Games Workshop: The World of Warhammer - [Business Breakdowns, EP.239]

Summary

Business Breakdowns: Games Workshop – The World of Warhammer

Podcast: Business Breakdowns (Colossus)
Host: Matt Russell
Guest: Todd Wenning, President and CIO of K&A Capital
Episode: 239
Date: January 30, 2026

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Episode Overview

This episode provides an in-depth analysis of Games Workshop, the British company behind the iconic Warhammer franchise. The discussion explores Games Workshop’s history, business model, vertical integration, deep community ties, and unique position as an IP-driven enterprise. While still considered niche in North America, Games Workshop’s influence is growing globally, aided by upcoming media adaptations and expansion efforts. The conversation is rich with strategic insights into how Games Workshop has successfully bridged the worlds of hobbyist gaming, storytelling, and high-margin business, offering lessons applicable to investors and operators interested in IP-based enterprises.

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Key Discussion Points & Insights

1. Introduction to Games Workshop and Its IP (04:49–09:14)

• Todd Wenning describes Games Workshop as “the best company that most North American investors… have never heard of.” (04:49)
• The company’s unique combination of intellectual property, network effects, and direct engagement with its audience is highlighted.
• Origins: Founded in the late 1970s in the UK, initially as a distributor for Dungeons & Dragons before creating its own original games.
• Core IP:
  • Warhammer: A fantasy tabletop game with miniatures, spun out in the early 1980s.
  • Warhammer 40,000: Introduced two years later, a sci-fi spin on the original fantasy world, set 40,000 years in the future—allowing for rich, expandable lore.
  • Vertically integrated: Owns the Black Library (publishing division), produces paints and miniatures, and controls distribution and retail.

2. Business Model & Vertical Integration (09:45–14:03)

• Transition from distributor to creator/owner of valuable IP.
• Retail Presence: About 575 physical Warhammer stores globally (55% Europe/UK, 35% North America, 10% Australasia).
  • Mostly single-staffed, enthusiast-run stores that exclusively sell Games Workshop products.
  • No third-party distribution in company stores; third-party distribution happens through independent hobby shops (60% of revenue).
• Enthusiast-driven market, with impressive subscriber statistics:
  • ~790,000 on My Warhammer email list.
  • 248,000 Warhammer Plus subscribers ($50/year), more than doubled in 3 years.

3. Market Context & Demographics (14:03–16:58)

• Strong British roots; Nottingham-based with flagship stores.
• Expanding presence in North America, including a new World of Warhammer in Washington, DC (opening 2027).
• Target demographic: Primarily young men (ages 10–18), but many return to the hobby in their 30s or 40s, sometimes sharing it with their children.
  • Starter sets priced similarly to video games (~$70), but collection can get much more expensive.

4. Competitive Landscape & Community Dynamics (16:58–19:49)

• Competitors: Dungeons & Dragons, Magic the Gathering, and other narrative table-top games.
• Warhammer’s flexibility: Players may engage for the gaming, painting, or collecting.
• Community is central: Physical presence and events foster strong network effects (“If one friend starts to play, another friend starts to play and it starts building…” – Wenning, 19:12).
• An ecosystem has developed, including aftermarket customization and resale.

5. Revenue Breakdown & Profitability (19:49–22:22)

• Revenue channels:
  • 60% third-party trade (wholesale)
  • 20% retail (own stores)
  • 15% direct online sales
  • 5% licensing (mainly video games)
• High Margins: Gross margins ~70%; licensing margins over 90%.
  • Retail and online margins estimated 80–85%, trade margins about 50–55%.
  • EBITDA margins over 40% – “a very cash generative business.” (21:30)

6. Growth Drivers: Media & Expansion (22:22–25:36)

• Upcoming Amazon Prime series starring Henry Cavill expected to broaden audience and drive new interest, especially in North America.
• Media adaptations historically boost IP engagement and product sales (cf. Nintendo’s Mario movie, The Witcher on Netflix).
• New stores and expanded licensing deals likely.

7. Managing External & Structural Risks (25:36–28:56)

• Tariffs and UK-centricity: Tariff concerns have led to stock volatility, but vertical integration mitigates supply and IP theft risks.
• Few direct public comps; closest is Hasbro’s Wizards of the Coast.
• Sustainability of Margins: High but subject to mix shift (e.g., more online sales) and potential risks from price increases that could erode goodwill with core enthusiasts.

8. Lessons from Past Stumbles & IP Management (30:03–32:52)

• Near-death experience in 2008 after focusing too much on Lord of the Rings IP and neglecting their own.
  • Key learning: “Just super critical that they continue to invest in their IP.” (30:19)
• The organization is unusually flat, with separate groups for core retail operations and IP development.
• Deep investment in narrative and regular new editions are essential for keeping the fanbase engaged.

9. Capital Allocation & Shareholder Returns (32:52–34:32)

• Capital allocation: ~80% dividend payout ratio (very UK approach); rarely uses buybacks.
• Management’s philosophy: Maintain a buffer, then return leftover capital to shareholders—avoiding empire-building temptations.

10. Valuation & Investment Perspective (34:32–35:39)

• Valued using discounted cash flow due to its cash-generation and high dividend payout.
• Currently trades at ~30x earnings (“not optically cheap,” but justified by quality and growth prospects).

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Notable Quotes & Memorable Moments

On Games Workshop’s Unique Model

“Games Workshop is, in my opinion, the best company that most North American investors… have never heard of.”
— Todd Wenning (04:49)

On Customer Passion and Community

“It’s very much a bonding type of business… there’s hidden network effects… If one friend starts to play, another friend starts to play and it starts building and the community that you build around you gets stronger, which makes Games Workshop stronger.”
— Todd Wenning (19:12)

On Past Strategic Mistakes

“They kind of took their eye off the ball when it came to investing in their own IP… when Lord of the Rings movies stopped coming out… they got in some real challenges. In 2008, there was a real scare that they might go under… Great companies say: we’re never doing that again.”
— Todd Wenning (30:19)

On Capital Allocation

“Here’s all the cash that came in, we’re going to keep a buffer… and whatever’s left over, we give it to our shareholders. It’s very simple.”
— Todd Wenning (33:22)

On Management and Long-Term Orientation

“We believe shareholder value is created primarily by not destroying it.”
— Quoting CEO Kevin Roundtree (35:39)

On Lessons Learned

“Stick to what you’re good at and embrace the quirkiness, the community, the narrative… You might be surprised at how big that market really is… Lean into your narrative, lean into your community, lean into your niche.”
— Todd Wenning (38:57)

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Important Timestamps

| Segment | Topic / Moment | |---------------------------------|----------------------------------------------------------------------------| | 04:49 | Todd introduces Games Workshop, outlines its unique strengths | | 06:01–09:14 | The origin story and development of Warhammer IP | | 11:13–13:22 | Warhammer store footprint and enthusiast-run retail model | | 13:22–14:25 | Subscriber numbers and market context | | 16:58–19:49 | Competition, community, and ecosystem | | 19:49–22:22 | Profitability, gross margins, and revenue segmentation | | 22:22–25:36 | Media expansion, Amazon Prime series, and network effects | | 25:36–27:01 | Tariffs, UK-centricity, supply chain importance | | 28:56–32:52 | Risks to margins, the importance of staying relevant, and IP stewardship | | 32:52–34:32 | Dividend-focused capital allocation | | 34:32–35:39 | Valuation philosophy and DCF approach | | 35:39–38:57 | Key business risks, importance of management and continued relevance | | 38:57–39:48 | Lessons for investors and operators |

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Lessons & Takeaways

• Vertical integration provides Games Workshop control over quality, customer experience, and profit margins, while also fortifying against competitive and supply risk.
• Community and narrative are central—Warhammer’s longevity and pricing power come from deep emotional connection and active ecosystem-building among enthusiasts.
• IP stewardship is critical; past missteps highlight the danger of neglecting to refresh and invest in core franchises.
• Capital allocation is disciplined, focused on dividend returns and resisting the lure of overexpansion or misaligned M&A.
• The company demonstrates the power of niche markets and how embracing a unique identity can yield mainstream financial success.
• Management quality—especially in creative IP businesses—can make or break a brand’s enduring relevance.

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This episode is essential listening for anyone interested in how a tightly focused, enthusiast-first business can grow into a global powerhouse—and what other businesses can learn about brand, community, and operational discipline from the Games Workshop story.

Transcript

[Matt Russell]

This episode is brought to you by Portrait. It's the AI research system that I used to prepare for today's episode and for all business breakdowns episodes. Portrait was built by former buy side investors and they understand great investing isn't just about having more information from low quality sources. It's about having the right information organized the right way. And if you listen to the show, you appreciate Diligence consists of many things Diving into the history of a business, framing the nuanced competitive dynamics, tracking key signposts around your thesis. And historically that would take up material time that you do not have. But Portrait is basically like adding an army of analysts to your team. It's powered by an AI system specifically designed for investment research workflows so you get nuanced idea generation. Portrait assesses the same types of qualitative attributes that we discuss on this show and that can help identify businesses which fit your frameworks. Portrait also customizes research report generation and I used Portrait to generate a primer and lay out bold bear cases ahead of today's episode to help frame the conversation. And third, there's intelligent thesis monitoring and that's where Portrait assesses thousands of data points across value chains each day, extracting the insights driving the business again. All this work would typically take hours and hours and hours. It's at your fingertips now. Visit portraitresearch.com to start your free trial today.

[Podcast Narrator]

This is Business Breakdowns. Business Breakdowns is a series of conversations with investors and operators diving deep into a single business. For each business, we explore its history, its business model, its competitive advantages, and what makes it tick. We believe every business has lessons and secrets that investors and operators can learn from and we are here to bring them to you. To find more episodes of breakdowns, check out joincolas.com all opinions expressed by hosts and podcast guests are solely their own opinions. Hosts, podcast guests, their employers or affiliates may maintain positions in the securities discussed in this podcast. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.

[Matt Russell]

This is Matt Russell and today we are breaking down Games Workshop. This episode is another examination of the business of IP and whether it's Disney, Electronic Arts Nintendo. There are so many businesses out there built around a core IP franchise and games Workshop and its Warhammer franchise may not be as familiar to our North American listeners, but this episode will tell you why that may be changing very soon. Or you can just stay tuned on your Amazon prime or search around your local area to see if there are Warhammer retail Shops in your location. My guest is Todd Wenning, President and CIO of K& A Capital. And Todd shares his own personal story uncovering Games Workshop many years ago. He gets into the fun evolution of this business, which ties into the vertical integration that it has today. And he shares what lies ahead as awareness of Warhammer grows and those loyal enthusiasts that have been around for generations welcome more into their world. So please enjoy this episode on Games Workshop. All right, Todd, it is great to have you back. You gave us one of my more enjoyable episodes last year with Echo Lab and some of the unique details about that story. So anyone who hasn't listened to that episode, I would definitely, definitely point you to that. But today we're here to talk about Games Workshop, a business that I have seen popping up. I actually had someone else reach out, a former guest interested in doing a breakdown on it. There seems to be growing interest in this name for obvious reasons. It's a fascinating story that we'll get into, but I just wanted to start out with the simple introduction because I think there's IP in here that some may be familiar with, but it is what I would consider kind of in the niche hobbyist category. And you can elaborate on that in terms of what Games Workshop is as a business and what they might be known for.

[Todd Wenning]

Matt, thanks for having me back. It's great to be here. I love listening to the show and any way I can contribute, all the better. Games Workshop is, my opinion, the best company that most North American investors at least have never heard of. It's a really fascinating story. As you mentioned, it combines intellectual property, there's network effects, there's television show coming out. There's a lot to dig into with Games Workshop. So it's a company I came across in probably 2019. I had heard of it, I used to work in the UK and I'd heard of it rumblings, but I hadn't really known much about it. Once I started diving into the company, I thought this is really one of those companies I needed to have on my radar.

[Matt Russell]

And.

[Todd Wenning]

And then once I launched my fund, saw the opportunity to buy some and have been a shareholder since. Very excited to talk about Games Workshop today.

[Matt Russell]

Maybe you can get into some of the ip. We have infamous brands associated with ip, Marvel or DC and how they operate as a framing in mind. But what makes up Games Workshop in terms of that special IP and their way that they monetize that, operate it and nurture over it.

[Todd Wenning]

So it's probably good to start with the history of Games Workshop. There is deep lore about Games Workshop's origins and backstory, as well as the narratives of its stories. It's a very beloved IP and a very beloved company, and that's part of what makes it a really special company. In the late 1970s, a group of three men in the UK were building wooden games. Backgammon Go. Around that time, they caught wind of this new thing that was hitting the US called Dungeons Dragons. They thought, this is really fascinating. And so they had some connection with the owner of Dungeons and Dragons in the us and so they became the UK distributor for Dungeons and Dragons. And eventually they saw how this connection between narrative and gameplay was coming together, and they opened their own store, started selling their own games that they were making, started selling Dungeons and Dragons materials through those. In the early 1980s, they decided that we're going to create our own game. The first game that they came out with was called Warhammer, and it was loosely based on the Lord of the Rings kind of era, medieval fantasy role playing. What they did was, instead of doing a tabletop game where people sit around and tell stories, they have miniatures involved. The miniatures are part of the game. You get these miniatures and they're very ornate. Now. They're plastic, but back then they were metal alloy and you could paint them. Each of your characters has different attributes and you roll dice. There's similarities to Dungeons and Dragons. About two years later, they came up with this new concept versus Warhammer, which is more medieval fantasy. And it's called Warhammer 40,000. It's basically the Warhammer world 40,000 years into the future. So it became this grim, dark science fiction fantasy world where you have a human race that's fallen. They're fighting against different alien factions across the galaxy. You can play as a humanoid, or you can play as an alien faction, and you can pick which one appeals to you the most. I'm not sure if it was part of the plan or not, but when you have a world that takes place 40,000 years from now, you can build a lot of backstory behind that to the present. Just endless stories and IP around how things got to where they are. That's created new storylines for the business. So it gets really deep, very intricate. So if you're thinking about the Tolkien world or the Game of Thrones world, where they just keep adding new context to the backstory, it's very similar, so it can go very deep. Games Workshop actually owns their own publishing arm called the Black Library that produces a lot of this narrative. They are actually vertically integrated all the way from paint to publishing. They manufacture the miniatures, they make the paint citadel, the publishing, they do the distribution, they do the stores, they own it top to tail. It's a very fascinating business in terms of how they control all of it and the allure of their IP and how beloved it is with their fans.

[Matt Russell]

I'm curious. You don't often hear about the origins being in the distribution and then evolving into the creation of a world and a game and narrative around it. Were those original founders still very much a part of that storyline into the 80s as they took off with the homegrown IP? Did they play a major role there or was it someone else coming into the fold that helped them evolve that side of things?

[Todd Wenning]

One of the three decided that he wanted to just go back to what they were doing before working on wooden games. The other two really got into this fantasy world and narratives and tabletop gaming. They brought in other people. So there was a couple of major outsiders that came in and helped them develop this game. And it spawned into this subculture of people who just really loved the narrative and dove into it and wanted to play it and engage with it and connect with other people, which is a big part of the story today.

[Matt Russell]

You alluded to this. It sounds like the evolution of that story takes place both in publishing, whether it's books, graphic novels, whatever it might be. In addition to the miniatures. Is it fair to call them figurines?

[Todd Wenning]

Gotta be careful here, Matt. I think the way it's framed is they are miniature war games. They're not figurines. They are tabletop gaming pieces. They are things that we engage with and use to achieve our mission in the game. So we gotta be careful what we say.

[Matt Russell]

It's an important distinction in terms of how they're used. And I maybe didn't appreciate the definition of figurine to begin with. So learn something way beyond businesses on this show in terms of the brick and mortar concepts. There are Warhammer stores. Are they distributing obviously Warhammer related IP product, but is there also still third party product that gets distributed through those stores as well?

[Todd Wenning]

No. So they have their own retail stores as you mentioned. So they have about 575 around the world and about 55% of those are in Europe, the UK, about 35% are in North America and 10% in Australasia. And you probably don't even know that they have a store in your town. If you live in a semi major city in the us, you probably have what's called a Warhammer store. So if you go to Google and type in Warhammer store near me, you probably have one. I don't know for sure, but we have one in Cincinnati, might be one in Pittsburgh, might be one in Cleveland. A lot of these stores are run by enthusiasts. About 75% of their stores are single staff stores. So these are just enthusiasts who thought I get together with my friends anyway to play this game and I might as well have a store and have everything set up there and make some sales and make a little money while I'm doing it. So a lot of them are in strip malls. The stores are fairly small, but they're stacked to the gills with just games Workshop materials. They do not distribute any third party. That's about 20% of the revenue comes from the retail channel. 60% of the revenue goes through the trade channel which is the third party. And so that's where they might be in hobby stores or I'm not sure if they're in Walmart, but they might be in like a Walmart store somewhere. These are all distributed to third party independent sellers.

[Matt Russell]

I look to understand the concept of a Warhammer store and found there was one just a 20 minute drive for me. So I can attest to that being the truth. Just to have some context about this market. I think it is very enthusiast driven, but it continuously amazes me the level of enthusiasm. I think you can even look at something like Marvel movies and the real appreciation and die hard nature of some of the fans of the origin stories back to the Stan Lee days and what that generated for that IP over time. Do you have any way of contextualizing just the size of this type of market and Games Workshop revenue is one data point, but I'm curious about that.

[Todd Wenning]

It's a lot bigger than you probably think. There are 790,000 people around the world who have signed up for the My Warhammer emails. Free regular emails that go out to people who are interested in Warhammer. About 248,000 people are subscribed to Warhammer plus, which is a $50 a year subscription. Now this number is up from 115,000 three years ago. It has doubled over the past three years in terms of people who are willing to not only subscribe to the emails, but also pay for the unique interactions they have with the company. So this is bigger than you might expect and growing very rapidly.

[Matt Russell]

When you mentioned the origins, was there demographic concentration or geographical concentration where this was really material in Europe first before expanding outwards? How key is Europe to the story? You mentioned the 55% number earlier, but I'm curious about that as well.

[Todd Wenning]

It started in the uk. It feels like a very British company. They're based in Nottingham. The World of Warhammer, the big showcase store is next to their headquarters in Nottingham. They're actually building a new world of Warhammer in Washington D.C. that comes out in 2027. So that's another part of the story. But it's a big cultural thing in the uk. A lot of young men in particular, it's not always men, but it tends to trend towards young men who get really into this game. Henry Cavill, who I'm sure we'll talk about in a minute because he's producing the Warhammer series for Amazon. He's a big fan, so he'll get on talk shows and talk about it. And a lot of people grew up playing Warhammer, maybe the similar way to you and I might have collected baseball cards and gone to baseball card shows. So it's a very hobby driven type of business. Management talks about the hobby gene that a lot of their customers have the hobby gene. Not everybody has that. That's a big part of the people who buy it. In terms of age, it tends to be young men between the ages of 10 and say 18. And then a lot of times they fall away from the hobby because it's an expensive hobby. The starter box that I bought was about $70 to give you an idea. So it's roughly video game type level and it can go much, much higher. So you can get individual units that cost hundreds of dollars, if not more, depending on what you're doing. So it's a very expensive hobby. And so a lot of times young players are supported by their parents when it comes to buying Christmas gifts, birthday gifts, things like this. A lot of times what happens is they discover the opposite sex or they discover someone who they want to partner with and they just get distracted for 10 years or so. Then in their 30s and maybe in their 40s, they come back to it. That tends to be the trend of the ages and the interest in Warhammer.

[Matt Russell]

Once you lose access to the rental funds too, it becomes more focused on the budget until you get back out of that hole. But it is interesting when you have the demographic evolution where as they come back to the hobby, they might also have their own children to help break into the hobby. And I can imagine that happens quite a bit. I think you've laid out who in theory would be the competition. But I'm always very curious when it comes to having the hobby gene, what Attracts people to Magic the Gathering vs. Dungeons and Dragons vs. Warhammer vs. Are those the right competitors to think about when you think about where competition exists for the business?

[Todd Wenning]

In some ways, yes. I think a lot of it comes down to what your friends are playing. Warhammer is a lot about community and having something to do with your friends in an increasingly digital world. It's a great way to come together in a physical world and enjoy time together. One of the things that separates Warhammer from, say, Dungeons and Dragons or Magic the Gathering is that you can latch onto various parts of Warhammer. You might really enjoy the gaming, or you might really enjoy the collecting, or you might really enjoy the painting. I don't want to go too deep in myself into this world because otherwise I start mixing up, investing in the narrative of the business. But I did get a starter set. And you paint these figures and you have to do multiple layers sometimes to get them right. And so you spend hours of your time putting these things together. And so if you can get really into painting them, some people actually paint them. If they're really good at them and sell them, you can latch onto various parts of the hobby without having it compete with Dungeons and Dragons or Magic the Gathering. It could be that you really like collecting these space figurines or these medieval fantasy. They actually produce the Lord of the Rings official tabletop games. If you want to collect armies of orcs fighting elves in the Lord of the Rings, you can do that by buying Games Workshop products.

[Matt Russell]

Yeah, it's always interesting to me in terms of the symbolism of when you see something that is a niche hobby evolve. And one of the key moments, I think, is when you see the resale with customization. There's just something that represents there's a market above this market that now exists and that is representative of an ecosystem. And people willing to spend the time to create a business around the original IP is usually telling in terms of the level of enthusiasm there. The other question I had was vertical integration. Seems like it can be very impactful for games Wormshop, particularly because of that community element that you mentioned. If you have a traditional hobbyist store, they might have a Magic the Gathering monthly event. They might not. But I'm sure that pretty much all Warhammer storage have these events. Is that normal in the industry, based on what you've seen?

[Todd Wenning]

So Games Workshop does put on a lot of competitions and events. The attendance numbers are much larger again, than you would probably expect. It's very much a bonding type of business. One of the things I like about this business is there's hidden network effects. If one friend starts to play, another friend starts to play and it starts building and the community that you build around you gets stronger, which makes Games Workshop stronger and the entire value of the whole ecosystem gets stronger. We think about network effects and Google, Facebook and ebay, but really thinking about in a physical gaming world, you don't really think about it, but Games Workshop has it.

[Matt Russell]

You gave us some sense of the revenue breakout with retail and trade. I'd be curious what the other 20% is. So maybe we could start off there.

[Todd Wenning]

So the other 20%, 15% comes from online and 5% from licensing. The online can just be people who order from Warhammer. Com. It can be the subscriptions that I talked about earlier. I think they do. My estimate is that their annual run rate on that number of subscribers is about £12 million. It's rising, but still small part of their business. And then the licensing business is the remaining 5%. And that can be cyclical. They might have a big licensing deal come in with a video game. So if you go onto the switch Marketplace or PlayStation, you'll be able to see Warhammer games. And so they license their IP to the video game producers. That business is really high margin. So it's well over 90% in a typical year. 90, 95% is what I have in mind as a firm. Their gross margins are about 70%. It is almost like a luxury product when you think about those margins. And they have significant pricing power. So if you think about their retail stores, guess is they do about 80 to 85% gross margins in those stores where they control the process online is probably similar. Their cost there being logistics and distribution. And with trade, I think their gross margin is my guess. They don't disclose this, but it's probably 50, 55% thereabouts when they sell to the wholesale. So it's a very strong model from an economic standpoint. Their EBITDA margins are over 40%. It's a very cash generative business.

[Matt Russell]

The licensing point I still remember reading there's all this lure about Ralph Lauren, but if you go back into the early biographies, it was a failing business, really under a lot of stress until he licensed a fragrance. And that was like a huge profit driver and cash generator. It always made licensing in my head a completely different concept. But nonetheless, even if that sits ATOP the chain, 50%, 70% gross margins are quite impressive on those buckets. Would you point to any single bucket being a large growth driver going forward? As you think about Expansion DC store seems like that can make a big leap into the US and having a prime show seems like they're doing things with the IP that are sensible from both an attention and awareness standpoint. But what would you point to? Just kind of from a growth perspective.

[Todd Wenning]

So if we think about the network effects that I mentioned with the TV show coming out, I think it'll appeal to a lot of people who have never even heard of Warhammer. They might go check out their local store, all of a sudden you got a new node in the network. They introduce their friends and so on and so forth. If you look at what's happened with the Mario movie, for example, when the Mario movie came out, Nintendo management said we were surprised, we had high expectations, where we were surprised by even how much that drove what we wanted them to do, which was buy Nintendo video games. And when the Witcher, which is also starring Henry Cavill back in Netflix, came out, that was sort of a stagnant video game series. And the sales went through the roof. People, they see ip, whether it's Lord of the Rings or whatever, and they want to continue to engage with that ip, they want to stay with it. My investment thesis is that this will lead to stronger sales in the higher margin categories. It'll certainly drive interest in trade. People might go to a hobby store instead of knowing there's a Warhammer nearby, or maybe they don't have a Warhammer nearby and they go to the hobby store, in which case it's lower gross margin. But I think that will increase some of the licensing revenue that they have, which is 90% gross margin. The online business, which I think is 80, 85% gross margin, and certainly drive traffic into the Warhammer stores, which is again about 80, 85%. And that's where management wants you to start your experience in a Warhammer store. When I went to go buy my Warhammer starter kit, Warhammer 40,000, to be specific, I walk in with my kids and there's probably six or seven 30 year old men sitting around tables playing this game. They all kind of look up at me to see like, hey, is this guy one of us? I started asking questions and they were talking to my kids. And I think it's just a great way to get a feel for what Warhammer is, what they offer, how the game is played, what sort of social events are around it. It's a great introduction to the experience and to the community.

[Matt Russell]

It's a very interesting thing that we're starting to see more of. You mentioned the Mario Movie, which I can tell you is the first movie I got my son to watch in full. That meant something to me in terms of the nostalgia of playing the game growing up, but also on another extreme F1 drive to survive. And I think a lot of people are trying to use that as a blueprint, so you can see how that drives additional interest and entryways and potentially for a certain type of buyer as well. So that's quite interesting. On the licensing, I'm just curious, you mentioned it can fluctuate quite a bit. How does that work? Is it just the sense of if you're licensing a video game, you're going to have that initial bump in year one, but until you release a new game, you're going to have that natural decline curve?

[Todd Wenning]

Most of their licensing historically has come from the video game partnerships. And so it depends on when consoles are launched, when games are developed. And so it can be a little lumpy when it hits. It goes right to the bottom line pretty much. There's very little operating expense related to that. It really just falls to the bottom line. So I'm thinking that as the movie comes out, that will lead to more licensing deals, whether directly from Amazon or from new partners, video games, et cetera. So I think that will remain a very cash generative part of the business for a long time.

[Matt Russell]

Just in terms of being UK operated, did the tariff volatility end up impacting them at all? And it's just one of those questions that comes to mind, as you mentioned, origin and having that strong footprint there in the uk, how caught up in all of that activity did it get and how much does it actually impact the business?

[Todd Wenning]

So that was some of the concern earlier in 2025, the stock sold off or was stagnant a little bit. The concern was that management said after their annual report came out, they work on different schedule in terms of their reporting schedule. But when the May report came out, they said, we're concerned about tariffs and what the impact might be to our gross margins. And then the stock had a nice jump a couple weeks ago because they said in their November report that actually it didn't impact us as much as we expected. And then we saw this week, so we're talking on January 22nd, we saw when there were concerns about new tariffs, the stock sold off a little bit. Again, they are impacted by it, but again, this is why the vertical integration helps quite a bit. Not only does it help protect them from IP theft, which is one of their biggest concerns, but also it helps them control their Supply and they have complete control of their supply at all times.

[Matt Russell]

You mentioned those gross margins, which to me feel very impressive. Is there any way to contextualize that versus peers? I don't know if there are others that are public that you can compare it to, but I'm curious about that.

[Todd Wenning]

It's such an idiosyncratic business that there's really not a ton of good comps. The best comp is the Wizards of the coast unit at Hasbro, which owns the Gathering and Dungeons and Dragons. And they have similar ebitda margins, around 40%. This is very lucrative IP and it's very, very difficult to get. You mentioned nostalgia earlier. You can't just create this ip. Let's say you wanted to go out and compete against Magic the Gathering or Warhammer. I would just say good luck because it takes decades to build up that nostalgia, those deep connections. And importantly that enables you to pass it down to the next generation. I played this growing up. I'm going to show you how to play it similar to the way we played games with our sons or our children on Nintendo. We played it growing up. We share it with them. Nintendo doesn't have to win them over on their own. We're doing it for them. We're the salespeople. It's just extremely difficult for anybody to come in and compete with these deeply seated, deeply rooted experiences in ip.

[Matt Russell]

I'm still amazed at that ability to transition from being known for distribution, manufacturing, all of that, into building out this world building storyline and all that goes with it. Because that is such a massive undertaking and takes such creativity and a special type of gene. So more credit to them, I think. You see now everybody's just dying to get a wordle created and there's so much demand for people who can make games like that and get them attached to, let alone this. On the point of where margins go, are there any either headwinds or tailwinds where you expect them to materially change from the level that they're at? Obviously if you have a mix shift, which sounds like it could theoretically happen in the future if you get more online consumption, but is there anything that you think would materially change that trend line from where they are today?

[Todd Wenning]

So on the positive side, we touched on the network effects building and the manufacturing facilities are high fixed costs, they have more throughput coming through them. That should increase margins, the risk. You know, it's really trying to stay relevant because network effects are great when your product's relevant and they can unwind just as fast. When you're irrelevant, that is something I'm always keeping my eye on is are they staying interesting to their fan base. One of the risks is that they gouge prices, right? They push prices too hard. And that's a common piece of feedback you see online. That doesn't mean people stop buying it, but people are saying, hey, this is just getting too expensive for me. And so I think Games Workshop does a good job, in my opinion, of stewarding that and thinking longer term. They have a very long term view. I don't think that they are trying to maximize short term profitability at the risk of long term relationships and gains, but that's certainly a risk if they get to the point where they have to raise prices due to inflation and that just gets out of control for their core customer.

[Matt Russell]

You started looking at it in 19 and that's certainly a tenure at this point in 26 of looking at the business and its history. Do you have any sense of whether it has ever had stretches of time where it maybe went out of popularity or lost some of the luster that was associated with it?

[Todd Wenning]

For sure, if you look at the chart, you can see where it falls apart. What happened was they got the license, the agreement to manufacture the Lord of the Rings miniatures. Those games, it was such a bonanza. I'm sure you can remember in the 2000s how Big Lord of the Rings was. And they have three movies and everyone got really excited about it. What happened to Games Workshop was they kind of took their eye off the ball when it came to investing in their own ip. They were just making so much money working with Lord of the Rings that they weren't keeping their IP fresh. When Lord of the Rings movies stopped coming out, that traffic stopped. Now they didn't have fresh IP, they got in some real challenges. In 2008, there was a real scare that they might go under. That was an important moment. And I think a lot of great companies, if you look back at their history, there was probably a moment somewhere along the line where they had a near death experience. Great companies say we're never doing that again. We will not take on debt, we won't do whatever got us in trouble the first time. We're going to fix that. And that's certainly what Games Workshop has done. And so again, it's just super critical that they continue to invest in their ip. They release new additions and so that keeps the IP fresh. Some people might say, oh, I didn't like this edition or whatever, but they'll buy the next one. The Idea is just keep it fresh, keep it going, investing in the business, staying relevant. That's the key to Games Workshops business.

[Matt Russell]

Is there a creative director that sits on top of of managing that ip? I think a lot of the success of Marvel and those movies should be attributed to Kevin Feige who was a die hard fan and made sure that evolution into the theater was done with thoughtfulness around the most enthusiast Marvel fans, but could also be consumable by normies like myself. How does Games Workshop approach that? Do they disclose who looks over it? What's the storyline there?

[Todd Wenning]

They have a very unique organization as well. So it's a flat organization, it's not a strict hierarchy. They actually have it set up where there's two groups. One group is focused on core retail, so dealing with the stores, dealing with the manufacturing. And there's another group that's focused entirely on ip. They take that IP part of their business extremely seriously, as they should. That's I think a key to Games Workshop success, this modern success post 2008 is that they've realized we really need to build up this IP again, make it deep connection with the users and the game players.

[Matt Russell]

Back a bit to the financial model or the spreadsheet oriented questions. In terms of capital allocation, I assume with ebitda margins at 40%, a decent amount of that flows into free cash flow. What do they invest in if they do have to reinvest? Capex and how would you just describe the overall capital allocation framework for the business?

[Todd Wenning]

They have a very unique approach to returning capital to shareholders. I think their average dividend payout ratio.

[Matt Russell]

Is about 80% very UK of them.

[Todd Wenning]

It is very dividend focused. There's another company in the UK called Admiral Group which is a car insurance company. They have a very similar process where they figure out here's all the cash that came in, we're going to keep a buffer, make sure that we are able to be secure in case there's Covid or something different comes up in emergency and whatever's left over, we give it to our shareholders. It's very simple. I believe they have authorization to buy back stock, but I don't believe they've done it before. They haven't really had a 2008 type period where the stock was super cheap either. Their approach is, hey, we're just going to give you whatever is left over. I think it's a very shareholder friendly approach, especially for their type of business because you can imagine being as cash rich as they are, they could easily fall into the empire building Trap where they just start buying up studios and all these sorts of things and they are just relentlessly focused on what they do. I think that is the right capital allocation process for them.

[Matt Russell]

And you mentioned a bit about the stock net getting overly cheap. Do they have a way of thinking about valuation or do you have a way of thinking about whether it's PE or anything else just to frame the valuation framework that you would use for a business like this.

[Todd Wenning]

So for this type of business, I think because it pays such high dividends, really cash flow oriented, it's a discounted cash flow model is what I use. I forecast what I think is going to happen with the margins and figure out what that turns into cash and then discount that cash back to the present. And that's how I model the business. You might look at the stock today. I think it's trading for about 30 times earnings, which is not optically cheap. But if you think about the potential for margin increase and this network effect acceleration, we might look back and say that wasn't too bad to pay.

[Matt Russell]

You had a very nice write up recently when 40 times earnings I think was the actual headline is actually cheap. I often think that there are some impressive businesses out there that are like that and you need to look for characteristics. And I could see your angle here certainly, and 30 times, not 40 times more reason on the risk side of the equation. I think we've kind of alluded to several throughout or what you would keep your eye on the most. Is there anything else that you would add to it or one in particular that you would highlight as the risk that you think most about for the.

[Todd Wenning]

Business in terms of the risk? There's a couple of things. Kevin Roundtree, who we haven't mentioned yet, who is the CEO and writes in my opinion, some of the best annual reports out there. I mean, if you're an annual report fan, you have to check out Games Workshop. You can imagine if you were the CEO of a business with this sort of fantasy IP, you would be inclined to create these 200 page glossy annual reports with all the IP you have to kind of show off what you've done. It's like a word document. It's a simple word document. And he's got some great lines that he puts in those reports and he says, we believe shareholder value is created primarily by not destroying it. So he has these great one liners that any sort of Buffett fan would just love and I do too. And he repeats them every annual report. So he kind of drives it home. He's been CEO since 2015 and spend extremely successful and he's 55 years old, so still pretty young. Could go on for a long time, but there's always the risk that Kevin decides I've done a great job, I've got other plans in life, I want to move on. One of the concerns is what does the post Kevin Roundtree Games Workshop look like? Seems like they have a blueprint for success to execute on, but you just never know. There's always the risk of a management transition not going well, someone who doesn't connect with the fans, so there's always that risk. The key risk however, is just avoiding irrelevance. If you go on online and you go to Warhammer chats and things, people will be upset about prices or this addition. But that's okay. When you're looking at ip, what you care about are people who are passionate one way or the other. The worst thing that can happen is just a yawn indifference. So if they care, that means that they will buy when they are happy, but they still really love the ip and so as long as Games Workshop continues to harness that, it'll be great. AI is a potential concern or a potential benefit. It's unclear at this point. Management has come out and said that we don't want our IP creators to use AI because they're afraid that it'll get mangled in the AI world or stolen or something like that. What's interesting is that part of the backstory to Warhammer 40,000 is that humans used AI and it turned everything bad. They had to fight against AI robots. This is all coming kind of full circle in a weird way. Hopefully that's not our future. But they are naturally concerned about their IP getting stolen and misused and diluted somehow. And so I think that's another risk. That's probably three risks that right there to keep an eye on.

[Matt Russell]

I think the point on Kevin highlights the importance of the people that oversee IP are so incredibly important. And some of those other points are noteworthy as well. Maybe Warhammer 40,000 will become some type of Nostradamus like Tail and you add even more lure to the story. This has been fascinating. I mentioned before, I absolutely love businesses built around IP and particularly when they find ways to really nurture it while building a nice business around it. What are the key lessons that stand out to you from analyzing this business that you would potentially think about looking for elsewhere or applying elsewhere as an investor?

[Todd Wenning]

I think a lot of it has to do with sticking to what you're good at and embracing the quirkiness, the community, the narrative that you're building around those things. You might be surprised at how big that market really is. If you have a very niche interest, especially with the way the Internet is today, there's a community somewhere you can find them. This is a very positive for the world community for people to get involved in. It's human connection, bringing people together. In the digital world, everybody feels isolated and fragmented. And I feel like this is one type of game that can bring people together. I think that's really healthy from lesson standpoint. I just think lean into your narrative, lean into your community, lean into your niche. I think that's a good lesson that I've drawn from the Games Workshop world.

[Matt Russell]

Very good point. You were mentioning network effects and even the feedback loop. The feedback loop can get loosened because you're introducing new things and it's not as tight as it needs to be. But when you can have that focus, it really ties together nicely. And riches in the niches, something I always like to reference. It's always amazing. And the Internet can open your eyes to just seeing how many niches are out there. I compare it to living in a thousand or fifteen hundred years ago, when there were thriving civilizations that nobody really knew even existed. And you might stumble upon them and think to yourself, wow, who knew they were out here? Well, Todd, this again has been a pleasure. I've learned a lot and I'm sure the audience has as well. So thank you very much for sharing the knowledge.

[Todd Wenning]

Thanks for having me, Matt.

[Podcast Narrator]

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