The Fox in the Henhouse

Before WOTC began rolling out its monetization plans for D&D, Hasbro was under fire for not doing enough. Alta Fox Capital's blueprint has turned out to be prescient.

freethewizards.jpg

Who's Alta Fox?​

Alta Fox Capital is an activist investor firm which owns 2.5% of Hasbro stock. Activist investors are typically specialized hedge funds that buy a significant minority stake in publicly traded companies to change how it's run. Unlike traditional takeovers from private equity firms, activist investors use the media and proxy contests to force change within a company. As you can imagine, activist investors are often a company's worst nightmare.

For a long time, Hasbro's financial performance flew under the radar of investor scrutiny. That all changed when Alta Fox took an interest in Hasbro, and specifically in Wizards of the Coast. They launched their plan with a web site, Free the Wizards, which has since been archived. In retrospect, it's clear that Alta Fox's activism had an outsized influence on the Wizards of the Coast we know today.

The Case to Repair Hasbro​

Alta Fox argued that Hasbro's Board of Directors needed a shakeup:
Despite phenomenal growth in Hasbro’s Wizards of the Coast (“Wizards”) division over the last five years, the Company’s stock price has significantly underperformed the broader market and its own benchmark over every relevant timeframe. We attribute this underperformance to the Board’s exceptionally poor capital allocation and deficient investor disclosure and communication.
Alta Fox pointed out that none of the Board members had purchased shares of Hasbro over the last decade and received generous payouts (paid an average of $350,000 annually, higher than Apple) despite underperforming. According to Alta Fox, Hasbro's Brand Blueprint strategy was failing because it lacked financial discipline, an inability to sell successful branded video games, poor cost control (compared to Mattel), and underinvestment in its "crown jewel" intellectual properties like Magic: The Gathering and Dungeons & Dragons.

To fix this, Alta Fox recommended four nominees to the board: Marcelo Fischer of IDT Corporation (a cloud communications and financial services company); Jon Finkel, Managing Partner and Co-Chief Investment Officer at Landscape Capital Management and a former professional Magic player; Rani Hublou a marketing exec and Principal at Incline Strategies; and Carolyn Johnson, Chief Transformation Officer of American International Group, Inc. This dream team, Alta Fox argued, would shake things up.

Moreover, Alta Fox wanted Wizards of the Coast to be spun off. According to Alta Fox, Hasbro's Brand Blueprint strategy was a "cash cow" in which WOTC gave money to its parent company with little in return. They speculated that D&D and M:TG made up 90% of WOTC's 2021 sales. It quoted Cocks as saying that there was an 8x to 10x audience potential in bringing tabletop brands to the digital side of the business. Of the five reinvestment opportunities, Alta Fox's fifth recommendation was:
a one-stop-shop digital subscription & pay-as-you-go offering for a true-to-physical D&D experience (similar to how Arena is a true-to-physical MTG experience).
It all came to a head with an election contest by shareholders on Alta Fox's recommendations. Alta Fox lost the vote, and that should have been the end of it. But the efforts to revitalize Hasbro and WOTC in particular would be tremendously influential on the way the company is operating today.

Hasbro Takes Notice​

Although Hasbro rejected Alta Fox's proposals, its next actions were aligned with their suggestions. Hasbro brought on two new board members, Elizabeth Hamren and Blake Jorgensen. Both were executives with experience in gaming, technology, operations, and capital allocation: Hamren was chief operating officer at Discord Inc and worked on Xbox products, while Jorgensen previously served as chief financial officer for Electronic Arts.

That wasn't the only change. Directors were asked to purchase shares on the open market, just as Alta Fox had recommended. More to the point, the Brand Blueprint strategy that Alta Fox loathed got a revamp as Brand Blueprint 2.0. That was a four quadrant strategy in which Hasbro focused on a core group of eight to ten brands, including Dungeons & Dragons. The goal was to create $250 to $300 million savings annually over the next three years.

Cocks and Williams Lay It All Out​

In a USB Fireside Chat, Chris Cocks and new WOTC CEO Cynthia Williams shared their perspective on D&D's future:
You'll see us leaning heavily into the expansion of D&D through D&D Beyond, the acquisition that we did that closed this past May ... We have about 13 million customers, registered users, there that we will continue to serve by giving them more ways to express their fandom.
When Williams mentioned that the "D&D brand is undermonetized," it sounded a lot like the same claim made by Alta Fox. She pointed out that dungeon masters only made up 20% of the customer base, with an untapped player base that could be unlocked as "recurrent spenders," with more than 70% of digital gaming profits coming from post-sale. The D&D monetization strategy, according to Cocks, would be Hasbro's prime opportunity to implement Brand Blueprint 2.0.

We're now seeing that strategy in action. Although Alta Fox didn't get its board members listed, it seems it still got its way.
 

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Michael Tresca

Michael Tresca


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Bosen

Villager
Thank you for posting this article. It is important to understand that the internal conversations within the company are not as unified as many have assumed. There are wotc employees who didn't want any of this, because they understand the community, but had no choice because of corporate control.

If wotc had been split off into another company, this (the OGL fiasco) may have never come to pass.
There is always a choice (however uncomfortable such may be).
 

Art Waring

halozix.com
My guess is Alta Fox, and any board members they had gotten if their push had succeeded, would have negotiated transferring their stakes over to any WotC shares spun off of the split and tried to ride that up while reducing their risk from Hasbro's inevitable floundering. But that might just be me being cynical.
Yeah that is certainly one possibility. Hasbro did seem to have the most to lose from the split.
 




Lord_Blacksteel

Adventurer
"She pointed out that dungeon masters only made up 20% of the customer base, with an untapped player base that could be unlocked as "recurrent spenders," with more than 70% of digital gaming profits coming from post-sale."

This is a particularly important point. Subscriptions and microtransactions have been all the rage in software for some time now so this is the goal: make D&D more like a software product, more like a videogame, so that more of the player base is spending money.

The actual tabletop side is trickier here as what do you consider the "sale"? Just a PHB? Miniatures and various knick-knacks aimed at the players is already a thing so presumably that's not the main focus.

The approach that best enables this model is a subscription to enable online play so they can sell you minis/tokens and cosmetics at the very least and possibly rules packages as well - so, they go buy D&D Beyond and have a jump start on this right away. If this is the plan I would think that "letting the DM share all of his books with the players" angle they have could change pretty drastically - down the road at least. The rollout of the new edition sounds like the perfect opportunity to revise the subscription plans, even if they leave the 5E options alone as a separate program.
 


Jer

Legend
Supporter
As someone whose company is getting twisted into a pretzel for the sake of investors, even though it's harming the long-term value of the core company, this all sounds spot-on to me.
I don't know if this is what's going on at your company, but it's amazing how much the system is configured to get publicly traded corporations to twist themselves in knots and make short term decisions on behalf of people who want to sell their ownership stake in a company. Especially when those folks are not even the initial investors but people who bought shares on the "aftermarket". The incentives feel all wrong.
 

Whizbang Dustyboots

100% that gnome
I don't know if this is what's going on at your company, but it's amazing how much the system is configured to get publicly traded corporations to twist themselves in knots and make short term decisions on behalf of people who want to sell their ownership stake in a company. Especially when those folks are not even the initial investors but people who bought shares on the "aftermarket". The incentives feel all wrong.
In life, as in ttrpgs, it's all about the incentives.
 

Undrave

Hero
while Jorgensen previously served as chief financial officer for Electronic Arts.
Yikes... red flag.
Because (as far as I remember) this was initiated due to the mess that WotC was apparently making of Magic: The Gathering. Keep in mind that Magic is Wizards Golden Goose and not D&D (more like an ugly duckling). It seems that this triggered a milking that seems to kill their fowl to get as much revenue out of them in as short a time as possible, instead of exploiting the properties optimally for the long term...
Same thing as always: everything's in the service of the next quarterly report, who cares if it damages the brand in the long run?
 

Dustin_00

Explorer
They should understand the market of the TTRPGs and the mind of the roleplayers aren't like videogame industry and gamers. We are geeks but not stupid. After several games we have to smarten up if we want the survival of our PCs against the tricks and traps by mercyless DMs. We aren't so easy to be tricked or manipulated.

Their work is about to sell the type of products we want to buy, not about to try to change our minds about what we should want to buy. And even when we accept to spend our money, earned after hard days in the work, we don't want to feel scammed paying more really necessary.

Hasbro could become in the future one of the heavyweight within the entertaiment industry, (even to the same level of Disney or WarnerDiscovery) and this is not only economic power but also the potential impact to influence in the society for the cultural war. Not always is only because economic reasons.

My suspects are we don't now not even the half of the facts, and behinds the curtains more things are happening, a secret soap opera, or a spy story. Other suspects, and fear are if WotC was spun off, then this would be an "easy prey" and acquired by some "bigger fish" of the entertaiment industry, for example a videogame studio, or a Hollywood producer. Then WotC wouldn't be really free, but the opposite, controlled to be used as a propagandistic weapon, to influence in the public opinion.

Maybe M:tG is actually the main cash-cow and source of income by Hasbro, but D&D has a better potential as multimedia franchise. This is better to sell different type of products, for example videogames, comics, novels and toys.

Hasbro today is $9 billion.

It would pretty much have to be Disney ($192 B), Sony ($112 B), Microsoft ($1.8 T), Activision ($60 B), Nintendo ($55 B).

Spinning off WotC gets you 70% of that -- $6.3 billion. So you can buy 50% now for $4.5 billion, or attempt to split them to get it down to $3.15 billion. The easier path would be to buy Hasbro, claim Wizards, then spit Hasbro back out again without Wizards.

Big Hollywood companies tend to be around $10 billion, so they aren't going to swing even the $3 billion.
 


Cergorach

The Laughing One
Hasbro today is $9 billion.

It would pretty much have to be Disney ($192 B), Sony ($112 B), Microsoft ($1.8 T), Activision ($60 B), Nintendo ($55 B).

Spinning off WotC gets you 70% of that -- $6.3 billion. So you can buy 50% now for $4.5 billion, or attempt to split them to get it down to $3.15 billion. The easier path would be to buy Hasbro, claim Wizards, then spit Hasbro back out again without Wizards.

Big Hollywood companies tend to be around $10 billion, so they aren't going to swing even the $3 billion.
Something like EA is worth $35B, they might swing it... Or they might 'merge'. There are many, many truly horrific scenario's to consider! ;-)
 

Before WOTC began rolling out its monetization plans for D&D, Hasbro was under fire for not doing enough. Alta Fox Capital's blueprint has turned out to be prescient.

Who's Alta Fox?​

Alta Fox Capital is an activist investor firm which owns 2.5% of Hasbro stock. Activist investors are typically specialized hedge funds that buy a significant minority stake in publicly traded companies to change how it's run. Unlike traditional takeovers from private equity firms, activist investors use the media and proxy contests to force change within a company. As you can imagine, activist investors are often a company's worst nightmare.

For a long time, Hasbro's financial performance flew under the radar of investor scrutiny. That all changed when Alta Fox took an interest in Hasbro, and specifically in Wizards of the Coast. They launched their plan with a web site, Free the Wizards, which has since been archived. In retrospect, it's clear that Alta Fox's activism had an outsized influence on the Wizards of the Coast we know today.

The Case to Repair Hasbro​

Alta Fox argued that Hasbro's Board of Directors needed a shakeup:

Alta Fox pointed out that none of the Board members had purchased shares of Hasbro over the last decade and received generous payouts (paid an average of $350,000 annually, higher than Apple) despite underperforming. According to Alta Fox, Hasbro's Brand Blueprint strategy was failing because it lacked financial discipline, an inability to sell successful branded video games, poor cost control (compared to Mattel), and underinvestment in its "crown jewel" intellectual properties like Magic: The Gathering and Dungeons & Dragons.

To fix this, Alta Fox recommended four nominees to the board: Marcelo Fischer of IDT Corporation (a cloud communications and financial services company); Jon Finkel, Managing Partner and Co-Chief Investment Officer at Landscape Capital Management and a former professional Magic player; Rani Hublou a marketing exec and Principal at Incline Strategies; and Carolyn Johnson, Chief Transformation Officer of American International Group, Inc. This dream team, Alta Fox argued, would shake things up.

Moreover, Alta Fox wanted Wizards of the Coast to be spun off. According to Alta Fox, Hasbro's Brand Blueprint strategy was a "cash cow" in which WOTC gave money to its parent company with little in return. They speculated that D&D and M:TG made up 90% of WOTC's 2021 sales. It quoted Cocks as saying that there was an 8x to 10x audience potential in bringing tabletop brands to the digital side of the business. Of the five reinvestment opportunities, Alta Fox's fifth recommendation was:

It all came to a head with an election contest by shareholders on Alta Fox's recommendations. Alta Fox lost the vote, and that should have been the end of it. But the efforts to revitalize Hasbro and WOTC in particular would be tremendously influential on the way the company is operating today.

Hasbro Takes Notice​

Although Hasbro rejected Alta Fox's proposals, its next actions were aligned with their suggestions. Hasbro brought on two new board members, Elizabeth Hamren and Blake Jorgensen. Both were executives with experience in gaming, technology, operations, and capital allocation: Hamren was chief operating officer at Discord Inc and worked on Xbox products, while Jorgensen previously served as chief financial officer for Electronic Arts.

That wasn't the only change. Directors were asked to purchase shares on the open market, just as Alta Fox had recommended. More to the point, the Brand Blueprint strategy that Alta Fox loathed got a revamp as Brand Blueprint 2.0. That was a four quadrant strategy in which Hasbro focused on a core group of eight to ten brands, including Dungeons & Dragons. The goal was to create $250 to $300 million savings annually over the next three years.

Cocks and Williams Lay It All Out​

In a USB Fireside Chat, Chris Cocks and new WOTC CEO Cynthia Williams shared their perspective on D&D's future:

When Williams mentioned that the "D&D brand is undermonetized," it sounded a lot like the same claim made by Alta Fox. She pointed out that dungeon masters only made up 20% of the customer base, with an untapped player base that could be unlocked as "recurrent spenders," with more than 70% of digital gaming profits coming from post-sale. The D&D monetization strategy, according to Cocks, would be Hasbro's prime opportunity to implement Brand Blueprint 2.0.

We're now seeing that strategy in action. Although Alta Fox didn't get its board members listed, it seems it still got its way.

It's important to note that Alta Vista never asked for the revoking of the OGL or gave any sign of supporting such.
 



kjdavies

Adventurer
Yes, Wizards has some amazing IP for table top gaming.

This does NOT instantly make them an electronic gaming powerhouse. They are not a tech company. They have not built a rich, deep tech team for the last 30 years. From what I've seen, they've launched tech projects, then downsized the team to oblivion. Over and over.

This is like watching companies in the late 90s mid-development suddenly declare "Oh, we'll have multi-player, too!" It derailed/killed a ton of projects as you need to START with multi-player in mind. If WotC wants electronic sales, they need to do a 5 to 10 year investment to build that team and build that resource that draws consumers to something with value.

Instead, they throw legal at it and are shocked it didn't work out well.
Indeed, Wizards has historically had an absolutely horrible time with anything digital. They're just not set up to do this well... and why should they be?
 

kjdavies

Adventurer
"She pointed out that dungeon masters only made up 20% of the customer base, with an untapped player base that could be unlocked as "recurrent spenders," with more than 70% of digital gaming profits coming from post-sale."

This is a particularly important point. Subscriptions and microtransactions have been all the rage in software for some time now so this is the goal: make D&D more like a software product, more like a videogame, so that more of the player base is spending money.

The actual tabletop side is trickier here as what do you consider the "sale"? Just a PHB? Miniatures and various knick-knacks aimed at the players is already a thing so presumably that's not the main focus.

The approach that best enables this model is a subscription to enable online play so they can sell you minis/tokens and cosmetics at the very least and possibly rules packages as well - so, they go buy D&D Beyond and have a jump start on this right away. If this is the plan I would think that "letting the DM share all of his books with the players" angle they have could change pretty drastically - down the road at least. The rollout of the new edition sounds like the perfect opportunity to revise the subscription plans, even if they leave the 5E options alone as a separate program.
The 20/80 thing is going to be hard to overcome. It's a thing that applies almost everywhere spending is discretionary... and if I know gamers, if WotC does manage to make it mandatory for everyone to pay to play, they're going to see a mass exodus from their game because that 20/80 thing will likely still apply.

Also, I've found players (or at least the 80% who aren't buying so many products) are generally stingy AF when it comes to paying for game materials.
 

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