Chris Cocks and Gina Goetter, Hasbro’s CEO and chief financial officer respectively, participated in Hasbro’s Second Quarter 2023 Earnings Conference Call this Thursday morning, revealing some interesting background for the world’s most famous trading card game. 

Major Takeaways:

• The Lord of the Rings: Tales of Middle-earth is the second biggest set ever, and is poised to pass up Modern Horizons 2 for the top spot by end of year.
• The release cadence is not slowing down any time soon — this was considered a quiet quarter by Hasbro leadership, with only three major releases. 
• Wizards of the Coast’s operating margin is down 42% over the same quarter last year, due to higher royalty expenses and higher investments in talent and infrastructure.
• The second half of the year is looking positive for Magic sales, with the single-digit growth for the year previously reported updated to a double-digit projection. 

Magic’s revenue for the 2nd quarter was $311M, a -15% drop from 2nd quarter of 2022 and a 36% increase from Q1. This means that Magic made up a little more than 25% of all of Hasbro’s net revenue from April to June, and more than half of Hasbro Gaming.

“The Lord of the Rings: Tales of Middle-earth, was the second biggest launch sell-in ever and is tracking to be the biggest selling MAGIC set of all time.” – Chris Cox

Hasbro CEO Chris Cox characterized Tales of Middle-earth as an “evergreen set”, one that does not follow the standard sales patterns of a premiere expansion. He said it “will cross 200M [in net revenue] by the end of the year. The last set to do that was Modern Horizons 2, and that took 2 years.”

The Lord of the Rings is not a boon without downside, though: the operating margin for Wizards of the Coast overall is down 42% y/o/y, with royalty expenses credited as the biggest reason for the change – though importantly, it was noted that licensing does not comprise the majority of the shift in margin. That said, even with this large change to costs, Wizards of the Coast still has a dramatically higher operating margin than every other segment of the Hasbro portfolio. 

The clear implication here is that Universes Beyond will continue to play an increasingly large part of Magic’s release cycle. They may have mined the biggest traditional fantasy IP early on in their explorations into the world of licensed properties, but even factoring in a hit to their margins, the increased audience that goes with UB seem to be a key note from Hasbro.

Only a few months ago, Chris Cox celebrated that 2022 was the first year where every premiere expansion was able to join the 100M+ revenue club, a club who was exclusive enough to not let new members in most years. Now, the average revenue per set is beyond even that. The growth of Magic may be slowing compared to 2021, but the community seems to be moving in the positive direction all the same.

A frequently-cited reason for the drop in net revenue year-over-year in the WotC organization by both Cox and Goetter was the release cadence for Magic: the Gathering. Due to scheduling, this quarter had only three “major sets”, compared to four from last year. In a period of Magic where complaints about “release fatigue” and “endless spoilers” abound online, it seems the incentives of Hasbro will inevitably lead to these criticisms of the game’s management to continue. 

Chris Cox described Hasbro as a “toy and gaming company,” following with a note that “the emphasis is on the gaming part of that.” Looking at the financials for Q2, it’s easy to see why. With Magic taking up increasingly larger shares of Hasbro’s portfolio while the company focuses on reinvesting in its core brands, it makes more sense to see Cox touting competitive play in an investor report, when in previous years, that element of Magic would’ve been a bullet point at best. 

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