06/15/2012 12:26 pm ET

4 Lessons From Curt Schilling's 38 Studios Fiasco

FORTUNE -- Five years ago Curt Schilling was a hero in New England, right up there with Paul Revere, J.F.K., and the mustachioed Dunkin' Donuts man. Today the former Red Sox pitcher is a pariah after his videogame company went bust, taking hundreds of jobs and at least $75 million in taxpayer money along with it. To his dwindling number of defenders, Schilling is a good guy with a lousy business sense. To his growing legion of detractors, he's a hypocrite. To everyone, he should be a cautionary tale.

The full story of Schilling and 38 Studios is complicated, so here's the game summary: Schilling founded 38 Studios in Massachusetts five years ago to pursue a personal passion for massive multiplayer online games, which are web-based games that can be played by thousands of people simultaneously. He tried to raise venture capital, but couldn't. So he plugged more than $30 million of his savings into the company and in 2009 bought a large studio in Maryland that created single-player games. In 2010, 38 Studios received a $75 million loan guarantee from Rhode Island in exchange for moving his company's headquarters there and promising to hire hundreds of new workers (over the objections of future Rhode Island governor Lincoln Chafee). The company later released a popular single-player game and was at least a year from releasing its multiplayer game when it unexpectedly defaulted on a $1.1 million interest payment to Rhode Island in May. Schilling tried getting alternative funding from private investors or tax credits from the state, but failed, and 38 Studios fired all of its workers in Rhode Island and Maryland -- around 400 people.

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