Chit Chat Stocks - Playboy (PLBY Group) with Rod Alzmann

Episode Date: July 27, 2023

PLBY Group, Inc. (PLBY) is a company that owns and operates a portfolio of lifestyle brands focused on the adult entertainment and pleasure products industries, leveraging its strong brand recognition and expanding into diverse markets to drive growth and revenue. Listen as Brett and Ryan ask questions about the company, its business model, and valuation. Enjoy the show! ***************************** Want updates on future shows and projects? Follow us on Twitter: https://twitter.com/chitchatmoney  Subscribe to our Substack to receive free show notes and charts that go along with every episode: https://chitchatmoney.substack.com/ Interested to see more of Rod's work? Find their Twitter here: https://twitter.com/RodAlzmann?s=20 Contact us: [e-mail] Timestamps Playboy | (3:16) Licensing | (23:48) Management | (34:26) Disclosure: Chit Chat Money hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Brett Schafer and Ryan Henderson are general partners and portfolio managers at Arch Capital. Arch Capital and its partners may hold securities discussed on this show. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Money. This is our Thursday deep dive episode where we interview an analyst to discuss a single stock or industry. And today we have on the show, Rod Alsman. He's a managing director at Wook Capital. He's been on the show once before, and we're talking about PLBY Group. I don't know if we will have thrown it in the show notes or maybe the show name, but PLBY Group is the owner of Playboy, which is probably a much more recognizable brand. But everything you probably think about Playboy, you can throw out the window because it's a little different than most people are probably picturing. You might not even know that it's a public company, but the real revenue drivers underneath the PLBY Group hood are a lot different than I was expecting.

And Rod goes through that. He knows the business incredibly well. He's actually quite a large shareholder in the company. So he's on now to kind of give his own disclosure. Rod, do you want to add anything? Yeah, thanks, Ryan. So as you noted, I have a significant beneficial ownership stake of my own. And in my professional capacity as managing director at Will Capital, I just want to make sure all the listeners are aware that Will Capital Management Inc. and its employees solely provide investment advisory services to family clients and do not provide investment advisory services to the general public. Furthermore, investments are highly speculative in nature and involve substantial risk of loss. We encourage investors to obtain advice from your

professional investment advisor and to make independent investigations before acting on any information that we publish or that I discuss. We cannot assure you that the information is accurate or complete. We do not in any way warrant or guarantee the success of any action you take in reliance on our statements or recommendations. Past performance is not necessarily indicative of future results. All investment decisions of an individual do remain a specific responsibility of that individual. Okay, without further ado, let's get to the interview. Welcome to Chit Chat Money. On this show, hosts Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of investing. As a quick reminder, Chit Chat

Money is a CCM Media Group podcast. Ryan and Brett are also general partners at Arch Capital, And Arch Capital may have positions in the securities discussed in this podcast. Anything discussed on Chit Chat Money by Ryan or Brett or any other podcast guest is not formal advice or recommendation. Now, please enjoy this episode. All right. Welcome in. Today, we are joined by now second-time guest, Rod Alsman. He is a managing director at Wook Capital. I think last time we talked Allison Transmissions, probably a company most people weren't familiar with. But if you liked that episode, this one's not going to be that similar, but it's, I guess,

in the value category, just very different business. We are talking about PLBY Group, otherwise known as Playboy. So it's a brand I bet a lot of people are familiar with. they might not know that it's public, but I guess, why don't we start with kind of your background with the company? How did you even come across the stock and think, okay, this might be investable? Sure. Thanks, Ryan and Brett, having me back. It's going from a very unsexy company in automatic transmissions to a much sexier company consumer brand uh so plby group is the latest incarnation of the owner of playboy's intellectual property and royalty business the before i go into the history of the company how

i got involved was this was among many of the d spacs came public in early 2021 while unlike others it didn't have dilutive warrants it of course was an opportunistic uh return to public markets company was pitching a growth story where led by m a they were going to be rolling up uh kind of their presence into sexual wellness um as well as style and apparel and a couple of smaller other categories but think really um clothing related product sales lingerie related product sales. We'll talk about the businesses they still own today and how it's evolved. What put it on my radar in the first place was an investor I'd gotten to know. He was published in Barron's Bullish on GameStop in early 2020. And Scott

kind of mentioned to me, what do you think this brand is worth when it was still before the de-SPAC process. So this was in like February, 2021. And I, you know, my thought was, wow, this is a valuable brand. And that was always kind of the underpinning of why I was willing to make an investment in this business because it had a highly contractual, steady, royalty-driven cashflow underpinning its business. Now, between then and now, a lot has changed and happened. A lot's gone wrong, and we can definitely touch on that. But still today, the reason why I have a large position personally in security is because I believe when we look at an enterprise value today of around $290 million, I'm highly confident

that if there were a public sale of the brand, it would go for north of $300 million. And then they have several other assets that I believe are worth material sums. So it's evolved. Obviously, my thesis at this point is pretty simple. It's stock trades down at about $1.60. We closed that today. It's effectively, I think, a liquidation from what they've told the market. And over the last two quarters, there's been a big shift in their strategy.

And the market's been pretty unhappy about the fact that the CEO is still there. And that's kind of the big, I think, stumbling block for people to try and embrace the new strategy, which I think is actually the right strategy, which is kind of shaving off these non-core assets, conducting these asset sales to get the balance sheet back in order and really focus on the core Playboy brand. And then they have this creator platform akin to OnlyFans that's a, I would call it a growth call option, which may end up being a zero, but does afford real optionality for the business. So at its core, though, it's the royalty streams from licensing that Playboy brand chiefly coming from China. Okay. And I maybe should have mentioned this at the start, but it's quite a liquid. it's i think we were talking before the show average volume is like a million shares a day so and shares are a little over a dollar sixty a day so really not a lot of volume there just kind of keep that in mind as as we're talking about this and uh and uh rod owns i believe this

is your largest holding so um yeah okay he's nodding for anyone that's listening but um let's talk i guess about some of that history that you mentioned they came public via a d-spac but there's also been a lot of acquisitions if i'm not mistaken so what were some of those acquisitions and i guess it's it's probably worth uh ryan like going back people know playboy people have a perception of what playboy is and by and large they're probably wrong so step all way back to the 1950s, right? Hugh Hefner founded this brand. This, what was the primary product was the magazine, right? For many decades, that was the primary product of the business. They ended up having broadcasting related products, which they still have today to a small extent, but

But Hefner created the brand, led it for many decades from the 1950s through till the 2000s. Think about the internet and the disintermediation of the magazine business. The magazine was losing money. Eventually, Hefner had this entity as a public company in 2011 when it was taken private by who is now the chairman of the board and largest shareholder, Suhail Rizvi. Rizvi Travers, RTM, we can use the acronym Rizvi Travers Management, RTM took the company private in 2011. The CEO of the company, so for one, the Hefner family is not involved in the business whatsoever today. And the magazine's been shuttered for almost three

and a half years now. Go back to the start of COVID is when even before COVID, they were winding it down. And that was really the lights out moment for the magazine. So what you're left with and what your comment was about M&A is you had this core licensing business that had been growing for years for the 2000s. And it was a minor element of revenues, but it was a nice provider of operating profit to offset some of the losses from the magazine business. So think today, not to today, but to then, you had them come back public. In late 2019, they, while private, bought Yandy.com, which is a cheap lingerie marketplace. The way they were getting customers was through performance marketing. Somebody typed something in about lingerie, and now it's going to

show up in their Facebook or in whatever. That business was really wiped out in terms of the profitability as they were managing it by the changes in the iOS advertising rules, as you guys are probably familiar with. They bought this business for $12 million in late 2019. They bought a lot of revenue with the business. They bought a lot of low profit margin revenue. So I think part of it was them looking to help get the business to scale to be successful as a public company. Because when they came public, as you guys know, there's public company costs associated. And if you think just about the royalty business, it's not really sufficient to support a public company. It's great, right? The operating cash

flow last year, if we exclude the non-cash impairment for the segment was $42 million. So that's off 60, low 60 million in revenue for licensing. So that licensing segment is, in my view, kind of the golden goose. And they were trying to build up businesses around it to hopefully kind of spin a flywheel. But what we came as investors to see is that the current management team, they're just not good operators. They don't really have any skill set and competency in running an owned and operated business. So they bought Yandy. They also bought a store, a chain of kind of sexual wellness, lingerie, sex toy stores called Lovers, which they paid $25 million in cash for, bought about $5 million in EBITDA. Again, it's like, okay,

you kind of understand the concept of rolling this in and then can we sell higher margin Playboy products through this vector? They also were trying to grow their Playboy owned and operated just playboy.com as a destination to shop which it hadn't been and you know just like their other forays um they were able to grow revenues but they were growing revenues by incurring operating losses so that one now as of the latest 10q they are they have a signed term sheet with a partner who will basically now uh operate playboy.com's direct to consumer portion so playboy has now shifted that into a 15% royalty that they'll just get on sales through playboy.com. The website had about 22 million in sales last year. Granted, the product scope is going to be narrowed. So

they probably won't generate as much in sales, but figure if it were 20 million, right, then that's a $3 million royalty. That's all going down to the operating income line because there's not really marginal costs associated with them cashing that royalty check. So that's kind of where they've shifted to. They try to do direct-to-consumer throughout 21 and 22. I also have omitted the purchase of Honey Burdette, which is an Australian luxury lingerie brand. They have physical stores in Australia, as well as the US and a few stores in Europe. It's chiefly Australian stores, which is a business they bought in June of 2021. They actually raised capital at $46 per share. they sold over $200 million worth of shares at 46.

They used that cash as well as shares to purchase Honeybird Debt. They paid around $300 million by the time it closed. That's a lot. That's tough. That's tough. They paid more than what the current enterprise value is. So they paid a strategic price for the business. And we can talk about Honeybird Debt more. But that business has already, as of last quarter, and formally is being shopped by Moellus, as well as the lover's business I mentioned.

So yeah, you kind of had this amalgamation. They kind of threw everything at the wall, realized they were really bad operators. And now we're trying to basically unwind what they did and refocus on the core brand and the creator platform that they also acquired through M&A. All right. Now that's great context for where we are today, because if you look at this, It is confusing at the start. And we're getting into all these segments where you talked about them, but for the liquidation specifically, what is important outside of the licensing business? You mentioned that already. Is there anything else or really thinking like, okay, liquidation for licensing? Yeah. Honeybird is the biggest asset other than the core Playboy licensing and joint venture op. So Honeybird, and we just talked about how much they paid for it. They don't, at the segment level, they disclose direct to consumer. They don't disclose Honeybird at specific performance. And as of the last quarter, it's understandable why they are kind of so quiet about it, because the Australian consumer is challenged, right? Royal Bank of Australia continues to raise rates.

Just end retail is not doing well over there. And that's still the primary domicile for them for revenues. So I kind of have an estimate of trailing EBITDA for the business in the low $20 million. I also, we can kind of look at a comp and see that Adore Me was bought by Victoria's Secret earlier this year. And then when you kind of try and look like for like on EV to gross profit, it would imply that HoneyBird at still worth based on that transaction, close to $200 million. I have, based on that trailing EBITDA estimate, a range of $135 on the bear case to $225 for Honey Burdette.

Are they explicitly selling, trying to sell this? Have they said, okay. They've said so in the last, if you look in the last transcript, they note they've hired Moellis to pursue strategic. We don't know, right? The challenge with this company right now is there's so many moving parts. So trying to model out a discrete scenario, as I did in the report that I had shared with you guys that by the time this comes public will be published, is kind of like, from what they've told us and what other investors who've talked to management recently have

conveyed to me, this is my understanding at this point in time of what the likeliest path forward will be. As we just said, they've formally publicly said they're pursuing strategic alternatives for this business. I understand it to mean if they get a good price, they're going to sell it outright. They're also, in my view, not going to fire sale this if they were not in a position come later this year to sell, whether it's Honeybird or some of these other assets that I'm happy to enumerate.

I do believe they will either put the entire entity up for sale, including the Playboy IP, or potentially the largest shareholder owns about 30%, could very well take it private again, is a potential outcome. So thinking about Honeybird Ad, okay, I said $135 to $225 million. If they were to generate proceeds of even $150 million, that immediately will take their net debt down to about $25 million. If you think about a steady state for this business, you do have robust, reliable, recurring cash flow coming from the joint venture and licensing operation. So I do believe it can, and it's very capital light. It's actually going to be a negative working capital business, just the licensing portion. So assuming those asset sales are all

completed, they don't really need capital. So they don't really need to be in public markets to tap capital. They could run it with five times leverage on this licensing operation, keep 100 plus million in debt. It's hard to know. But beyond Honeybird, they have other assets. So I mentioned Lovers, which, from what they've told us most recently, is still generating comparable EBITDA to when they bought it for $25 million. I only have it in my bear and base and bull range from $10 to $15 million in proceeds, which I think they could get more, but I'm trying to err on the side of conservatism. They also have an artwork collection, which includes both actual artwork, like there's some Andy Warhol. There's at least one Andy Warhol still in the collection. there's a lot of photography still in the collection. They had had the art collection

appraised the prior public company in the mid-2000s at $20 million. Now, not knowing what's been sold off from the collection between now and then, it's kind of a guesstimate. But given the appreciation in artwork in markets since then, I estimate they can... And they've already said they're conducting a sale of the artwork. So while we've yet to get proceeds from that, I do estimate they're going to generate something in the teens between 15 and 20 million is kind of my thinking there. So that's another cash inflow that we can expect. And then they have over $300 million in net operating losses on their balance sheet. So when you think about the core licensing operation, if they get back to that, they'll be able to use the tax shield

really for over a decade. And then if there's somebody who's interested in buying, Just the Playboy brand, again, depending on how this all fleshes out, those NOLs, of course, do have value to a buyer. Granted, Section 382 does limit how much of that value can be used on an annual basis. As rates have been rising, basically, my understanding is that whatever the market value of the firm is when it's sold or there's the change in control, you basically multiply that by, right now, it's about 3%. So right now, if it had sold for $400 million, they'd be able to use $12 million.

The buyer would be able to use $12 million of those NOLs yearly. So they won't be able to retain the full value. But I put in my model anywhere from $20 to $25 million of value for PLDY in the sense that the buyer is going to be able to potentially secure materially more value from those net operating losses. So when I look at the range of just those assets, we're talking about $400 to $700 million. And then there's the creator platform, which I really think is just kind of a bull call option. I don't think it's likely that they succeed in getting this thing to scale, but I'm happy to talk more about the creator platform.

But the way I really see it is, okay, you have $174 million in net debt after the quarter. If you look at your Bloomberg or whatever, it's not going to look like that because after the quarter ended, they had another amendment to their credit agreement, their term loan, and they basically, the owner of their preferred stock, Fortress, agreed to roll their interest in the preferred stock into the remaining term loan, the amended and restated term loan, which Fortress is now almost the entire owner of. Fortress also owns a three-ish percent equity stake and they've been involved in the company for many years. So the term loan amendment also pushed out any compliance with Covenants through to the first quarter of 2025. So right now they basically bought themselves breathing room through till first quarter of next year to resolve these asset sales or to put the whole company up for sale or to succeed on the creative platform. Okay. So to try to summarize things, make sure I've got it all. 2020, 2021, around that timeframe, kind of drank the Kool-Aid,

bought a lot of exciting assets, I guess, if you will. And it sounds like they got spread a little too thin in the process. And then also COVID hit. I'm sure that didn't help some of the retail businesses. Or maybe one of them they acquired during COVID, didn't they? Yeah. Honey Burdette, they acquired during COVID. And I think they bought COVID benefiting cash flow. That probably was overstated with the benefit of hindsight. site okay and so they so they've got those two sort of retail businesses they've got the creator platform which we can talk about in a second they just sold the andy you mentioned in your write-up they sold their private jet so they're they're adding some cash to the balance sheet what about the mansion is that mansion was sold while it was private but just go back to yandy

That was a semi-joke. It's a good one. To go back to Yandy, which I think is something that people maybe understand. So we mentioned at the beginning, right, how that business was negatively impacted by the iOS changes. It was never a great business. They paid about $12 million for it at the end of 2019. They ended up selling it for about $3 million a couple of months ago.

But that business was generating meaningful operating losses. So them selling it for anything, right, is accretive to forward value for the business. They sold it back to who they bought it from, which was not reported. But I know one investor had submitted a whether it was a records request to the corporation, but uncovered that information. And I don't think there's anything really shady that happened. I think they bought it and they just weren't really able to operate it. And they found somebody would buy it back from them. So I think right now, though, the market is kind of seeing that recent transaction and thinking probably going to get poor proceeds on all of these asset sales, which I think is embedded in the price today.

Okay, let's talk about the licensing segment then briefly, because that seems to be kind of the crown jewel here. Can you take us through how they're actually earning money? Is it just them saying, yeah, you can use our logo for a million dollars to venues or something? So that is one way that they could generate proceeds. The bulk of it comes from the Chinese market, where they have had several changes recently and another recent change that further blurs our capacity to understand the value. So when you think about the licensing revenues, those are royalty cash flows that the company is receiving from approved licensed usage of the rabbit head, which everyone is, I'm

very familiar with or just the the name plate playboy in china it's actually it had become a menswear brand in china it's not a sexualized brand or product so it had predominantly been through um some some manufacturing kind of related relationships with these licensees these chinese manufacturers who were licensees uh where playboy got you know a couple percent of, you know, the end, um, you know, sales amount for them that comes onto their income statement in the form of, right. They get the 3 cents of revenue out of the dollar that, that end, uh, seller in China generated. Um, they then were paying and they are paying a 25%, um, fee to their global licensing agent. So what they have recently done, and if you were to read

through the latest two transcripts to help understand why they're doing this, is they're kind of trying to restructure some of these far-flung licensing agreements where instead of paying the global agent 25%, they're trying to put it into a joint venture approach where at least what they've done in China is now made an agreement with Li and Feng, a subsidiary of Li and Feng, where they valued this joint venture, the two parties, for what that's worth at $250 million, giving the Lianfeng entity the ability to get up to 15% of that. And now Lianfeng will basically operate the entire kind of licensing arrangements in China on an end-to-end basis.

This global licensing contract comes up for renewal in, it's like, 2028. So if you think that what they're trying to do is disintermediate this 25% cut that they have to pay out to the licensing agent, that's why they're going toward these joint venture approaches. So, okay, we give 15% equity stake to Li and Feng, but they're incentivized to work hard for us. They talked about how in the Chinese market to be showing up in the TikTok of China, douyin you need to be like an owned and operated brand so now that they've put it into this

structure they can be on the tiktok of china and sell product through their their end licensing partners um but that's the bulk of the licensing cash flows they also have cash flows coming in from like paxon in the u.s where if you walk into a paxon you'll see a table with playboy branded apparel and again they're getting you know four or five whatever percent of that end sale as pure licensing revenues, less whatever if there's an agent involved in that case. Otherwise, if they're not negotiating it through that global agency, then they're getting all of those cents on, and then you just have to offset your overheads from a licensing perspective.

So they've also talked about their Spirits business, which is not huge, but they'll be releasing these ready-to-drink cocktails with Playboy brand, but they have a partial ownership of the Spirits JV. Have you tried them? No, they're not out yet. Haven't tried them. Will you? Let's see what happens.

Okay. Hopefully that explains licensing a little bit more. Yeah. And the challenge is that with the China JV that they've just entered into, prior to that, they talked about having these licensing minimums where they were guaranteed. it was like $350 million from the minimum contractual guarantees that they had going through till the end of a 10-year period, 2032. And that was the minimums that they were guaranteed from those Chinese licensees. What they've done with this joint venture is lower the minimums, but improve the percent of sales take. So while the floor might be lower,

their ability to earn if the brand is doing well has risen and their percent take on those end sales has risen. So obviously, China right now, the good side isn't doing so well. But that's something that I think longer term does give them more upside in China. And while I didn't explore it, it is possible that they could sell partial ownership stakes in the joint venture they still loan 85% of to further raise capital or monetize as needed. Is there any chance this remains a public company? The only way I see that happening, because once you start to remove Honey Burdette and or Lovers from the revenue mix, you're going to be left with the licensing business. And they also have the revenues from, there's still about 20-ish million revenue that

comes in from the Playboy Plus and Playboy TV that they help create content for. But when I see what's left over, assuming the sale of Honeybird Ad and Lovers being less than $100 million run rate revenue. That's just subscale for public markets. So the only path I really see for them to remain a public company at this point in time is if that creator platform we've discussed a little bit is able to successfully scale. So let's step all the way back to beginning with creator platform. I'm sure most everyone listening to this is familiar with OnlyFans, which has just, if you look at the financials, which they haven't, they're not public, they're still private. In 2021, Axios reported on some of these figures, which are just

stunning, the size of how many billions of GMV. It was around 6 billion in GMV, which the platform take for these, and I know you guys know Match Group, but this isn't one for one with that, but the platform take is like 20% with OnlyFans. Playboy's creative platform is similar. So they need to grow GMV to about $45 million to get to operating breakeven. Their fixed costs, they've disclosed are about a half million a month. So about 6 million annualized. Their variable costs are in the mid-high single digits. So when you think about what hurdle they need to get over, they need to get over $9 million in revenue, roughly. So 20% of that 45 in GMV would get them to that 9 million, which gets them to operate and break even on the creator platform.

um most recently so they disclosed first for the first time in march in the 4q um reporting that the gmv was at 15 million run rate two months after that in may when we got the latest update from them it was at 25 million there's several other investors who are actively monitoring this whether they're using the platform and trying to glean information whether they're scraping data from the platform on both active creator counts, which I shared with you guys, the model that folks can tap into once this is released, kind of with my math on growing. It's a very simple model the way I see it. They're growing active creators. Active creators are generating what they've said is around 12,000 in GMV, but the average active creator is generating on the

platform. So I really just have a model on their active creator growth, which the growth rate slows over time, but is largely based on what they've said and what these data scrapes have shown. And if they are able to grow like I have modeled out currently, they get to run rate breakeven really by about August, September timeframe. So they get to that 45-ish million run rate around September of this year. My understanding from investors that have spoken with the chairman and CEO within the last few months is that right now, Ben Cohn, the CEO, this is his only KPI is this creative platform. They had fired the former CFO and brought in a new CFO slash COO, Mark Crossman, in the first quarter.

And Crossman has been managing the asset sales, managing the restructuring process, cost cutting. That's all been him. And then Ben, as I understand it, is only on the creator platform. So they're trying to grow active creators. They're trying to grow users. The bulk of the revenue that's generated through the platform is from messaging. 60% of that revenue, it's not from subscriptions, it's actually from transactional messaging. So a user is going to chat with the Playboy bunny that he or she finds attractive and pay

a rate per message or view live streams, potentially pay per minute or be a subscriber and getting access to some of these for a monthly charge. But that's kind of the model and that's what this creator platform really is so it's it's a way for these creators you know to monetize their their images um and obviously it competes with only fans but i think the the feedback from some creators in a positive way has been right that of these creator platforms out there your patreon your fans league your only fans like the playboy brand does have some cachet and allure and that's that's really the only competitive differentiator is that branded aspect of it so right some of the the people on the platform feel really good about being a Playboy bunny.

Makes sense. You have been vocal about the management team on Twitter, on your slides you sent to us, but those will be published, I believe, by the time this episode comes out. I guess, what are your thoughts today? How have your opinions on management evolved? Do you think these are the people currently in place? Do you think they're the right people for the job? I don't think they need a CEO, quite frankly. I would like Ben Cohn to do the right thing and resign. I've been calling on him to resign since August of last year when they went through the beginning of this kind of downward spiral.

They did, after that earnings call, after I'd been calling for it, sell the private jet that they had. The issue to me is that Cohn is just extraordinarily overpaid and doesn't do anything. He doesn't bring any value. For what they're looking to do now, they don't need him whatsoever. I'm very frustrated by it. But on the other hand, you've got to recognize that the chairman, Suhail Rizvi, has a very longstanding relationship with Cone. Cone was a managing partner at Rizvi Travers, the PE firm, for many years preceding becoming the CEO of Playboy in 20, interim CEO in 2016, permanent CEO in 2017. So he's had a very long leash.

And the quote that I got from someone who spoke with Rizvi is that he won't put a bullet in Ben's head. But that said, it's understood by anyone who's spoken with the two year to date that this is it. um this creator platform if it's going to get to scale then as we talked about that's really the only way they can remain in the public sphere if they can grow that business to sufficient scale and if not i think they will have some sort of a transaction whether it's brisbee taking it back private whether it's being sold to a strategic buyer like an authentic brands group um where cone is allowed to recede and not necessarily have a big public firing so i think understanding there's that long-standing relationship between the chairman of the board and the ceo which is frustrating but i i am of the view that they brought in mark crossman who

risv also has existing relationship with to manage you know these the restructuring and asset sales They're not trying to burn this thing to the ground. RISV and Cohn both brought in capital in the subscription rights offering earlier this year that helped to recapitalize them. So they brought north of $30 million of new capital in at $2.56. I don't think they do that if the view is this is a steaming pile of nothing. I believe it was to buy them the necessary time to conduct this restructuring to see if they can scale to create a platform. And if that fails, to sell off the assets in a controlled

manner, as opposed to something more of a fire sale, if you will. So I would like to see Cohn gone. At this point, him being there is just more of a... We mentioned before we started the conversation, another couple of investors have written up PLBY recently. And that's really what they conclude is that they view the stock as uninvestable while Cone is there. To me, that's actually why the opportunity exists because it's so small that many professional investors are uninterested in touching it and that you have so many others who are uninterested in touching it while you still have the same manager in charge who led this failed growth strategy and now did a complete 180, which again, I think that it's the right thing that

they're doing now. it's just being led by the wrong person. But even with that said, I still think there's value to be had. And you own a decent chunk of the company, at least relative to, compared to the sums, usually, I'm guessing some of our listeners or ourselves deal with. I guess the idea of activism is potentially on the table, but you mentioned that it's not for this company. Can you maybe explain why absolutely very very happy to so you're right um it's i disclosed in my personal twitter account at rod alsman that it was my largest position at the end of the quarter um i own as of today about a bit more than half a percent of the company through my

personal beneficial ownership i don't have any beneficial ownership over what capital's positions what capital also has a position in the security um I'm sorry, Ryan, what was the question? Why aren't you guys able to do anything activism-wise? Oh, yes. So I mentioned the serious insider ownership by RISV, who is the chairman of the board. RISV also has an investor rights agreement with the company. So when you go through the proxy, the bylaws, all of the investor rights agreement, you will come to the same conclusion that I have,

that unless you're going to get a super majority, which is mathematically impossible, given RISV and Cohn and Fortress's ownership, you can't really effectuate any changes. You can't nominate your own board members, can vote against the board nominees, which interestingly, as of this latest proxy, if you were to back out RISV's votes and Cohn's votes, it was almost two to one against the two directors they had up for reelection. So again, you can see that investors are sending a message, but from a formal activism path, there's just no way forward. You couldn't try to get a large group and try to vote them out because you can't get to the necessary vote level. There could be, if there were a tender,

which I have no insight into something like that, but someone could do the path of taking the whole thing, making a tender for the whole company that the board would have to, if it was a bona fide offer, the board would have to consider and entertain. My view is that if someone, some firm did pursue that route without first having discussions with the chairman, they could simply counter at the same price. And the board is five people, two of which are Ben Cohn and Suhail Rizvi. I'm inclined to believe that any hostile type offer like that, they're going to reject it or they're going to counter and take it out themselves. But just given the way that there's this investor rights agreement, the way they have the bylaws constructed and that serious

insider ownership, there's really no path to public activism other than what I've been doing, which is being a very loud, noisy hamster. And I have been told, and I am aware that Cohn does see all of those messages. So I know it grinds his gears. A vocal critic. Yeah. So I know it's confusing to look at all these assets

for all the listeners. I want to sum things up. What do you think this business is worth? Or what are your kind of ranges of what you think this stock price is worth? right so what i kind of talked about with thinking and as they've communicated many of these assets are up for sale is kind of a range of outcomes ranging from on the bear side i still think that even in bad um if they get bad proceed takes for all of these the creator

platforms is zero they only get 10 million for lovers 15 for the art collection 135 for honey at, I still think that those plus the Playboy IP are worth over $400 million, which again, less out the net debt, still leaves over $3 per share for equity. And it's trading at about half of that. That's kind of my bear case right now. You're welcome to look at the file, plbydd.com is where you should be able to access it by the time this is released. And you can play around with the document that I, the Excel document, you know, when I put a kind of probability of, you know, my bear case, 40%, my base case, 50%, my bull case, 10% chance, which adjust them as you see fit, it spits out $5 per share. My bear case is, you know, for equity is a bit over three

per share, my base case, a bit over five, and my bull case a bit over 11. Again, with the bulk of that delta in the bull case being the creator platform. So I struggle with seeing logic for downside, though that said, there's always risk. And the risks in this case are that they're unable to consummate any of these asset sales. They will need to raise more capital at some point in the next six to nine months or so if they're unable to consummate the asset sales. But one last thing I would point out is that Cohn and Rizvi, or at least Cohn, is up for re-election in next year's annual meeting. And I don't think he's going to want to be up for re-election in public markets.

So I am inclined to believe, again, that there's a resolution to this, whether it's full-on sale to business. They successfully effectuate some of the asset sales they've already announced. Or, again, the positive, hopeful scenario that this creative platform can get to scale and grow and become a contributor to operating income by 2024. But that's kind of how I see it. And I would love to have seen robust bear theses from here, but a lot of what I see people talking about is, oh, who would buy Playboy magazine? It's like, come on, guys, that hasn't been the business for years now. So it gives me a lot of, it reminds me in some ways of my experience investing in GameStop, where I rode the stock down very, very far. The stock became what I viewed as just completely disconnected the price from the intrinsic value and sentiment and flows control so much in the short term in markets.

So when you have dog shit sentiment, for lack of a better word, and you've been deleted from the Russell index, just if you look two weeks or so ago in late June, you'll see very high volume on the deletion day. So this business now that the market cap is $120-ish million, as I mentioned, the enterprise value brings it up to like $290. So it's so small, nobody cares about it. But when you really dig into what they actually own, I just cannot comprehend a loss. And as I mentioned, the largest shareholder did invest about $30 million at $2.56 in February. So stock is – without incremental dilution, material dilution, the stock has dropped another 40-plus percent since February, right? And there's one other thing with that. A very large shareholder who I'd gotten to develop a relationship with, Builders Union, their entire fund was liquidated in the first quarter.

They had been the largest external shareholder of PLBY Group by the end of 2022. So during the first quarter, they were an indiscriminate seller of millions of shares from 2009 through till early March. And if you look at the chart, you'll just see from 2009 when they began selling, it dropped the price by about 35%. And it was, you know, in my discussions with them, it was nothing about the company. They actually were very bullish, but they're managing other people's money and they got their shoulders tapped and they were forced to liquidate. So, you've got a lot of stuff going on here that's really just pushed the price down to the floor. And as my position implies, I have a view that the intrinsic value of the assets will realize a nice return from this level. But as with all of these things, no one knows what could happen.

There's a lot of uncertainty. I think at some point, we're going to have to have you on just to talk about your experience with GameStop. but for now i guess it's let's let's finish with a couple questions i guess one question that's coming to mind for me if this were if someone were to buy all of playboy as it exists today and it wasn't um i'm playing as rizvi i think um what who would it be would it be private equity would it be uh is there any sort of public company that you could see acquiring this so the to me the The logical buyer of at least the Playboy brand and licensing business and joint ventures would be someone like an authentic brands group, someone who already has a big plethora

of brands they are managing and marketing. In my conversations with an investor that knows the head of authentic brands, he's implied of view that their willingness to pay is a level above the current EV of everything is their willingness to pay for just Playboy, which again, no commitment to do that, but I've heard that sentiment shared. And whether it's them, whether it's some other entity, I mean, in my discussions with investors over the last couple of years, right, it's kind of mind boggling when you think about the Playboy brand, the implied value of the brand in this amalgam of assets,

and you think about its global reach, the fact that you have a Gen Z population that 90% plus of Gen Z in the US, UK, and China recognize the brand with unaided brand awareness, it would take billions of dollars to recreate that brand. But of course, the issue has been it's just been poorly operated. And in this market, there's the Bed Bath and Beyond bankruptcy. They were trying to sell Bye Bye Baby. They have an auction tomorrow to see if anyone wants to buy it as a going concern. And in the retail space broadly, there's just not a lot of demand to take on risk right now. So it could be that they're stuck between a rock and a hard place. They can't find buyers at the prices they want. And who knows what happens from there? Again, if they can't get

any sellers or if they can't locate any sellers on terms that they find agreeable, it's entirely possible that RISV decides, you know what, I'm going to keep this in public markets and we'll fund it. We'll have some additional dilutive equity raises until market conditions improve. That would be a risk to the downside for sure. Because on an operating basis, they're going to be losing money with the current operations they have and cost structure they have. So it's a rough one. It's a tough one. I've invested a lot of time and energy doing my research on it.

I feel a little bit brain dead over it at this point, but I felt so compelled to put this research report out because just like GME, I felt like it was extraordinarily misunderstood. People weren't getting it. i wanted to put my uh thinking out there and the team's thinking out there and you know we've done just that and uh you know hopefully we can generate some good conversations about it at the bare minimum so i i'm glad to have given you guys a taste of it before it goes public and you know by the time this is recorded hopefully i'll have had a chance to talk more about it all right that's perfect is there any you talked about some of the risks there is there any other risks really

you know my my thought is you know management kind of screws over you know something here or something goes wrong with the capital allocation front again are there before we close that was we always want to close that on the downside is there any risk here that the stock does poorly beyond what we just talked about them not being able to locate buyers at prices that they see as fair. There will be additional needs to raise capital to fund the operation. So further dilution is a real risk hanging over people's heads. I think that there's actually, though, I hate to say it, but there's a lot of alignment between who owns the debt, who is also an equity holder, and the insider ownership. And I don't believe

that the intention is to just destroy capital and destroy value, even though they've been quite successful at that. So to your point, is there a way they could scheme and structure a transaction that leaves certain common shareholders out? Not that I'm aware of, but I have heard that concern raised. And it just really speaks to the lack of trust in the management team and the unwillingness of people to want to touch this thing while ben cone is in charge but beyond what we already talked about i don't really see any discrete risks um you know look could there be a war with uh you know china and the relationship with onshore china is severed if that happens yes they're they're sol um there's gonna be a lot of businesses that are gonna be in deep

trouble if that happens though so it's probably not the first thing that comes to people's minds when they think of war with china yes this is strategic accent that the biden administration is going to take uh action against i don't think so all right ryan ready to wrap things up very much guys thank you so much for letting me back on and and i would love to talk about my experience with gamestop and that whole saga with you guys another time for sure yeah whatever we come on we appreciate you becoming a recurring guest and yeah i think you give fantastic insight every time for, for our listeners. Awesome. Great. Thank you. All right. I guess for listeners that enjoyed this interview, they want to hear more about you. Where can they do that? And then

you mentioned the URL that you're going to have the post up at. Can you repeat that one more time? Yes. PLBYDD.com is where we will look to host the report and the Excel. um you can find me on twitter for now at rod alsman um you can also follow at wook capital w-o-o-k capital um the wook capital youtube we put out programming on a weekly basis i host the call at the close every friday to kind of recap we call it wook and review pun intended uh talk about what's going on in markets publish the video and audio to our youtube channel um at Wook Capital. You can also check out the GME DD, which we're looking to rebrand the name of Discord. I participate there as well as in the Wook Capital Discord. So find me on Discord as

uberkicks11 and find me on Twitter under my name. And yeah, I'm always looking to talk to people who have a variant viewpoint. And if you want to push back on anything you've heard from me here, you can reach out and I'd be happy to hear your feedback. All right. Well, that is going to do it. We want to remind listeners that Brett and I are not financial advisors. Anything we say or discuss here on Chitchat Money is not formal advice or recommendation. We are, however, general partners at Arch Capital, so clients may have positions in the securities discussed in this podcast. I want to just reiterate one more time, PLBY group is very illiquid. It's a small cap, a lot of risk here, so just keep that in mind. That's going

to do it. Thanks, Rod, for coming on again, and thanks, everyone, for tuning in. Thank you.