The Profession's Leading Authority in A PROFESSIONAL DEVELOPMENT JOURNAL for the CONSULTING DISCIPLINES Valuation Data, Research, and Support VALUATION • Through its five web-based annual subscription packages, KeyValueData® offers Internet-based access to thousands of BUNDLES dollars in essential valuation data, research, and tools—all TITANIUM The Valuation Of An Icon: Playboy’s PLATINUM for a single, low annual subscription fee.* SILVER GOLD ECON Valuation—A $500 MM Fantasy? Purchase a Database à la Carte À LA CARTE ASSIST SAVE SAVE SAVE SAVE or Bundle and Save PRICE 46% 44% 40% 49% • IBA Market Data (Downloads Per Year) 7 $495 Unlimited Unlimited Unlimited By Michael Blake, CFA, ASA, ABAR, BCA BIZCOMPS® (Downloads Per Year) $540 3 7 10 10 Guideline Public Company Database (Downloads Per Year) $495 7 10 Unlimited Unlimited n March 2016, reports began to emerge in the Fletcher led the company as it was taken private in 2011 for IRS Corporate Ratios Database $275 business media that Playboy Enterprises (Playboy) $207 million ($6.15/share for those of you keeping score). RMA Valuation Edition (Includes 10 years of RMA data) $925 would explore a sale, with a starting (asking) price of He returned the company to profitability as he slashed the Duff & Phelps Valuation Handbook + Decile Data + $669 $500 million. Two decades ago, this news would have workforce by over ninety percent. Perhaps most notably, in Cost Of Capital Analyzer been seismic in the business world—the valuation regarded October 2015, Fletcher took the extraordinary step of ceasing Pluris DLOM DatabaseTM $595 asI a no-brainer. Five hundred million dollars might have the inclusion of nude photographs in Playboy magazine; DoneDeals® $595 even seemed like an easy bargain. But, in the twenty-first over the public objections of Cooper Hefner, Playboy board Mergerstat Review Premiums & Discounts $125 century, Playboy is not the property or the brand that member and youngest son to Hugh Hefner. Playboy’s last Mergerstat Review Price To Earnings Ratios $125 it once was—its market has been eroded by technology, issue containing nude photographs was December 2015. The Additional Bundle Benefits social change, and the inevitable aging of its founder and magazine that was synonymous with nude photos, and whose figurehead, Hugh Hefner. Is $500 million for Playboy a early success Hefner himself attributed to the publication of Around The Valuation World ® (Monthly) realistic price tag? Or is there not enough airbrushing in nude photos of Marilyn Monroe, was ditching what many Business Appraisal PracticeTM (Quarterly) the world to make Playboy look that sexy? perceived to be its core value proposition. National Economic Reports (Monthly & Quarterly Reports) A FAMILY BUSINESS IN TRANSITION SOCIETY IN TRANSITION Valuation Reports Library Twenty years ago, Playboy was one of the most recognizable It would be fascinating to ask Hugh Hefner about some of his Archived Industry & Metro Reports (1,000+ Reports) brands in the world. It was iconic—it touted a lifestyle and views on contemporary society and sexuality. That gender Business Valuation Articles (5,000+ Articles) philosophy that thrived in the 1960s and 1970s, which relationships in the United States and the developed world Federal & State Law Cases (2,000+ Cases) seemed to culturally peak in the 1980s. The magazine, are changing is beyond argument, but in 2016, we are even Conference Presentations (550+ Presentations) the bunnies, the mansion, Hugh Hefner—all were highly having discussions over the definition of acceptable martial Compensation Data visible parts of American culture (for good or ill). For that relationships (i.e., gay marriage) and of gender itself. The ways S-1 Filings (60,000+ Filings) entire run, and many years thereafter, Hugh M. Hefner, the that are socially (and legally) acceptable for men and women Expert Witness Profiler company’s founder, was chief executive and himself, a symbol to interact are entirely different (if far from perfect) from those Unlimited CPE On-Demand Webinars (Additional Fee Required) $995 $795 $595 $295 $195 of the company, sporting his trademark captain’s cap and that were appropriate in 1950–1980, and the consequences of À La Carte Data Sources Discounts none 5% 10% 15% N/A silk pajamas. Hefner, who started the company in 1953 with inappropriate action are far direr. In an environment of such 15% Off Valuation Software Plus Free Technical Support $600, remained its CEO until 1982. Ironically, his daughter, fundamental and sweeping social change, Playboy has become an avowed feminist, Christie Hefner, took over the company’s something of an anachronism. Not only is the Playboy brand Monthly Subscription Price (Requires Annual Commitment) $240 leadership. She remained in that role until January 31, 2009. not the source of coolness it once was, it borders on the creepy. TOTAL BUNDLE VALUE $245 $640 $1,159 $2,405 $5,184 When Scott Fletcher was named as her successor, he was the TECHNOLOGY-BASED DISRUPTION SAVE! 46% 44% 40% 49% first non-family member to be CEO of Playboy Enterprises— Playboy has been subject to immense changes in three of its core although the family remains heavily represented on the Single-user industries—journalism, photography, and pornography. All three $245 $345 $645 $1,445 $2,645 company’s board of directors. ACTUAL BUNDLE COSTS industries have experienced secular change since home Internet Multi-user N/A $555 $1,035 $2,315 $4,235 (800) 246-2488 | www.KeyValueData.com | [email protected] the value examiner September/October 2016 15 *See website for details, conditions, and upgrading to unlimited BIZCOMPS. 5.31.80.16(NACVA) KVDchartAd.indd 1 10/4/16 10:46 AM A PROFESSIONAL DEVELOPMENT JOURNAL for the CONSULTING DISCIPLINES broadband and smart phones became commonplace. People—particularly those under At least two of the industries that the age of forty—are more likely to obtain news through Facebook as they are the New are central to Playboy’s business York Times. We increasingly read blogs, listen to (or watch) podcasts, watch YouTube are either in secular stagnation, or channels, and follow Twitter and LinkedIn updates for information, opinion, and social outright decline. Combined with the trendsetters. The nature of information flow has become more or less fully democratized. social changes previously described, Image viewing occurs through Google Images, the Getty Images family of businesses, it is no wonder that Playboy’s and on Facebook, and, of course Instagram. Pornography has become free and discreet. circulation has dropped from a high Magazines in black wrappers are no longer necessary. You do not have to worry about of 5.6 million in the 1970s to an subscribing to cable channels and blocking them from inappropriate eyes. Instead, you estimated 800,000 at present. can view at least as much pornography as you wish on your high-definition computer WHAT BUSINESS IS screen, or your tablet or smart phone with high definition display. PLAYBOY IN? The result is stagnating businesses. Check out this data from IBISWorld: Increasingly, Playboy is decreasingly ADULT AND PORNOGRAPHIC WEBSITES IN THE U.S. (% GROWTH) in the media business than it is the branding business. According to various Internet sources, the company’s revenue split looks something like the following: PLAYBOY ENTERPRISES REVENUES Media 41% Licensing 41% MAGAZINE AND PERIODICAL PUBLISHING IN THE U.S. (% GROWTH) The Company generates more revenue from licensing its brand than it does from its media properties, including its iconic magazine. Playboy licenses its trade name and logo for clothing, fragrances, and other household items. 16 September/October 2016 the value examiner A PROFESSIONAL DEVELOPMENT JOURNAL for the CONSULTING DISCIPLINES The clothing market is a little better than the company’s traditional markets (source: IBISWorld): MEN’S AND BOY’S APPAREL WHOLESALING INDUSTRY REVENUE (% CHANGE) It is estimated that approximately $1.5 billion of merchandise bearing the Playboy logo and/or name is sold worldwide; roughly a third of which is in China (more on this later). Given the clear distinction between an industry with potential growth (clothing) and stagnation (pornography) or outright decline (print magazines); and the fact that the media reports the publishing business is unprofitable, Playboy’s future appears to be as a consumer brand, not a media property. And should be approached as such from a business valuation standpoint, though the media business will need to be maintained somewhat in order to support the equity in the brand. THE VALUATION OF PLAYBOY Shortly before this article was published, and after Playboy announced its desire to be acquired, the company’s principal tangible asset, the Playboy Mansion, was purchased for $100 million, with the caveat that Hugh Hefner may live there until he passes away. Accordingly, the appropriate valuation measuring stick is no longer the $500 million starting price, but rather $400 million. For purposes of this analysis, I used the old, reliable Capitalization of Earnings (Gordon Growth) model. I did so because the core business is likely to grow at a relatively modest pace over the long term (if at all), there are no published annual cash flow forecasts available, and there are few, if any publicly traded comparable companies or acquisitions of similar companies to use in a valuation analysis. Recall the Gordon Growth Model formula, which is expressed as follows: Where: • CF = Baseline Cash Flow • g = Constant Growth Rate • r = Discount Rate/Required Return the value examiner September/October 2016 17 A PROFESSIONAL DEVELOPMENT JOURNAL for the CONSULTING DISCIPLINES Cash Flow where they have not experienced the social and gender upheaval that is The following historical financial data for Playboy was available from various taking place in the West. The likely published reports: answer is, as is the case for so many PLAYBOY FINANCIAL DATA, VARIOUS SOURCES ($ MILLIONS) consumer products: China.