Tag Archives: Business Ethics

Colorless Transparency

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(Credit for the cover photo alterations goes to Sean, @SeanOhhhh on Twitter.)

So, uhhhh… how about that Jace, eh?  Actually, I really don’t care about the card. I’ve never even owned an Origins Jace, and I certainly don’t plan on buying in at $80. You’ll hear about the mono-blue mind master in much more detail from several of my colleagues this week, so let’s move onto something much more interesting.

Something Much More Interesting

You know what? Let’s check out “today’s most interesting cards” from this past Monday, because that sounds like a fun day that I definitely picked at random.

nointerestingcards

Oh, darn. According to my ProTrader email, nothing interesting happened that day… OH, WAIT.

spawnsire today

spawninterests

So that finally happened, although I don’t think it’s a coincidence that last week’s article was literally all about Spawnsire of Ulamog and why I thought it was a good spec target at $3. When I wrote that article, the card had crept up to $4, and I even advocated *not* buying in anymore if you were trying to make a profit. Parroting last week, buying in at $4 means that you’re hoping for the card to hit $8 or $9 before you can start to see worthwhile and noticeable margins. As a personal rule, I don’t buy unless I’m confident in my ability to at least double up.

As you can see by the pictures and timing of the whole thing, my article looks like it was the final stroke required to convince some number of people to buy the last 30 or so copies that were available on TCGplayer, and the half dozen left on eBay. I seriously doubt that these people are going to make any money, if it’s any consolation to you.

My hope for the rest of this article is to show two things. First, I want to be as transparent as possible about all of my suggestions to speculate on Spawnsire, be clear exactly where I made money, when and how I bought and sold each of my copies, the areas where I went wrong, and how I would change my approach in the future. Second, I want to explain the concept of the greater fool theory, a topic that Jason Alt first intertwined with MTG finance a couple of years ago back when Theros first came onto the scene. It’s been a little while since then, so I’ll provide a refresher.

Time Warp

Alright, let’s take a trip down the magical mouse-wheel and scroll back to about five weeks ago.

Pucaspawn

August 30 was the first time I mentioned Spawnsire on Twitter. I subsequently grabbed a dozen or so copies on PucaTrade, because I very rarely buy into a spec target with cash. Most of my “speccing” comes from buying large collections or lots of singles at buylist or below, and setting aside the cards that I’m anticipating will go up for later. While I don’t always get the quantity or card that I’m specifically looking for by using this method, I’m almost guaranteed to not lose money in the long run if the end result is different than my vision.

spawnsire3x

foilspawnsires

Fast forward to September 4. I noticed on my daily check of the MTG Stocks interests page that the foil version of Spawnsire had doubled, seemingly out of nowhere. I didn’t own any foils, but I did see that the non-foil was still hanging around the bottom of the interests page. At this point, I was very confident that the card was primed and ready to spike within a couple of days, following the trend of the foil.

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I bought the copies that you read about in my article last week from Star City Games, because I saw a perfect storm of reasons to pick them up there: SCG was the cheapest place to buy, I could get 36 copies at once, and I was guaranteed that they would ship. I continued to check the stock on TCGplayer for several days, and it continued to teeter anywhere from 33 to 50 sellers at any given time. There were stores listing new copies, and then they would get eaten up, although I’m not sure if that was the work of non-competitive players looking for their copies, or speculators following the feed of information that I was providing.

Spawn3

And here we are about a week after I bought my copies from SCG. Unfortunately for me, they simply restocked another 40 SP copies a day or two after I cleaned them out, so it meant that there were still a lot of casual players who would need to pick up their Spawnsires at $3 to $4 before I saw any sort of profit. I didn’t want to buy anymore than I already had to force the market to move. Getting rid of 50 copies of a casual card that was likely only a one- or maybe two-of of in a deck was hard enough, so I held back.

In hindsight, I should have also tweeted here that SCG still had 40 copies in stock.  I focused too much on the TCGplayer and eBay stock affecting the price, and should have tweeted back on the 13th that SCG still had a bunch of copies, and that they were probably the place to buy them if you needed Spawnsires to play with.

That was my last tweet before the last of the supply on TCGplayer and eBay disappeared on the evening of October 5. I really wish I had written my last week’s article three weeks ago so that it didn’t coincide with the actual release date of Battle for Zendikar. I would be interested to see if Spawnsire’s available supply decreased at a similar or identical rate without my article, simply because of the set release allowing casual players to get their hands on Battle for Zendikar and start crafting their Eldrazi decks.

Similarly, I wonder if my article would have been enough of a match in the powder keg to spark a buyout three weeks ago, without the set being released in the same weekend. As things played out, though, I think it was the combination of both factors that made the buyout happen. Now, let’s take a look at what I did that night as a result of the buyout, regardless of who bought the copies that started it.

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VICTORY

This screenshot was taken on the night of October 5. As you can see by checking your own TCGplayer mid prices, Spawnsire has settled since then at around $6 to $7, right where I was hoping for. Immediately after I noticed this jump, I went to TCGplayer and listed my own copies. I put up 37 NM copies for $6.99 (if you’e been keeping track, I only got 15 or so NM copies from PucaTrade. I graded all of the 35 SP copies that I got from SCG, and I personally felt that almost half of them were NM. SCG’s grading system is extremely rigid). I also put my 17 SP copies up for $6.49 and crossed my fingers.

While I waited to get lucky and hopefully sell some Spawnsires into the hype, I went to SCG to see if they had been bought out as well. Did the instigators of the buyout really grab all 40 of SCG’s SP copies? Well, not exactly.

spawn7

SCGpostspawn

While the cheapest copies of Spawnsire on TCGplayer were my own at $6 to $7 and eBay was completely empty, SCG still had 40 SP copies on their website sitting at $3.35 each. Huh. While this is definitely a risky move and I wasn’t sure if I would be able to sell all of these, I felt that I would be able to slowly move them on TCGplayer or through trades at $6 to $7 a piece, eventually making a strong profit. It would take a while and tie up my money, but I didn’t really put a lot of time into thinking about it. I was concerned that someone else would snap them up before I did, so I hastily jammed them all into my card and swiftly made it through checkout.

Ugh. Now I had to move almost 100 of these things. I went to bed that night thinking of strategies of how I would move more than 90 freaking Spawnsire of Ulamogs. Maybe if I got lucky, one buylist would hit $4.50 or $5 and I could just sell them all en masse for a small but safe profit. Facebook would probably be a strong outlet, as there are a ton of non-competitive players in all of the groups that I’m in. I could jam a few in my display case, because I mostly market myself to EDH and newer players out of the store. I’m sure some of them will want to build Eldrazi decks, and slam Barrage Tyrants and Desolation Twins into play with Spawnsire. Hmmm…

Greater Fools

Alright, now we’re almost caught up to present day. I got out of my sports psychology class Tuesday afternoon to check my email, and I was happy to see an email from TCGplayer. I had a Spawnsire sale! The first of many, I’m sure. Although it would be a slow process, I would eventu—

TCGspawns

Uhhhhhhhh…

Well, alright then. Either this person knows something that I don’t, or he has a really weird thing for tentacles. One person bought out all 37 NM copies for $6.99 each, so I suppose that solves one of my problems. Obviously no player buys 37 copies of a single spell that’s not a Shadowborn Apostle or Relentless Rat, so this is a purchaser looking to make money. I’m assuming that this person doesn’t read my articles, because I suggested the exact opposite of what this party did. If you buy in at $7, then you’re looking for Spawnsire to hit $13 or $14 before you sell, and you plan to sell 37 of them at that price?

According to the greater fool theory, irrational buyers will set the price of a commodity when that thing’s price is not driven by its own intrinsic value. In this party’s mind, they’re not the fool. They’re going to sell to some other guy who’s a greater fool.

“I can’t wait to get these 37 Spawnsires, so I can sell them to some guy for $10 each. I’ll make like a hundred dollars because I’ll get approximately $3 profit off each one.” –Spawnsire Sam

The problem here is that you’re assuming that person exists, and that the market will still be as volatile as it was when you bought my copies. I’m shipping those Spawnsires out on Wednesday afternoon, so the buyer probably won’t get them in the mail until Monday. Do you still think Spawnsire is going to be $10 on Monday? Hell, it dropped below $10 already, and it’s probably still going to be $7 when this article goes live on Thursday.

When I bought Spawnsires three weeks ago, I had a choice when I saw the spike happen. I could either sell them immediately by racing to the bottom of TCGplayer (an option that I only have because I had the luxury of having copies in hand from three weeks ago), or I could take a greater risk and try to predict that the price would stay at $10, $11, or predict that it would go to something like $15. The choice I made is pretty obvious: I took the safer route. Move the cards, lock in the profit.

The party buying my Spawnsires had a different set of choices. They could either buy my $7 copies, hoping to sell them for $10 or $15 as soon as they get them in the mail (what they did), or they could stay out of the game entirely. The bus already left the stop, and this guy is trying to take the elevator to the fourth floor of his apartment building and parkour from the top of a roof to land on top of the bus, all so that he can hand out free Spawnsires to all of the little boys and girls. I didn’t feel confident that my copies of Spawnsire would be able to sell at anything above $7. More specifically, I didn’t expect any fools to come along and believe that there would be any greater fools to buy at $15.

Unfortunately, I’m still not out of the woods yet. I have to sell the 40 copies I’m getting from SCG in the next week, and that’s going to take, uhhh… a while. Only one buylist has hit $4 as of right now, and I doubt there will be many that go above that. In hindsight, buying these additional 40 wasn’t the best move, but at least I won’t lose money on the purchase.

End Step

Are you tired of Spawnsire yet? I hope so. It’s been a while since I’ve dissected a spec to such a degree, but it was a lot of fun writing both of these articles. I hope everyone learned at least a little something, even if it was, “Don’t buy 37 copies of Spawnsire of Ulamog at $7.”

Let me know what you thought of my article through Facebook, Twitter, or in the comments section below!

MTGPrice helps keep you at the top of your game with our daily card price index, fast movers lists, weekly articles by the best MTGFinance minds in the business, the MTGFastFinance podcast co-hosted by James Chillcott & Travis Allen, as well as the Pro Trader Discord channels, where all the action goes down. Find out more.

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The Ethics of MTGFinance

By James Chillcott (@MTGCritic)

Recently I’ve found myself being pulled into cyclical debates on the ethics of MTGFinance. With the increasing participation and interest in this side of the Magic: The Gathering community, it seems like a good time to get to the bottom of things.

The Price Is Always Right

So the other day I’m at a new nerd conference in Toronto and I notice halfway through day 2 as we’re promoting ShelfLife.net (plug: our next gen social commerce platform for collectors) that attendance is pretty dismal. Figuring the vendors may be in the mood for deals I locate an LGS dealer with a ton of binders in tow and no central pricing system. This is exactly the scenario where you are likely to find the best, and the largest deals, largely because only the biggest most dedicated vendors can possibly keep up with the increasingly rapid prices shifts in our community. Sure enough I locate over $2500usd in singles within 30min of binder browsing. I stack the cards in piles at various price points, the dealer signs off on a $1100cdn sale price after some haggling down from $1400cdn and we conclude our business with a handshake and a smile.

Now pause and ask yourself: did I rip him off? Or more to the point, was the transaction ethical?

MTGFinance In A Nutshell
MTGFinance In A Nutshell

I assert that it most certainly was, and here’s why:

1) No one was lying, causing distractions, fast talking or otherwise obscuring the action

2) We’re responsible adults responsible for our own decisions, and his decision was to publicly offer the products in question at the prices we both agreed to

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3) Interest is the first sign of market shifts, and he waved it off, likely because;

4) He clearly saw value in the cash flow

Now let’s examine what could have happened had I chosen the opposite path, a path some people might demand I take to achieve perfect transparency.  I could have, for instance, tallied the cards, and engaged in this conversation:

  •  Me: I think these cards are worth essentially double what you have them priced at, about $2500.
  • Vendor: Thanks! My new price is $2500. So would you like to buy them at that price?
  • Me: No thanks.
  • Vendor: Oh, why not? Don’t you recognize them as being worth this price on average in the market?
  • Me: Yes.
  • Vendor: So then you’re backing out because you can get them somewhere else cheaper?
  • Me: No, I’m backing out because I believe these magic cards are investments, and as such, must operate under the principle of opportunity costs.
  • Vendor: How’s that?
  • Me: Because you’ve reset the price to market average, there are now other options I believe will yield better returns within the same time frame, and my role as a market maker dictates that to achieve an efficient market I must act logically and efficiently and pursue my goals while you pursue yours. When the value of my potential returns matches your value in cash flow, a market action will occur and we will both be equally happy. In this particular case I have clearly spent a lot more time than you tracking and memorizing current price averages. This knowledge has value, and I just conferred that value to you as a gift, creating an imbalance in our market making potential and ensuring we cannot achieve market action. You see, I came to your booth loaded with efficiency, free cash flow and risk taking potential. You were carrying inefficiency, low cash flow and lower risk potential, as expressed by your willingness at any time to convert cards that could potentially accelerate in value for cash that averages a much lower interest rate unless reinvested in greater prospects. This insinuated that any (or all) of the following was true:

a) your time was too valuable to make re-pricing your inventory to match current demand worthwhile

b) your potential reinvestment opportunities exceeded my perceived net present value of the cards in question

Further, our lack of prior exchange of social value through camaraderie, emotional support or familial ties makes my donation of value result in an unequal match. I’ve sacrificed over $1000 in value for no discernable benefit as other market actors were already willing to sell me these cards at the newly requested price, which I’ve only just now made you aware of. As such instead of heading home with $1100 cash, you’re heading home with $600 in booth fees, time wasted and no opportunity to reinvest.  I’m heading home with $1400 less profit potential at a risk level previously determined to be acceptable, and a non-friend I’ve donated goodwill to without any return on my investment.

Final score: No one is winning. The market is broken.

StarCityGames Is Not The Market Price

So having taken a closer look at the dynamics and difficulties of trying to manually price thousands of magic cards, let’s examine where these kind of scenarios have led the LGS/Vendor segment of our hobby ecosystem.

Price Progress?
Price Progress?

Back in the pre-internet days, Inquest and Scrye magazine published monthly with card pricing lists taken from surveys of selected vendors around North America. This system led to many golden opportunities for savvy players who could spot a rising tide for certain cards at the tournament level and translate that into smart actions at their local gaming stores before the new issues came out the following month. It also tended to result in highly specialized local economies, with card pricing varying oddly from community to community based on local play styles, format focuses and house rules.

The advent of the Internet, and in particular the ability to view past transactions on Ebay yanked us all into an entirely new era, with easy access to global price data, a trend that has only accelerated in the last 5 years with big data sites like MTGPrice.com, MTGOGoldfish.com, mtgowikiprice.com and TCGPlayer.com. Better information, made widely available should be good for everyone but coupled with the rise of the smartphone has empowered players to take advantage of low margin (aka inefficient) vendors, as well as lazy players, who can’t keep up with pricing shifts. (Now to be fair, vendors have done this to players since the beginning, using buy list tactics that most would consider normal business.)

At the same time, the tendency for commerce to centralize within niches online, leads to the appearance of major market actors with high efficiency such as StarCityGames.com. SCG brand equity then leads to their price lists being used as a mutually agreeable reference point for market actors seeking to equalize value and achieve market action. Other vendors then go a step further, seeking to achieve efficiency and close more market actions through the simplest course of action: copying SCG pricing.

This has lead us to entirely new era of Magic pricing: The Age of Oligopolistic Tendencies.

As opposed to a monopoly which is typically defined as a single market actor holding unfair stores of value due to legal, procedural, resource access or other major advantages, an oligopoly is typically characterized by a relatively few market actors disguising their inefficiency by agreeing to fixed pricing that ensures certain margins and leads to permanently unequal value exchanges while maintaining a relatively stable model of market sharing for the vendors. These situations are especially exacerbated in the case of goods essential to living such as food, warmth, clothing and shelter. Though no true oligopolistic cabal exists in the MTG world, the tendency of inefficient vendors to leverage platforms like Crystal Commerce to track and average the prices of the largest vendors to set their own pricing, is leading us towards a magic ecology with oligopolistic tendencies. (It’s worth noting here that between TCGPlayer, Ebay and PucaTrade “true” market pricing is still widely available and in play.)

Put simply: If everyone uses the same pricing, originally set by the most efficient vendor, no actor will ever be able to achieve further efficiency or recognize the true value of their potential market actions. This is true because in theory and practice, the scenario for every market actor is unique, and their price should be uniquely customized to that scenario.

Eg) Store X has $2500 (SCG pricing) in singles for sale. They set their price on this pile of cards to $2500. A player enters the premises and offers $2300, and the LGS declines because Crystal Commerce says their price is on target. The problem here is that price comparisons only establish the cash value of a transaction, and utterly fail to establish the other forms of value and opportunity cost. For instance if Store X can achieve higher inventory turnover rates, lower overhead, lower product costs, enjoys different tax scenarios, or any number of other value stores, they may be economically incorrect to turn down the deal.

This is a key concept, so let’s dig deeper. Check out this table of value store calculations on a theoretical booster box of Conspiracy being sold by an LGS with greater efficiencies than SCG, but priced to match on the premise that SCG is using the “correct” price:

LGS X StarCityGames
Product Cost to Vendor $74 $72
Posted Sale Price $99.50 $99.50
Turnover Rate (Days to Retrieve Capital) 180 216
Investment Periods/Annum 2.027 1.689
Corporate Tax Rate 15% 35%
Overhead/Box/Days to Turnover $3.50 $7
Gross Yield%Gross Yield

Yield Net Overhead

%Yield Net Overhead

Yield After Tax

Effective Annual Yield After Tax**r = (1+i)^

$25.50/box34.45%

$22/box

29.72%

25.27%
51.89%

$27.5038.19%

$20.50

28.47%

18.50%
33.20%

So what exactly does that math demonstrate?

Price Efficiency Achieved?
Price Efficiency Achieved?

Well, in essence it demonstrates that an LGS with access to non-revenue value stores can achieve greater return on investment than a major market actor. In reality, some of these stores are quite possible (better tax scenarios) while others (think overhead/box sold) are highly unlikely due to economies of scale and scope. Even still, assuming we accept that an LGS could achieve more efficient capital returns, why does that matter?

It matters because higher yield would allow them to lower box prices on the premise that lowering prices below SCG pricing would increase overall sales, and because we already know the LGS has superior returns on those sales, they can make more money overall by undercutting their larger competitor. Here’s the kind of graph we’re talking about.

Note that the demand curve shifts out when the price drops, resulting in higher overall sales, because, duh, more players will buy more boxes if they’re cheaper.

Here’s some more math on the two possible scenarios (for illustration only, since just how much demand may increase based on lowered pricing depends on many factors beyond the ken of this discussion).  We’ll even assume lowered box costs as volume increases, though the plateaus would be fairly broad in our ecosystem:

Cost/Box Revenue/Box Boxes Sold Total Profit
Scenario A: SCG Price Match $74 $99.50 186 $4743
Scenario B: Set Lower Price $73 $97.50 223 $5463.50

The LGS has dropped their price slightly, increased sales by about 20% and achieved a slight inventory cost reduction as reward for their higher volume (because they contributed to their wholesalers own inventory turnover rate), leading to an overall increase of 15%.

Surprised?  You shouldn’t be, because this is EXACTLY what a properly functioning free market economy is supposed to look like. A healthy economy needs the friction of market actors jostling for position to trend towards the most efficient combination of price and alternate value that maximizes both shareholder return for the companies and utility for the consumers.

Note that this is functionally identical to my trip to the LGS with noticeably lower prices because in encountering that actor I had no way to know whether they were:

a) seeking value through inaction (due to the value of their time)

or

b) deliberately lowering prices to increase inventory sell through and capture more market share.

The real point however, is that it just doesn’t matter why they were priced lower because whether their price positioning was intentional, representative of alternate value stores or representative of their inefficiency, the market needs the match tested to find equilibrium. If the match is efficient, I will return, repeat similar transactions and the vendor will thrive if their choices are in fact efficient, applying competitive pressures to SCG and other larger market actors to lower prices for more and more players. If it is inefficient, I may one day return to find the vendor closed, and I will move on to market matches with the most efficient vendor I can find, and the cycle continues. I mean I miss those Friday night hunts for value at Blockbuster, but I can’t argue that the shift from $30 in late fees/month to $10 unlimited access to content from my couch via Netflix isn’t the purest representation of market evolution in motion.

The Boundaries of Ethical Trading

Resist the Dark Side
Resist the Dark Side

First off, I’m a long standing liberal. In fact, up here in Canada, we have parties further left than the Democrats and I vote them with pride. Ultimately I consider myself a social pragmatist, but I reserve the right to skew the energy I spend on socially conscious commerce in favor of essential rather than non-essential goods. That means I tend to transfer value to causes that are improving the overall standard of living more efficiently than I ever could directly. As MTG is an upper middle class game with no essential utility, I am definitely on the side of economics vs. social good, but only so far as I believe they are in fact one in the same in terms of achieving market efficiency in the Magic commons. By this I mean that good economics will lead to the healthiest overall community, a fact I’m sure Hasbro drills into the WOTC exec at every opportunity.

Remember a few years back when they yanked global tournament support, ditched the old rating system and abandoned nationals? We all yelled a lot, but the game has only gotten better since, presumably because the internal reallocation of resources has made the entire operation more efficient at attracting users and increased the overall utility to our community broadly despite the painful transition.

Further, there is a huge difference between accepting a listed price, and engaging in more nefarious acts. Here’s some scenarios I DON’T support:

  • Duping kids is off limits, simply because they aren’t legal market actors at all and cannot be expected to act rationally.
  • Noobs are off limits, largely because being kind to new players yields social scenarios that largely outweigh any meager profits that could be made off their single copy of Jace. I’m not above dumping 1000 commons on someone in a swap for a $50 rare, but I always make sure they know the score, and they’re rarely concerned since variety > power in the early days of trading.
  • Switching price tags, confusing vendors when busy, lying about condition, delaying payments and failing to honor posted prices (a personal pet peeve) are all forms of theft because they represent non-voluntary transfers of value.

In the end, I’ve written this article to make one simple point: you are no more responsible to “correct” the pricing of a vendor than they are to “correct” their pricing when you need a Snapcaster Mage ten minutes before the start of the GP.

I’m also asserting that such acts of price adjustment, are in facts acts of economic and/or social charity, resulting in the transference of hard earned value from one market actor to another without justification.  And while you may feel good about doing it, you may in fact be injuring the health of the MTG economy as a whole by failing to exert the pressures that lead to maximum market efficiency and the lowest possible price for playing this beautiful game.

Now you may say “hey, wait a minute, I hang out at my LGS every day, I’ve known the owner for years and I need to look him in the eye when we trade. This guy gives me deals, runs a good scene and he’s always got snacks on hand for Commander night.”

My response is that you and the owner are not simple market actors, but something closer to friends (or at least peers), in your scenario, and are by definition engaged in a barter economy where you trade value in terms other than just cash, and in doing so you keep things just as equal as if you had bought him out of a common box worth of Simian Spirit Guides. When you notify him every time his pricing seems low, you are in essence investing the value of your knowledge into your favorite hangout and inevitably expecting that value to yield dividends. You may consider yourself the altruistic sort, but when push comes to shove, if you save him from buyout after buyout and he won’t even put aside a Conspiracy box for you, you are unlikely to continue the exchange.

To wit, nor should you.

 James Chillcott is the CEO of ShelfLife.net, The Future of Collecting, Senior Partner at Advoca, a designer, adventurer, toy fanatic and an avid Magic player and collector since 1994. 

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