Twice, Hasbro Execs Failed to Disclose Interests in Major RI Deals — RI Lottery and 38 Studios
GoLocalProv News Team
Twice, Hasbro Execs Failed to Disclose Interests in Major RI Deals — RI Lottery and 38 Studios
As GoLocal unveiled on Saturday, Alan Hassenfeld, the longtime Hasbro CEO who has served on Hasbro’s board since 1978, said in relations to the lottery battle in Rhode Island, “I have no skin in the game with IGT or Twin River.’’
The quote appeared in GateHouse Media’s Providence Journal.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTBut, Hassenfeld’s Hasbro has a lot of skin in the game.
Twin River is trying to unseat IGT and become the state’s lone lottery provider. Just one problem, Twin River is a casino company, not a technology company and so it has teamed with Scientific Games Corporation, which would provide the technology infrastructure.
Hassenfeld has failed to disclose Hasbro’s longstanding agreements with Scientific Games — a multi-million contract that goes back to a 1998 contract.
Hassenfeld is the largest individual shareholder and third-largest overall behind two major institutional investors, Capital Research & Management Co. and Vanguard Group in Hasbro. He owns 7,881,840 shares and with Hasbro trading at $113 a share, Hassenfeld’s stock is valued at more than $890 million, according to MarketScreener.
In 2014, Scientific Games Corporation announced it was extending through 2025 its long-term license agreement with Hasbro for the exclusive use of MONOPOLY and more than 15 other “iconic game brands.”
A week ago, Hassenfeld, now a Florida resident, said that he would pay for an “independent study” of the proposed IGT contract extension.
Hasbro recently hired Twin River lobbyist Mark Ryan to represent the company at the Rhode Island State House.
in 2015, GoLocal unveiled the relationship between Hasbro, EA Sports -- and 38 Studios.
Hasbro signed a major partnership agreement with Electronic Arts (EA) in 2007 — an agreement that would help transform the Rhode Island toy company from a product-based manufacturing company to an interactive and entertainment-focused multi-billion business. The deal has been worth hundreds of millions for the two companies. The CEO of Hasbro at the time was Al Verrecchia.
EA is the same company that had a major partnership and investment in 38 Studios. In a document released by then-Superior Court Judge Michael Silverstein, a May 2010 memo was included that outlined the multi-million deal between EA and 38 Studios for the funding of $50 million and royalty structure that could exceed $100 million. The EA agreement was material to the state of Rhode Island’s financing. Of course, the state’s financing of $75 million to 38 Studios was a de facto a stabilizing force to EA’s interests.
EA the Focus
A press release issued by EA in May 2010 said, "We are thrilled to be working with 38 Studios. The world of RPG gaming is so rich and it is a perfect complement to our partners and title portfolio in EAP," said David DeMartini, Senior VP and General Manager of EA Partners. "Project Mercury is bursting with first-rate talent, with passion that spans across the board.” Project Mercury was the name of 38 Studios’ project.
The relationship between EA and 38 Studios was core to the viability of Curt Schilling's company. It would be difficult if not impossible for 38 Studios or any gaming company to bring a game to market without EA's distribution structure.
A confidential memo between top entertainment law firm and 38 Studios’ CEO Jen MacLean outlined a complex agreement that provided for EA to provide funding in exchange for full repayment and significant portions of the royalties generated — 70% to EA under $100 million in sales revenue. As GoLocal previously reported, in the time period of May of 2010, as the $75 million bond statute and EDC staff was developing the strategy, 38 Studios had limited cash and was straining to make payroll.
During the course of Verrecchia’s deposition in the state’s lawsuit, he defended his 38 Studios vote as a board member of the RI Economic Development Corporations. “When I voted for the bonds, I believed that the business model and financial projections were sufficient to complete the development of the game and get it to market. So that was an important consideration in selling the bonds," he said.
For Verrecchia, at the time of the 38 Studios vote, he was the Chairman of a major public company who had a material and strategic relationship with EA. He was serving on a public board voting for $75 million in funding for a company that had a $50 million investment from the same company with which Hasbro was partnering.
But why Verrecchia voted at all on 38 Studios funding is unknown. With the complexity of the business relationships between Hasbro and EA, why he did not recuse himself from participating in the 38 Studios matter is unclear.
Verrecchia had trained as an accountant at URI and had joined Hasbro in 1965. He had helped both Stephen and Alan Hassenfeld grow the Pawtucket-based company to the second-largest toy company in the world with a value of over $4.8 billion.
The agreement with EA was negotiated under the leadership of Verrecchia, the same man who served as Vice Chairman of the RI Economic Development Corporation Board. The Chair of the EDC Board was fellow RI-businessman turned politician Don Carcieri.
The EA agreement for Hasbro was one major step in transforming the company from a toy manufacturing company and selling their products in Walmart, Kmart and Toys "R" Us to transforming Hasbro to higher-margin electronic and interactive games. Just one year after the Hasbro and EA agreement was signed, Hasbro was realizing the benefits of the deal.
In Hasbro’s Annual Report in 2009, the company was trumpeting the financial impact of the EA deal, “Since our first digital games from EA hit the market in 2008, EA has sold at retail eight million units of Hasbro branded digital games. In 2009, EA successfully launched games for brands from LITTLEST PET SHOP to TRIVIAL PURSUIT to NERF to FAMILY GAME NIGHT. For mobile users, Hasbro brands, including BATTLESHIP, MONOPOLY and SCRABBLE, were top-grossing titles on the iPhone App Store during the 2009 holiday season and both MONOPOLY and SCRABBLE have remained in the top 50 consistently since launch. With great family and casual brands such as these, EA and Hasbro are well-positioned to leverage the evolution underway in the digital gaming market place, as mobile and online games grow to represent a larger portion of the total digital gaming opportunity.”
In part due to the agreement with EA, Hasbro’s stock rose from a $27 per share stock to finishing 2010 as a $48 stock. As of close Friday, Hasbro stock was trading at $113 dollars a share.
Was Voting for 38 Studios Funding a Conflict
Efforts to reach Verrecchia directly and through Hasbro were unsuccessful. However, in the documents released and in Verrecchia’s two days of depositions, the former Vice-Chair of the EDC board outlined how he had connected key Hasbro staff to assist EDC staff with the review.
In part, Verrecchia defended his vote for 38 Studios because “The RPG (role-playing game), from a financial perspective, was funded by EA, and we knew that. And we knew most of the revenue coming in initially would have to pay off the EA loan. So I was more concerned with the market success of the RPG to support the MMOG (massively multiplayer online game).”
Verrecchia helped to support EDC staff by introducing top staff to key people at Hasbro who worked with EA. According to one Saul email identified in Verrecchia’s deposition, “You (Verrecchia) agreed to introduce us to Mark Blecher (VP of Digital media and gaming) as part of the 38 Studio’s due diligence.”
In one exchange between one of the attorneys and Verrecchia during his deposition, he was asked, “So was it reasonable for you to assume when you voted in favor of the 38 Studios transaction that 38 Studios would be able to reach a distribution agreement with EA for Copernicus?”
Verrecchia said, “Yes…They have a distribution agreement on the RPG where EA was pre-funding $50 million. So they weren’t just another guy off the street. EA had already an arrangement…as I thought it was quite reasonable if we got the game to completion that EA would distribute…”
Hasbro and EA Extend Agreement
In 2012, 38 Studios ran out of money despite Rhode Island's investment of $75 million and could not find additional investors.
By 2013, Hasbro and EA announced that they were extending and expanding their partnership. "Over the past six years, Hasbro and EA have collaborated to develop some of the most popular digital games based on Hasbro's best-selling global game brands, including MONOPOLY, SCRABBLE and THE GAME OF LIFE," said Mark Blecher, Hasbro Senior Vice President and General Manager, Digital Gaming and Corporate Development. "The next phase of our relationship will build on this tremendous success and is specifically focused on leveraging Hasbro's rich game brands with EA's leadership in the mobile space. Our relationship with EA for mobile is an integral component of our digital strategy for developing Hasbro brands across gaming platforms."
Licensing Here and Licensing There
Belcher is the same senior Hasbro official who helped to put together the licensing agreements with Scientific Games.
Mark Blecher, SVP of Corporate Strategy and Business Affairs at Hasbro said in 2014 about the Scientific Games agreement, "For more than 90 years, Hasbro has been committed to building play experiences that consumers trust. Our long-standing licensing partnership with Scientific Games has been a great way for Hasbro to enable our consumers to enjoy MONOPOLY experiences through lotteries, casinos, online, at retail and, now at table games across the globe. We're proud that our iconic brands have served as a catalyst for gaming innovation and look forward to our enhanced partnership with Scientific Games."
When Hassenfeld was CEO of Hasbro he cemented the deal with Twin River’s partner. The ties between Hasbro and the gambling company are long and deep.
"Since 1998, Scientific Games has worked collaboratively with Hasbro in using the MONOPOLY brand as a pillar for innovation, leveraging its popularity to become one of the industry's top game brands," said Scientific Games' President and CEO, Barry Cottle in the 2014 announcement. "This new agreement signifies the strength of a great collaboration and celebrates the global endearment of the MONOPOLY brand as a leading slot brand and the top-selling licensed brand for lottery tickets. The agreement grants us the privilege of extending and expanding the scope of the licensing into a wide range of new products and play styles. We're excited to continue working with Hasbro to take MONOPOLY to the next level in gaming."
Specifically, the Hasbro and Scientific Games partnership allows the gambling company to use MONOPOLY branded content, and games based on many of Hasbro's iconic and extensive line of household favorites such as GAME OF LIFE, BATTLESHIP, CLUE, OUIJA, and YAHTZEE globally and SCRABBLE in the U.S. and Canada.
EDITOR'S NOTE: IGT is a GoLocal advertiser, Twin River has been a long-time advertiser, and Hassenfeld is a distant cousin to GoLocal CEO and co-founder Josh Fenton.
20 Amazing Facts About 38 Studios Debacle Unveiled in RISP Documents
1)
State Police Did Few In-Person Interviews
Most of the interviews conducted by the Rhode Island State Police were conducted via phone.
According to leading defense attorneys in Rhode Island, this is very unusual.
Key interviews that were held via phone included Governor Don Carcieri, one of the interviews with House Finance Chair Steven Costantino, and former Speaker of the House Bill Murphy.
2)
Carcieri Not Asked About Fox, Costantino or Corso
Carcieri was not asked in his interview with RISP about any discussions with then-Speaker Gordon Fox, House Finance Chair Steve Costantino or with any others associated with the deal.
Carcieri was not asked about Mike Corso who was the subject of the investigation.
3)
Peter Kilmartin’s Interview NOT Released - or Not Conducted
Speaker of the House Gordon Fox’s interview was not released on Thursday.
Nor was former House Whip and now Attorney General Peter Kilmartin. He voted for the funding scheme for 38 Studios. It is unclear if he was interviewed.
In recent months, Governor Gina Raimondo has said that Kilmartin should not have conducted the investigation.
Nor was Mike Corso's interview - who was, for some period of time, the subject of the investigation.
Some of these interview documents may be tied to the Grand Jury.
4)
Former RI Speaker Murphy Was Also Pitching Schilling to the Massachusetts Speaker
Former 38 Studios Board member Tom Zacagnino told RI State Police that he remembered Speaker Murphy "introducing Schilling to the Massachusetts Speaker of the House and stated that Murphy did not get compensated for this introduction. Zaccagnino beleives that Murphy did this only because of Curt Schilling’s star power.”
5)
Zacagnino and Corso Went to Buff Chace for a Loan
Providence developer Buff Chace was approached by 38 Studios’s Tom Zaccagnino and Mike Corso for a bridge loan. “Zaccagnino and Corso went to Buff Chase/Cornish Associates/Zach Darrow in an attempt to secure a bridge loan until the anticipated tax credits were issued. they did not approve the loan.”
Chace owns much of the development on Westminster Street and is now redeveloping the Providence Journal building in partnership with a Boston development group. And, he is helping to lead the redevelopment of the Superman Building.
6)
Corso Gets the Money from Movie Producer Brandt Andersen
According to the State Police interview with Tom Zacagnino, he and Corso approached movie producer Brandt Andersen after Buff Chace rejected their request for a bridge loan.
Andersen was the movie producer on Lone Survivor and dozens of other movies. He worked on movies with Gary Marshall, Martin Scorsese and Peter Berg. He and Corso were involved in productions together including, Lay the Favorite.
Andersen lent the two over $1.1 million.
7)
Raimondo Refused to Call for a New Investigation
When asked on Thursday if Governor Gina Raimondo would ask for an independent investgation, her office issued the following statement:
Governor Raimondo opposed 38 Studios from the start and believes Rhode Islanders deserve a full accounting of all that is known about how the deal occurred. The Governor commends the Rhode Island State Police for releasing all non-grand jury records from the 38 Studios investigation. These documents tell only a portion of the story about the investigation – we still don’t know what the grand jury heard and saw. That is why the Governor has petitioned the court for the release of the grand jury records.
8)
One Staffer Was Removed From EDC Review Team When He Asked Questions About 38 Studios
RI Economic Development Corporation supervisor Mike Saul took Sean Esten off the team for asking too many tough financial questions.
“It was Mike Saul specifically was the one who kind of started excluding me. But there was other people within the organization, like, Fred Hashway was deeply involved in a lot of the - negotiation of this and the - the discussion on this. They stopped communicating with me regarding it,” Esten told the State Police.
According to his 48-page interview, he raised numerous concerns about the viability and the size of the project.
Today, Esten works for Bank of America.
9)
State Police Consistently Misspelled Governor Lincoln Chafee’s Name
Former Governor Lincoln Chafee’s name was often spelled with two f’s — Chaffee.
38 Studios founder Curt Schilling's name was often misspelled too - it appeared "Kurt" and "Shilling" in multiple references.
10)
Hasbro Chair Verrecchia Not Asked About His Company's Relationship with EA
As GoLocal reported in September of 2015:
In 2007, Hasbro signed a major partnership agreement with Electronic Arts (EA) — an agreement that would help transform the Rhode Island toy company from a product-based manufacturing company to an interactive and entertainment focused multi-billion business. The deal has been worth hundreds of millions for the two companies. The CEO of Hasbro at the time was Al Verrecchia.
EA is the same company that had a major partnership and investment in 38 Studios. In a document released by Judge Michael Silverstein, a May 2010 memo was included that outlined the multi-million deal between EA and 38 Studios for the funding of $50 million and royalty structure that could exceed $100 million. The EA agreement was material to the state of Rhode Island’s financing. Of course, the state’s financing of $75 million to 38 Studios was a de facto a stabilizing force to EA.
In the 36-page interview with Verrecchia, then the Chair of the Board of Hasbro (both at the time of the vote to approve 38 Studios funding and at the date of the RSIP interview), was not asked any questions about the Hasbro relationship with EA and then EA’s agreement with 38 Studios.
Verrecchia didn’t recuse himself from the vote and voted for the funding scheme.
11)
Verrecchia Says Staff and Lawyers Misled the Board
When asked if the staff and RI Economic Development Corporation's attorney Rob Stolzman mislead the board, Verrechia said yes.
“Yeah, then I’d think we’d been misled," said Verrechia.
12)
Steve Nappa Tied to 38 Studios, Corso’s Tazza Caffe -- and Rehabbed Fox’s Husband’s Hair Salon in Corso’s Building
In one of his two interviews with RISP, Nappa outlines his selection to lead the construction at 38 Studios’ office space, his relationship with Mike Corso and work on Tazza Caffe, and the construction in another Corso building, which was the home to Corso’s close associate Gordon Fox’s husbands’s hair salon.
13)
“Velvet Mafia” Named
As part of his interview with the RISP Steve Nappa names Congressman David Cicilline, former Speaker Gordon Fox, former House Finance Chair Steven Costantino and Mike Corso “as all members of the nicknamed group ‘Velvet Mafia.’”
14)
Former Speaker Murphy Refused to Answer Questions
Former Speaker of the House Bill Murphy told RISP that he missed the vote on 38 Studios as well as nearly every other vote in May of 2010 and that he would not answer any other questions as he served as Gordon Fox’s attorney.
In documents released relating to the civil case in 2015, GoLocal unveiled:
In the documents released in September of 2015, Bill Murphy attested to how he sat in on a meeting with Corso, Fox and Curt Schilling while he was still Speaker.
But now, emails starting in July of 2009 between Corso and 38 Studios’ Tom Zaccagnino show the wheels were put in motion even earlier than we thought.
Murphy’s interview for the criminal investigation was conducted by phone.
15)
Rep. Carnevale Hoped Law Enforcement Got “to the Bottom of It'”
RISP asked former State Representative John Carnevale, “Do you think anybody benefited personally from this...?”
Carnevale told the State Police, “I don’t know, but if they did, I hope the State Police or the other - other - the feds, whoever investigated can come down, you know, to the bottom of it…”
16)
Former House Finance Chair Costantino’s Lawyer was Former House Majority Leader George Caroulo
While Speaker Gordon Fox was represented by former Speaker Bill Murphy, former House Finance Chair Costantino is/was during the State Police interviews by former House Majority Leader George Caroulo.
17)
Senate Claimed to Defer to the House
According to the State Police Investigative Report, the Senate claimed it deferred to the House. “They (Senators) all stated that the Jobs Creation Guarantee Program bill was a House bill, so they were not involved in any debate regarding its’s passage.”
Senate President Teresa Paiva Weed said she knew the bill was to benefit 38 Studios, but claimed she did not tell any other member of the Senate.
18)
Carcieri’s Staff Stopped GOP Legislator from Capping Loan Program
GOP Representative Larry Ehrhardt tried to cap the amount any one company could receive, but Governor Carcieri’s legislative staffer and Keith Stokes of Economic Development caught his attention and convinced him not to submit the legislation as it would adversely impact a transaction that EDC was trying to close.
Erhhardt said that they never mentioned 38 Studios. Then-State Representative John Loughlin who ran for Congress that same year, also told the State Police that he thought that is Ehrhardt had submitted his amendment it might have passed and 38 Studios deal would have died.
19)
Companies Who Paid More than $60 million Not Interviewed
Local law firms and national finance companies settled with the State of Rhode Island for more than $60 million, including global finance powers Wells Fargo Securities and Barclays Capital who paid the state $25.625 million.
But, it appears that no one from those companies were interviewed as a part of the criminal investigation.
20)
No Charge for Tazza Installation
In May of 2014, GoLocal reported:
A former subcontractor for 38 Studios is alleging that his firm was ordered to work on former Speaker of the House Gordon Fox's business colleague Michael Corso's bar as part of their contract - and has produced what he says is documentation to prove it.
Project manager Michael Rossi with SyNet, Inc. has revealed a budget for work which he says shows at $25,000 line item for work to be done at Corso's Tazza Cafe in 2011 -- under a job order for the failed 38 Studios.
Warwick-based SyNet bills itself as "the premier design-build low voltage contractor of structured cabling, access control, surveillance and audio visual systems in the Northeast."
Rossi said that he went to the State Police with the information at the time it happened. "Nothing was done with it," said Rossi. "They're setting up to defend themselves with information they had 2-3 years ago."
Rhode Island State Police Colonel Steven O'Donnell told GoLocal on Wednesday that there has been an "ongoing investigation by the state police into Michael Corso." When asked for further details, O'Donnell said, "With the investigation, I can't comment further on the matter at this time."
