Curt Schilling Points Finger at Rhode Island Governor

Curt Schilling Points Finger at Rhode Island Governor

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The founder of 38 Studios says "devastating" comments by the Governor of Rhode Island were a big factor in the company's collapse.

Curt Schilling, the former Red Sox ace who founded 38 Studios in 2006, hasn't had much to say about its rapid spiral downward over the past month. He's kept quiet so far in order to avoid upsetting "sensitive" efforts to save the company, but now he's speaking out, and he doesn't have many good things to say about his erstwhile business partner.

"The Governor is not operating in the best interest of the company by any stretch, or the taxpayers, or the state," Schilling told the Providence Journal. "We're trying to save this company and we're working 24/7. The public commentary has been as big a piece of what's happening to us as anything out there."

In response to a statement from Rhode Island Governor Lincoln Chafee that the state will not give 38 Studios any more money in order to keep it afloat, he added, "That money is going into the hands, wallets, mouths of families who live in Rhode Island - right back into the system... We're not trying to take advantage of the taxpayers. We're trying to be a successful business in the State of Rhode Island that helps the State of Rhode Island get out of the doldrums that we are in."

Schilling explained that while the studio's debut release, Kingdoms of Amalur: Reckoning, was a solid success, the money went directly to Electronic Arts, which had already paid an up-front $35 million "publishing fee" for the game. When 38 Studios' money troubles first arose in mid-April, negotiations for further support, including $8.7 million in tax credits, appeared to be going well, until the state allegedly began playing games. That, combined with public statements from Chafee about the company's solvency issues, burn rate and other matters scared off private investors who were poised to get behind both the "Project Copernicus" MMO and the Kingdoms of Amalur sequel.

The studio isn't dead and buried just yet, as 38 Studio executives are continuing to seek investors to resuscitate the company. It also continues to pursue tax credits the state recently suggested it may be ineligible to receive. On a more personal level, Schilling says that perceptions of him as a rich guy taking government hand-outs are completely off-base; he's personally got $50 million wrapped up in the company, and stands to lose it all if it goes under.

Source: Providence Journal

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Oh look EA helping screw over another independent developer.

Andy Chalk:

Schilling explained... the money went directly to Electronic Arts, which had already paid an up-front $35 million "publishing fee" for the game. When 389 Studios' money troubles...

"...got really bad they borrowed money from their cousin, 38 Studios, which in turn put them in financial trouble."

There, fixed that for ya'. :)

I was waiting for this. All this while I've been wondering when someone from 38 Studios would bite back.

DVS BSTrD:
Oh look EA helping screw over another independent developer.

I suggest you look up the meaning of Ponzi scheme. Its where you pay back previous investors subsequent investors money. Sort like when a gaming studio tries to pay back money lent on 1 unfinished product buy selling another unfinished product to EA. Guess what companies don't buy unfinished games from from studious on the verge of bankruptcy because the odds are their money will go straight to RI and they will get nothing.

DVS BSTrD:
Oh look EA helping screw over another independent developer.

All that's left is to turn KoA into a shooter....

IndianaJonny:

"...got really bad they borrowed money from their cousin, 38 Studios, which in turn put them in financial trouble."

There, fixed that for ya'. :)

They were in such financial trouble that they had to add another digit.

While this whole debacle is undoubtedly Schilling's responsibility first and foremost, it seems clear the Governor of RI was hostile to the cause from the get-go. It doesn't take a financial genius to understand that public doomsday alerts blurted out by their guarantor on the company's solvency wasn't going to do it any favors during the hunt for ripe targets bridge investors to help keep them afloat. He saw a sinking ship and thought to cover his own ass while putting the boot in to a project he never supported. The man is either a complete buffoon or acted quite pointedly against the best interests of the citizens of his state. It's shameful and I hope you Rhode Islanders vote this snake out of office.

Their business mistake was relying on a AAA MMO based on a non-existent IP to generate enough investor interest to keep them afloat. With the exception of TOR, which had an initial burst of success due to the license and the studio name behind it (Bioware), no AAA MMOs have even made their money back without going F2P in the last 5 years.

Stupid business planning combined with lukewarm sales of their initial title caused the studio's downfall. As much as I think Curt Schilling is a cool dude for all he was doing, he didn't handle it very well.

KoA is on sale on Amazon this week for $30, I was considering buying it, but given that the entire staff has been laid off and there are no investors on the horizon, I don't think there's much point in supporting a split profit between EA and the government of RI.

Andy Chalk:
Schilling explained that while the studio's debut release, Kingdoms of Amalur: Reckoning, was a solid success, the money went directly to Electronic Arts, which had already paid an up-front $35 million "publishing fee" for the game.

Waaait, so between EA and RI that means that Amalur was like a $150 million dollar game?

Andy Chalk:
That, combined with public statements from Chafee about the company's solvency issues, burn rate and other matters scared off private investors who were poised to get behind both the "Project Copernicus" MMO and the Kingdoms of Amalur sequel.

There was people willing to invest in an MMO in the wake of SW:TOR. Were they drunk?

Andy Chalk:
The studio isn't dead and buried just yet, as 38 Studio executives are continuing to seek investors to resuscitate the company.

So nice of them to work for free like that. Because if they're getting paid, I think the rank-and-file who were short-changed two paychecks have reason to get the pitchforks and torches.

Andy Chalk:
On a more personal level, Schilling says that perceptions of his as a rich guy taking government hand-outs are completely off-base; he's got $50 million wrapped up in the company and stands to lose it all if it goes under.

So Amalur was a $200 million dollar game. What?

deth2munkies:
Their business mistake was relying on a AAA MMO based on a non-existent IP to generate enough investor interest to keep them afloat. With the exception of TOR, which had an initial burst of success due to the license and the studio name behind it (Bioware), no AAA MMOs have even made their money back without going F2P in the last 5 years.

Honestly not trying to be a putz here, but do you have any reliable numbers for your statement on the financial success of recent MMOs? It's the sort of thing I'd be really interested in reading. All the data I have is anecdotal or woefully incomplete.

I think this parody song sung to the tune of George Thurogood's One Bourbon, One Scotch, One Beer played by a local radio station seem appropriate.

http://www.94hjy.com/player/?mid=22127038

UnderGlass:
While this whole debacle is undoubtedly Schilling's responsibility first and foremost, it seems clear the Governor of RI was hostile to the cause from the get-go. It doesn't take a financial genius to understand that public doomsday alerts blurted out by their guarantor on the company's solvency wasn't going to do it any favors during the hunt for ripe targets bridge investors to help keep them afloat. He saw a sinking ship and thought to cover his own ass while putting the boot in to a project he never supported. The man is either a complete buffoon or acted quite pointedly against the best interests of the citizens of his state. It's shameful and I hope you Rhode Islanders vote this snake out of office.

He did only win with like 30% of the vote.

UnderGlass:

deth2munkies:
Their business mistake was relying on a AAA MMO based on a non-existent IP to generate enough investor interest to keep them afloat. With the exception of TOR, which had an initial burst of success due to the license and the studio name behind it (Bioware), no AAA MMOs have even made their money back without going F2P in the last 5 years.

Honestly not trying to be a putz here, but do you have any reliable numbers for your statement on the financial success of recent MMOs? It's the sort of thing I'd be really interested in reading. All the data I have is anecdotal or woefully incomplete.

I'll fully admit that I haven't gone through subscriber numbers etc, because most of that information is not publicly available. What is publicly available is that all of them have either closed up shop or gone F2P in under a year, which is a sign of desperation.

I'd love to believe you Mr. Shill, but that's not how this works.

First you had a loan payment due at the beginning of May. A 1 Million dollar loan payment. You knew that was coming up. Your Accountant knew that was coming up.

The only FACT I really need to come to any conclusion is that you failed to pay, and bounced a check. To put Icing on the cake you then continued to have people work over the month knowing that you couldn't pay them. The honest truth is that time to go public with this and lay people off was April. I don't like people being being let go, but I hate it more when they work for free.

KoA maybe a good game for a first time run, but the company was clearly run by idiots who know have questionable ethics.

If you had done something last month, when you had money, you might have been able to save your company, but you didn't.

Formica Archonis:

Andy Chalk:
Schilling explained that while the studio's debut release, Kingdoms of Amalur: Reckoning, was a solid success, the money went directly to Electronic Arts, which had already paid an up-front $35 million "publishing fee" for the game.

Waaait, so between EA and RI that means that Amalur was like a $150 million dollar game?

Andy Chalk:
On a more personal level, Schilling says that perceptions of his as a rich guy taking government hand-outs are completely off-base; he's got $50 million wrapped up in the company and stands to lose it all if it goes under.

So Amalur was a $200 million dollar game. What?

I doubt it. That $85 million probably went to other expenses, and/or was already counted within the cost of making Amalur: Reckoning.

medv4380:
I'd love to believe you Mr. Shill, but that's not how this works.

First you had a loan payment due at the beginning of May. A 1 Million dollar loan payment. You knew that was coming up. Your Accountant knew that was coming up.

The only FACT I really need to come to any conclusion is that you failed to pay, and bounced a check. To put Icing on the cake you then continued to have people work over the month knowing that you couldn't pay them. The honest truth is that time to go public with this and lay people off was April. I don't like people being being let go, but I hate it more when they work for free.

KoA maybe a good game for a first time run, but the company was clearly run by idiots who know have questionable ethics.

If you had done something last month, when you had money, you might have been able to save your company, but you didn't.

Without a more specific timeline of the negotiations with Rhode Island, I don't think we can necessarily conclude 38 Studios were acting unethically.

4173:
Without a more specific timeline of the negotiations with Rhode Island, I don't think we can necessarily conclude 38 Studios were acting unethically.

Yes, and here is how. As a company they should have had Monthly or at least Quarterly reviews. With each review they should know how their bank balance is doing. If they were any good at their job they would know that they were coming up on a Cash Flow issue.

So, ether they are unethical about running a business, and where spending money with complete disregard for keeping their cash flow going. This is an unethical business practice. If a publicly traded company did this their would be an SEC investigation. This is the basics of Accounting Ethics.

Or, they were fully aware of the cash flow issue. That is even more unethical because then they were aware that the employees were going to work for Free, and they knowingly bounced a check. They should have been letting people go long before that check bounced.

Both are sound arguments for them being unethical in the Business world. I don't need a "timeline" to with hold judgement. All I need to know is that they are incompetent at running a business, had people work for FREE, and knowingly bounced a check.

Edit:
And from the actual linked article what he was doing is similar to Check Kiting to me. If he had cut people off in April maybe he would have saved some of that 4 Million a month to pay that 1 million loan payment. Instead he notified them on the 30th that he wouldn't be able to make his payment on the 1st. He was also trying to spend money from a Tax Credit he didn't yet have. That's the same thing people are doing when they are Kiting Checks.

UnderGlass:
While this whole debacle is undoubtedly Schilling's responsibility first and foremost, it seems clear the Governor of RI was hostile to the cause from the get-go. It doesn't take a financial genius to understand that public doomsday alerts blurted out by their guarantor on the company's solvency wasn't going to do it any favors during the hunt for ripe targets bridge investors to help keep them afloat. He saw a sinking ship and thought to cover his own ass while putting the boot in to a project he never supported. The man is either a complete buffoon or acted quite pointedly against the best interests of the citizens of his state. It's shameful and I hope you Rhode Islanders vote this snake out of office.

If I recall reading on another article, it was actually guaranteed by the previous governor, but I do not have the willingness to search that information out. But, if that is true, this governor was not actually on board at any point. He may just consider this a waste of tax money (which is definitely an arguable point) and does not want to give them any breaks at all.

All of that said, pointing fingers at any one individual is stupid. No one person could be responsible for what happened at this company. It is a series of events that leads to this, not the actions of one man or group.

medv4380:

4173:
Without a more specific timeline of the negotiations with Rhode Island, I don't think we can necessarily conclude 38 Studios were acting unethically.

Yes, and here is how. As a company they should have had Monthly or at least Quarterly reviews. With each review they should know how their bank balance is doing. If they were any good at their job they would know that they were coming up on a Cash Flow issue.

So, ether they are unethical about running a business, and where spending money with complete disregard for keeping their cash flow going. This is an unethical business practice. If a publicly traded company did this their would be an SEC investigation. This is the basics of Accounting Ethics.

Or, they were fully aware of the cash flow issue. That is even more unethical because then they were aware that the employees were going to work for Free, and they knowingly bounced a check. They should have been letting people go long before that check bounced.

Both are sound arguments for them being unethical in the Business world. I don't need a "timeline" to with hold judgement. All I need to know is that they are incompetent at running a business, had people work for FREE, and knowingly bounced a check.

Edit:
And from the actual linked article what he was doing is similar to Check Kiting to me. If he had cut people off in April maybe he would have saved some of that 4 Million a month to pay that 1 million loan payment. Instead he notified them on the 30th that he wouldn't be able to make his payment on the 1st. He was also trying to spend money from a Tax Credit he didn't yet have. That's the same thing people are doing when they are Kiting Checks.

Good call. I do remember, now that you mention it, that 30th/1st thing.

All I was getting at with the other, is that if they thought they were getting the tax credit a week or so later, bouncing the check is reckless, but I'm not sure I'd be ready to say its unethical (hard to say, without being in the negotiating room). What bits and pieces have leaked out certainly don't paint 38* as admirable, at the very least.

*(though how much input Curt had on the day to day, I'm not sure. Such is the risk of being the public face of a company. You get credit blame for things that may not be your responsibility.)

I feel bad for what happened to this company. Its hard to start up a new company and release new, AAA quality IP in today's video game market. I hope he is able to salvage the company.

Baresark:

UnderGlass:
While this whole debacle is undoubtedly Schilling's responsibility first and foremost, it seems clear the Governor of RI was hostile to the cause from the get-go. It doesn't take a financial genius to understand that public doomsday alerts blurted out by their guarantor on the company's solvency wasn't going to do it any favors during the hunt for ripe targets bridge investors to help keep them afloat. He saw a sinking ship and thought to cover his own ass while putting the boot in to a project he never supported. The man is either a complete buffoon or acted quite pointedly against the best interests of the citizens of his state. It's shameful and I hope you Rhode Islanders vote this snake out of office.

If I recall reading on another article, it was actually guaranteed by the previous governor, but I do not have the willingness to search that information out. But, if that is true, this governor was not actually on board at any point. He may just consider this a waste of tax money (which is definitely an arguable point) and does not want to give them any breaks at all.

All of that said, pointing fingers at any one individual is stupid. No one person could be responsible for what happened at this company. It is a series of events that leads to this, not the actions of one man or group.

What you are saying is true. However once the deal was made and the money spent there is not much anyone could do about it. Now, if 38 Studios goes under, the Rhode Island tax payer gets to pay back some 60 million+ dollars for the next decade. So don't you think this new Governor, regardless of his previous feelings on the deal, ought to have acted in the best interests of the company to try and keep the Rhode Island taxpayer out of the fire? Instead the way he went about things undoubtedly contributed to their difficulties. Would Schilling have found a rich drooling idiot investor to save them? We'll never know. Either way Governor Chafee is either stupid, or spiteful or he was trying to cover his own ass at the expense of his taxpayers.

On the other hand, perhaps RI and EA would have been more supportive if you weren't trying to put out a generic MMO, Schilling. Maybe if your battle plan wasn't so inherently flawed and you tried releasing another fantasy RPG instead of a gamble in a genre that is showing a negative trend, Schilling. Maybe you should accept some of the blame for 38's missteps instead of blaming it on our Governor, Schilling.

UnderGlass:

What you are saying is true. However once the deal was made and the money spent there is not much anyone could do about it. Now, if 38 Studios goes under, the Rhode Island tax payer gets to pay back some 60 million+ dollars for the next decade. So don't you think this new Governor, regardless of his previous feelings on the deal, ought to have acted in the best interests of the company to try and keep the Rhode Island taxpayer out of the fire? Instead the way he went about things undoubtedly contributed to their difficulties. Would Schilling have found a rich drooling idiot investor to save them? We'll never know. Either way Governor Chafee is either stupid, or spiteful or he was trying to cover his own ass at the expense of his taxpayers.

Have you head of the term Money Pit? When the Governor of RI said that they were "trying to avoid throwing good money after bad" that is exactly what he is trying to avoid.

If your opinion of 38 Studios is that it is a Money Pit then the best option for the RI tax payer is for the governor to get out before that 60+ million turns into 100+ million.

Also, it is unlikely that Schilling would find an investor. Part of the problem that he has is that the companies IP is collateral in the loan. What an investor wants is to own the IP, but because it's already collateral for the State they have a problem. It's not the States fault that the only thing they had to get the loan was the companies IP, but using the IP in that fashion stops you from being able to get most venture capital.

If the numbers are what they have been reported to be then the company as it stands is a money pit, and RI will end up owning the entire company. At that point the best interest of RI would be to ether sell what they have to someone, or put in new management to get the company sell-able, or bought back and put up for IPO.

DVS BSTrD:
Oh look EA helping screw over another independent developer.

How dare they fund and publish a game! Evillllll!

Edit:

UnderGlass:

Baresark:

UnderGlass:
snip

If I recall reading on another article, it was actually guaranteed by the previous governor, but I do not have the willingness to search that information out. But, if that is true, this governor was not actually on board at any point. He may just consider this a waste of tax money (which is definitely an arguable point) and does not want to give them any breaks at all.

All of that said, pointing fingers at any one individual is stupid. No one person could be responsible for what happened at this company. It is a series of events that leads to this, not the actions of one man or group.

What you are saying is true. However once the deal was made and the money spent there is not much anyone could do about it. Now, if 38 Studios goes under, the Rhode Island tax payer gets to pay back some 60 million+ dollars for the next decade. So don't you think this new Governor, regardless of his previous feelings on the deal, ought to have acted in the best interests of the company to try and keep the Rhode Island taxpayer out of the fire? Instead the way he went about things undoubtedly contributed to their difficulties. Would Schilling have found a rich drooling idiot investor to save them? We'll never know. Either way Governor Chafee is either stupid, or spiteful or he was trying to cover his own ass at the expense of his taxpayers.

Oh, I'm in complete agreement with you. It doesn't matter if he was on board or not, because the previous governor was. When Obama got into office, he didn't just abandon everything GWB did, that is just childish and stupid from a political perspective. As a governor I feel it was his duty to see this thing through because it was only through success that the taxpayer stood a chance of not footing the bill for this.

medv4380:

UnderGlass:

What you are saying is true. However once the deal was made and the money spent there is not much anyone could do about it. Now, if 38 Studios goes under, the Rhode Island tax payer gets to pay back some 60 million+ dollars for the next decade. So don't you think this new Governor, regardless of his previous feelings on the deal, ought to have acted in the best interests of the company to try and keep the Rhode Island taxpayer out of the fire? Instead the way he went about things undoubtedly contributed to their difficulties. Would Schilling have found a rich drooling idiot investor to save them? We'll never know. Either way Governor Chafee is either stupid, or spiteful or he was trying to cover his own ass at the expense of his taxpayers.

Have you head of the term Money Pit? When the Governor of RI said that they were "trying to avoid throwing good money after bad" that is exactly what he is trying to avoid.

Maybe. I think the chances of him finding a fairy godmother may have been slim, but it's conjecture now and there's little point dwelling on it. As I said, the lion's share of the responsibility has to fall on Schillings shoulders of course. I don't believe I ever inferred that RI should have released more of the loan to 38 Studios. In fact keeping it in reserve from that nincompoop, to assure the next few repayments, will prove a welcome reprieve for all concerned I'm sure.

Still, none of that means that as the first order of business the Governor should have thrown the company to the sharks. I just find that in very poor form and a little suspect tbh given his previous history with the deal.

I doubt the company will get itself out of this hole. It's a pity but that's life. I do wonder just how much money was spent on the creation of KoA and how much was put towards the MMO to be.

If only they could create a $25 steam daily special some funds might be raised.

UnderGlass:
While this whole debacle is undoubtedly Schilling's responsibility first and foremost, it seems clear the Governor of RI was hostile to the cause from the get-go. It doesn't take a financial genius to understand that public doomsday alerts blurted out by their guarantor on the company's solvency wasn't going to do it any favors during the hunt for ripe targets bridge investors to help keep them afloat. He saw a sinking ship and thought to cover his own ass while putting the boot in to a project he never supported. The man is either a complete buffoon or acted quite pointedly against the best interests of the citizens of his state. It's shameful and I hope you Rhode Islanders vote this snake out of office.

Screw that noise. The majority of us Rhode Islanders didn't want the deal in the first place, either. Schilling even says in the Providence Journal article that Chafee was amenable to them getting another tax credit (for film, if you can believe it), but the RIEDC dragged its feet and torpedoed that. Then, after they can't make the first loan repayment, Chafee makes the announcement that they're heading toward insolvency and Schilling claims that that's what scared off investors. But (in the same Journal article) the state's negotiator is in talks with investors right now, and he says he's not experiencing any trouble attracting them.

It'd be silly to vote Chafee out for this. It's the state legislature's fault, it was their crummy deal, not Chafee's. And now it sounds like Chafee did what he could, but was able to read the writing on the wall and cut the state's losses. I'd vote the legislators out of office, but this is a Democrat-controlled state, and I'd rather have a rep with a voice than one without. So, instead, I'll tell Schilling to take his terrible business model and bite-the-hand-that-feeds mentality and take a hike, just as I (and the majority of Rhode Islanders) suggested he do when the deal was being struck in the first place.

Frostbite3789:

DVS BSTrD:
Oh look EA helping screw over another independent developer.

How dare they fund and publish a game! Evillllll!

Obviously, they only funded and published the game because they thought that the game would fail to make enough money to recover their investment, and the developer would fail.

If I was less tired this post would have a killer zinger involving Vincent Cianci.

Aww . . . You didn't have a picture of Adam West. I consider that a wasted opportunity.

HobbesMkii:

UnderGlass:
While this whole debacle is undoubtedly Schilling's responsibility first and foremost, it seems clear the Governor of RI was hostile to the cause from the get-go. It doesn't take a financial genius to understand that public doomsday alerts blurted out by their guarantor on the company's solvency wasn't going to do it any favors during the hunt for ripe targets bridge investors to help keep them afloat. He saw a sinking ship and thought to cover his own ass while putting the boot in to a project he never supported. The man is either a complete buffoon or acted quite pointedly against the best interests of the citizens of his state. It's shameful and I hope you Rhode Islanders vote this snake out of office.

Screw that noise. The majority of us Rhode Islanders didn't want the deal in the first place, either. Schilling even says in the Providence Journal article that Chafee was amenable to them getting another tax credit (for film, if you can believe it), but the RIEDC dragged its feet and torpedoed that. Then, after they can't make the first loan repayment, Chafee makes the announcement that they're heading toward insolvency and Schilling claims that that's what scared off investors. But (in the same Journal article) the state's negotiator is in talks with investors right now, and he says he's not experiencing any trouble attracting them.

It'd be silly to vote Chafee out for this. It's the state legislature's fault, it was their crummy deal, not Chafee's. And now it sounds like Chafee did what he could, but was able to read the writing on the wall and cut the state's losses. I'd vote the legislators out of office, but this is a Democrat-controlled state, and I'd rather have a rep with a voice than one without. So, instead, I'll tell Schilling to take his terrible business model and bite-the-hand-that-feeds mentality and take a hike, just as I (and the majority of Rhode Islanders) suggested he do when the deal was being struck in the first place.

Let me preface this by offering my condolences for this crappy situation. If you indeed live in RI then you're looking at a pretty bleak annual budget for the foreseeable future. It sounds like you're a lot closer to the situation than me so take my comments for what they are -- armchair commentating from an ocean away. If you think Chafee is on the level and he's competent in other areas then I've no reason to doubt you. I still find his treatment of the situation highly questionable but since the house is completely on fire now I guess what matters is how it's handled from here.

All the best for this news of investors. We're in complete agreement that Schilling's pie-in-the-sky deal making was terrible for RI and the MMO story was always going to end badly. The collapse of the company and it's IP though is the absolute worst thing that could possibly have happened. If they'd managed, in the next 6 months to a year, to get a second game out the door based on their original work -- plus any extra dlc they were able to bang out for Reckoning -- then their cashflow situation might have improved considerably. Perhaps enough to prop up final development of the MMO and push it out the door. Even if the MMO bombed something would have inevitably come back from it. If it wasn't enough you'd still have a service that could be re-purposed, made f2p etc.

As it stands no one is going to pick up a partially developed game sans team and inextricably tied with the IP, whether it be single-player or massively multi-player. Right now you have potentially a hundred times nothing as soon as that reserve is gone. The IP might still be worth something but the work that's been done is next to useless, may as well set a match to it :(

If I remember correctly Chafee was against the whole deal since before he became the governor.

 

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