Hasbro and WotC: looking at the numbers

[Reindeercards]

Hasbro's stock has dropped 18% since May 2007 - http://finance.yahoo.com/q/ao?s=HAS

And analysts aren't convinced the outlook in the future to be rosy. http://finance.yahoo.com/q/ao?s=HAS
With the further downturn of the economy, I wouldn't be surprised if that's true.

And Hasbro company officials have been selling their Hasbro stock far, far more than buying. That usually indicates the company officials are pretty certain the stock price is going to slide further. http://finance.yahoo.com/q/it?s=HAS

That's the kind of situation where a company would typically squeeze every department to slash their budget. So I wouldn't be shocked if Hasbro was squeezing WotC. I also wouldn't be shocked if if the WotC reps used that excuse whether or not it was true.

In short, I'd look for them to be flexible on communication issues but not so much on bottom-line money issues.


Now for Hasbro's financial statement

http://thomson.mobular.net/thomson/7/2322/2553/


page 37 as shown on the header (page 25 as shown on the bottom of the page)

Gross profit margin 58.3% in 2005 and 58.6% in 2006.

These increases were largely offset by...lower sales of trading card games that carry a higher gross margin.

page 38 as shown on the header (page 26 as shown on the bottom of the page)

Hasbro company average in advertising costs as a percentage of revenue

2006 - 11.7%
2005 - 11.8
2004 - 12.9

So with a booster pack costing US $3.99, what this means is that more than 58.6% of that money is pure profit to the company. And at a minimum, the profit off a booster is $2.33 according to Hasbro's website.

Now out of the leftover $1.66 per booster, if Magic were the average Hasbro product, 11.7% of that is advertising costs. That's the portion which pays to have a Pro Tour plus magazine and banner ads plus promotional materials going to stores and TOs. That's 19.4 cents per booster.

Of course, we don't know if Magic is an average Hasbro product nor how many boosters they sell. But maybe a starting point to look at.

That's a huge gross profit margin compared to other industries. But WotC has to compare that to other Hasbro products, not to other industries. I'm sure its tough for WotC to compete on costs vs Hasbro's My Little Pony products made by slave labor in China.

[Luke]

Interesting figures.

Though I wouldn't trust Yahoo on the strength of buying and selling shares. Still the stat's are pretty obvious. Shares rise and fall in companies a lot though and it doesn't mean that it's always a bad or horrible thing. Stock Markets are a strange place where advanced algorithmic mathematics and trends dictate price increases and decreases. Not all of it boils down to selling figures.

I fear there is other cards games jumping into resurgence like Yu-Gi-Oh etc. When Pokémon was hot and WotC were making bucket loads on that it wasn't a problem, but Yu-Gi-Oh is done by a different company, I've noticed in my region of England a lot of players who could have got into Magic have decided to jump on the Yu-Gi-Oh train, the last convention I did the WOW TCG was bigger than MTG and generally theres more competition.

I don't think this is where the responsibility lies. But I could be wrong, I'm not stock analyst.

[Reindeercards]

Interesting figures.

I wouldn't trust Yahoo on the strength of buying and selling shares.

That's not Yahoo's opinion. Its the opinion of the largest research firms which work the market. The list of them and their current recommendation is at that link I posted.

Shares rise and fall in companies a lot though and it doesn't mean that it's always a bad or horrible thing. Stock Markets are a strange place where advanced algorithmic mathematics and trends dictate price increases and decreases. Not all of it boils down to selling figures.

Sure there's a lot of reasons for stocks to go down. But there's one sure and dependable company response to it: cut costs at all costs!!!

[rickiep00h]

Just as a reference point, Mattel's stock has dropped nearly 50% since that time, although it's starting to bounce back a little bit. Part of it is the lead paint thing, but I think a sizable portion of it has to do with the perceived recession we're in. But cutting costs for the sake of cutting costs is still silly in my opinion. From a customer service standpoint, if you're making your customers upset, you're not really serving them, thus you're probably going to lose their business... right?

Anyway, good job looking for stats and whatnot. But if Hasbro really thinks that a MINOR stock drop in an environment of stock drops is something to get alarmed about and slash millions of dollars out of what was for a long time a flagship game, well, I can't say I agree.

Also, I think the WoW TCG is taking out a bigger chunk and making more of an impact than they thought it would. Example: planeswalkers are an almost direct lift of the idea of the Hero character in WoW. Think about that one.

[bsushort]

So with a booster pack costing US $3.99, what this means is that more than 58.6% of that money is pure profit to the company. And at a minimum, the profit off a booster is $2.33 according to Hasbro's website.

Now out of the leftover $1.66 per booster, if Magic were the average Hasbro product, 11.7% of that is advertising costs. That's the portion which pays to have a Pro Tour plus magazine and banner ads plus promotional materials going to stores and TOs. That's 19.4 cents per booster.

Of course, we don't know if Magic is an average Hasbro product nor how many boosters they sell. But maybe a starting point to look at.

That's a huge gross profit margin compared to other industries. But WotC has to compare that to other Hasbro products, not to other industries. I'm sure its tough for WotC to compete on costs vs Hasbro's My Little Pony products made by slave labor in China.

That's interesting (I mean that honestly, I'm a numbers guy), but the 58.6% profit would be off what Hasbro sells the packs for, not MSRP. I don't know what wholesale is for selling cases to distributors. If anyone has that number (and I'm sure plenty of us do), we could adjust the above numbers. So the actual advertising budget should be 11.7% of 41.4% of that cost. It could at least give us the tiniest bit of insight into the financials behind WotC's decisions.

Also, has anyone ever seen an estimate of the pure number of boosters sold each year globally?

Also, I think the WoW TCG is taking out a bigger chunk and making more of an impact than they thought it would. Example: planeswalkers are an almost direct lift of the idea of the Hero character in WoW. Think about that one.

I always looked at that in the opposite direction, Hero characters in WoW are almost a direct lift of the Vanguard cards/avatars in Magic (and more recently, Magic Online).

[rickiep00h]

I suppose that is true, but Vanguard cards are not an integral part of the game as the heroes in WoW and now the planeswalkers in Magic.

Valid point, though.

[Reindeercards]

[quote="bsushort"]

That's interesting (I mean that honestly, I'm a numbers guy), but the 58.6% profit would be off what Hasbro sells the packs for, not MSRP. I don't know what wholesale is for selling cases to distributors. If anyone has that number (and I'm sure plenty of us do), we could adjust the above numbers. So the actual advertising budget should be 11.7% of 41.4% of that cost. It could at least give us the tiniest bit of insight into the financials behind WotC's decisions.

Oops. Sorry, I was in the habit of thinking of MTGO (which is only part of their business) rather than real boosters.

As for the raw number of physical boosters sold per year, I've never heard anyone even hint at the number.

[Luke]

I must buy 2/3 Boxes of every set, roughly 1.5 boxes on release and over the months I slowly buy drips and drabs.

4 sets a year. 4 x 3boxes = 12

Assuming everyone buys like me, that's 108 boosters a year. Obviously people buy more and less than me, but if everyone got 3 boxes let's work on those figures.

Most of us buy boxes at a discounted rate from RRP £60.00 ($120.00)

(3 * $120.00) * 6,000,000 players.

I mean this isn't accurate at all, but I'm throwing something out.

[morgop]

I must buy 2/3 Boxes of every set, roughly 1.5 boxes on release and over the months I slowly buy drips and drabs.

That seems higher than I would expect to be average, but I guess when you consider the boosters opened in FNMs and PTQs (+prizes), it may not actually be that far off. Those packs are sold at a discount from the stores, but the wholesale price to WOTC would remain the same. Wholesale (case) prices are in the neighborhood of $65/box.

The best guesstimate may come from seeing the total printing production of recent sets. I remember seeing numbers for some of the early sets, but nothing recently. Anyone?

[Luke]

I must buy 2/3 Boxes of every set, roughly 1.5 boxes on release and over the months I slowly buy drips and drabs.

That seems higher than I would expect to be average, but I guess when you consider the boosters opened in FNMs and PTQs (+prizes), it may not actually be that far off. Those packs are sold at a discount from the stores, but the wholesale price to WOTC would remain the same. Wholesale (case) prices are in the neighborhood of $65/box.

The best guesstimate may come from seeing the total printing production of recent sets. I remember seeing numbers for some of the early sets, but nothing recently. Anyone?

It sucks being English lol

$65 a box is such a bargain!

[Mart1]

i think you can cut your $ 120 down to about $ 40-50 which is what Hasbro/Wizards earn. The rest goes to the Stores.
Also I dont think that the average player is getting 12 Boxes a year. if you calculate that down to about 4 it would be more appropriate, maybe its even less. So wizards makes with Magic TCG about 200$/Player a year. I don't have actual figures, but I'm not convinced that wizards makes $ 200 * 6000000 a year. This would be $ 1.2*10^9 which seems to be a lot...

[ThatGirlWhoPlaysMagic]

I fear there is other cards games jumping into resurgence like Yu-Gi-Oh etc. When Pokémon was hot and WotC were making bucket loads on that it wasn't a problem, but Yu-Gi-Oh is done by a different company, I've noticed in my region of England a lot of players who could have got into Magic have decided to jump on the Yu-Gi-Oh train, the last convention I did the WOW TCG was bigger than MTG and generally theres more competition.

Yu-Gi-Oh has made a comeback because Upper Deck Entertainment actually listens to players and has gotten Konami and Shueisha(Shonen Jump), which are the games Japanese overlords, to make some concessions. Also, high up OP UDE employees, as well as a few brand managers and the head of R&D, frequent the Yu-Gi-Oh forums at Pojo so they can pretty much skip the bureaucracy and just talk to the people in charge.

[Luke]

I fear there is other cards games jumping into resurgence like Yu-Gi-Oh etc. When Pokémon was hot and WotC were making bucket loads on that it wasn't a problem, but Yu-Gi-Oh is done by a different company, I've noticed in my region of England a lot of players who could have got into Magic have decided to jump on the Yu-Gi-Oh train, the last convention I did the WOW TCG was bigger than MTG and generally theres more competition.

Yu-Gi-Oh has made a comeback because Upper Deck Entertainment actually listens to players and has gotten Konami and Shueisha(Shonen Jump), which are the games Japanese overlords, to make some concessions. Also, high up OP UDE employees, as well as a few brand managers and the head of R&D, frequent the Yu-Gi-Oh forums at Pojo so they can pretty much skip the bureaucracy and just talk to the people in charge.

If this is real, that's something WotC HQ could take a page from!

I know the shops in my area are stocking more and more Yu-Gi-Oh and less MTG

[rickiep00h]

I found this posted just today:

http://money.cnn.com/2008/02/11/news/companies/hasbro_earnings.ap/index.htm?section=money_latest

I find it interesting that WotC, Magic, and DnD are nowhere to be found in the very brief article. What this means, though, is that our current numbers are likely way, way off, as shares have gone UP in the past few months, and as a whole, over the past year and a half, since they're still higher than in '06. Citation: http://money.cnn.com/quote/quote.html?symb=HAS&time=3yr

So there's really no reason for the company to claim that WotC is necessarily bad for business, it's just not performing as well as, y'know, Monopoly. Which has been around since 1935...

[morgop]

Oftentimes the company being bought will become saddled with the loans that the parent company had to get to buy the company in the first place. And even if WOTC is doing well, the rest of Hasbro may be performing poorly enough that Hasbro decides to pile more responsibility on WOTC to hit even higher numbers. It's likely a combination of both in addition to the weak economy. If WOTC is suffering from declining sales then that would exacerbate things at the worst possible time.

That's why I continue to say that this first meeting in KL should be fact finding only- unless someone has the inside scoop on the deal struck and the management workings of Hasbro, then we're working off of speculation. Solutions offered to WOTC based on speculation alone are not likely to achieve any satisfactory resolution.

The current happenings with ebay are interesting in that they show a big market view of what's happening to us on a tiny scale. Many sellers have organized a boycott the first week after the new ebay policies hit (at least ebay knows how to communicate in advance...). But from the ebay management side you hear that this has happened before and they didn't relent nor did they suffer and there are no plans to change despite the negative potential impact to sellers. We hear similar rhetoric, but from less practiced mouths.

Which leads me to the other goal of the first meeting, which is to legitimize the union- to show that the power wielded can positively benefit WOTC. Otherwise they discount all of this effort as meaningless and make more valuable the other 95% of people out there who don't care about showing up here.

[turboeli]

For an up to date report as to the fourth quarter with specific financial figures, there's a webcast at Hasbro's site.

http://phx.corporate-ir.net/phoenix.zhtml?c=68329&p=irol-IRHome . You probably don't have to listen further past the ten minute mark.

[Alex]

For an up to date report as to the fourth quarter with specific financial figures, there's a webcast at Hasbro's site.

http://phx.corporate-ir.net/phoenix.zhtml?c=68329&p=irol-IRHome . You probably don't have to listen further past the ten minute mark.

It sounds like Hasbro was worried about the TCG business "dragging down" the overall growth of the card and board games division. Board game sales were up, but TCG sales were down, and overall growth in the division was 2%.

Hasbro might be trying to avoid potential losses this year by pre-emptively reducing the amount of money they put into the TCG division, which has led to the cuts in MTG OP so far. The fact that TCG sales were down in Q4 2007, which only ended on Dec 31st, might also account for the announcements about OP being such a surprise, rather than being communicated to the players in advance so they'd have some warning.

It seems that those in control of the money don't understand how valuable OP is to MTG, and that reducing OP support will lead to more losses, not less. Not everyone is strictly a casual player, and many people play MTG for the thrill of competition. If that competition disappears, MTG will suffer as those people will walk away to a UDE game, The Spoils, or another publisher's game. If that were to happen, MTG might survive, but it's profile wouldn't.

[ThatGirlWhoPlaysMagic]

It seems that those in control of the money don't understand how valuable OP is to MTG, and that reducing OP support will lead to more losses, not less. Not everyone is strictly a casual player, and many people play MTG for the thrill of competition. If that competition disappears, MTG will suffer as those people will walk away to a UDE game, The Spoils, or another publisher's game. If that were to happen, MTG might survive, but it's profile wouldn't.

I wouldn't worry about Magic too much. Yu-Gi-Oh went through a two year sales dive('04-'06) but managed to turn things around and sales have only been going up. I don't think people understand how much WoTC's OP is compared to any other games OP. UDE OP is severely limited because UDE is a private company and so its funds are much more limited. WoW might be different but then it has the backing of Blizzard. Other game publishers like Score don't even compare. They just don't have the revenue to do events other than sneaks and maybe a regionals or two.

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