Toy manufacturer Hasbro is in some hot water with investors. The company is being sued by its shareholders, who claim it is overproducing Magic: The Gathering (MtG) cards. This alleged strategy directly led to an overall devaluation of the Magic brand.
In recent years, the company has gone hog wild with licensed crossover sets and $1000 30th anniversary editions. Choices that have drawn criticism from fans and now its business partners.
The lawsuit was filed last week with the US District Court of Rhode Island by investors, saying Hasbro CEO Chris Cocks, former Wizards of the Coast president Cynthia Williams, and company executives were involved in “breaches of their fiduciary duties as directors and/or officers of Hasbro.”
The Strategy Behind Magic: The Gathering
This suit goes on to claim in 2022, Bank of America did a report concluding that Hasbro was “overproducing Magic cards, which have propped up Hasbro’s recent results but are destroying the long-term value of the brand.”
However, when these concerns were brought up, Hasbro allegedly “repeatedly denied such speculation,” issuing “materially false and misleading” statements.
While this strategy can work as a short-term crutch, oversaturating the market is rarely a good long-term business strategy. The plaintiffs believe this “caused the Company substantial harm by causing it to repurchase its own shares at artificially inflated prices.”
Referring to the fact that in 2022 the company had to repurchase 1.4 million shares of its own stock for $125 million because share prices were “artificially inflated” by excessive amounts of new Magic sets. According to the lawsuit, this caused Hasbro to overpay by $55.9 million.
Hasbro has maintained that “new Magic sets were to be printed to meet demand from new consumer segments.” But the suit says that this was not the case.
“Hasbro’s strategy with regard to printing Magic cards was not as carefully thought out as portrayed,” reads the document. “The Company was in fact printing a volume of Magic sets which exceeded consumer demand; the Company’s inventory allocation management was problematic, particularly as it pertained to the Company’s printing strategy for Magic sets; the Company was overloading the market with Magic sets to generate revenue and to offset shortfalls within the Company; as a result of the Company’s overprinting of Magic sets, existing Magic cards were devalued; and the Company failed to maintain internal controls.”
$1000 Magic Sets
Part of this misleading conduct is illustrated by some alleged shenanigans with the $1000 a piece Magic: The Gathering 30th Anniversary sets. There was already a lot of backlash before the sales even went live. Less than an hour after launch, Wizards of the Coast tweeted that “sale has concluded, and the product is currently unavailable for purchase.”
A message that heavily implies these incredibly expensive sets completely sold out. This would indicate a rather high demand for what many thought were outrageously overpriced cards.
The lawsuit alleges Hasbro management put the sale of these sets on “pause” if it looked like negative perceptions were damaging sales. This tactic would artificially float Hasbro’s share values. Former employees are now testifying the company only sold a portion of these sets. They even claim some were later found in a Texas landfill, ala the Atari E.T. cartridges.
We’ll keep you posted on updates about thsi situation as it devlops.
