Every three months Hasbro reports financial information to its shareholders. As the parent company of Wizards of the Coast, it’s worthwhile to take a look at these reports to see if there’s any interesting information about Magic the Gathering. It’s also worth noting the overall health of Hasbro as it could have positive or negative impact on Wizards of the Coast’s operations and the growth of Magic the Gathering. This quarter’s earnings report was generally positive but I want to take a look at a few specific details and how they might impact Wizards and/or Magic.
The Global Market Pains
The big takeaway from Hasbro’s report can be summed up as follows: “Overall the growth is positive but the declining value of foreign currencies against the US dollar resulted in net revenues remaining flat from 2014.” So what exactly does that mean? Hasbro is reporting that they lost $132.4 million from foreign exchange impact. What kind of impact? The kind that happens when you sell your products overseas. Because Hasbro is an American company, all of its finances are in US dollars. However, when they have costs overseas such as marketing, or advertising, or manufacturing, they need to pay that out in local currencies. Also, when they sell cards to distributors overseas, the contracts are in local currency. All of the financial exchanges have a cost and part of that cost is fluctuation in the value of the dollar versus foreign currencies.
So how do you lose $132.4 million dollars to foreign currency changes? The majority of the impact came from Europe and some of the impact was in Latin America while a small amount of the loss came from Asia Pacific. The Euro particularly has fallen significantly this year against the dollar. In the past twelve months it has dropped 13%. The Brazilian Real has dropped 36% against the dollar while the Japanese Yen has lost about 11% and the Australian Dollar has lost about 18%. All of these currencies are in major markets for Magic. Any assets Hasbro has been holding in these currencies has been dropping in value all year, with apparently significant losses in the third quarter.
What About Magic?
Magic Origins was released in the quarter and was the biggest summer set release in Magic: the Gathering’s history. In addition, in September, the global Prerelease for the Battle for Zendikar set previewed at thousands of core hobby stores around the globe, and was the best-attended Prerelease in Magic’s 22-year history.
– Brian Goldner, Hasbro Chairman, President and CEO
Wow, best sales ever for a summer set? Most attended prerelease ever? That’s got to be big news for Magic’s profitability right?
Adjusted for the negative impact of foreign exchange, Magic the Gathering revenues have increased over the first nine months of this year versus last year. Demand and interest are at all-time highs and we continue to invest to unlock the full potential of the brand.
Phew, nothing to worry about here. Even though the foreign exchange impact is ever-present over Hasbro’s financials, Magic is doing better than ever. 2015 saw the release of Fate Reforged, Dragons of Tarkir, Magic Origins, Modern Masters 2, and now Battle for Zendikar. Ignoring the global market issues, there have been increased revenues over the same time period in 2014 which saw the release of Born of the Gods, Journey into Nyx, Conspiracy, Magic Core Set 2015, and the prerelease for Khans of Tarkir.
Looking Forward
The fact that Tarkir sold better than Theros should surprise no one. Neither should the fact that Origins was the best-selling core set nor that Battle for Zendikar was the most-attended prerelease. All of this comes back to Wizards shift in focus towards storytelling. Here’s a slide from the very start of Hasbro’s report:
Right in the middle linking Hasbro Brands to Toy & Game Product Innovation is STORYTELLING. It’s no surprise that Wizards has been focusing on this topic more than ever. As Doug Beyer and the rest of the creative team told us repeatedly this year, the story is driving the bus and Magic Origins was only the beginning. I would expect this trend to continue through the end of the year and well into next year as Wizards continues using storytelling to engage players in deeper and more meaningful ways than ever before. Profits should follow (assuming the foreign markets stabilize).
What about Magic Online?
Operating profit in the U.S. and Canada segment increased 10% to 23.3% of revenues. Higher revenues more than offset higher expenses, including our continuing investment in Magic the Gathering: Online.
Yes, continuing investment in MTGO. This is a point that Wizards has made repeatedly to Magic players and now it’s being made to Hasbro stockholders as well. Maybe all that whining on Reddit about how much more money Wizards could make if they took MTGO seriously finally reached the ears of someone at Hasbro? Probably not. Let’s just hope they invest into MTGO by doing more than just bringing leagues back.
Final Thoughts
Will the global market issues have an impact on Magic? It’s not likely. If history is any indication Hasbro is going to continue doing what they’re doing on the basis that the market directions will sort themselves out. So long as product growth continues, which it looks like it will do, Hasbro is dedicated to improving the Magic brand. Will this mean more Grand Prix and Pro Tour tournaments? More money on the Pro Tour? Fixing Magic Online? The answer to all of those is hopefully yes, and based on the current trajectory I would see no reason for things not to continue down that path. Global market volatility is just a fact of life and one that Wizards and Hasbro don’t seem to shy away from. Unless the global economy takes a drastic turn for the worse, I wouldn’t expect any changes in the global growth of Magic.
What We Learned is a weekly feature here at Hipsters of the Coast written by former amateur Magic Player Rich Stein, who came really close to making day two of a Grand Prix on several occasions. Each week we will take a look at the past seven days of major events, big news items, and community happenings so that you can keep up-to-date on all the latest and greatest Magic: the Gathering community news.