Let’s destroy a beloved franchise

Welcome to the WC, wherein you’re trapped in my mind for eight to ten minutes weekly.

Little break last week in observance of Juneteenth, but the WC comes at you hard today.

We’ve got:

1. Chicken Soup for the Damned
2. The rise and rise of the WNBA
3. Read this book

Chicken Soup for the Damned

Chicken Soup for the Soul is one of those books everyone sort of knows from their childhood / early adulthood. Whether you read it or not, you knew of it. Like the Dummy’s Guides to [everything].

It, and its spinoffs (​Chicken Soup for the Teenage Soul​, ​Chicken Soup for the Cannibal’s Soul​, ​etc​) were everywhere.

But I bet you didn’t know the company went public and acquired RedBox, the weird, useless DVD rental machines outside your neighborhood 7-11.

Now, the company is bankrupt, having taken on $1 billion in debt that can’t be repaid.

Here’s what happened.

Why Chicken Soup went belly up:

1. Heavy Debt Load:
   • As of March 2024, the company had $970 million in debt compared to $414 million in assets.
   • The acquisition of Redbox included the assumption of Redbox’s $325 million debt. This merger did not yield the expected revenue (duh) boost and contributed significantly to their financial woes.
2. Increasing Losses:
   • The company kept bleeding money with 2023 breaking the balance sheet’s back.
   • The number of Redbox kiosks decreased from 36,000 at the time of acquisition to about 27,000, and probably most of those are out of order anyway.
3. Inability to Refinance Debt:
   • Lenders refused to play ball.
   • The company’s shares fell more than 90% over the last year, impacting investor confidence and future financing opportunities.
4. Liabilities to Creditors:
   • Creditors’ Claims: The company owes millions to over 500 creditors, including major names in the entertainment world and large retailers.

What did management get so wrong?

1. Overextension and Diversification:
   • Originally focused on inspirational books, the brand diluted its identity by branching into various unrelated sectors, such as pet food, barbecue sauce, and eventually media and entertainment—and yes, ​chicken soup​.
   • The acquisition of Redbox and other streaming services created an unsustainable financial burden, and the expected synergistic benefits did not materialize. [No kidding guys, what synergies did you think you’d see?]
2. Financial Mismanagement:
   • The company’s strategy to leverage heavy debt for expansions without sustainable revenue streams led to severe financial instability.
   • Public offerings through avenues like Regulation A+ attracted less sophisticated investors but did not provide the financial stability needed for long-term operations.
3. Market Challenges:
   • The decline in physical DVD rentals with the rise of digital streaming services eroded Redbox’s market, leading to operational and revenue declines.
   • The company’s ventures, including ad-supported streaming services, failed to compete effectively against established market players.

The lessons for managers are so obvious they barely need spelling out. But briefly:

Don’t buy a DVD rental machine company that has nothing to do with your brand.

Don’t launch dozens of other unrelated products that are unrelated to your brand.

If you’re going to do all the dumb stuff above, don’t take out $1 billion in loans to finance it.

There’s obviously much more, but you — dear reader — are not an idiot, and I’m sure you can pull them out yourself.

More interesting, perhaps, is what we can learn as investors.

In early 2021, things were flying high.

By late 2023 and early 2024, the company filings made it clear that the company was in trouble, though the company execs were still getting pay raises.

• William J. Rouhana, Jr. (CEO): 2023 total compensation: $409,727 2022 total compensation: $385,856
• Christopher Mitchell (Former CFO): 2022 total compensation: $596,611
• Jason Meier (Current CFO): 2023 total compensation: $485,800 2022 total compensation: $493,876
• Elana B. Sofko (Chief Strategy Officer): 2023 total compensation: $610,800

So let’s go ​back in time to 2021​. Were there any warning signs then?

Obvious signs of trouble:

1. Significant net losses: The company reported a net loss of $9.2 million for Q1 2021, compared to $11.4 million in Q1 2020.
2. Negative cash flows: For Q1 2021, the company had negative cash flow from operations of $8.3 million.
3. High debt levels: As of March 31, 2021, the company had $31.2 million in long-term debt from 9.50% Notes due 2025.

Non-obvious signs of trouble:

1. Rapid revenue growth but increasing losses: While revenue grew 75% year-over-year in Q1 2021, net losses remained significant.
2. Complex corporate structure: The company had loads of subsidiaries and joint ventures, which seems unnecessary for a book brand.

The bull case was basically — Covid = lots of streaming money, this random crappy company is going to do streaming, so LFG.

A bubble borne out of management greed, chasing the current shiny thing.

There are parallels today (hello AI) just as there were before (hola crypto and NFTs), and we’ll see this again soon wearing another mask.

The moral of the story, if there is one, is that if something you’re investing in starts doing stuff that doesn’t make any sense, you should ask why, why they’ll beat everyone else, and what happens if they don’t.

Would you like to know more?

​Soup to nuts: Chicken Soup for the Soul was almost as big as the Bible. Then it lost its way.​ Chicken Soup for the Soul, once a highly influential brand, has faced significant decline due to overextension into various unrelated products and a failure to maintain its original core appeal. Mismanagement and strategic missteps following its founders’ departure further accelerated its fall from prominence

The rise and rise of the WNBA

Tom Brady, not usually known for his investing prowess (hello ​pickleball​), has joined Magic Johnson and Dwayne Wade in the ​WNBA gold rush​.

Magic Johnson’s investment in the Los Angeles Sparks a decade ago marked the beginning of this trend, with the team’s value significantly increasing since then. Other athletes followed suit: Wade joined the Chicago Sky, Brady invested in the Las Vegas Aces, and Alex Rodriguez became a limited partner with the Minnesota Lynx. Former WNBA players like Sue Bird and Renee Montgomery have joined the ownership circles with the Seattle Storm and Atlanta Dream, respectively.

Fans are getting in on it too.

The 2024 season opened with the highest attendance in 26 years. New records were set for merchandise sales, social media engagement, League Pass subscriptions, and app downloads.

Magic’s investment certainly has paid off. Whether Tom, Dwyane and their pals will make money is still an open question as ​critics​ wonder if the league is about to hit a glass ceiling.

There’s still a lot of room to grow, though, as the WNBA’s popularity is still a ​tiny fraction​ of its male counterpart, the NBA. Could the WNBA become 10% as popular and lucrative? 50%?

I don’t know.

I do know, though, it’s always going to be better than watching professional pickleball.

Would you like to know more?

​Why It’s Time to Invest in Women’s Sports​: Sallie Krawcheck. This article argues the economic benefits and growth potential of women’s sports leagues. It provides optimism about investments in ventures like the WNBA, making it a valuable read for understanding the economic landscape and future projections.

​Can the WNBA Make Money?​: Sarah Lyall. This New York Times piece provides in-depth analysis and history of the WNBA’s financial journey. It includes insights from various stakeholders, shedding light on the potential profitability and economic challenges facing WNBA investors.

​WNBA Raises $75 Million With Hopes of Business Model Revamp​: Leadership of the WNBA. This article tracks a significant capital raise for the WNBA, illustrating the growing investment interest and laying out potential returns and obstacles. It’s an essential resource for understanding large-scale investments in the league and its economic model.

Read this book

​This book​ may prove useful as America hurtles toward its most impactful and controversial election in our lifetimes.

All the Worst Humans by Phil Elwood

Phil Elwood’s memoir, ​All the Worst Humans​, torches, shreds, and incinerates any lingering illusions about the noble pursuits of public relations. This blistering exposé, part confession, and part high-octane thriller, plunges readers into the decadent, morally bankrupt world of political spin and image laundering for some of the most villainous figures alive. If you’ve ever suspected that the truth is malleable and up for the highest bidder, buckle up—you’re in for one hell of a ride.

Phil Elwood doesn’t just spill the beans; he dumps the whole can on the table and lights it on fire. Over nearly two decades in Washington, Elwood’s career flourished by flouting any semblance of ethics. This book isn’t a simple “look what I did”; it’s an explosive tell-all that reads more like a debauched blockbuster than a memoir. Elwood starts us off with tales of babysitting Gaddafi’s son in Las Vegas, plotting PR strategies against terrorist organizations in West Africa, and conniving to get the wife of a Middle Eastern dictator a glowing profile in Vogue just as the Arab Spring erupted.

The stories are jaw-dropping: from riding in armored cars through Abuja to gambling beside a dictator’s heir, Elwood’s escapades are unfathomable yet undeniably real. His arsenal of shady tricks—seducing journalists, manipulating narratives, and spinning grotesque truths—paints a vividly dystopian picture of how power and money contort reality. Each page slices deeper into the murky depths of influence, revealing a world where facts are spun into fantasy for the right price.

Reading All the Worst Humans, you’ll find yourself caught in an unsettling whirlwind of emotions. One moment, you’re laughing at the sheer audacity of Elwood’s antics; the next, you’re gripped by horror at the implications of his actions. His confessions about using opioids, flirting with madness, and facing the FBI’s wrath create a grotesque tapestry of a man who’s danced with the devil and lived to tell the tale.

And yet, as captivating as his recounting is, the memoir also pushes readers to question the sincerity of Elwood’s remorse. Is this really a soul-baring confession or just another masterclass in manipulation from a man who’s made a career out of deception? His self-proclaimed wake-up call feels conveniently timed, and one can’t help but suspect the motivations behind this apparent bid for redemption.

All the Worst Humans is a dizzying rollercoaster through the treacherous realms of PR, power, and media manipulation. It’ll keep you riveted, sickened, and filled with a newfound skepticism toward the stories that shape our world. Elwood’s narrative is a fiery indictment of an industry that thrives on moral flexibility, and despite his ultimate pivot towards honesty, the stench of his past dealings lingers.

But be warned: once you peek behind this curtain, there’s no unseeing the sordid machinery at work. Read it with caution, question everything, and prepare to have your perception of truth forever altered.

Would you like to know more?

​Spin Dictators: How Today’s Autocrats Hide in Plain Sight​: Sergei Guriev and Daniel Treisman. This book explores how modern authoritarian leaders use media-savvy techniques and propaganda to maintain power while appearing democratic.

​Propaganda​: Jacques Ellul. A seminal work analyzing the influence of propaganda on society and its pervasive effects on public opinion and democracy.

​Manufacturing Consent: The Political Economy of the Mass Media​: Edward S. Herman and Noam Chomsky. This classic book dissects how corporate media serve the interests of the powerful, manipulating public opinion and suppressing dissent.

That’s all for this week; I hope you enjoyed it.

Cheers,

Wyatt

Disclosures

• Our friends at ​Sidekick​ sponsored this issue.