Play by Play Toys & Novelties, Inc.

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Play by Play Toys & Novelties, Inc.

4400 Tejasco
San Antonio, Texas 78218
U.S.A.
(210) 829-4666
Fax: (210) 824-6565
Web site: http://www.pbyp.com

Public Company
Incorporated: 1986
Employees: 620
Sales: $74.20 million (1997)
Stock Exchanges: NASDAQ
Ticker Symbol: PBYB
SICs: 3942 Dolls & Stuffed Toys; 3069 Fabricated Rubber Products, Not Elsewhere Classified

A noted toy manufacturer, Play by Play Toys & Novelties, Inc. designs, develops, markets, and distributes stuffed toys and novelties for the amusement and retail industries throughout the world. The company licenses widely recognized characters from children’s entertainment, professional sports team logos, and corporate trademarks to create its product lines. Play by Play Toys holds licensing agreements with most of the major players in children’s entertainment. The company licenses many prominent characters, including Mickey Mouse, Winnie the Pooh, Bugs Bunny, Tweety, Sylvester, Tasmanian Devil, Animaniacs, Spiderman, Batman, Wolverine, and other properties from Disney Enterprises Inc., Warner Brothers, and Marvel Entertainment Group Inc. The company’s Play-Faces line of sculpted toy pillows also features licensed characters. Play by Play Toys also designs, develops, and distributes electronic and nonlicensed stuffed toys, as well as sells and distributes a variety of nonlicensed novelty items.

Arturo Torres, Entrepreneur: The First Ten Years

Arturo Torres left his native Cuba for America in 1961 with aspirations of becoming a cowboy. Instead he found a job washing dishes at a Pizza Hut in Texas. Before long, though, his drive and determination took him from the kitchen to the board room. By the 1980s, this Cuban refugee operated 240 Pizza Huts and Taco Bells. Ever the entrepreneur, Torres founded Play by Play Toys in 1986 as a vending-machine prize supplier. Within six years, he sold his restaurant franchises for $125 million, and by 1995 he made Play by Play Toys a public company, with subsidiaries and expansion plans.

In 1996, Play by Play Toys sold its restaurant subsidiary, Restaurants Universal España S.A., for $1.6 million to Croitex S.A., a firm based in Spain. Though the toy manufacturer’s two owned-and-operated restaurant units generated about five percent of consolidated sales, Play by Play Toys lost $259,000 in fiscal 1995 because of the restaurants’ performances, which continued losing money—$111,000—in the first half of fiscal 1996. Without the restaurants, Play by Play Toys expected greater focus and concentration on its core business of toys.

Acquiring the Ace Novelty Company: 1996

In May 1996, Play by Play Toys purchased Bellevue, Washington-based Ace Novelty Company for $44 million in cash, debt, and some liability assumption. Play by Play Toys financed its purchase of Ace Novelty and obtained working capital using a $65 million credit facility. Chemical Bank acted as the agent of the credit facility, and Heller Financial and Texas Commerce Bank also participated in the loan. Ace Novelty effectively became a subsidiary of Play by Play Toys, retaining its own management team and identity in the marketplace. “We’re forming an Ace Novelty subsidiary, which will keep a separate identity within our company,” Play by Play Toys chief financial officer Joe Guerra revealed in Amusement Business. “We believe there is quite a bit of value in the Ace name and reputation, and we want to maintain that identity in the market.”

Nevertheless, the acquisition made Play by Play the largest supplier of stuffed toys and novelties in the United States and expanded the properties licensed by Play by Play Toys. (Ace Novelty licensed entertainment characters for the amusement and retail markets, including the Warner Brothers’ Looney Tunes and Space Jam characters.) In the deal Play by Play Toys also obtained Ace’s operating assets, business operations, facilities, warehouses, and distribution centers in Bellevue, Washington; Los Angeles, California; Chicago, Illinois; and Burnaby, British Columbia, Canada.

Completed in June 1996, the acquisition of Ace Novelty—and its many character licenses—added greatly to Play by Play Toys’ international sales strength, as well as to the company’s activity in the retail market. Play by Play Toys’ net sales rose significantly in fiscal 1997’s fourth quarter—94.2 percent—owing to the acquisition, among other factors.

The acquisition of Ace Novelty reorganized Play by Play Toys’ activities in the amusement and retail markets. Formerly, the company directed about 60 percent of its business to the amusement industry and the remaining 40 percent to the retail market. Since the purchase of Ace Novelty, Play by Play Toys increased its activity in the amusement market by 15 percent, reducing its retail business to approximately 25 percent. As a result, during the winter months when the seasonal amusement industry was quietest, Play by Play Toys’ sales volume fell as fixed overhead costs and a percentage of sales rose. Nevertheless, the company saw growth in the third quarter of 1997, especially in international markets. Demand for Play by Play products abroad further developed the company’s international facilities and infrastructure.

Play by Play negotiated a multiyear licensing agreement with Warner Brothers Consumer Products (UK) Limited, a unit of Warner Brothers Entertainment Company, in August 1996. The agreement permitted Play by Play Toys to distribute a broad line of stuffed toys based on popular Looney Tunes, Tiny Toons, and Animaniacs characters to western European markets. This arrangement complemented Play by Play Toys’ domestic marketing plans. The popularity of Warner Brothers characters in western Europe also promised to enhance the company’s international expansion. Previously, Play by Play Toys licensed Looney Tunes and Animaniacs characters from Warner Brothers for the distribution of plush toys in Spain’s retail market and for the distribution of its Play-Faces sculpted pillows in Europe.

The agreement further strengthened the relationship between Play by Play Toys and Warner Brothers. In 1996 the toy maker won the Looney Tunes President’s Award for Excellence in Achievement.

Acquiring the TLC Gift Company: 1996

Another key acquisition, the purchase of TLC Gift Company in the United Kingdom, also added to the company’s performance overseas. Acquiring this company solidified Play by Play Toys’ position in the amusement market, as well as expanded its penetration of European markets.

In November 1996, Play by Play Toys finalized the acquisition of the TLC Gift Company, based in Doncaster, England. A leading distributor of specialty plush and novelty products, TLC Gift Company supplied both the retail and amusement markets throughout Europe. TLC Gift Company acted as the exclusive distributor of Play by Play Toys Europe in the United Kingdom since 1995. The new arrangement allowed the British company to increase its revenues by $5 million in a one-year period. After the acquisition, TLC Gift Company became a wholly owned subsidiary of Play by Play Toys Europe. Thus, the company’s headquarters moved from Great Britain to Play by Play Toys Europe’s location in Valencia, Spain.

New Products in 1997

The company developed new products in 1997, notably Talkin’ Tots, its first product for the large doll market. Talkin’ Tots, two dolls that communicate (they talk and sing) through infrared sensors, also marked the company’s first venture into television advertising. Play by Play Toys also promoted its Tornado Taz through television ads. A plush version of the popular Looney Tunes character, Tornado Taz shook, spun, and spoke with the voice of the late Mel Blanc. New products such as Talkin’ Tots, Tornado Taz, and a plush version of the popular Looney Tunes beanbags sold well and strengthened both the company’s retail and amusement product lines.

In 1997 Play by Play Toys added some classic characters to its product line through new licensing agreements. In September 1997, Play by Play Toys signed an agreement with Warner Brothers Consumer Products giving it exclusive worldwide rights in the design, manufacture, and distribution of Baby Looney Tunes products. The company created play and pull toys around these characters for infants, toddlers, and preschoolers. Play by Play Toys anticipated expanding this product line throughout 1998. With $50 million in revenue potential, the product line, manufactured in conjunction with WB Toys, included a developmental line of play toys and toddler pull toys for early childhood. These toys allowed Play by Play Toys to enter the pre-school market, an expanding industry segment, as well as established the company as a greater presence in the retail market. Manufactured and distributed to retailers, the products debuted in 1998.

Play by Play Toys launched a public offering of two million shares of common stock, priced at $16 per share, in November 1997, the proceeds of which were used to reduce debt and enhance corporate growth. The toy manufacturer’s sales hit $137 million in 1997, and the company’s stock doubled in value. At this time, Play by Play Toys changed advertising agencies, awarding a $5 million contract to New York-based Anda and Scotti. The firm assumed responsibility for the toy maker’s television and print creative campaigns for the consumer and trade markets.

Company Perspectives:

Play by Play’s enviable reputation, and track record of manufacturing and distributing superior products consistent with the high standards of our licensors, gives us a clear competitive advantage.

International Growth in 1998

The company’s overseas subsidiary Play by Play Toys & Novelties UK signed an agreement with Walt Disney UK for the distribution of its plush product line in the United Kingdom and Ireland in 1998. Valued at $5 million the first year, this contract positioned Play by Play Toys as a dominant player in the European market. At the time of the agreement, Francisco Saez Moya, president of Play by Play Toys & Novelties Europe, noted, “We are very excited that we have been awarded the rights to distribute the Disney product line in the U.K. and Ireland.... We are quickly becoming the dominant player in the burgeoning European market with our wide range of product lines that include Baby Looney Tunes, Garfield, Tom and Jerry, The Muppets, Coca-Cola, Sesame Street, and now Disney. In line with our growth strategy, this distribution agreement brings us one step closer to becoming the leading European distributor of high quality plush toys based on classic character licenses.” By 1998 Play by Play Toys dominated the carnival prize market, with a commanding 50 percent market share.

Future Plans

At the end of 1998, Play by Play Toys planned to continue its extension into the toy market worldwide. The company expected to acquire additional character licenses in the future, as well as to expand its product lines in both the retail and amusement sectors. In addition, other new product introductions could be expected from the toy manufacturer in upcoming years.