Historically, expensive Magic cards were actually a very good investment. This is no longer true, because:
- WoTC now prioritizes playerbase growth to an even greater extent than before, and thus is becoming more aggressive in its reprint policy
- The fundamentals of the Magic economy are now inherently hostile to Magic investing.
Categorically* speaking, investing in Magic cards is a really bad idea, and you shouldn’t do it. This is not because Magic is dying. Magic as a game will continue to grow and thrive. But Magic “finance”, ie Magic as an investment is for suckers. On average, the expected long-term performance of expensive Magic cards - format staples - is somewhere between no growth and slight decline. When you consider the high transaction costs inherent in an “investment vehicle” as illiquid as Magic cards, this makes Magic “Finance” a categorically bad idea.
*Don’t worry, I will explain what I mean by “categorically” before this article is done.
A. What is “investing in Magic cards”?
The general consumer buys Magic cards for three reasons: to play with them, to collect them, and to “invest” in them.
- Playing with cards: the owner of the Magic cards derives value from from using them in games.
- Collecting cards: the owner of the Magic cards derives value from the sheer pleasure and satisfaction of ownership.
- Investing in cards: the owner of the Magic cards derives value from being able to sell those cards in the future (hopefully for a profit).
Now most of the time, people buy cards for a combination of all three of the motivations above. When someone shells out some cash to finish a deck, going through their minds is some combination of “well, I’ll be able to play this deck for at least a year before standard rotates, it is satisfying to own and flip through cards, and later I will be able to sell this stuff, maybe even for more money!”
What I am suggesting is that when buying cards, you should discount motivation (3) to zero. Don’t expect to make a profit on your Magic cards. Certainly don’t buy Magic cards if your only objective is reason (3). So you should buy cards if and only if you expect them to be worth it on the basis of motivations (1) and (2) alone.
In this post I will talk about “investors” as if they are individuals distinct from players, but let’s submit that this is simplification. When I say “investors” I am actually specifically talking about investment-motivation from Magic players and the degree to which that motivation causes different behavior on the margins - ie, buying/holding cards you otherwise wouldn’t have, only because you expect the value to grow.
B(1). Why is investing in cards a bad idea?
Magic “investors” hurt the game, and are the consequence of a common action problem. We all would be better off (as players) if we all bought cards only when we expect to use them and the game were cheaper to play, but individual players have a strong incentive to defect from this arrangement and “invest” in cards. This takes cards out of circulation and drives up the cost of playing the game by increasing aggregate demand for the cards. Every card not in circulation and not in use represents a card that is not fulfilling its play utility. Thus, a common action problem.
B(2). Ok, that’s why investing is bad for the game as a whole, but why should I care?
You’re right, it’s unreasonable to expect people to act against their own interests, but in this case understanding the nature of the common action problem helps you understand this next point: if you are an “investor” in Magic, WoTC hates you. And they are beginning to act on that hate, by aggressively reprinting cards.
To WoTC, every card that is being held by an “investor” is a card that could be used by someone playing the game, or alternatively, appreciated by a collector. Remember, the player and the collector are both deriving value from the cards as they own them. Just by existing, the card is generating value for players or collectors. But a card sitting in a binder as an “investment” generates no value for anyone until it is sold. This is why WoTC hates you - because “investors” contribute towards raising the barrier of entry for the game, while not contributing towards product satisfaction.
Now in the past, this was less of an issue, because the game was growing very fast anyway, and by raising aggregate demand the investor is contributing just as much to WoTC’s bottom line as a player (perhaps indirectly through singles purchases, but aggregate demand is aggregate demand and at the end of the day WoTC is the original source for all Magic cards). In the past, even if the high price of the game were inhibiting the size of the customer base, it pretty much evened out in terms of revenue because each individual customer was worth so much money.
That was then. What’s happening now is that WoTC is finding itself in a situation where size of the playerbase matters more and more, and in which their premium pricing model is poorly positioned in a changing marketplace. What is changing?
- After years of explosive growth, WoTC has already maxed out its traditional and natural market. What we see now is WoTC trying to continue to drive growth by expanding into previously untapped markets - including emerging markets such as China and the global south, where the consumers have growing levels of disposable income, but still nothing like what WoTCs traditional customers were spending to play the game.
- Streaming and esports are the revenue streams of the future. Both of these have large multiplier effects from a large playerbase. Now, Magic has certain inherent disadvantages in both streaming and esports, but WoTC still clearly wants to get in on these revenue streams. To do that, they need a bigger playerbase.
- In part because of streaming/esports, Magic is being disrupted by Hearthstone and other cheaper competitors. Disruption is a tech buzzword, but in business refers to an observed pattern wherein a premium product (Magic) is supplanted by a cheaper, more agile competitor (Hearthstone). Note that “premium” is used here in a business sense and refers to that product’s positioning in the marketplace. By being more expensive, more full-featured, less convenient, and more complex, Magic is “premium” compared to Hearthstone, which is cheaper, less-featured, more convenient, and less complicated. In the same way, the Mainframe was “premium” compared to the Desktop, the Desktop was “premium” to the Laptop, the Laptop was “premium” to Mobile. But the desktop killed the mainframe, the laptop killed the desktop, and mobile killed the laptop. Why? Because the cheaper competitor is the one that creates new markets/new customers, leaving the premium competitor in the dust with its traditional high-revenue but increasingly irrelevant share of the market.*
*I want to point out that I’m personally skeptical of whether the “disruption” model is a useful as a prescriptive tool for business. But what matters here is what WoTC believes, and given the ubiquity of the concept of “disruption” in business schools and tech boardrooms, I think that the uncanny resemblance of Magic-Hearthstone to disruption case studies is undoubtedly influencing WoTC decisionmaking. WoTC's reaction to Hearthstone is actually a fascinating topic that is worthy of a future post of its own.
All of the above explains WoTC’s behavior and drive to grow Magic as a game that will appeal to a larger audience, and indifference to the equity of Magic investors. As we’ve seen this year they will reprint aggressively, across a multitude of supplemental products. They won’t do it in a way that crashes the market, but are happy trickling out supplemental printings to devalue your investments gradually. (See: EMA “supplemental” print runs). WoTC is doing this because it’s in their interest to drive down the cost of playing the game and grow the playerbase to a degree that wasn’t true before.
B(2). Is that all?
If that weren’t enough, the macro fundamentals of the Magic economy are now very hostile to Magic investing. Much of the conventional wisdom of Magic “finance” comes from a period of explosive growth, during which the player base was growing at a tremendous rate. In such an environment, demand for cards was reliably increasing and an “index” of Magic cards - such as sealed booster boxes or format staples - would reliably grow in value very quickly.
This historical performance is what informs a lot of the conventional wisdom in MtGFinance about holding format staples, or holding popular kitchen table/commander Mythics, or holding sealed boxes. I'm talking about strategies like SaffronOlive’s Three Year Plan to buy and hold an “index” of mythics from each set. In the past demand grew at a high enough rate that any of these strategies were very profitable.
However, explosive growth is not sustainable. For the past few years, the game has still been growing, but no longer at an explosive rate. And what implications does this have for MtG Finance? Well, you can throw all the conventional wisdom out the window.
Sealed product? All post-RTR sealed product has remained flat and available at or below MSRP.
Format staples? Shocklands have been flat since rotation.
Thoughtseize, the biggest Modern staple out of Theros, has only declined.
Same with fetchlands.
If there were an “index fund” that bought MtG staples, it would have been climbing up until around RTR, and then it would have declined gradually since then. Why? The ratio of current player base to historical product available used to be very high, and this supply-demand gradient was a recipe for climbing prices. Today, thanks to a more modest rate of growth and more aggressive print runs, that ratio is much more even.
Which means that as a whole, MtG Finance is not a winner. The value of the most cards will stay flat or decline gradually, so once you factor in the transaction costs of buying/selling illiquid cards it is very hard to come out ahead. This is what I mean when I say MtG finance is “categorically” unwise. Yes, there will still be some specs that pay off. However, I am suggesting that specs are a bad idea as a whole because on net there will be more losers than winners.
C. What should I do?
My expectation for the future is that expensive Magic cards - format staples - will see returns somewhere between staying flat or gradual declines. I’m not suggesting you stop buying Magic cards. I’m simply suggesting you stop buying or holding Magic cards as a long-term investment. It is still a good idea to buy or hold Magic cards if:
- You will get value from playing them.
- You will get value from collecting them.
But don’t hold any cards as an investment, outside of strong seasonal/rotation-based logic - for example, it’s reasonable to hold standard cards you don’t expect to use until after Pro Tours in which they might see play.
In addition, there are still lots of ways to make money in the economy by providing value and services to the Magic community - in which case you can buy low (buylist) and sell high (retail). If you are flipping collections, you are trading your time for money and providing a service by increasing liquidity of Magic cards. Similarly, if you are acting as a store and are moving many cards. In addition, individual spikes will still occur, and so do rotation patterns, so if you do believe that you truly can outrace WoTC's reprint treadmill, you're welcome to put your money down on the proposition. That said, keep in mind that with the transaction costs of moving Magic cards you need a very high rate of very successful specs for this to be worth your time.
D. So you're saying Magic is dying! Sell sell sell!
Nope.
Yes, player growth is slowing, but the past rate of growth wasn’t reasonably sustainable anyway. Magic is probably now growing at a healthy single-digit annual rate, which is a perfectly sound business that Hasbro will continue to invest in.
Yes, WoTC is trying to drive down the cost of entry, which by definition means cards will be worth less. But the game will probably be fine. Just treat it as a game, where you only spend money because you want to play with what you get, and don’t expect it to be a good long-term investment. Instead, expect card values to break even or gradually decline. Remember the three motivations for buying cards? If you got value from playing and owning the cards that was sufficient to cover the cost of buying them, then even if that card’s value drops, you come out ahead!
