After a key ruling in litigation between ACD Distribution and Wizards of the Coast on Monday, WotC has moved to sever its relationship with the distributor, informing game retailers that ACD is "no longer an option" for their Magic: The Gathering: Zendikar Rising Prerelease allocations. Zendikar Rising is due for release September 25 (see “’Magic: The Gathering Zendikar Rising’ Product Line Revealed”), and retailers are being told that they have until August 14 to select a new distributor.
The ruling on Monday, issued by Judge James L Robart of the U.S. District Court for the Western District of Washington in Seattle, removed a Temporary Restraining Order issued by a Wisconsin court on August 7, 2018, which restrained WotC from taking four actions: preventing ACD from attending its August 2018 distributor conference, refusing to fulfill ACD’s purchase orders, cancelling its dealership with ACD, or issuing any communication stating or implying that ACD was not an authorized dealer.
The dispute began in June of 2018, when WotC informed ACD by telephone that it would not renew the three-year distribution agreement that expired at the end of 2018. ACD alleged that it was told that “ACD had done nothing wrong and that ACD is a good business partner.” On August 7, 2018 ACD sued Wizards of the Coast under the Wisconsin Fair Dealership Law, and also alleged that WotC breached the common law duty of good faith and fair dealing. The temporary restraining order was issued by Judge Frank D. Remington in Wisconsin court on the same day.
Wizards of the Coast was able to get the case moved to federal court in Washington, where the key ruling in the case came down on June 17, when U.S. District Judge Robart dismissed ACD’s claim under the Wisconsin Fair Dealership Law based on a conclusion that Washington law governed the distribution agreement, not Wisconsin law. Eight days later, on June 25, WotC asked the court to vacate the Wisconsin Temporary Restraining Order.
During the arguments on WotC’s motion, ACD provided an affidavit from ACD CEO Bob Maher, Jr., in which he laid out the stakes for the company. He purchased ACD in 2007 for $1.8 million, according to the filing, paid Wizards of the Coast $500,000 in unpaid invoices for ACD, and the distribution relationship between ACD and WotC, which began in 1993, carried over under the new ownership.
Maher provided information to illustrate the importance of Wizards of the Coast as a supplier, noting that in 2018, ACD sold $22.4 million worth of WotC product, which was 39% of ACD’s sales and 24% of ACD’s profit. In 2019, ACD sold $18.9 million worth of WotC product, which was 35% of ACD’s sales and 24% of ACD’s profit. In the first half of 2020, ACD sold $11.5 million worth of WotC product, which was 42% of ACD’s sales and 26% of ACD’s profit.
Maher also noted that customers that purchased WotC product from ACD also purchased many other products, which they might not buy if ACD did not have WotC product. In 2019, customers who purchased the $18.9 million of WotC product from ACD also purchased another $21.1 million in non-WotC product, which in combination accounted for $40 million, or 75% of ACD’s sales (which must have been around $53.3 million).
Maher’s affidavit concluded with this statement: “If ACD loses its Wizards distributorship, ACD must consider whether it can remain a going concern, jeopardizing its entire business and the jobs of 90 employees.”
The ACD response to WotC’s motion was unpersuasive to the judge, who granted it, clearing the way for WotC to end its relationship with ACD. There are still elements of ACD’s claim on which the federal judge in Washington has not ruled, but there was nothing preventing WotC from taking this action after this week’s ruling.
ACD did pick up the Asmodee USA line beginning July 1, as Asmodee terminated its exclusive relationship with Alliance Game Distributors (see “Asmodee USA Distribution Making Massive Shift”); and has also been building its wholesale toy business in recent years. But the WotC volume was clearly a key part of the ACD hobby games business and something that will be difficult to replace.
Neither Wizards of the Coast nor ACD Distribution responded to requests for comment prior to publication. If we receive comments from either company, we will publish them.