How did Hasbro end up owning WOTC?

I'm fuzzy on the details - I know that Wizards of the Coast was propelled to fame and fortune on the back of Magic: The Gathering, and with that they bought up floundering TSR. They produced a new (IMHO better) edition of D&D with 3.0, but then it gets blurry - just when, how, and why did WOTC end up in the hands of Hasbro? Since I've read that many feel that pressures from Hasbro are spurring on this new edition, I was just wondering a bit about the corporate history of it all.

In 1997, Wizards of the Coast was granted U.S. Patent 5,662,332 on collectible card games, followed by the purchase of TSR, Inc., the cash-strapped makers of Dungeons & Dragons. Many of the creative and professional staff of TSR relocated from Wisconsin to the Renton area, and Wizards re-hired many game designers who had been laid off during the troubled last years of TSR. TSR was used as a brand name for a while, then retired. Wizards of the Coast allowed the TSR trademarks to expire. The game and toy giant Hasbro bought Wizards of the Coast in September 1999. Between 1997 and 1999, they spun off several well-loved but poorly-selling campaign settings (most notably Planescape, Dark Sun and Spelljammer) to fan groups, focusing their business primarily on the profitable Greyhawk and Forgotten Realms lines.

Not much info, but I hope it helps :)

... just when, how, and why did WOTC end up in the hands of Hasbro?

Hasbro started sniffing around back in 93/94 when MtG was taking off, but the couple of million dollars that Garfield Games would have cost seemed too pricey for a company that had made a card game.

In 97 TSR is on the brink of bankruptcy, WotC buys them for an alpha Lotus and a box of unopened Legends.

In 99 Hasbro comes back, is impressed by the job Wizards have done building Magic and rebuilding D&D, and figures they're catching a bargain by only paying $300million.

In short, Hasbro paid a lot of money for WotC with the expectation that they'd get a good return -- which is basically why anyone buys anyone!

You can't forget the Pokemon card game factor... that was probably the biggest reason Hasbro bought WotC.

You can't forget the Pokemon card game factor... that was probably the biggest reason Hasbro bought WotC.

Totally forgot about the Pokemon factor; yeah, Hasbro would want a piece of that pie.

When Hasbro bought WOTC, who did they pay? That is, was Wizards a corporation that had stock? Or was it a partnership, or a family owned business, or what? Who profited from the sale of Wizards? Just curious.

The answer to your question has a variety of factors Goroxx. As I understand it, Hasbro became interested in Wizards due to primarily Pokemon and Magic (Wizards had the rights to publish the Pokemon Cardgame, Hasbro had the rights to produce the Pokemon toy line--though Pokemon sales now are a shadow of what they were in the late 90's, back then they were selling like gangbusters). I suspect Hasbro would have been interested in Wizards based on the success of Pokemon alone, but Hasbro has a history of growth through mergers and acquisitions and the chance to also acquire the Magic card line and D&D and the highly profitable D&D book lines were sweeteners in the pot. Take a look at the Wikipedia article on Hasbro (http://en.wikipedia.org/wiki/Hasbro) and look at the long list of current and former divisions. Most of those companies were separate entities at one time or another and were snapped up or acquired. There's little doubt the strategy has payed off handsomely for the company and its shareholders, as they are now one of the largest toy companies in the world with 2006 revenues of more than 3 billion dollars.

There were other motives on Wizards end. In a 2002 Gamingreport interview with Peter Adkison (former CEO of Wizards) at http://www.gamingreport.com/modules.php?op=modload&name=Sections&fi le=index&req=viewarticle&artid=42, Mr Adkison stated, "Nope. While it was difficult to sell Wizards of the Coast, it was clearly the right business decision. Pokemon was so hot and our revenues were so high that I knew I’d never get that sort of opportunity again. If it would have been entirely my own company and I wouldn’t have had investors and option holders to answer too, then I could have sat on it and weathered the post-pokemon storm without a problem. But when you have investors your first responsibility is to them and you have to put personal preferences aside."

His mention of having investors and option holders to answer to is important as TSR, to say the very least, has a somewhat tortuous and convoluted ownership history (I'll see if I can find the link to where Mr. Adkison talks about that, I do remember a discussion or two several years back). Although Wizards acquired TSR, many of the stockholders and dispersed ownership problems came along with the acquisition. While the Wizards acquisition may at times stink from a fan point of view, it was a good and sound business decision, enabling employees to join a firm that was on a much sounder financial footing (TSR was in serious financial straits when Wizards bought it, there was a stretch of several months to a year in the late 90's where nothing (including Dungeon and Dragon magazines) was released because TSR could not pay its printers) and enabling stockholders to cash out of an industry that while having meteoric hits at times, can go through stretches of stagnant and declining sales.

[Edit} Aargh, must type faster, four people responded in the time it took to type my reply ;)

You can't forget the Pokemon card game factor... that was probably the biggest reason Hasbro bought WotC.

An important factor no doubt, and until they lost it Pokemon was a massive cash-cow, but MtG + Pokemon "only" provided (lots of) current cash-flow -- the turn-around of D&D would have been key in showing they weren't a one trick pony, that there was serious growth potential.

Pokemon was always a risky position, and not something you'd pay a few hundred million dollars for -- they just had the TCG license; WotC controlled essentially all of the commercially valuable IP for MtG and the ex-TSR products.

A lot of the MtG & D&D value lay over a 5-year horizon (insert standard MBA valuation spiel) when the company was bought, but almost all of Pokemon's lay within that 5-year period -- not just due to the license renegotiation, but also the very narrow age demographic.

Totally forgot about the Pokemon factor; yeah, Hasbro would want a piece of that pie.

When Hasbro bought WOTC, who did they pay? That is, was Wizards a corporation that had stock? Or was it a partnership, or a family owned business, or what? Who profited from the sale of Wizards? Just curious.

It was most likely a reverse triangular merger in which Hasbro formed a subsidiary, WotC was merged with and into the subsidiary, and all the holders of WotC's stock received a portion of the merger consideration in exchange for their shares. WotC was a corporation at the time of the merger, and thus its shareholders received the benefit of the sale. I can't say for sure, but I would bet that WotC did a round of venture financing, particularly just prior to purchasing TSR, so some of the holders were probably institutions, but the rest most likely would have been insiders/founders (then again, they may never have done venture financing given how much cash Magic/Pokemon were generating). Richard Garfield made a significant chunk of cash, as did Peter Adkinson, Ryan Dancey, and Paizo's own Lisa Stevens.

I saw an estimate on the per share price at some point, but the source and the exact information escapes me at the moment. I believe though that WotC stock at the time Magic was originally released was less than a dollar and that Hasbro paid around $50 per share.

Edit: Ah, I found the data. Here's the relevant quote:
"Shares of Garfield Games purchased in 1993 for $5 were worth well more than $1000."

Garfield Games was a shell company that held the Magic brand and licensed it to WotC.

The full corporate story can be found here:

http://www.rpg.net/columns/briefhistory/briefhistory1.phtml

The article also mentions that WotC came close to having more than 500 stockholders early on, so they most likely raised a little bit of money from a lot of people or were paying everything in stock.

Edit: Ah, I found the data. Here's the relevant quote:
"Shares of Garfield Games purchased in 1993 for $5 were worth well more than $1000."

Garfield Games was a shell company that held the Magic brand and licensed it to WotC.

The full corporate story can be found here:

http://www.rpg.net/columns/briefhistory/briefhistory1.phtml

Ahh, thanks Sebastian and everyone else, exactly what I was wanting to know.

A reverse triangular merger, eh? I suppose that Hasbro, being a subsidiary of the Triliberal Comission, controlled by Multi-National Oil Companies and the Semiconscious Liberation Army, who of course are dually influenced by the Fiendish Fluoridators and the Orbital Mind Control Lasers would be behind it all. Well, actually, the Gnomes of Zurich are behind EVERYTHING, but you all knew that. Fnord. <Goroxx puts away his Illuminati cards now...>

Garfield Games was a shell company that held the Magic brand and licensed it to WotC.

There's (probably not surprisingly) a lot of inaccuracies in this thread, but this is one of the least accurate things.

In late 1992, Wizards was being sued by Palladium, and we wanted to ensure that Magic was protected from the outcome of that suit. (Also, we wanted to make sure that Richard Garfield could be set up a major shareholder for that project without diluting the shares of Wizards, but that's really less important that the lawsuit thing.) So Garfield Games was a separate company with significantly different ownership. (By early 1993, when I started, Wizards had laid off all of their employees, and the all-volunteer staff was working for stock in either Wizards or Garfield Games—I worked solely for Garfield Games stock.) After the lawsuit cleared (and also after Magic had taken off) Wizards merged with (or acquired—I don't recall) Garfield Games. At any rate, all Garfield Games stock was converted into Wizards stock, and Garfield Games ceased to exist at that point. I think that was late '93 or early '94.

Most of the Wizards shareholders acquired stock in three ways:
1: They invested in Wizards or Garfield Games (mostly in 1992-3)
2: They received shares or options as employees or contractors or in consideration of other effort (from the beginning of WotC right up until the Hasbro buyout)
3: They purchased shares from the people in categories 1 or 2

Hasbro's purchase of Wizards was a straight buyout (more or less). I sent my shares in and got a check back. (It was actually *slightly* unusual in that Wizards was convinced that parts of the company had a higher value than Hasbro thought they did, so there was a pricing contingent that effectively made Hasbro pay us more if sales of non-Magic trading card games exceeded certain escalating thresholds over the next few years. So I got several more checks, as we did actually hit those targets for several years.)

There's (probably not surprisingly) a lot of inaccuracies in this thread, but this is one of the least accurate things.

Thanks for the explanation. I was going off the rpg.net article, which stated that it was a shell company. Most of the rest was just guesses based on how these things typically operate (e.g., the triangular merger is the most common form, a stock acquisition seems odd given the number of holders, but you would know better than I). So did WotC buy TSR with cash on hand and no financing?

Out of curiosity, what else was inaccurate? I'm guessing the price quote is probably based on some wacky assumptions, but wouldn't expect that you would reveal the correct info on the boards.

Thanks Vic,

What did Kevin have his knichers in a bunch about with Wizards? That they had the real D&D and he had the knock off...

Thanks Vic,

What did Kevin have his knichers in a bunch about with Wizards? That they had the real D&D and he had the knock off...

They made a product called the Primal Order which included conversion notes for Palladium. Kevin sued for infringement. It's in the article I cited above.

Out of curiosity, what else was inaccurate? I'm guessing the price quote is probably based on some wacky assumptions, but wouldn't expect that you would reveal the correct info on the boards.

I couldn't even tell you that number if I wanted to. The numbers and methods involved made me get a tax accountant. (On the other hand, they let me afford a tax accountant.)

As for inaccuracies, the notable ones would be your speculation that Wizards needed investment to buy TSR, and pretty much the entire post above yours. Which I guess I might as well reply to.

the turn-around of D&D would have been key in showing they weren't a one trick pony, that there was serious growth potential.

The revenue for D&D was a drop in the bucket compared to the TCGs.

Pokemon was always a risky position, and not something you'd pay a few hundred million dollars for -- they just had the TCG license;

But that license was *extremely* valuable for that term, and they did indeed specifically pay a giant pile of money for it.

WotC controlled essentially all of the commercially valuable IP for MtG and the ex-TSR products.

Nope. TSR had already effectively lost control of the videogame and movie rights for D&D. And while Wizards was more careful with their own IP, you might note that licensing revenue for MTG hasn't ever amounted to much.

A lot of the MtG & D&D value lay over a 5-year horizon (insert standard MBA valuation spiel) when the company was bought, but almost all of Pokemon's lay within that 5-year period -- not just due to the license renegotiation, but also the very narrow age demographic.

Yeah, but that's like saying "The Beatles only put out a few albums over seven years, but Frank Zappa put out dozens of albums over a much longer term." The giant mountain of cash may have been a short-term thing, but it was still a GIANT MOUNTAIN OF CASH, dwarfing the long-term revenue from D&D.