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How Spin Master learned to play with the giants

Elise Goodhoofd promotes the new board game of Spin Masters, You Don't Say, that consists on cards with trivia questions that need to be answered by the participants, in downtown Toronto October 27, 2010. (Fernando Morales/The Globe and Mail)

Anton Rabie is rolling the dice at his Spin Master Ltd. toy company by stepping into a category - board games - whose biggest appeal could also bring him defeat.

He's drawn to board games because the big titles have staying power. Witness Monopoly at the top of its game after 75 years. In contrast, a hit electronic toy or action figure is like a hot fashion - in style one day, out the next. And in tough economic times, board games are an affordable pastime for the entire family.

But the very reason that board games are attractive to Mr. Rabie is also what raises the ante. The popularity of the classics, such as Monopoly and Scrabble, can prevent newcomers from catching on.

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This fall, as the crucial holiday season approaches, the stakes are high: The board-game aisle is crowded with new twists from the established heavyweights while other companies, including Spin Master and Lego, are making their first big play in the space.

"Entering this category wasn't easy," said Mr. Rabie, co-chief executive officer at Toronto-based Spin Master, the third-largest North American toy maker after Hasbro Inc. (Monopoly, Scrabble, Clue) and Mattel Inc. (Balderdash, Pictionary). "Consumers feel comfortable when they know the rules from a game of the past [and]don't have to read the rule book. ... But we knew we could compete. We hired the right people."

Mr. Rabie is used to taking big risks.

In just 16 years, his Canadian company has built a global toy presence by focusing on toys for boys such as Air Hogs model airplanes and Bakugan action figures. Last year, privately held Spin Master branched out into the girls' aisle by taking on Barbie with its new Liv doll. Early results are "very encouraging," a company official said.

Now Mr. Rabie, 39, and his two university buddies with whom he founded Spin Master are again pushing into uncharted terrain. They're betting that they can pump up their estimated $700-million-a-year-plus business amid heated activity in the board-game aisle.

"It's generally hard for a company known, for example, for stuffed animals, to try to do plastic toys," said Sean McGowan, senior analyst at Needham & Co. in New York. "Retailers often categorize these guys. But Spin Master has crossed so many of those barriers already. They have a track record. ... But coming in with a new game is harder."

Mr. Rabie is doing it by searching for acquisitions of established board-game companies, starting with his $10-million-plus purchase in the summer of a U.S. firm whose titles include You Don't Say, its first game in stores in Canada. He's also forging strategic alliances with others to roll out games, such as HedBanz, his first title in U.S. stores, and Stratego next year. He's hired new talent to develop his own games and his team is touting his products in television ads as well as visits in an RV by company "ambassadors" to universities and malls to get people in the game.

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The numbers suggest that his efforts could pay off. The segment tends to be recession-resistant: For the year ended September, 2009, sales in the $1.1-billion (U.S.) U.S. board games field rose 2 per cent, compared with a 3-per-cent drop in the overall $21.7-billion U.S. traditional toy market, according to researcher NPD Group. Board-game sales dipped 4 per cent in the year to September, 2010 compared with no growth in the total industry.

"It is a pretty darn stable part of the industry," said NPD toy analyst Anita Frazier.

It also can generate healthy gross profit margins because of low-tech production. Margins can be 60 per cent of sales, compared with 40 per cent for the average toy, Mr. McGowan estimated. The games have a potential shelf life of two to three generations - compared with just two to three years for the typical action figure or electronic toy.

Still, it took Mr. Rabie three years of planning before Spin Master got its first board games on store shelves in late summer. His biggest challenge was finding acquisitions at affordable prices. "I got discouraged," he acknowledged. But once he hit on the right candidate, a U.S. firm with eight already-familiar titles such as You Don't Say and Battle of the Sexes, the tides began to turn.

His research found that having a catchy name is more important for a board game than other toys. His company all of a sudden needed different marketing and designing skills. Writing (rules) and drawing (graphics) became paramount, rather than shaping a doll's face or developing a toy helicopter's mechanics.

Spin Master hired about eight people for its new games division, but it already had a veteran on its team. Mark Sullivan had joined the company as its top marketing executive in 2006 after having helped roll out the board games division at Mattel more than a decade ago.

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A big hurdle was establishing credibility with retailers. "At a Wal-Mart or Toys R Us, shelf space is at a premium," Mr. Sullivan said. "They could have something else in that space if your toy is only selling okay." But the silver lining in board games is that hobby and other specialty stores, including Indigo Books & Music, have a big appetite for games, he added.

Spin Master is already making headway with its new offerings at Wayne, N.J.-based Toys "R" Us Inc., the world's largest specialty toy retailer, said general merchandise manager Richard Barry. "Spin Master, whether it's in the board game category or other categories, has a tremendous reputation for bringing fun products that have great innovation," Mr. Barry said.

But it faces serious challengers. Lego, known for its colourful construction toys, has an edge with its 10 new premium board games by offering a new take on the genre, said Michael McNally, director of brand relations at Lego's U.S. division. Its games involve players building their boards with Lego blocks before playing.

Lego has resisted retailers' practice of running heavy discounts in the board-game aisle, he added. So far, the strategy appears to be working, with sales exceeding targets, he said.

Even so, the 800-pound gorilla - Hasbro - still races to raise its game. It's adding bells and whistles to its flagship games, including electronic bankers and iPod-like music to Monopoly and a high-tech Scrabble Flash; their prices are roughly twice that of its standard versions. In the downturn, it introduced low-tech card games tied to its key titles at less than half the price of the classic versions.

The initiatives are showing up in Hasbro's results: In its third quarter, its games and puzzles sales rose 2 per cent to $387-million. "Our challenge is just to keep the experience relevant," said Phil Jackson, head of Hasbro's games division. Mr. Rabie's challenge is to run even faster.

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