Marvel Entertainment announced a five-year licensing agreement with Hasbro that allows the nation's number two toymaker to make toys based on Marvel characters in a wide range of toy and game categories -- including action figures, role-play and preschool toys, board games and puzzles.  Marvel also announced that it has canceled its licensing agreement with Toy Biz Worldwide Ltd on December 31st, 2005, a year before the agreement was due to lapse.  Marvel will book a one-time cash charge of $13-16 million dollars in the fourth quarter of 2005 related to 'early termination and reimbursed research and development expenses.'

The Hasbro deal will not take effect until 2007, so during 2006 Marvel will produce Marvel-branded action figures and other toys formerly produced by Toy Biz Worldwide.  Marvel will own all inventory produced in 2006 though Marvel's Chairman, Morton Handel, noted their efforts to control risk, 'Our policy of predominantly manufacturing to order should help mitigate our inventory risk.'

Hasbro has guaranteed Marvel royalty payments of $205 million, which includes a $100 million non-refundable advance, though Marvel has announced, 'There will be no immediate revenue recognition related to the advance payment.' 

The importance of the key Marvel movie franchise (at least in terms of selling toys) is borne out by the fact that Marvel will get $70 million (out of the $205 million) when the Spider-Man 3 movie debuts in May of 2007 plus an additional $35 million when Spidey 4 lands in theaters.

For Hasbro the Marvel license provides an opportunity to replace the cornerstone of the toy giant's action figure line as the Star Wars property fades to a galaxy far, far away.

Marvel will actually make far less per figure under its agreement with Hasbro than it did under its deal with Toy Biz Worldwide, which gave Marvel a royalty of 15% as well as up to 24% (for domestic sales) in service fees.  What Marvel will gain from its agreement with Hasbro is much more marketing muscle both in terms of advertising and in the procurement of prime shelf space.

In conjunction with the move to Hasbro, Marvel has changed the name of its internal toy division from 'Toy Biz,' which might cause confusion with Hong Kong-based Toy Biz Worldwide, to 'Marvel Toys.'  Back in 2001 the cash-strapped Marvel negotiated its licensing deal with Toy Biz Worldwide, a company that was made up of many of the principal manufacturers of Marvel/Toy Biz toy products (see 'Marvel Cash Flow Positive in Q2').  It was generally thought that Marvel's Toy Biz division designed most of the toys that were manufactured and distributed by Toy Biz Worldwide, which was an entirely separate company in spite of the similar name.  In addition to manufacturing and distribution, Toy Biz Worldwide also assumed all the inventory risk, shielding the (in 2001 at least) cash-strapped comic publisher from the vagaries of the mercurial toy marketplace.

The fate of toy lines such as the highly articulated Marvel Legends (which has found favor with collectors) under the new Hasbro agreement remains unknown.  2006 will be a transition year and collectors can only hope that Marvel will continue to put out toys that are comparable at least in terms of quality of design with the Marvel Legends and that this quality will carry over to the Hasbro Marvel toys, which should debut in earnest in the months before Spider-Man 3 hits the theaters on May 4th, 2007.