D&D (2024) RPG Evolution: 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.

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 They launched their plan with a web site, Free the Wizards, which has since been archived.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.

 

[Dungeonosophy]

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.

View attachment 272467​

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.

Wow Mike, this is truly top-notch reporting and analysis. Kudos to you and to ENWorld. This article ought to be picked up by business and game industry sites.

 

[Bedrockgames]

This explains a lot. Very good reporting here

 

[Art Waring]

Just to speculate, if Alta Fox would have been successful in having WoTC spun off, would this drive to monetize D&D still be handled in such a haphazard fashion? I mean, it's not like WoTC wasn't making a ton before this was all proposed. Why try and kill your golden goose?

According to Ryan Dancey, had the split been successful, both companies would be worth more as separate entities, and they (shareholders) would have essentially doubled their money.

It would be speculation, but positive speculation that Has/Wiz stock prices would not have dropped, and then theoretically M30 never would have occurred, and neither would have the 1.1 OGL, at least not right now.

This is all completely speculative. However, even if the split happened, there is nothing in place that would prevent this from happening again in the future, either by wotc or another company that might own the brand IP in the future.

In a way, this all seems somehow inevitable. Now that we're here, I guess its better to get it resolved now than to have it hanging over your head in the future to come like the sword of Domacles.

 

[Dausuul]

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...

I could see calling D&D the ugly duckling if you view it as having turned into a swan over the last few years.

M:tG remains the biggest moneymaker for Wizards without a doubt; but D&D now makes up a very respectable chunk of their revenue stream. Not the golden goose, maybe, but certainly a silver one.

 

[Umbran]

Just to speculate, if Alta Fox would have been successful in having WoTC spun off, would this drive to monetize D&D still be handled in such a haphazard fashion?

Probably. Alta Fox was no more knowledgeable about the business than anyone else.

According to Ryan Dancey, had the split been successful, both companies would be worth more as separate entities, and they (shareholders) would have essentially doubled their money.

For, like, 2 seconds, yeah. But then poorly founded expectations of how the two new companies would perform would set in.

It would be speculation, but positive speculation that Has/Wiz stock prices would not have dropped, and then theoretically M30 never would have occurred, and neither would have the 1.1 OGL, at least not right now.

Hasbro wasn't going to have a good year because of a split - indeed, if Alta Fox was correct, and WotC money was propping up the rest of the business, Hasbro would have major issues when that money was gone.

And, after such splits, it isn't like folks would say to WotC, "now carry on exactly like you were." When folks have a new toy, they have high expectations of it. And there is often change of leadership - and we can't guarantee new leaders would be wise.

And, remember, in any corporate split, there are huge games being played with where corporate debts finally land - that, indeed, being able to spin off debt is a major reason for a split. If WotC had ended up with an outsized share of the debt, then a struggle to generate revenue may well have led to similar results under new leadership...

 

[LuisCarlos17f]

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.

 

[gweinel]

Well, sometimes you have to make a comment just to congratulate the reporter. Really enlightening article that explains a lot of what is happening the last months!

 

[Crimson Terrain]

An interesting read. I had not considered the Alta Fox incident and its possible connection to the shift in WOTC.

 

[Dustin_00]

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.

 

[billd91]

According to Ryan Dancey, had the split been successful, both companies would be worth more as separate entities, and they (shareholders) would have essentially doubled their money.

Maybe - but I think that would ultimately have to be based on whether or not the issues Alta Fox was complaining about got addressed at Hasbro. They were basically saying that Hasbro was using WotC as the crutch propping them and their lackluster performance up. Spinning off WotC, under the Alta Fox plan, would basically have been them kicking the crutch away and forcing Hasbro to carry itself. WotC, likely, would have been fine and seen some pretty good stock price growth unhindered by the rest of Hasbro's performance, something I'm sure Alta Fox would have significantly benefited from as a shareholder. But Hasbro's value would have to depend on how well they recovered from the loss of that crutch.
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.