What Wizard's SEC filings reveal about the company's future

The end of 2011 was a time of turmoil for the brand known as Wizard. Founder Gareb Shamus was forced out by his own board, and the new board committed to mending fences and resurrecting the media end of the brand to go along with the successful convention business. Now the company’s annual report has just been posted and sadly for snoopers, the financials only go up to the end of 2010. However, there is lots of other interesting reading, including the difficulty of running a web-based media enterprise — it’s not making any money, which will surprise no one — and the convention business — only Chicago and Philadelphia are profitable with the other events losing money.

There’s some fairly dire reading in the whole filing — the risk factors section alone should leave you curled up into a ball on the sofa watching a Jane Austen movie — but a lot of that is boilerplate for SEC filings which need to disclose everything that could go wrong.

Despite all that, in our conversations with current Wizard board members, they sound committed to moving forward with the parts that work, and trying to fix the parts that don’t. A new president is to be announced any day now, and that person will have a big say in how Wizard World survives.

Our Company has two lines of business: (i) live multimedia events, which involves ticket sales and exhibitor booth space, and (ii) sponsorships and advertising. Our current focus is on growing our existing Comic Cons by obtaining new exhibitors and dealers and attracting more high profile celebrities and VIPs. We also plan to expose our database of fans and our target market of young adult males to our content through digital media such as Facebook, Twitter, YouTube, Flicker, and Tumblr, and draw higher traffic to our website www.wizardworld.com by creating content from our live multimedia events and promoting such events through emails, newsletters, our iPad app and our soon to be released iPhone and Android apps.

Further, in the fourth quarter of 2011, we launched our new digital entertainment ad network called the “Wizard World Digital Entertainment Network,” which will be comprised of two websites located at www.wizardworld.com and www.toywiz.com, and the Wizard World email database. The Wizard World Digital Entertainment Network will offer display advertising to brand advertisers, priced on a traditional CPM ad impression basis. We plan to work with display advertising networks and third party representation firms, and to hire four direct sales employees over the next 12 months to maximize the monetization of the Wizard World Digital Entertainment Network.

We expect to produce six (6) live events during the year ended December 31, 2012. We run the risk that we will not be profitable in the live event business. To date, we have operated profitable live events in both the Philadelphia and Chicago markets, but we have operated at a deficit in other events. In order for us to operate a successful event, we must produce an event that is relevant to the public in order drive ticket sales, booth sales, sponsorship and advertising. In order for the Company to grow the digital business, we must attract unique users and drive traffic to our online site. To date, we have exhausted considerable resources developing our media platform, but we have yet to earn a profit from the platform.

Currently, our digital media business has been funded on capital raised from outside investors. We are currently earning revenue from the site and from the newly launched digital entertainment ad network, but not enough to maintain the costs to operate. We must continue to fund the digital media business from outside investors and from cash flow from the live event business until the media platform generates enough revenue to support its own operation.

A P&L for 2009 vs 2010 has been posted:Results of Operations

There’s also a run down of the convention business:

On November 13, 2010, the Company acquired the production rights to the Mid-Ohio Comic Con from GCX Holdings.  The total consideration for the acquisition was $77,500, of which $60,000 was the initial purchase price, payable in royalties consisting of 25% of the first $40,000 of exhibitor revenue, plus 10% of the exhibitor revenue over $40,000.  Additionally, we agreed to a five-year consulting agreement for $3,500 per year, payable in annual installments commencing in the year after the $60,000 initial purchase price had been paid in full.  The production cost of the 2011 Mid-Ohio Comic Con was approximately $160,000, which we funded out of existing cash and cash flow from our Company’s operations and proceeds from ticket sales and exhibitor sales prior to the event.

Subsequent Business Operations

In late 2011, we began to leverage the popularity of our Comic Cons to use as a springboard to enter the digital media market.  Specifically, in the fourth quarter, we launched our new digital entertainment ad network called the “Wizard World Digital Entertainment Network,” which is comprised of two websites; www.wizardworld.com and www.toywiz.com, and the Wizard World email database.  The Wizard World Digital Entertainment Network will offer display advertising to brand advertisers, priced on a traditional cost-per-thousand (CPM) ad impression basis.  The Wizard World Digital Entertainment Network plans to represent both its owned and operated site, www.wizardworld.com, as well as third-party sites such as www.toywiz.com.  The Company expects to sign up several more third-party sites in 2012 and beyond to grow our vertical entertainment ad network business.

Our 2011 Wizard World tour included nine conventions occurring in the following cities: New Orleans, LA, Miami, FL, Toronto, Ontario, Anaheim, CA, New York, NY, Philadelphia, PA, Rosemont, IL, Columbus, OH and Austin, TX.  We receive revenue from our Comic Cons in three (3) ways, namely from (i) consumer ticket sales; (ii) exhibitor booth sales; and (iii) national and/or regional sponsorships.  Each Comic Con varies in cost to produce.  Production costs vary based on the size and scope of the production.  Generally, our production costs range from approximately $150,000 for a smaller scale production to over $450,000 for a larger production.  We base the number of Comic Cons that we produce on how much internal cash flow we have to fund them, which limits the number of Comic Cons that we can produce in one year.  

The Company’s plan for 2012 is to focus the Wizard World tour on the Company’s six most popular ‘Super-Regional shows; New Orleans, LA, Toronto, Ontario, Philadelphia, PA, Rosemont, IL, Columbus, OH and Austin, TX.

The majority of our target audience are young adult males and are active consumers of many types of entertainment and media, such as movies, music, toys, video games, apps, consumer electronics, computers, and lifestyle products (e.g. clothes, footwear, digital devices, mobile phones and men’s personal items).

Digital Media

In late 2011, we began leveraging the popularity of our Comic Cons as a springboard to enter the digital media market.  We will use digital media (i) as a distribution channel for the pop culture content that we showcase at our Comic Cons, (ii) to provide coverage of our Comic Con events, and (iii) to introduce new and upcoming products and talent in the pop culture world. To that end, we formed a wholly owned subsidiary, Wizard World Digital, Inc. (“Digital”), to send entertainment emails to our fan database, manage our website www.wizardworld.com and our online presence on, among others, Twitter and Facebook.

Further, in the fourth quarter of 2011, we launched our new digital entertainment ad network called the “Wizard World Digital Entertainment Network,” which is comprised of two websites at www.wizardworld.com, www.toywiz.com, as well as the Wizard World email database.  The Wizard World Digital Entertainment Network will offer display advertising to brand advertisers, priced on a traditional cost-per-thousand (CPM) ad impression basis.  We plan to work with display advertising networks and third party representation firms, and to hire four direct sales employees over the next 12 months to maximize the monetization of the Wizard World Digital Entertainment Network.

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Strategy

Our objective is to use our Comic Cons and Wizard World Digital to become the voice for pop culture enthusiasts across multiple media platforms. Key elements of our strategy include:

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producing high quality live multimedia events across North America for promotion of consumer products and entertainment;

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leveraging all the content created and generated at the live multimedia events to enter the media market and distribute the content in digital media such as websites, apps, emails, newsletters, Facebook, Twitter, Flicker, Tumblr and YouTube; and

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obtaining sponsorships and promotions from media and entertainment companies for the Comic Cons, including:

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expanding our relationships with entertainment and media companies; and

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forming strategic relationships with new media and entertainment companies to promote their products.

We receive revenue from our Comic Cons in three (3) ways, namely from (i) consumer ticket sales; (ii) exhibitor booth sales; and (iii) national and/or regional sponsorships. If we were to receive revenues, we expect that approximately 95% of the revenues will come from Live Conventions through ticket sales, exhibitor sales and dealer sales, and 5% will come from Sponsorships and Promotions.  In time, our business plan is to generate a majority of our revenues from advertising sales on all of Wizard World Digital’s media properties.  We expect that digital media revenues will primarily be earned through offering advertisers the ability to place banner ads on our digital media properties, priced on a standard cost-per-thousand (“CPM”) basis.

Sponsorships and Advertising

We sell sponsorship and advertising opportunities to businesses seeking to reach our core target audience of young adult males.

Sponsorships. We provide sponsorship opportunities that allow advertisers a wide range of promotional vehicles on-site and through our public relations efforts.  For example, we offer advertisers the ability to (i) display signage at the Comic Cons, (ii) include their desired logos on all direct mail that is sent in connection with one or more Comic Cons, (iii) be included in press releases to the media, (iv) obtain sponsor tags on the radio spots or in the print or online ads where we advertise, and (v) obtain advertising space in our digital media.  We also provide the opportunity for advertisers to sponsor events at the Comic Cons like costume contests or gaming tournaments and the ability to have “step-and-repeats” for photo opportunities, meet and greets with celebrities, VIP packages and “goody” bag giveaways.  Sponsors pay a fee based upon the position of their advertising media and the exposure it will receive.  Specifically, the closer a sponsor is to the entrance of the Comic Con, the more exposure such sponsor will receive as a greater number of Comic Con attendees will view the sponsor’s product and/or services.  Therefore, the rental fee for space at our Comic Cons is more expensive if the space is closer to the entrance.

Promotions. Promotional opportunities include product placement and brand associations on-site at the Comic Cons.  As our brand grows, we hope to earn revenues by co-promoting, for example, a movie at one of our Comic Cons, with entertainment and media companies and brands seeking to benefit from the popularity of the Comic Cons and the exposure received from appearing at them.  We have not and do not enter into formal agreements with respect to co-promotion with other parties.

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Digital Media. We produce a number of digital media properties, including our website www.wizardworld.com, emails, newsletters, iPad app, Facebook, YouTube, Twitter, Flicker and Tumblr to create awareness of our Comic Cons and provide updates to our fans and consumers.  We also use our website www.wizardworld.com to a large extent to provide a source for the latest Comic Con news and information.  Display advertising is offered to brand advertisers across all our digital media properties, priced on a traditional CPM basis.

Marketing

Our Comic Cons are marketed through a variety of media outlets, including social media, websites, public relations, television, radio, direct mail, email, flyers and postcards.  Our Comic Cons usually obtain publicity through coverage of the events at our Comic Cons from local TV stations, radio stations, newspapers, national press such as the Associated Press and Reuters, fan websites, blogs and social network channels such as Twitter, Facebook, Flicker and Tumblr.  In certain instances, we do not pay for advertising because we can provide desirable content to media outlets.  For example, we typically invite the local TV stations to our Comic Cons so that they can interview the celebrities featured at our Comic Cons.  As a result, we receive free TV coverage and the TV stations obtain content for their shows.  In addition, we arrange for celebrities to call into local radio stations.  As a result, we receive on-air promotion of our events and the radio station reaches a larger audience who want to tune in to hear our celebrities.  We also receive on-air promotion by exchanging air time for ticket give-aways to our Comic Cons.  With respect to the internet and online advertising, we advertise throughout our website www.wizardworld.com about the upcoming Comic Cons.  We also send out emails to our fans on a regular basis.  In addition, we send out direct mail postcards, print flyers and postcards in each city where we hold a Comic Con, which are handed out at local events, retailers and public gatherings.  As a result, we believe that we are cost effective when it comes to how we spend our advertising dollars.

We are consistently creating and developing new content to distribute to our fans via all of the digital outlets we have developed, including, without limitation, our iPad app called Wizard World, which can be downloaded via our website at www.wizardworld.com or through Apple’s App store for the iPad.

As penny stocks go, the WIZD brand isn’t trading that well, the filing notes:

Our stock is thinly traded, so you may be unable to sell at or near ask prices or at all.

The shares of our common stock are traded on the Pink Sheets and are thinly traded, meaning that the number of persons interested in purchasing our common stock at or near ask prices at any given time may be relatively small or non-existent.  This situation is attributable to a number of factors, including the fact that we are a smaller reporting company that is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community who generate or influence sales volume.  Even in the event that we come to the attention of such persons, they would likely be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we become more seasoned and viable.  As a consequence, our stock price may not reflect an actual or perceived value.  Also, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as is currently the case, as compared to a seasoned issuer that has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price.  A broader or more active public trading market for our common shares may not develop or if developed, may not be sustained.  Due to these conditions, you may not be able to sell your shares at or near ask prices or at all if you need money or otherwise desire to liquidate your shares.