Forget the playroom: It's the courtroom where the success of many toys is now being decided. Mattel (NYSE: MAT) recently delivered a smackdown to MGA Entertainment over its pouty-mouthed line of Bratz dolls. Hasbro (NYSE: HAS) landed a facebuster on the makers of Scrabble rip-off Scrabulous for that game's appearance on Facebook. And JAKKS Pacific (Nasdaq: JAKK) just delivered a pile driver to the spandex-clad goons at World Wrestling Entertainment (NYSE: WWE).
The two have been sparring for years in both federal and state court -- along with video game publisher THQ (Nasdaq: THQI) -- over an alleged bribery scheme between the toy companies and the wrestler's licensing agent. The courts didn't buy the argument and consequently dismissed the charges.
Of course, the more serious damage done was WWE pulling its license from JAKKS and giving it instead to Mattel. The surprising enduring popularity of the "sport" has allowed JAKKS to enjoy a growing stream of revenues from the action figures it produces and the videogames released in cooperation with THQ. In 2007, the videogames alone represented over $21 million in profits, a 60% increase from the year before, and nearly a quarter of JAKKS total $88 million in net income for the year. The loss of the license could be serious.
The toy company has a fallback plan, though, as it signed up WWE rival TNA, a smaller, privately held act. While many of the stars of the professional wrestling circuit don't match up yet to the name recognition enjoyed by WWE players, there are a few wrestlers with star power -- like Kurt Angle, Christian Cage, Mick Foley, and Booker T -- who left the WWE or were released from their contracts and joined the TNA instead.
The WWE stint isn't coming to a screeching halt either. JAKKS' WWE license runs through the end of 2009, giving JAKKS time to milk the sour relationship further. It also has until the end of 2010 to sell off its inventory. That should give JAKKS time to beef up its TNA line of toys and enjoy the greater role that Spike TV is playing in promoting the company's roster.
While the jockeying for position may create some incentives to try to keep competitors off balance by hauling them to court for potential violations, it's still ultimately the playroom that decides who will succeed. Disney (NYSE: DIS), after all, didn't grab the lion's share by taking rivals to court; instead it created enduring characters that resonated with kids.
JAKKS has its own creations that have proven popular -- the EyeClops was a top seller at Amazon.com (Nasdaq: AMZN) last year -- but as Mattel, Hasbro, and others have shown, it's sometimes necessary to put your rivals in a submission hold.
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