Rhode Island’s Economic Development Corporation, which managed to invest all of its capital in a single company in a risky industry that, apparently, had failed to secure funding from any of the VC firms in the Boston area. Overall, this seems like another example of why government agencies shouldn’t be trying to act like lead investors.

But the story has another moral, which struck closer to home for me. Shilling apparently founded the company because he liked MMORPGs and because he wanted to become “Bill Gates-rich.” When the going got tough, in Bai’s words, Shilling “seemed to think that he could will Amalur into being, in the same way he had always been able to pitch his way out of a bases-loaded jam, even with a throbbing arm. His certainty reassured employees on Empire Street, who had no idea that he was running out of money.”

Software is hard. Really hard. And it’s even harder when you’re up against good competition. It has to be done right, and you cannot get it done twice as fast by working “twice” as hard. Too many software companies have been run into the ground by people who wanted to make a fortune but had no understanding of how software is built. Most of them are back-slapping frat boys who climbed the corporate hierarchy in sales, not world-famous athletes. But Curt Shilling, apparently, was just like them.

41 responses to “Frat Boys and Tech Companies

  1. He didn’t just will himself out of an inning – he had years of experience which he didn’t have in software. Also occasionally a teammate would complete a totally awesome almost impossible play – for which the result in the scorebook reads the same – an out.

  2. When TJ Rodgers, CEO of Cypress Semiconductor had a project going south, he would reduce, not increase, the size of a team…narrows the focus.

  3. The story does not mention it, but if I’m not mistaken the state-guaranteed refi unburdened Schill of something like $15 million in personal guarantees of 38′s preexisting indebtedness. So even if he put everything he had into 38, he at least got out from under $15 mil he didn’t have. Of course the litigation will probably exact a hefty toll.

  4. ‘Overall, this seems like another example of why government agencies shouldn’t be trying to act like lead investors.’

    Which example isn’t harmed by this story. Government is ‘investing’ other people’s money that they didn’t have to get them to voluntarily relinquish based on a business plan. It was taxed away from them.

    Schilling is in the same boat as Solyndra, solar and wind farms, Amtrak….

  5. not sure it would have been much different if private investors had done it. consider how well some of those ponzi scheme from traders of late?

  6. dw, no one ever said privately financed ventures don’t fail–better examples being some of the nonsense from the dot.com bomb years, when entrepreneurs were being encouraged to give away their products to gain ‘first mover advantage’. But, when they lose their own money, they either stop or they go out of business.

    The state of Rhode Island won’t go out of business.

  7. Government shouldn’t act as a lead investor? We’re all sitting here because NASA-driven engineering developed the technology inside all our boxes. We’re conversing over the internet due to an engineering venture driven by DARPA. We also pay for some awesome basic research as well. Not all of it will catch, nor even succeed, but failure is part of the process. So Rhode Island wasn’t using good business thinking. How many startups are gone in, say, thirty-six months? Sixty months? Most of them. Can we rationally expect government to amass a better track-record than the greater business community?

  8. Don’t forget nylon stockings came from WWII!

    No, we can rationally expect a much worse track record from government–how much did it cost to invent nylon, just in lives lost alone?. It’s because the incentives faced by government decision makers aren’t suited to economic efficiency. Quite the opposite.

    Instructive here is the famous explanation given by Thomas Sowell about why he converted from Marxism (it was working in the Bureau of Labor Statistics that did it):

    http://www.salon.com/1999/11/10/sowell_2/

    ————quote———-
    What made you turn around?

    What began to change my mind was working in the summer of 1960 as an intern in the federal government, studying minimum-wage laws in Puerto Rico. It was painfully clear that as they pushed up minimum wage levels, which they did at that time industry by industry, the employment levels were falling. I was studying the sugar industry. There were two explanations of what was happening. One was the conventional economic explanation: that as you pushed up the minimum-wage level, you were pricing people out of their jobs. The other one was that there were a series of hurricanes that had come through Puerto Rico, destroying sugar cane in the field, and therefore employment was lower. The unions preferred that explanation, and some of the liberals did, too.

    Did you discover something that surprised you?

    I spent the summer trying to figure out how to tell empirically which explanation was true. And one day I figured it out. I came to the office and announced that what we needed was data on the amount of sugar cane standing in the field before the hurricane moved through. I expected to be congratulated. And I saw these looks of shock on people’s faces. As if, “This idiot has stumbled on something that’s going to blow the whole game!” To me the question was: Is this law making poor people better off or worse off?

    That was the not the question the labor department was looking at. About one-third of their budget at that time came from administering the wages and hours laws. They may have chosen to believe that the law was benign, but they certainly weren’t going to engage in any scrutiny of the law.

    What that said to me was that the incentives of government agencies are different than what the laws they were set up to administer were intended to accomplish. That may not sound very original in the James Buchanan era, when we know about “Public Choice” theory. But it was a revelation for me. You start thinking in those terms, and you no longer ask, what is the goal of that law, and do I agree with that goal? You start to ask instead: What are the incentives, what are the consequences of those incentives, and do I agree with those?
    ———–endquote———-

    Not to mention the examples of numerous centrally planned economies around the world, where the government made ALL the investment decisions. East Germany v. W. Germany, or North Korea v. South Korea.

  9. @PRS

    Thomas Sowell’s story suggests that he was in the wrong department, not that the incentives of any government agency are inherently flawed. It’s the same issue within any large organization; power is guarded jealously, and maintenance of the status quo takes precedence over evaluating its effectiveness.

    The solution is not to abolish all efforts at societal change by government, but to set up laws intelligently such that separate organizations are responsible for administration versus evaluation. In theory the legislative branch should be evaluating the results of its laws as administered by the executive, and tweaking them as appropriate.

  10. ‘In theory the legislative branch should be evaluating the results of its laws as administered by the executive, and tweaking them as appropriate.’

    That happen often in practice?

  11. Brett (April 23, 2013 at 4:40 pm): “We’re all sitting here because NASA-driven engineering developed the technology inside all our boxes.”

    That is an interesting claim. Do you have a link to support that? I don’t see government as a fountain of valuable things, although many people claim that who love government.

    This is what Christopher Mims at POPSCI reports [edited]:
    ( http://www.popsci.com/node/31716 )
    === ===
    The brain of NASA’s primary vehicle has the computational power of an IBM 5150, the 1980s icon that goes for $20 at yard sales. The shuttle’s General Purpose Computer (GPC) controls the entire launch sequence and is an upgrade of the 500-kilobyte computer the shuttle flew with until 1991.

    This antiquated computer works just fine for NASA. The shuttle doesn’t need to support a powerful graphics engine, create PowerPoint presentations, or store MP3s. It focuses entirely on raw functions (thrusters on-off) which are mathematically complex but don’t require the juice needed by a user interface like Windows. The GPC has flown so many missions with hardly a hiccup that there’s no reason to replace it, even if it is just 0.005% as powerful as an Xbox 360.
    === ===

    NASA concentrates on reliability and just enough computer power to get their job done. That serves their mission, but doesn’t remotely spur the development of “the technology inside all our boxes”.

    I recognize some of the consumer products developed or perfected for space purposes. Plastic vacuum packaging and the breakfast drink Tang come to mind. I love the intellectual pleasure of knowing what is going on in the universe. But, the space program is not remotely cost effective, useful, or necessary to develop goods for everyday life.

  12. Moses Herzog

    Curt Shilling is a fascinating character. I had heard him speak in many radio interviews (listening to sports radio is one of my many nonconstructive uses of time) and he does come across as being definitely above average intelligence. I’m not even quite sure if I would label Shilling “sharp”, but better than your average bozo. He was I think one of the top leaders of the baseball Player’s Union, and they usually don’t choose idiots to fill the higher up spots of the Player’s Union. Shilling’s achilles heel is really one thing but kind of twofold in nature: BEING A SUPREMELY ARROGANT AND POMPOUS A$$. This is just the arrogance he has that he is some kind of guy who can “get anything done” which he obviously is not. Also it is a common affliction occurring to many celebs in both sports and entertainment: They think because they can play guitar in Madison Square Garden, flash a shiny mulatto toned thigh singing “put a ring on it” at the Staples Center, or throw a pitch at Yankee Stadium that they can conduct business in a professional and proficient way. The results speak for themselves. This is how you get a guy like Kareem Abdul Jabbar prostrating himself on network television as the 7 footer diving into the pool. It’s about 2 very short steps away from being the bearded lady in the circus show. Kareem is better than that. We know he’s better than that, he knows he’s better than that. And if the man had had a decent savings plan we wouldn’t be at this juncture.

    If you excel at sports and achieve celebrity status do yourself (And all of us who have affection for you) a huge favor: SAVE/DEPOSIT your money in a well-capitalized bank (or better yet Credit Union) and let the wisenheimers like the Shillings go on to make ______ out of themselves.

  13. @ Paddy – “….Which example isn’t harmed by this story. Government is ‘investing’ other people’s money that they didn’t have to get them to voluntarily relinquish based on a business plan. It was taxed away from them….”

    Yeah, you’re using money (HONEST LABOR) you stole from me to kill me. Nice. You sure there is such a thing as “political science”?

    There is no winner in the rationalizations squirting from the comments section that makes sense – whether argued from the business government think tank industry or whether argued from a cartoon skit.

    A top down command center is only as good as the person on at the top. I thought we LONG LONG LONG ago agreed that when looking around the frat room, we would rebel against any one person in that room having that much power over the individual human being through the force and power of a government that had flowered after being planted by “We the People”.

    Your ignorance in not understanding the “beat swords back into ploughshares” science that went into the creation of the machine that knits stockings for women is SPECTACULAR. Right up there with not knowing the 1000 year tradition of “Just War”….

    That’s probably why there is no plan for doing that – swords back into ploughshares. Not just pharisaism, but IGNORANT pharisaism. Yikes.

    So what are you going to do next with the swords that are NEVER going to be beaten back into ploughshares?

    Shouldn’t the CIA start concerning itself with all the cosmic alien visitors (with their superior technology) and take over gubmin’ with a top down command control scheme to put up a “Private Property” sign on Planet Earth?

    Still not giving Paddy the “top” dog command on any project….

    Watched that meteor blaze over a city of a million in the same manner the cavemen did – SURPRISE! “….And then some of the cavemen went off to get closer to where that thing met the land….but where killed along the way by a pack of predators…” Or so the story goes….

    Talk about repeating the same mistakes being a sign of insanity…

    A double sided eugenics war where the goal is to eliminate the finest in the human species….oooops, looks like the cosmic aliens are having fun testing their theories again…

  14. Why don’t you go with that, Annie.

  15. @PRS

    ‘That happen often in practice?’

    Unfortunately no, because of the incentives of the legislature. But, just because laws can be (and often are) badly written does not mean that government is inherently unsuited to the task of raising the general welfare.

    The free market works due to the principles of evolution, and if we fail to apply those same principles to government, we get, yes, a decaying and ineffective edifice. Today the selective pressures on government policy aren’t aligned with improving the lives of most Americans. I only have some ideas about how to fix that but we shouldn’t just give up because it’s hard.

  16. @Paddy – makes more sense based on the “media” narratives we’ve been fed when not shopping than what you are trying to pretend you are competent enough to do – run the world, top-down….

  17. ‘Unfortunately no, because of the incentives of the legislature. But, just because laws can be (and often are) badly written does not mean that government is inherently unsuited to the task of raising the general welfare.’

    Thousands of years of history doesn’t cut it, huh.

  18. ‘@Paddy – makes more sense based on the “media” narratives we’ve been fed when not shopping than what you are trying to pretend you are competent enough to do – run the world, top-down….’

    Quite the opposite, Annie. I realize the futility of top-down, command economies. It’s you who doesn’t appear to get it.

  19. @Paddy – your thinking about “government”, at least from the political blather you post, does not indicate a lucid understanding of the “futility” of it. Since you are confused, how can anyone else figure out if there is anything helpful in what you say or do that solves the problem.

    Ayn Rand was a Nihilist.

  20. How did Ayn Rand get into the conversation? But, are you under the impression she favored running the world ‘top-down’? She’d seen it tried in Lenin’s Russia and didn’t like it one bit.

  21. @Paddy – “…Government is ‘investing’ other people’s money that they didn’t have to get them to voluntarily relinquish based on a business plan. It was taxed away from them….”

    Can we get back to the FACTS on the ground today? Stealing my money and then investing it in an economic eugenics plan to eliminate me?

  22. Don’t feel bad Annie. When the day comes, you won’t be alone, trust me, you’ll be part of the greater than 99% crowd you have always been with, kickin and screamin the whole way there.

  23. You are another one with SPECTACULAR ignorance for claims to being the 1%er representing American Exceptionlism in the *global* economy, Anonymousy. And your letter-of-the law pharisaism….? Monty Python laughable….

    You are alive only because the 99% have shown mercy when it comes to employing a swift violent end to your lawlessness. A mercy you are proving yourself not worthy of….

  24. You are a troubled person indeed Annie, I am not worthy of your violent company, and the lord is terrified of you as well, (I have proof). I’m just a decoy trying to throw you off track, and so far it has worked. You will rue the day when violence tries to rule over reason, it’s a war that can not be won, by you, or anyone, you know.

  25. I must submit to the wisdom my parents departed to me LONG ago, even more true today than ever:

    “…Nie dotykaj gówna, tylko śmierdzi….”

  26. @PRS

    ‘Thousands of years of history doesn’t cut it, huh.’

    The fact that we have so many historical examples of bad government should be a blessing, since they teach us what to avoid. Churchill’s comment on democracy comes to mind.

  27. Dang, and I don’t speak Japanese.

  28. Churchill’s comment on democracy was that it’s merely the best of a bad lot. That would seem to argue for only grudgingly allowing government to function at all, and only when we don’t know of any alternate decision making arrangement that is less evil.

    Btw, now that you’ve had time to think, can you tell me which department of government Sowell would have found better suited to increasing the welfare of the American people?

  29. Some of the comments here show breathtaking ignorance of the way basic science is translated into products, jobs, medical cures, etc. No sane company bets on a high-risk venture with payoffs that start 10 or 20+ years in the future. But that is precisely what science is: high risk, high reward, long lead time. If you can’t see the connection between DARPA, the NIH, the NSF, our academic institutions, and the crown jewels of American industry, you’re blind. Period.

    For once, please try to understand how the world really works, instead of how your ideology wants it to work.

  30. Hey, people believe what they want to believe, just like you, Period.

  31. “I must submit to the wisdom my parents departed to me LONG ago, even more true today than ever: “…Nie dotykaj gówna, tylko śmierdzi….””

    From Polish to English: Do not touch, merges only smells

    ….tried other Eastern Europe translations but this seems to be the only one coming up with a successful translation into English.

  32. How did you translate, ‘my parent departed to me’?

  33. ‘Some of the comments here show breathtaking ignorance of the way basic science is translated into products, jobs, medical cures, etc.’

    Curt Schilling was doing basic science?

  34. @Anime – as we say in USA, “close enough for government work” – don’t touch what experienced parent already knows will just smell bad, and nothing good will come out of it :-)

    @Paddy, and the S&L crowd, ENRON “modernized” the electrical grid, banksters adding to the toxic assets of the planet – yup, all “science”.

  35. I’m a media scholar who studies videogames for a living. Software is hard, but the videogame branch of the software industry is an Uber-beast unto itself. Schilling thought gaming was just another media oligopoly, like baseball broadcasting, and that was his downfall. Why we should care: videogames are terrific predictors of social innovation. What happens in gaming today, hits the rest of the world economy 4 or 5 years later. Example: Nintendo’s DS invented most of the key aspects of handheld gaming and social media networking (true story). The reason is that the videogame industry depends on final sales to consumers, not ad revenues or oligopoly pipelines, and the digital commons and fan culture are far powerful forces in the industry than the likes of Microsoft or Disney (both companies have struggled in gaming). In short, videogames are where the future is being invented – and that future is going to belong to the democratic, plebian 99%, not an irresponsible, power-drunk plutocracy.

  36. ‘scholar’ and ‘video games’, in the same sentence! How odd.

  37. HIGH FREQUENCY TRADING

    KID, YOU’RE HIRED! WHEN CAN YOU START??? http://www.inquisitr.com/270107/feel-stupid-9-year-old-genius-halfway-through-college-video/ – though just a “kid at heart” the young man plans to ace the SAT later this year, in October; studying hard the child says, in Friday’s interview.

  38. I bow to you Dennis, it’s all territorial from here on out.

  39. Well then, that explains all the “video game” drivers on the NJ Parkway on a Sunday afternoon. The people driving a safe distance away from each other at the speed limit and not switching across four lanes to take their right hand exit at 70 miles per hour because they found the hole in the traffic SO CLOSE to the exit – 100 extra points!!! A game being played with his buddy doing the same thing in Japan or somewhere else global – and all to win a big stakes bet after their algorithm tallies up the data to declare the most dangerous driver in the past hour. Whoooops, did I just give the globals an elite entertainment idea without getting anything out of it for ME ME ME?

    Hard to imagine that the 99% will eventually care more about their video game portfolio than a sustainable Energy Program – guess that’s where we’ll have to wait to see evidence of the “scholar” in the frat boy….

    Seems to me like it’s just another one of those “sells” on the future that keep 480 at 2.08 trillion…big bubble to keep blowing…

  40. Moses Herzog

    Here’s to a wild man who didn’t care none for frat boys and never would have sold an ARMS mortgage to a blue-collar family:

  41. Well sit down and hold on tight, those revenuers don’t stand a chance.