The 39% of FY97 revenue is about $35 million. Now, let's say that this year, FY98, they get about $50 million from WCW titles. This may be a little high, but who knows for sure. Then next year, FY99, say they release an N64 and a PSX WCW title in Q1 and sell it through June (6 months). After all, why not, as long as they have the license. Assume that this brings in half of $50 million of FY98. Actually, it should be more, since I'm sure that the titles sell more in the first 6 months as opposed to the next 6.
With the above scenario, they will have to make up $25 million from '98 to '99 and another $25 million from '99 to '00 from lost WCW sales. Now this guy Farrell is no dummy. His track record speaks for itself. If he didn't think he could make up this difference and then some, I'm sure he would have extended the license. He knows the market better than you or I or any of these analysts who are wrong sometimes by as much as 75%, as we have seen.
Had they extended the license, they could have issued a press release and the stock could have shot up maybe $5 or something today. Everyone would have been happy and congratulated each other and said what a wonderful guy he is. Of course the terms are never released, and down the road the cost of the license may have put a squeeze on margins. Remember, the goal of increasing the gross margins by 300-500 basis points? Bottom line is that things are never as simple as they seem from the sidelines. I have confidence that Farrell knows what he's doing. |
