I'm George Kelly with ROTH. Excited to have Ben Kohn with me today, CEO of PLBY. It's been a couple of years since we were last on the stage, I think. Thanks for doing it.
Thank you for having me.
Appreciate it. So we have 25 minutes. I'll stop a few times and take questions, i f you have them please shout them out. Maybe if we could start with a, it's been a, the last, call it 18 months, 2 years, has been a real kind of transition in your business and a transition in your priorities and emphasis. If you could take us through, just catch everyone up sort of in high level what's happened and how your priority set has changed.
Sure. So we have one of the greatest brands in the world and one of the most recognized brands in the world in Playboy. It's a company that sells product in over 100 countries and generates billions of dollars in consumer spend. We went public in 21 and we thought we could operate. The business historically had been a licensing business where we would partner with people that were actually good operators and we would do what we were good at, which was building the brand and marketing the brand.
We decided we would operate ourselves. We screwed it up. We have now reversed and gone back to an asset-light model. We are focused on partnering with the best operators out there, leveraging this massive global brand, locking in our downside. We've gotten the business this year to free cash flow positive and w e have significant upside, not only in existing deals, but in business development.
My priorities moving forward are focused on the brand. We launched the magazine last month. We will be doing another issue later this year and then bringing out four issues thereafter. The magazine, there is not a business model behind it except for brand marketing expense. I am focused right now on making sure that the brand stays extremely relevant, working with the right celebrities and influencers, and leveraging that into new revenue streams and t here are significant revenue streams that we can generate off the back of the magazine.
Again, not selling subscriptions, but things like voting for your favorite Playmate, fan voting, paid fan voting, sponsorships, et cetera and then developing new licensing opportunities. Now that we have the business free cash flow positive, how do we take that baseline and continually improve or increase that baseline every year while maintaining significant upside? A great example of that is the Byborg deal we did at the end of last year.
Okay. I want to talk more about Byborg. I want to get into the business segments. Before we do that, maybe how do you assess the general health of the brand? And I understand some of it is anecdotal, kind of hard to have a real-time measure of brand health. But you recently launched the magazine. How would you talk or relaunch the magazine? How would you talk about, was that well received? Did it get a lot of attention?And maybe how else do you just kind of status check the brand and its relevance?
Yeah. Look, without spending hundreds of thousands, if not millions of dollars, going to do surveys, we look at the number of partners that want to come to us. We look at consumer spend. What are consumers spending through our licensing partners buying our products? Both of those are on the uptrend.
The magazine is so unique in that I can go work with a Lori Harvey or a Kylie Jenner like we've done and it does not cost me a dollar, right? I can take the editorial angle, and it allows me to punch way above my weight for what I otherwise would be able to afford. If I look at the celebrities, I look at the next magazine and who we potentially might have for the cover, it is one of the biggest stars out there today.
The fact that they want to work with us speaks to what the brand means and the relevancy of the brand. I would say the brand is as strong today as it's ever been. I have 2 teenage daughters. I can tell you how many kids within their schools wear Playboy. It speaks to how this brand over 70-plus years has transcended generations.
The frequency, the magazine is going to be a quarterly thing?
Once we ramp up. We're doing this in a very capital-light way. We're not doing it like we used to, where I would employ 20-plus people to produce a magazine because there's not a business model around that. We're not taking paper stock like we used to. All of this is being outsourced and laid off to third parties. This year, we'll probably produce one more magazine. We'll have a great event or party tied to that.
As we move into 26, as we're ramping up, we plan to do 4 a year. Each issue will have the Playboy Interview, the Playboy Advisor. It will have three Playmates in it. Looking to take those franchises, right? A magazine is a compilation of many franchises, the Playboy Interview, the Playboy Advisor, et cetera. How do we take those to multimedia formats? Podcasts, video series, television shows. You look at the Dallas Cowboys cheerleader show. I look at our Playmate franchise and say, "Why can't we do that?" That is what we're focused on, making sure that this content is in the right format for audiences to consume.
Are there any metrics? I know it hasn't been that long, but anything you could share about how widely this first relaunch issue has been viewed or?
Yeah. Look, we produced very few copies, a couple thousand. We had a phenomenal sell-through and we had a lot of digital downloads. More importantly, it's the press impressions and the other things that it generates and that was substantial. It was well, you know, if a magazine costs us moving forward $500,000- $600,000 per issue, what we generate in earned media is multiples and multiples of that.
Yep. Understood. Still on the brand, one last question on that topic. Historically, you've given sort of global brand spend behind all the different partnerships and things. What just ballpark is that currently?
It's so hard after COVID to look at it, but I would say that consumers are spending in excess of $1 billion buying Playboy products and services around the globe.
Okay. Okay. Let's talk about your business as it stands right now. We look at it as you have 3 different, largely 3 different business segments. You mentioned Byborg. Can you tell us more about that deal and why you selected them as a digital partner?
Sure. Let me just educate everyone on what we have left at Playboy. So Playboy is an asset-light business today. We're only focused on licensing and partnering with great operators out there to exploit our brand in their respective fields. Licensing has 2 components to it. Byborg, which was our legacy adult property, so Playboy TV, Playboy Plus, and our creator platform, our version of OnlyFans but with different rules behind it.
We licensed to one of the best adult operators out there, which is a company called Byborg. Byborg has 70 million daily customers on their other platforms and they generate hundreds of millions of dollars a year in profitability. We went out, we took about 18 months meeting them. A deal came together in the Q4 of last year, late Q3, Q4 of last year.
We took a business that was generating $22 million in revenue, mostly declining because our linear television business, there's nothing we can do to buck the trends of MSOs or the cable companies. It was basically break even and we turned that into $20 million a year of minimum profitability. Byborg is paying us to operate and license those sites, $20 million a year against 25% of the profits of that business. We maintain significant upside should they execute like they think they're going to.
There are also other things within that contract like AI girlfriends. You could think about a virtual or AI Playmate and they've already developed that technology. Look forward to what their product roadmap is moving forward. The second part of our business is the rest of the world licensing.
That's broken into 2 components, our China business and then rest of the world. About 80% of that business today is clothing or consumer products. There's significant upside in categories that we used to license that we aren't actively pursuing today like the gaming sector. We had a Playboy Club in Las Vegas, w e had a Playboy Club in London. Those were generating on a combined basis about $6 million a year in licensing revenue. Those are those huge opportunities.
The third part of our business is what I would say is our last asset-intensive business left which is a lingerie business we bought in 2021 called Honey Birdette. It's a great brand, w e've been focused on improving the profitability of that. Last year, that business generated about $6 million of cash for us. This year, that business should increase.
At the right time, we're not the right owner of that business. When I look at our balance sheet today and we've done a good job deleveraging the company and have a clear path of doing that going forward, I still own this asset that I could sell and I would hope at some point that would pay off all of my remaining debt at the company.
Okay. You covered a lot there. Let's talk Byborg. The deal was finalized in the Q4 o f last year. You mentioned $20 million of minimum annual amount and then there's upside to that, the 25% of net income. Give us a sense of scale. I mean, your brand, we just talked all about big, huge global brand. Others that are doing something similar online, I guess, how much opportunity is there? How big is this market? What is the product roadmap? What are you comfortable sharing as far as what's Byborg going to do over the next 12- 24 months?
Sure. Look, the marketplace is massive, right? You're talking about billions and billions of dollars of consumer spend. If you look at OnlyFans, you're talking about consumers spending in excess of $6 billion interacting with their favorite creators, right? The market is actually much bigger than that. With our brand and Byborg, I think, made the investment and licensed it because of what Playboy represents from a brand perspective.
First and foremost, all the conversations we've had with them is about elevating the Playboy brand. Right now, in the next 6 months, they are focused on transitioning the businesses that they've licensed from us, so Playboy Plus, which was our legacy gallery site, Playboy TV, and the Playboy Club, which was our version of OnlyFans or our creator platform, transitioning it to them. They're a company that has over 1,000 employees.
They are one of the best operators out there. There is low-hanging fruit that they have already identified that they can improve those existing businesses with. They have also already developed something called AI girlfriends. It is Jasmin.ai. I think there is a use case for putting Playboy behind that from a marketing perspective so y ou could have Playboy girlfriends or Playboy AI girlfriends.
Outside of that, I do not want to get ahead of them on what their product roadmap is. I would say, first and foremost, they are a technology company. They have developed phenomenal technology. They have great processes and, you know, I would expect that over time, what we are generating from them could be multiples versus what we are generating today.
Okay. Okay. Still on Byborg, how do you, under that relationship, how do you maintain control of the brand still?
We do not sell the brand, right? We license the brand to them for use in certain cases just like we do with any other licensing partner. With Byborg, because there is content behind it, we have certain content guidelines that we have maintained for decades that they have to adhere to, to the extent they violate that and a gain, they are a 16% shareholder in the parent company.
They wrote a $22 million check in the fall and we are out to shareholders right now seeking an additional approval of $25 million investment. That vote closes tomorrow night. We will see if that is successful. I do not know yet. If it is, Byborg will become a 29% shareholder in the company, a 29.9% shareholder in the company. We have strict guidelines in all of our licensing contracts no matter whether it's content or consumer products as to what people can do with our brand.
At what price is this next tranche that the vote's still outstanding?
It would be the same price as the first tranche which is $1.50 a share.
The stock right now is $1.10, roughly.
I haven't looked at it today, but I'll take your word on it.
Okay. Okay. That's the Byborg business. Let's talk licensing, you did briefly. Where do you see the, I guess the 2-part question there is, what's the stability of that revenue stream? Roughly $25 million has been the kind of current run, right? That's made up of what and how long are these deals? How do you feel about that revenue stream? The second part of the question is, where do you see the most opportunity for future growth?
The core licensing stream is actually very stable. If you look at our total licensing business, including Byborg, about 86% of all the revenue we generate is actually in the form of minimum guarantees. The other 14% or if you look at the rest of the business, call it 70%, is in the form of minimum guarantees. The other 30% is made up of new business. A lot of that is already locked in because those are contracts that we would have signed last year, our overages that we've already discounted back from proven partners.
So example, you had PSD Underwear here yesterday, which is a great underwear business. The minimum guarantee that we generate from them is like 10% of what they've actually paid us on a historical basis based on sales. Those are the types of other revenue streams we have.
When we're doing our forecasting, we're looking at the historical trends of what partners have earned and then discounting that back moving forward. As far as upside, there's a ton of upside. Our China business pre-COVID and China's obviously gone through a really tough time after COVID, the economy there. We were generating $40 million of revenue in China on a pure licensing basis called an 80% gross margin on a historical basis.
Post-COVID this year, that number is going to be around $14 million. We can get back to that $40 million, but we can't do it by ourselves, right? The macro climate in China needs to improve, and that's going to take a long time to happen. That upside is there. The rest of the world today, call it $13-$14 million. That's so small compared to what it can become.
Categories that we're focused on, continuing to build out the clothing category. Gaming is a huge opportunity. We have a number of opportunities on the table right now. Hospitality is another area that we're focused on. There was a day when we had a lot of Playboy Clubs. We have beer gardens and a few other things in India but there's a huge opportunity to expand that. Then there's ancillary revenue streams around bringing back the magazine.
A byproduct of what we built on the club platform or our creator platform is Playmate voting. We actually tested that a few years ago when we were looking for a face of Playboy lingerie. That generated over $1 million in fan voting against who would become the next face of Playboy lingerie.
When you think about doing that from a Playmate perspective and doing that 12 times a year or 4 times a year in voting but 12 Playmates a year, that number can be substantial. Again, we're not building that technology. We're renting it or partnering with someone that has that technology. Who better to engage their fan base than the creators themselves?
With the growth that you're talking about, should this be a kind of gradual, consistent build to revenue, or is it going to look like all of a sudden, I mean, not that there's going to be another Byborg-sized deal, but is this going to be a real step up and then it's going to kind of flatline for a while?
Licensing grows in step function. It's not a linear growth, right? If I go sign a $20 million licensing deal like Byborg, and again, not saying there's another one out there like that right now but that's a step function versus linear. I think the biggest thing for us moving forward is say we have 104 licensing partners, give or take. There are 65 of them that generate less than $500,000 in aggregate against the brand.
That's not a good model for us, right? Now that we have solved our balance sheet issues and we're free cash flow positive, the question is finding the right partner that we can actually build real businesses with. We talked about PSD a few minutes ago. That's a great partner, right? That's a company that's paying us a small minimum guarantee, but has killed it from an overage.
I think they were making, they paid us $500,000 2 years ago and $800,000 last year. That's a good business for us. We want to find better partners and the right partners in the right geographies where I can actually continue to scale down my corporate overhead but have fewer and better partners that we can build real businesses with around the world.
Okay. And then your go-to-market in the license business, you've historically worked with CAA. Is that important? I think that deal is through 2027. Correct me if I'm wrong.
It is.
How important of a partner are they or is it something that you could broaden to cover more parts of the globe? Is it important, I guess, to have someone that's kind of representing the brand and outselling?
Yeah. Again, we want to do all of this in a capital-light model. We're going to be down to roughly 35 employees when we're done with the restructuring. The Byborg deal will take us the first 6 months of this year. The first 2 quarters are going to be a little bit muddy because we have transition costs. Once we get through that, our goal is to not hire more people, right? Hiring people in California is actually a horrible thing.
We're creating leverage against agencies. I do not want to negotiate before the negotiation starts with CAA. Are they the best everywhere in the world? No. They used to have a lot of boots on the ground all over the world. They do not have as many offices as they used to have.
There are better regional agencies that I think could deliver a lot more growth than CAA is. If we can leverage third parties like CAA like other licensing agents out there, so I don't have to hire boots on the ground, it's a more efficient model for us than actually hiring people. We'll see what happens in the renegotiation and whether we stay with them on a global basis or we decide to whack that up based on geographies.
Okay. Any questions from the group? Let's talk Honey Birdette. You mentioned it's your last owned and operated business. It's been through a transformation too over the last 12- 18 months, much more profitable now. What else? Maybe talk about how much is left for you to improve and also what's the medium-term goal? You've talked about potentially monetizing before. I don't know if that's still under consideration. I think it is. What do you need to do to sort of bring it to that level?
Yeah. Look, Honey Birdette is an Australian lingerie business we bought in 2021. Our timing could not have been worse. We bought it in August of 2021, right after we went public and Australia decided to go on a 3-month lockdown for COVID right afterwards. We closed all of our stores basically for an extended period of time.
Unfortunately, in the retail sector, when you close your stores and you have all of this inventory, Honey Birdette's model was a drop basically every week so w e got stuck with a ton of inventory. We ended up having to go on sale much more than we ever wanted to, which has a bad impact on brand health.
Over the last year and a half, with Marc Crossman joining us as our CFO, with a background in consumer products and retail, we have started to dwindle down or whittle down the number of days we're on sale. At the same time, we've also cut back our inventory buys. We're in a position now where we're actually seeing full-price items increase, right? Our sales are up on full-price items but that's offset by not being able to go as deep or as many days on sale during the course of the year.
What we saw in the Q4 actually was our gross margin expanded from 51%- 60% so i t's working. At the right time, there's still low-hanging fruit there. They're still under-penetrated from an e-commerce perspective. The Australian market, where the majority of our stores are, has been hit hard because of interest rates or mortgage rates. It's mostly a floating-rate environment there. At the right time, I think there's a lot of interested parties that could buy that business from us. We are not the right long-term owner of that business.
Okay. Okay. I'll pause again. Any questions? Happy to take them if there are. Okay. Maybe if we could go, we just went through the 3 main business segments. Can you just talk about the margin profile of each? Byborg, the core license business, and then Honey Birdette.
Sure. Byborg is really easy. It is basically 100% margin. We have no cost against it. There was no agency involved. It was a deal we did as a senior team. Again, that was a business that in 24 did roughly $22 million of revenue for us, basically break even. We turned that into $20 million of pure profit this year. The rest of the licensing business call it another $25-$30 million, is roughly a 70% margin business.
We have our agency fees that differ per region. China is a little bit different than the rest of the world, which is CAA. We pay CAA today, Creative Artists Agency, 15%. Then we have legal costs against that. In China, the only thing different between that and sort of free cash flow is there is a 10.7% withholding tax taking money out of China.
It is a great margin business. On a combined basis, it is phenomenal, right? You are at 90% basically. On the Honey Birdette side, the simplest way to think about it and we got hit really hard in the fourth quarter with foreign currency with the strength of the US dollar. Honey Birdette, on a net basis, is about a 10% margin business moving forward.
There's an opportunity to take it where? Honey Birdette, could it be a teens margin?
It could. It was before. The biggest issue we've had in Honey Birdette since we bought it outside of the COVID lockdowns that really hurt the business, when we bought the business, it was about 60% brick and mortar, 40% e-comm. That business has now flipped to 60% e-comm, 40% brick and mortar. The challenge is sales haven't grown, right? Our stores that used to do about a 30% 4-wall EBITDA margin aren't doing that anymore. If we can get store sales back to where they were, then that business could easily be in the teens if not higher from an EBITDA margin perspective moving forward.
Okay. Another question on back to your license sort of growth commentary that you were giving. Is it somewhat challenging to secure big new license deals given the CAA relationship? Does that kind of complicate it at all?
No. CAA is our licensing agent. Their fiduciary responsibility to us is to go find the best licensing deals they can bring to us. There are certain categories they do not have. T hey do not have digital, t hey do not have gaming, t hey do not have some of the hospitality stuff. That is on us to go find that. The deals they are bringing to us, there are a lot of deals out there.
I guess that you have your own sort of area you can explain. That was a better question.
We deal with it, obviously. We have a partnership with the division of Li & Fung from mainland China. That is outside of the CAA deal as well. China, again, we used to generate $40 million a year in revenue in China. Think about it as like 32% gross margin coming out of there. That business today is $14 million. We need the China economy to improve. It is not good. I think we are sort of at the low point of the baseline today. The question is, how do we build off of that moving forward?
Okay. So then back to your segment margin profile. Oh, is there a question? Yeah, go ahead.
I think we're better off relying upon our partners. I think there's a lot more money we can extract from our existing partners just bringing them into what we're doing from a corporate perspective, right? Our view is every issue of the magazines can have some sort of live event. One thing I can tell you, no matter what's happened over the 70 years of this company, is if you ask someone, do they want to go to a Playboy party, the answer is 100% yes, right? This year we did Art Basel in December. I don't know how many thousand people were lined up outside to get in. We had the same thing at Super Bowl. There's actually a real business opportunity there long-term, I think, around membership.
There might be even something to do in the crypto or the coin space long-term but we have to first prove the utility around that. Conversation we actually had yesterday with someone here was the existing licensing partner, how do we integrate more into what you're doing with Playboy casting calls, et cetera. I think there's a huge opportunity for sponsorship and bringing our existing partners in on these events versus going out and finding new partners.
Any other questions? Yeah.
We will be down. We published a new investor deck yesterday on the website so w e will be down to 35 corporate employees once we're done with this transition. We are going to be extremely efficient and I do not think we need anything more than that to run this business moving forward.
When is that transition complete?
Right now, the agreement with Byborg provides that we provide transition services for the first 6 months of the year. It comes in 2 phases. Playboy TV and Playboy Plus will be transitioned hopefully by the end of this month to them. The Playboy Club, which is our creator platform, by June 30th. With that, we've gone from, I think last year, roughly 104 employees down to 35. As you start to shed operating assets and license that out, there is corporate expense that goes with that as well.
What's left of it, I would think on a cash basis, excluding stock-based comp, we'll be down on a corporate basis to about $20 million. There are opportunities to go lower than that but that's going to take subletting our real estate because we have 46,000 square feet of real estate. Obviously, with 35 employees, you do not need that. The good news is we have people in the building that want the space. It is just a question of getting the right deals done to continue to winnow down our corporate expense.
I think there was a question back there. Yeah.
The Playboy Club, which was our creator platform, so there are 2 different types of Playboy Clubs. There are actually the physical locations and then there is the digital Playboy Club. That is now outsourced to Byborg in a license deal. It is up to them to decide what they want to do with it. I think there is a huge opportunity leveraging the Playboy brand with that. We took it about as far as we could take it, right? It was a business that was basically break even. We have turned it into $20 million a year moving forward of basically free cash flow.
That business requires real infrastructure, right? There is fraud, there is credit card processing, there is age gating now in 21 states in the United States, not the international territories alone. They have thousands of people that do that. We just did not have the balance sheet to be able to invest in that so.
This presentation has now finished. Please check back shortly for the archive.
I'm George Kelly with ROTH. Excited to have Ben Kohn with me today, CEO of PLBY. It's been a couple of years since we were last on the stage, I think. Thanks for doing it.
Thank you for having me.
Appreciate it. We have 25 minutes. I'll stop a few times and take questions. If you have them, please shout them out. Maybe if we could start with, it's been the last, call it 18 months, 2 years, has been a real kind of transition in your business and a transition in your priorities and emphasis. If you could take us through just catch everyone up sort of in high level what's happened and how your priority set has changed.
Sure. We have one of the greatest brands in the world and one of the most recognized brands in the world in Playboy. It's a company that sells product in over 100 countries and generates billions of dollars of consumer spend. We went public in 21, and we thought we could operate. The business historically had been a licensing business where we would partner with people that were actually good operators and we would do what we were good at, which was building the brand and marketing the brand.
We decided we would operate ourselves. We screwed it up. We have now reversed and gone back to an asset-light model. We are focused on partnering with the best operators out there, leveraging this massive global brand, locking in our downside. We've gotten the business this year to free cash flow positive.
We have significant upside, not only in existing deals, but in business development. My priorities moving forward are focused on the brand. We launched the magazine last month. We'll be doing another issue later this year and then bringing out 4 issues thereafter. The magazine, there's not a business model behind it, except for brand marketing expense. I'm focused right now on making sure that the brand stays extremely relevant, working with the right celebrities and influencers, and then leveraging that into new revenue streams.
There are significant revenue streams that we can generate off the back of the magazine. Again, not selling subscriptions but things like voting for your favorite Playmate, fan voting, paid fan voting, sponsorships, et cetera, and then developing new licensing opportunities. Now that we have the business free cash flow positive, how do we take that baseline and continually improve or increase that baseline every year while maintaining significant upside? A great example of that is the Byborg deal we did at the end of last year.
Okay. I want to talk more about Byborg. I want to get into the business segments. Before we do that, maybe how do you assess the general health of the brand? I understand some of it is anecdotal, kind of hard to have a real-time measure of brand health. But you recently launched the magazine. How would you talk or relaunch the magazine? How would you talk about, was that well received? Did it get a lot of attention? Maybe how else do you just kind of status check the brand and its relevance?
Yeah, look, without spending hundreds of thousands, if not millions of dollars, going to do surveys, we look at the number of partners that want to come to us. We look at consumer spend. What are consumers spending through our licensing partners buying our products? Both of those are on the uptrend.
The magazine is so unique in that I can go work with a Lori Harvey or a Kylie Jenner like we've done, and it doesn't cost me a dollar, right? I can take the editorial angle and it allows me to punch way above my weight for what I otherwise would be able to afford. If I look at the celebrities, I look at the next magazine and who we potentially might have for the cover. It's one of the biggest stars out there today.
The fact that they want to work with us speaks to what the brand means and the relevancy of the brand. I would say the brand is as strong today as it's ever been. I have 2 teenage daughters. I can tell you how many kids within their schools wear Playboy. It speaks to how this brand over 70-plus years has transcended generations.
The frequency, the magazine is going to be a quarterly thing?
Once we ramp up. We're doing this in a very capital-light way. We're not doing it like we used to where I would employ 20-plus people to produce a magazine because there's not a business model around that. We're not taking paper stock like we used to. All of this is being outsourced and laid off to third parties. This year, we'll probably produce one more magazine. We'll have a great event or party tied to that.
As we move into 26, as we're ramping up, we plan to do 4 a year. Each issue will have the Playboy interview, the Playboy advisor. It will have 3 Playmates in it. Looking to take those franchises, right? A magazine is a compilation of many franchises: the Playboy interview, the Playboy advisor, et cetera. How do we take those to multimedia formats? Podcasts, video series, television shows. You look at the Dallas Cowboys cheerleader show. I look at our Playmate franchise and say, "Why can't we do that?" That is what we are focused on, making sure that this content is in the right format for audiences to consume.
Are there any metrics? I know it hasn't been that long, but anything you could share about how widely this first relaunch issue has been viewed or?
Yeah, look, we produced very few copies, a couple thousand. We had a phenomenal sell-through and we had a lot of digital downloads. More importantly, it is the press impressions and the other things that it generates and that was substantial. It was well, you know, if a magazine costs us moving forward $500,000-$600,000 per issue, what we generate in earned media is multiples and multiples of that.
Yep. Understood. Still on the brand, one last question on that topic. Historically, you've given sort of global brand spend behind all the different partnerships and things. What just ballpark is that currently?
It's so hard after COVID to look at it, but I would say that consumers are spending in excess of $1 billion buying Playboy products and services around the globe.
Okay. Okay. Let's talk about your business as it stands right now. We look at it as you have 3 different, largely 3 different business segments. You mentioned Byborg. Can you tell us more about that deal and why you selected them as a digital partner?
Sure. Let me just educate everyone on what we have left at Playboy. So Playboy is an asset-light business today. We're only focused on licensing and partnering with great operators out there to exploit our brand in their respective fields. Licensing has 2 components to it. Byborg, which was our legacy adult property, so Playboy TV, Playboy Plus, and our creator platform, our version of OnlyFans, but with different rules behind it.
We licensed to one of the best adult operators out there, which is a company called Byborg. Byborg has 70 million daily customers on their other platforms and they generate hundreds of millions of dollars a year in profitability. We went out, we took about 18 months meeting them. A deal came together in the Q4 of last year, late Q3 , Q4 of last year.
We took a business that was generating $22 million of revenue, mostly declining because our linear television business, there's nothing we can do to buck the trends of MSOs or the cable companies. It was basically break even, and we turned that into $20 million a year of minimum profitability. Byborg is paying us to operate and license those sites, $20 million a year against 25% of the profits of that business.
We maintain significant upside should they execute like they think they're going to. There's also other things within that contract like AI girlfriends. You could think about a virtual or AI Playmate and they've already developed that technology. Look forward to what their product roadmap is moving forward. The second part of our business is the rest of the world licensing.
That's broken into 2 components, our China business and then rest of the world. About 80% of that business today is clothing or consumer products. There's significant upside in categories that we used to license that we aren't actively pursuing today like the gaming sector. We had a Playboy Club in Las Vegas. We had a Playboy Club in London. Those were generating on a combined basis about $6 million a year in licensing revenue. There's those huge opportunities.
The third part of our business is what I would say is our last asset-intensive business left which is a lingerie business we bought in 2021 called Honey Birdette. It's a great brand. We've been focused on improving the profitability of that. Last year, that business generated about $6 million of cash for us. This year, that business should increase.
At the right time, we're not the right owner of that business. When I look at our balance sheet today, and we've done a good job delevering the company and have a clear path to doing that going forward, I still own this asset that I could sell, and I would hope at some point that would pay off all of my remaining debt at the company.
Okay. You covered a lot there. Let's talk Byborg. The deal was finalized in the Q4 of last year. You mentioned $20 million of minimum annual amount and then there's upside to that, the 25% of net income. Give us a sense of scale. I mean, your brand, we just talked all about big, huge global brand. Others that are doing something similar online, I guess, how much opportunity is there? How big is this market? What is the product roadmap? What are you comfortable sharing as far as what's Byborg going to do over the next 12- 24 months?
Sure. Look, the marketplace is massive, right? You're talking about billions and billions of dollars of consumer spend. If you look at OnlyFans, you're talking about consumers spending in excess of $6 billion interacting with their favorite creators, right? The market is actually much bigger than that. With our brand and Byborg, I think, made the investment and licensed it because of what Playboy represents from a brand perspective.
First and foremost, all the conversations we've had with them is about elevating the Playboy brand. Right now, in the next 6 months, they are focused on transitioning the businesses that they've licensed from us, so Playboy Plus, which was our legacy gallery site, Playboy TV, and the Playboy Club, which was our version of OnlyFans or our creator platform, transitioning it to them. They're a company that has over 1,000 employees.
They are one of the best operators out there. There is low-hanging fruit that they have already identified that they can improve those existing businesses with. They have also already developed something called AI girlfriends, It is Jasmine.ai. I think there is a use case for putting Playboy behind that from a marketing perspective so y ou could have Playboy girlfriends or Playboy AI girlfriends.
Outside of that, I do not want to get ahead of them on what their product roadmap is. I would say, first and foremost, they are a technology company. They have developed phenomenal technology. They have great processes. I would expect that over time, what we are generating from them could be multiples versus what we are generating today.
Okay. Okay. Still on Byborg, how do you, under that relationship, how do you maintain control of the brand still?
We do not sell the brand, right? We license the brand to them for use in certain cases, just like we do with any other licensing partner. With Byborg, because there is content behind it, we have certain content guidelines that we have maintained for decades that they have to adhere to. To the extent they violate that, and again, they are a 16% shareholder in the parent company.
They wrote a $22 million check in the fall, and we are out to shareholders right now seeking an additional approval of $25 million investment. That vote closes tomorrow night so we will see if that is successful, I do not know yet. If it is, Byborg will become a 29% shareholder in the company, a 29.9% shareholder in the company but w e have strict guidelines in all of our licensing contracts no matter whether it's content or consumer products as to what people can do with our brand.
At what price is this next tranche that the vote's still outstanding?
It would be the same price as the first tranche which is $1.50 a share.
The stock right now is a buck 10, roughly.
I haven't looked at it today, but I'll take your word out.
Okay. Okay. That's the Byborg business. Let's talk licensing, you did briefly. Where do you see the, I guess, the 2-part question there is, what's the stability of that revenue stream? Roughly $25 million has been the kind of current run, right? That's made up of what and how long are these deals? How do you feel about that revenue stream? The second part of the question is, where do you see the most opportunity for future growth?
The core licensing stream is actually very stable. If you look at our total licensing business, including Byborg, about 86% of all the revenue we generate is actually in the form of minimum guarantees. The other 14% or if you look at the rest of the business call it 70%, is in the form of minimum guarantees. The other 30% is made up of new business. A lot of that is already locked in because those are contracts that we would have signed last year or overages that we've already discounted back from proven partners.
An example, you had PSD Underwear here yesterday, which is a great underwear business. The minimum guarantee that we generate from them is like 10% of what they've actually paid us on a historical basis based on sales. Those are the types of other revenue streams we have.
When we're doing our forecasting, we're looking at the historical trends of what partners have earned and then discounting that back moving forward. As far as upside, there's a ton of upside. Our China business pre-COVID and China's obviously gone through a really tough time after COVID, the economy there. We were generating $40 million of revenue in China on a pure licensing basis called an 80% gross margin on a historical basis.
Post-COVID this year, that number's going to be around $14 million. We can get back to that $40 million, but we can't do it by ourselves, right? The macro climate in China needs to improve, and that's going to take a long time to happen. That upside is there. The rest of the world today call it $13-$14 million. That's so small compared to what it can become.
Categories that we're focused on, continuing to build out the clothing category. Gaming is a huge opportunity. We have a number of opportunities on the table right now. Hospitality is another area that we're focused on. There was a day when we had a lot of Playboy Clubs. We have beer gardens and a few other things in India but there's a huge opportunity to expand that.Then t here's ancillary revenue streams around bringing back the magazine.
A byproduct of what we built on the club platform or our creator platform is Playmate voting. We actually tested that a few years ago when we were looking for a face of Playboy lingerie. That generated over $1 million in fan voting against who would become the next face of Playboy lingerie.
When you think about doing that from a Playmate perspective and doing that 12 times a year or 4 times a year in voting but 12 Playmates a year, that number can be substantial. Again, we're not building that technology. We're renting it or partnering with someone that has that technology. Who better to engage their fan base than the creators themselves?
With the growth that you're talking about, should this be a kind of gradual, consistent build to revenue, or is it going to look like all of a sudden, I mean, not that there's going to be another Byborg-sized deal, but is this going to be a real step up and then it's going to kind of flatline for a while?
Licensing grows in step function. It's not a linear growth, right? If I go sign a $20 million licensing deal like Byborg, and again, not saying there's another one out there like that right now but that's a step function versus linear. I think the biggest thing for us moving forward is, say, we have 104 licensing partners, give or take. There are 65 of them that generate less than $500,000 in aggregate against the brand. That's not a good model for us, right?
Now that we have solved our balance sheet issues and we're free cash flow positive, the question is finding the right partner that we can actually build real businesses with. We talked about PSD a few minutes ago. That's a great partner, right? That's a company that's paying us a small minimum guarantee but has killed it from an overage.
I think they were making, they paid us $500,000 2 years ago and $800,000 last year. That's a good business for us. We want to find better partners and the right partners in the right geographies where I can actually continue to scale down my corporate overhead but have fewer and better partners that we can build real businesses with around the world.
Okay. And then your go-to-market in the license business, you've historically worked with CAA. Is that important? I think that deal is through 2027. Correct me if I'm wrong.
It is.
How important of a partner are they or is it something that you could broaden to cover more parts of the globe? Is it important, I guess, to have someone that's kind of representing the brand and outselling?
Yeah. Again, we want to do all of this in a capital-light model. We're going to be down to roughly 35 employees when we're done with the restructuring. The Byborg deal will take us the first 6 months of this year. The first 2 quarters are going to be a little bit muddy because we have transition costs. Once we get through that, our goal is to not hire more people, right? Hiring people in California is actually a horrible thing.
We're going to leverage agencies. I don't want to negotiate before the negotiation starts with CAA. Are they the best everywhere in the world? No. They used to have a lot of boots on the ground all over the world. They don't have as many offices as they used to have.
There are better regional agencies that I think could deliver a lot more growth than CAA is. If we can leverage third parties like CAA like other licensing agents out there, so I do not have to hire boots on the ground, it is a more efficient model for us than actually hiring people. We will see what happens in the renegotiation and whether we stay with them on a global basis or we decide to whack that up based on geographies.
Okay. Any questions from the group? Let's talk Honey Birdette. You mentioned it's your last owned and operated business. It's been through a transformation too over the last 12- 18 months. Much more profitable now. What else? Maybe talk about how much is left for you to improve and also what's the medium-term goal? You've talked about potentially monetizing before. I don't know if that's still under consideration. I think it is. What do you need to do to sort of bring it to that level?
Yeah. Look, Honey Birdette is an Australian lingerie business we bought in 2021. Our timing could not have been worse. We bought it in August of 2021 right after we went public and Australia decided to go on a 3-month lockdown for COVID right afterwards. We closed all of our stores basically for an extended period of time. Unfortunately, in the retail sector, when you close your stores and you have all of this inventory, Honey Birdette's model was a drop basically every week. We got stuck with a ton of inventory so w e ended up having to go on sale much more than we ever wanted to which has a bad impact on brand health.
Over the last year and a half, with Marc Crossman joining us as our CFO, with a background in consumer products and retail, we have started to dwindle down or whittle down the number of days we're on sale. At the same time, we've also cut back our inventory buys. We're in a position now where we're actually seeing full-price items increase, right? Our sales are up on full-price items, but that's offset by not being able to go as deep or as many days on sale during the course of the year.
What we saw in the Q4 actually was our gross margin expanded from 51%- 60%. It's working. At the right time, there's still low-hanging fruit there. They're still under-penetrated from an e-commerce perspective. The Australian market, where the majority of our stores are have been hit hard because of interest rates or mortgage rates. It is mostly a floating-rate environment there. At the right time, I think there is a lot of interested parties that could buy that business from us. We are not the right long-term owner of that business.
Okay. Okay. I'll pause again. Any questions? Happy to take them if there are. Okay. Maybe if we could go, we just went through the three main business segments. Can you just talk about the margin profile of each? Byborg, the core license business, and then Honey Birdette.
Sure. Byborg is really easy. It is basically a 100% margin. We have no cost against it. There was no agency involved. It was a deal we did as a senior team. That was a business that in 2024 did roughly $22 million of revenue for us. Basically break even. We turned that into $20 million of pure profit this year. The rest of the licensing business, call it another $25-$30 million, is roughly a 70% margin business.
We have our agency fees that differ per region. China's a little bit different than the rest of the world, which is CAA. We pay CAA today, Creative Artists Agency, 15% and t hen we have legal costs against that. In China, the only thing different between that and sort of free cash flow is there is a 10.7% withholding tax taking money out of China.
It is a great margin business. On a combined basis, it is phenomenal, right? You are at 90% basically. On the Honey Birdette side, the simplest way to think about it, we got hit really hard in the Q4 with foreign currency with the strength of the US dollar. Honey Birdette, on a net basis is about a 10% margin business moving forward.
There's an opportunity to take it where? Honey Birdette. Could it be a teens margin?
It could. It was before. The biggest issue we've had in Honey Birdette since we bought it outside of the COVID lockdowns that really hurt the business, when we bought the business, it was about 60% brick and mortar, 40% e-com. That business has now flipped to 60% e-com, 40% brick and mortar. The challenge is sales haven't grown, right? And so our stores that used to do about a 30% 4-wall EBITDA.