Media Coverage

Waterside bets on cards

By Michael Schwartz, Inside Business - Hampton Roads, November 12, 2007

Sometimes potential may be worth a gamble.

Such may be the case in Waterside Capital’s decision to invest $450,000 in Norfolk-based Decipher Inc., a game card company that at its peak was an industry leader bringing in millions of dollars a year in revenue.

But that peak didn’t last.

Since then the company has battled a downturn in the game card industry, an alleged embezzlement that cost the company millions of dollars, layoffs and scores of lawsuits. Warren Holland, who founded the company in 1983, has plans to once again bring Decipher to prominence in the niche industry through innovation and a little financial pick-me-up courtesy of Waterside.

Lin Earley, Waterside’s CEO, doesn’t claim to be a fan of the Star Trek, Star Wars and Lord of the Rings card games that made Decipher famous. But after analyzing the company’s financial records and seeing what Holland and company have on the drawing board, Earley and Waterside saw the potential for a profitable return on its investment.

“It’s one of those things you’re into or not into,” Earley said of the card games. “People who play – it’s almost cult-like. You can tell I don’t clearly understand the game. Hopefully we understand the financials.”

The $450,000 investment from the Norfolk-based small business investment company will allow Decipher to restructure some of its secured debt.

“Our investment hopefully will help them be poised for a comeback,” Earley said.

Holland said prior to discovering an internal embezzlement in 2001, the company had been completely debt-free for about nine years.

He and Decipher President Cindy Thornburg could not discuss details of the embezzlement as legal cases are still active and pending. Holland did say that the embezzlement cost the company “many, many millions of dollars.”

“The money is gone,” Holland said. “It will always be gone. We’re actually at a place where we’ve gone through almost all the negatives of that event.”

The company, which now employs 10 people, has since been party to around 100 civil court cases in Norfolk Circuit Court, according to court records. Decipher was the plaintiff in all but 11 of the cases.

The only active cases in which Decipher is currently a part are two civil cases Decipher has filed, one involving Rick Eddleman, the company’s former CFO, and Kathy Eddleman.

The legal troubles, coupled with a shift in the role-playing game industry to online venues, forced Holland to rethink his company’s role in the $500 million-a-year industry.

The industry is down to basically two major players, Holland said. One is Wizards of the Coast, a subsidiary of Hasbro, which besides producing other industry-leading games, owns the licensing rights to Star Wars card games, a lucrative license held by Decipher until 2002. Decipher’s other competitor is Upper Deck, a sports trading card giant and maker of the Yu-Gi-Oh! series of cards that were the biggest thing in the industry since Pokemon.

To compete, Holland said he believes successful products will incorporate physical cards, digital products and the Internet. Holland would not discuss Decipher’s latest products that he plans to launch in the first quarter of 2008. But he said Waterside got a glimpse of a product that’s been in development for more than a year.

“The dynamics of the game industry have changed,” Holland said. “The industry is still out there and it is looking for an innovation.”

Whatever that new product is, it must have impressed Earley with its potential for profit.

“They clearly had some internal problems,” Earley said. “We feel they have the people, the know-how, the willpower and the right connections to make more big deals and become that giant again.”

As the calendar year comes to a close, Earley said Waterside is also looking to close one more new investment deal before 2008.  IB