What Curt Schilling's Bankruptcy Can Teach Us

Pitching phenom Curt Schilling's mastery on the mound was practically unmatched for much of his career. But as his recent estate sale seems to indicate yet again, his post-baseball performance was far from major league caliber.

Schilling the ace
After an unspectacular early career with the Orioles and Astros, Schilling's break came in 1992 when Philadelphia added him to its starting rotation. From there, Schilling threw 83 complete games over 15 years for the Phillies, Diamondbacks, and Red Sox, amassing 3,116 strikeouts over the course of his career – good enough for 15th on the all-time list – and leaving the game with 70 more wins than losses.

When Schilling announced his retirement in 2009, he left the game having left everything on the field -- as a testament to his grit, his infamous bloody sock from the 2004 World Series is in the Hall of Fame.

But, as we've seen all too often with athletes, success on the field didn't translate into success off it.

Schilling's unfortunate strikeout
During Schilling's baseball career, he amassed more than $90 million in earnings and bonuses, and that's before you count endorsements. Schilling used the money to open up his own company.

Source: RebeccaPollard, Flickr.

During his playing days, while teammates would go for a night on the town, Schilling would spend his nights playing Activision Blizzard's (NASDAQ: ATVI  ) World of Warcraft, according to Boston Magazine. His love of gaming led him to launch Green Monster Games, which later changed its name to 38 Studios – in honor of the number Schilling wore on his jersey.

The aim of 38 Studios was simple – build the next great massively multi-player online role-playing game, or MMORPG. World of Warcraft captivated Schilling – and how could it not; it had 12 million subscribers at its peak -- and he bet big that his company could duplicate those results. Turns out it's easier to pinpoint a mid-90s fastball than recreate WoW's success.

His passion for gaming didn't translate into making the games. His leadership on the mound didn't mean he could run a full-fledged gaming company. He sensed what it would take to make his MMORPG interesting, but had little clue about what it would take to build a company from the ground up and a winning game from scratch. In other words, it was a train wreck waiting to happen and most industry experts could see it.

From its founding in 2006 to early 2012, the company successfully finished and released exactly one game: Kingdoms of Amalur: Reckoning. It sold a respectable 1.2 million copies worldwide within the first three months despite mixed reviews. But Schilling was aiming for a home run, not an infield single. With the high costs of game development eating up 38 Studios' waning cash, the company was forced into bankruptcy and eventual Chapter 7 liquidation, claiming just $22 million in assets and nearly $151 million in debt at the time of its filing. Along with Schilling's upended dreams came the loss of $50 million of his own money personally invested in the business – essentially his entire remaining baseball earnings.

Since then, things appear to have gone from bad to worse. The Rhode Island Economic Development Corp. filed a suit against 38 Studios and Schilling for breaching its $75 million taxpayer-funded loan agreement. Schilling had to auction off that bloody sock, and he and his wife just this past week sold off assets from their Massachusetts estate (though Schilling's wife dismissed it as nothing more than a desire to downsize to a smaller home).

What Curt Schilling can teach us
Curt Schilling was undoubtedly an amazing baseball player, but he ultimately fell victim to the same crippling investment gaffes that many of us are prone to.

For starters, Schilling tried to become an entrepreneur in an industry that he loved, but had no expertise in. Just because someone has played video games their entire life doesn't mean they know how to develop an MMORPG from the ground up.

Similarly, you as an investor won't become Warren Buffett overnight. It takes a lifetime of constant dedication, reading, and research to better understand the ins and outs of the stock market. Your best bet as an investor is to focus on one or two industries that interest you, become an expert, and use that knowledge to become a smarter investor. You won't hit a home run every time, but there's no requirement to swing for the fences each time, either.

Second, whether you have $900 or $90 million, it's unwise to throw all of your eggs into one basket. Many of the richest people in the world garnered their wealth through diversification; others have watched their wealth evaporate because they lacked it.

Buffett represents for investors the model of diversification. His holding company, Berkshire Hathaway (NYSE: BRK-B  ) (NYSE: BRK-A  ) , recently announced the purchase of NV Energy, an electric utility provider in Nevada. This marks the 58th different company Berkshire has brought into its fold over a five-decade period. Whether the economy is booming or struggling, chances are good that Berkshire's diversified holdings will still be delivering strong cash flow thanks to its holdings across numerous sectors.

Finally, Curt Schilling failed to maintain a disciplined long-term outlook. He apparently didn't account for the hardships of starting a gaming company -- the costs, the heavy competition, and the challenge of creating a blockbuster MMORPG from scratch. Instead of starting small and keeping expenses reasonable, Schilling assumed everything would work out without having a back-up plan in place.

The lesson is to think about how our investments would perform if we bought and held them for 10, 20, or even 30 years. If the next product is going to make or break a company, then perhaps that business isn't best suited for long-term investors. Even if they were a six-time all-star.

You have to swing to hit the ball
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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 15, 2013, at 6:17 PM, adamwins76 wrote:

    What a shame. So many professional athletes seem to be horrible investors.

  • Report this Comment On October 16, 2013, at 4:37 PM, pondee619 wrote:

    "Many of the richest people in the world garnered their wealth through diversification; others have watched their wealth evaporate because they lacked it"

    And yet, we were recently regaled with the story of Ms. Groner who was able to assemble a fortune by buying only ONE stock (Abbott Labs) and holding it for next to forever.

    http://www.fool.com/investing/general/2013/10/08/financial-l...

  • Report this Comment On March 26, 2014, at 3:27 PM, djpeteski wrote:

    One thing the article left out is that Curt ran a pretty successful board gaming company. Its name is Multi-Man publishing and publishes games for advanced squad leader.

    The difference was that the company had an army of volunteers to help develop content, of which I was one.

    So owning a successful board gaming company did not translate into a successful video game company. He really is a good guy and I hope he and his family can recover.

    http://petesjunk.us

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