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Welcome to the Supernatural Stocks Podcast on Moneyweb, hosted by The Finance Ghost. This podcast serves as your weekly resource for local and international insights designed for investors and traders.

This episode is a special holiday installment of Supernatural Stocks, focusing on an industry that thrives during this time: the entertainment sector. While acknowledging the seriousness of this sector, I’ll be delving into a less conventional territory, steering clear of major digital gaming firms and toy producers. Join me as I delve into the fascinating realm of tabletop gaming, particularly emphasizing strategy.

I apologize for the length of this podcast; my enthusiasm for these topics is substantial, though I’ve aimed to keep it succinct!

My fondness for strategy games runs deep. I played chess extensively in my school days and became an early admirer of Magic: The Gathering. The notable difference lies in the fact that chess consistently employs the same pieces in identical formations, completely free of randomness and luck, which is why computers can dominate in chess.

This changes with Magic: The Gathering, where deck creation is a crucial aspect of gameplay. The element of surprise plays a significant role, introducing randomness and diversity to the experience.

Given the multitude of decisions that arise in each game, it’s unlikely we’ll see headlines about computers besting top players anytime soon.

My passion for Magic extends to Warhammer, which shares a comparable concept involving miniature models. When you engage in these games, you’re interacting with a clever opponent that challenges both halves of your brain.

Enhanced by YouTube

A joy of these games extends beyond the challenging gameplay; it includes the lively communities surrounding them. I promise you’ll meet interesting individuals and potentially build new friendships. Additionally, YouTube serves as a fantastic resource for skill enhancement, showcasing creators who specialize in niche content related to your favorite games.

Everything wonderful about the internet and human interaction converges here for those who appreciate the joy of play—even as adults!

A lesson I’ve learned from my children is that we adults engage in play far too infrequently. I’m on a personal mission to change this, and it’s significantly influenced my life this year. I’m not alone in this; numerous communities resonate with this idea. Plus, YouTube stands out as a remarkable business, being one of the top assets of Alphabet, the parent company of Google.

Read: The economics of YouTube

Several publicly traded companies are capitalizing on this play trend.

A notable example is Games Workshop (LON: GAW), known for Warhammer.

As mentioned, Warhammer revolves around miniatures, not cards. Players sculpt and paint their figures, with painting being a distinct yet essential facet of the hobby. Competitions exist for both painting aptitude and gameplay, highlighting the immersive aspect of this experience. You choose a faction, build an army, and develop strategies for competition against others on the tabletop.

Even if these games don’t capture your interest or seem trivial, consider this: how does a 34% year-to-date share price appreciation at Games Workshop sound? That’s in GBP [£], so keep that in mind while evaluating that percentage.

This return is not merely due to increased miniature sales; it reflects the vast, immersive intellectual property (IP) that has been developed over decades.

Games Workshop has teamed up with Amazon for a new film and television series, which is creating significant excitement. The focus is primarily on the Warhammer 40K narratives (or lore, as we enthusiasts call it), akin to the epic sci-fi battles portrayed in the games.

Read: An investors’ guide to the world of online gaming

Fans of Henry Cavill, known for his role as Superman, will be thrilled to know he is set to star in the series. He frequently shares his passion for Warhammer during major talk show appearances.

The influencer effect

This brings us to the critical influence of influencers in these gaming genres.

Many creators excel at fostering community, sharing gameplay knowledge, and enhancing the overall player experience—something I lacked as a child. Platforms like YouTube and Twitch have transformed the gaming landscape. However, even the most skilled creators can’t replicate the attention generated by a true celebrity.

Read: The games people watch

Henry Cavill seems like he would eagerly dedicate all his free time to playing Warhammer if given the chance. His enthusiasm is palpable, evident from his wholesome Instagram posts showcasing a visit to a local game store in Jersey, wearing Warhammer merchandise, presenting a refreshing contrast to the usual Hollywood image. That post received over 1.8 million likes—now that’s impressive publicity!

In the domain of Magic: The Gathering, the standout is Post Malone.

The award-winning artist attracts attention in unique ways; notably, he acquired the world’s rarest Magic card for $2 million. Yes, $2 million—for a mere piece of cardboard!

For context, this card comes from a Lord of the Rings crossover set and features The One Ring, inscribed in Elvish. Only one was ever printed worldwide.

Storytelling embodies immense financial potential, and few intellectual properties can compete with Lord of the Rings in marketability—though Warhammer is certainly making a strong effort!

Listen: The business of gaming and esports

The fundamental message is that in our internet-driven era, where influencers hold unprecedented sway, the popularity—and thus, the profitability—of games can shift dramatically when a high-profile star associates with a project.

The significance of digital

While these are fundamentally tabletop games, it’s a mistake to overlook the importance of digital gaming. A part of Warhammer’s current appeal can be attributed to titles like Space Marine 2, based on Warhammer 40K, which have garnered rave reviews. This not only introduces a new audience to the IP but also attracts those who might never engage with tabletop gaming.

It’s less about funneling players into the physical game and more about exploring new avenues for monetizing the IP.

Personally, while I cherish tabletop games, I’m not particularly inclined toward computer games. However, this dual approach expands the potential customer base, creating better monetization opportunities.

One critique of Magic: The Gathering is that the IP is presented too quickly, with multiple story elements emerging too fast. While Hasbro (the publicly traded entity that owns Wizards of the Coast and, therefore, Magic: The Gathering) effectively monetizes gameplay, I feel they invest less in the underlying IP these days.

Building a deck of cards is significantly quicker than painting an entire army and seeking an opponent, resulting in frequent new set releases to maintain gameplay freshness.

While this keeps revenue flowing, it doesn’t provide nearly the storytelling depth found in Warhammer—at least, that’s my perspective.

It’s reasonable then that Magic’s digital presence is anchored on platforms that allow players to compete in digital play against opponents worldwide, similar to online chess.

Listen: SA gaming juggernaut takes on the world with play-to-earn

The overseers of both Warhammer and Magic: The Gathering understand their IP’s core strengths, which is evident in their strategies for online adaptation. These provide valuable business insights and clarify the competitive advantages associated with these games.

Are they profitable?

Absolutely. They are incredibly profitable. A recent trading update from Games Workshop indicates expectations for a 16.6% revenue increase to £290 million and a minimum 24.9% rise in pre-tax profit to £120 million for the six months ending December 1, 2024.

It’s worth pausing to admire a profit before tax margin of 41.4%—a sight that is quite rare.

Full details of the interim results will be revealed on January 14.

For Hasbro, the picture is more complex. Their reports amalgamate Wizards of the Coast segments (including Magic: The Gathering) with other digital gaming revenues, making it hard to assess the specifics for Magic. Buying publicly traded Hasbro shares offers exposure, but the landscape includes various products, such as shelf toys, which lack significant competitive barriers.

Read: How SA can grow its gaming industry

Thus, Hasbro’s numbers may be affected by components like the Monopoly digital game. Nevertheless, in the latest quarter—which was influenced by the Lord of the Rings set in the comparative period—Magic still achieved a 3% revenue increase.

The operating margin for the Wizards segment was recorded at 44.9%. While the specific margin for Magic remains uncertain, the segment performance is inhibited by licensed and digital games, suggesting Magic operates at even higher margins. It certainly is a highly lucrative business.

For investors, the choice leans toward Games Workshop

For investors contemplating which avenue to pursue—if any—there are many considerations.

The disorganized nature of Hasbro as a publicly traded entity makes it an undesirable choice for those seeking targeted exposure to Magic: The Gathering as a business. This is why activist investors have long been advocating for Hasbro to spin off and independently list Wizards of the Coast. However, if that hasn’t happened yet, the chances are slim, as it remains a cash cow for Hasbro, which depends on its revenue.

Even if it were listed independently, Magic appears to be releasing expansions at an unsustainable rate, and even so, it only sees modest single-digit growth.

Concerns about player fatigue are increasing, primarily regarding the financial commitment required to stay competitive in the hobby. Despite being an excellent business, it seems to be on a slow growth path, given its long-term standing.

Moreover, Magic lacks the advantage of an upcoming Amazon series featuring Henry Cavill living out his fantasy by portraying a Warhammer character. This contributes to why Games Workshop serves as the more straightforward option for this investment theme, as it solely provides exposure to Warhammer without the additional complexities surrounding Hasbro.

The only challenge lies in securing a reliable offshore brokerage platform to purchase shares, especially given that Games Workshop is listed in London, rather than the U.S., where many South Africans seek offshore investments.

If only Games Workshop would contemplate listing a tradeable instrument in the U.S. following the Amazon series, it could pave the way for significant positive momentum for the stock price. It’s certainly an angle worth monitoring.

For now, however, I’m back to painting. The learning process is quite challenging, but it’s a rewarding journey that I’m genuinely enjoying.

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