Hasbro Sued For Lying To Investors, New Lawsuit Claims Recent Stock Prices Were “Artificially Inflated” By “Overprinting ‘Magic: The Gathering’ Cards”
While both fans and Wall Street have long recognized Magic: The Gathering‘s role in keeping Hasbro afloat, a new lawsuit has accused the popular toy manufacturer of lying to investors regarding the TCG’s recent sales success, even going so far as to begin “overprinting” sets in order to sell the ruse.
Jointly filed by shareholders Joseph Crocono and Ultan McGlone with the U.S. District Court of Rhode Island on January 21st, the lawsuit accuses Hasbro’s executive leadership, including CEO Chris Cocks, of providing “materially false and misleading” statements to investors as to the current health of their “most important line of products”, which in turn led to the collapse of the game’s second-hand market.
Per a recap provided by the Rhode Island-based GoLocalProv news outlet, the case receiving their attention due to Hasbro’s current headquarters being located in Pawtucket, the lawsuit explains, “Magic is a popular card game which notably features rare cards highly sought after by collectors. Such cards may fetch upwards of thousands of dollars on the secondary market.”
“Given the nature of Magic’s secondary market, the rate at which new Magic card sets are printed and sold directly impacts the value of existing Magic cards to collectors. As such, the overprinting of new Magic sets would reduce the value of existing Magic sets. Although analysts and investors consistently inquired as to whether the Company was in fact overprinting Magic sets, the Individual Defendants repeatedly denied such speculation.”
Basing its claims on a review of “internal corporate documents produced by Defendants to Plaintiffs’ counsel, the Defendants’ public documents, conference calls and announcements made by Defendants”, the lawsuit argues that this overprinting scheme “caused the Company substantial harm by causing it to repurchase its own shares at artificially inflated prices.”
“In total, the Company spent an aggregate amount of approximately $125 million to repurchase approximately 1.4 million shares of its own common stock at artificially inflated prices from April 2022 to July 2022. This caused the Company to overpay for repurchases of its own stock by approximately $55.9 million.”
RELATED: Bank Of America Market Analyst Warns Hasbro’s Greed Is “Killing ‘Magic: The Gathering’”
Providing a brief overview of the saga thus far, the lawsuit then recalls, “According to the Company’s segmentation strategy, new Magic sets were to be printed to meet demand from new consumer segments [such as collectors, competitive and casual players, or digital MTG: Arena and MTG: Online users], [but] the truth began to emerge on November 14, 2022, when Bank of America issued a report that the Company had been ‘overprinting’ Magic sets and risked damaging the value of the Magic brand.”
“The truth continued to emerge on January 26, 2023, when the Company issued a press release to announce its financial results for the fourth quarter and full year of 2022. The Q4 2022 Press Release reported that the Wizards of the Coast & Digital Gaming segment had fallen significantly short of the Company’s guidance for year over-year fourth quarter revenue growth. The Q4 2022 Press Release further noted that the Company would ‘eliminat[e]…approximately 15% of its global workforce’ in the coming year, and that its COO would be departing from their position.’
“The truth finally emerged on October 26, 2023, before the market opened, when Hasbro issued a press release to announce its disappointing financial results for the third quarter of 2023. The Q3 2023 Press Release reported that the Company had ‘[r]educed owned inventory [by] 27%[,]’ but further noted that Consumer Products inventories has decreased by 34%.
“During an earnings call held that same day, the Individual Defendants stated that the ‘[reduction in] total owned inventory’ was ‘primarily driven by [the] reduction in [non-Wizards] inventory[.] In breach of their fiduciary duties owed to Hasbro, willfully or recklessly made and/or caused the Company to make false and misleading statements.”
Further detailing their clients’ grievances, Crocono and McGlone’s legal team argued that these dodgy statements or from Hasbro leadership were made “in breach of their fiduciary duties owed to Hasbro, willfully or recklessly made and/or caused the Company to make false and misleading statements.'”
“Hasbro’s strategy with regard to printing Magic cards was not as carefully thought out as portrayed; 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.
“As a result of the foregoing, the Company’s public statements were materially false and misleading at all relevant time. The Individual Defendants failed to correct and/or caused the Company to fail to correct these false and misleading statements and omissions of material fact, rendering them personally liable to the Company for breaching their fiduciary duties.”
The lawsuit also claims that Hasbro “utilized the revenue of Magic to account for revenue shortfalls elsewhere in the company.”
“In order to account for shortfalls in other elements of the Company’s businesses, new Magic sets would thus be ‘parachuted in’ to provide additional revenue. As such, the explosive growth in the Magic business noted just prior to and during the Relevant Period was in fact the result of the Parachute Strategy.”
At present, it is not clear what specific relief Crocono and McGlone are seeking from Hasbro.
Further, as of publication, the toy manufacturer has not responded to any public requests for comment.
