Rhode Island taxpayers are on the hook for more than $100 million over the next eight years from the collapse of 38 Studios, former Red Sox and Phillies pitching ace Curt Schilling's video-game enterprise, which filed for bankruptcy earlier this month

The total cost of 38 Studios' bonds -- the sum of principal and interest payments -- is projected to be $112.6 million by 2020, according to bond documents reviewed by WPRI.com.

Gov. Lincoln Chafee has called for a forensic audit to unclog the company's messy financial remnants.

The state is on the hook for $75 million that it provided in a loan guarantee in 2010 to persuade the firm, then based in Massachusetts, to shift its office to Providence so that the state could garner millions of dollars in tax revenues.

Rhode Island's Economic Development Corp. borrowed the money for 38 Studios from private investors at interest rates of 6 to 7.75 percent. The government is trying to determine how it can claim money from individuals and groups involved in its loan guarantee to the gaming outfit. 

The EDC was unaware of the risks inherent in Schilling's company, which appeared as early as 2009. When 38 Studios bid for $25 million in investment funds three years ago, venture capitalists who deemed the company too risky declined to invest in it. Pressed for funds, Schilling was forced to bank on more than $50 million from his personal baseball fortunes, exorbitant loans and support from the EDC.

A confidential 2009 investment memo, which was obtained earlier this month by GoLocalWorcester.com, clearly spelled out the economic risks inherent in Schilling's video-game business.

There is no guarantee of the economic success of any videogame since the revenue derived from the production and distribution of a videogame depends primarily upon the videogame's acceptance, which cannot be predicted, the memo concluded. This was never presented to the EDC.  

At the time of its bankruptcy, 38 Studios had an asset base of $21.7 million and payment obligations of $150.64 million to at least 1,079 creditors, with EDC and the Bank of New York Mellon jointly holding nearly 77 percent of those liabilities ($115.9 million) in claims, according to bankruptcy documents.  

Rhode Island officials have hired a law firm, Wistow and Barylick, to investigate into the probable involvement of third parties in the financial chaos that led to 38 Studios' liquidation, Chafee said Tuesday. Attorney Max Wistow, a partner at the Providence law firm, will serve as special counsel to the EDC. He will also work with the forensic auditors hired by the state to examine 38 Studios' finances. Wistow has told media the money may well never be recovered.

Wistow's efforts to recoup the money are independent of the state's efforts to rescue some of its 38 Studios investments in the bankruptcy court. The law firm will be getting 16.67 percent of any funds that it recovers, the state has promised.  

The EDC is also under fire from 38 Studios bondholders for selling moral obligation bonds to the video-game company. Unlike general obligation bonds, which need a go-ahead from voters and the Legislature, moral obligation bonds can be issued without consent from voters. They are also issued at higher interest rates than general obligation bonds. Bondholders say that the state sold moral obligation bonds to skirt voters' approval.  

Last month, the state told Moody's Investors Service that it would safeguard the bondholders' interests and honor its debts. However, the state may not be able to meet its payment obligations on the bonds, investors say. Last year, Rhode Island cleared more than $2 billion of pension liabilities by revoking the cost of living raises that it had promised workers and retirees. As a result, there are fears among bondholders that it will default on its obligations to them.

Rhode Island will now need to pony up $100 million to clear the 38 Studios loan guarantee. The obligation affects the welfare of more than 1 million residents.  

Chafee has promised to claw back whatever taxpayer money may be lost in the process.