Table of Contents

Preamble

I’ve been a competitive card game player for a long time now; about 5 years. In that time, I’ve found a love for both the game while I’m playing, but also the other parts of the ecosystem that allow a competitive card game to function. From the design of new cards to the secondary markets that allow the competitive scene to flourish, there’s much more to card games than simply something that “kids play on the playground”.

I’m going to mainly talk about the card game Magic the Gathering, as I have the most experience with it. I can’t speak to the specifics of other card games but the general principles should hold true.

Essential Question

In this article, I’m going to try to answer two questions, who makes money in card games, and what can we learn from card game companies. Hopefully by the end, the similarities between card games and other businesses will become evident.

Primary and Secondary Markets

Often times it helps our understanding to break down the general market into primary or secondary markets.

Primary Markets

The primary market is directly between the manufacture and an end user. Usually the process looks something like this. Manufacture (Wizards of the Coast in the case of magic) -> Distributors (People who are in charge of getting the product from the printers to the various stores) -> Retail Stores (This includes big box stores like Walmart to a local game store) -> End User.

It is worth noting that this is a simplified view of the entire supply chain. One example is in things like allocation of product. Depending on store size and various standards determined by WOTC (Wizards Of The Coast) different stores have the ability to purchase different quantities of product. So in some ways, Wizards remains involved in the entire supply chain throughout.

Now throughout that explanation, I’ve been clear to use the word “product”. Product refers to sealed booster packs. When Wizards sell products they sell booster packs or other pre-packaged products. Individuals open these products to get cards to play with. In many ways, it’s analogous to how Valve sells keys in Counterstrike Global Offensive rather than selling the skins themselves.

People pay a fixed price with each layer of the supply chain adding their own markup. At the end of the day, this provides a consistent predictable revenue stream for Wizards.

Secondary Markets

Now after people open their cards, they may want to sell them. This desire to buy and sell specific cards creates a secondary market. As a general rule of thumb, card prices get determined by supply and demand. Wizards tends to not get involved with secondary markets and for a long time didn’t recognize it’s existence.

The dynamic of secondary markets to Wizards is something not entirely necessary but also worth exploring. The fact that cards have “value” and can be “resold” is inherently good for Wizards as it incentivizes people to buy sealed product. The idea that if you spend $100 on booster packs, but could get $150 in cards serves as a driving factor in influencing people to purchase as well as to justify their purchase. Most people wouldn’t be willing to spend large amounts of money for the pure intrinsic enjoyment of the game. In this way, the secondary market largely helps Wizards.

At the same time, Wizard’s didn’t acknowledge the secondary market existed, much less the prices attributed to cards. Now this wasn’t out of ignorance, for a long time, Wizard’s strategically added cards with significant secondary value to sets to help them sell. If Wizards were to formally acknowledge the existence of the secondary market and the value associated with cards, it would open up a can of legal worms. Since cards are randomly inserted and nothing is guaranteed, the value of some cards could make booster packs mechanisms for gambling. This legal grey area is the fine line that Wizards has long walked. As I’ll discuss later, there are ways Wizards have tried to skirt these rules but they come with significant asterisks.

These secondary markets tend to be facilitated in 2 types of ways, peer to peer and peer to institution.

Peer to Peer Transactions

In peer to peer sales, people individually sell their cards to others. Some websites like eBay may provide the platform, but sales comes from individuals. This has allowed for rapid expansion of these platforms. In general, these websites tend to offer the lowest price on cards but also have dubious reputations. Even with dedicated platforms like tcgplayer, the nature of having individuals sell cards means that some people will try to take advantage of the system for their own profits.

On the seller side, selling cards is a significant hassle. First of all, waiting for cards to sell can take time. This is especially true with niche markets. Selling any given card can take anywhere from a couple of days to never selling. Even once the card is sold, sellers must pay platform fees (around 10.5% of sale price), shipping and other expenses.

Peer to Institution Transactions

A company like amazon offers a platform for individuals to sell on, but they also sell products themselves. Similar institutions have formed in the secondary card market. These vendors purchase individual cards from individuals and pay around 60%-70% of their retail value. They then have their own websites where they sell these products to other individuals.

Comparatively speaking, selling to institutions is much more convenient than selling to individuals. By selling to an institution people can skip shipping fees, potential disputes with customers and waiting for their cards to sell. Many people would rather take the reduced payout in favor of the convenience it offers.

On the buyer end, purchasing from institutions tend to be more expensive. After all, they must pay for the card, upkeep costs of the warehouse where the cards are stored, and labor. In exchange, cards purchased from institutions tend to be more consistent in terms of condition with better buyer protections and quality assurance. Perhaps most significantly though, is that institutions tend to have a large stock of all cards that individuals may need. In interviews with smaller shop owners, I was told again and again was that “Someone will come to you with a list of cards, and you have one opportunity to fulfill that list”. While certainly not all institutions, but the selection offered by large institutions makes purchasing a lot easier. Especially when costs like shipping are factored in, often times it makes sense to purchase from an institution for large quantities rather than piecing out the purchase bit by bit from individuals.

When the Lines Begin To Blur

Up until 2019, the division between primary and secondary markets have remained largely clear. Since then, Hasbro (the parent company owning Wizards of the coast) has begun a push to increase monetization. Which seems to be working. To achieve these increases in profit, Wizards has had to push into the secondary market. Offering individual cards directly from Wizards. Their decision to do so snubbed many members of the community. Matching push of selling individual cards, Wizards continues to pump out more products. Many individuals, myself included can’t be bothered to keep up with all of the new cards being released. In many ways, the actions taken by Wizards have isolated a significant sector of their player base.

While increasing product quantity has certainly helped Hasbro’s topline, it’s at the cost of both company goodwill and long term sustainably. These concerns aren’t only echoed by the player base but also the Bank of America. Specifically it’s “over-monetizing” of Magic the Gathering was “killing its golden goose”.

Takeaways

From a business perspective, it makes sense to be trying to maximize profit, but it’s important to look at long term sustainability. In my opinion, it’s here that a big division between Wall Street and CEOs can arise. The focus on garnering a strong balance sheet for one quarter can come at the cost of long term profits. While maximizing profits from a customer base is important, caring about how they feel is equally as important. Fundamentally, a business cannot exist without it’s customers.

How do Small Card Shops Make Money?

Aside from all the potential issues with the direction of Magic, I wanted to talk about the small stores, and specifically how do small stores stay afloat.

Events

Stores have the opportunity to host Magic the Gathering events where people can compete for prizes. While the first instinct might be that these events provide a source of a store’s main income. Yet talking to local store owners seems to provide the opposite impression. A quick calculation corroborates the store owners comments. Using figures gathered from employees, the average event has somewhere in the range of 20-30 people attend. Since each person pays $10 entry fee, total revenue sits around $250. Meanwhile to pay for prizes, to store can expect to pay out around $260 in prizes for any given night. (give or take around $40). Once costs like labor of hosting an event and venue fees are taken into account, it’s obvious that running an event for the sole purpose or running them isn’t profitable.

Then how do these stores make money? That brings us into their actual revenue stream.

Individual Cards

Like mentioned earlier, many institutions get involved in buying and selling cards. Local game stores are no different. The high margins on individual card sales make them responsible for a bulk of the income generated. In fact, the reason that events are run is often to create the occasion in which people will buy individual cards. If there were no events to use cards, people wouldn’t buy nearly as much, nor would they feel the need to purchase from any one vendor. By hosting events, stores create their own demand. In many ways, events are simply a marketing gimmick.

Takeaways

While not nearly as exhaustive as other studies, I wanted to present the case for local game stores as a way to emphasize the importance of knowing where your profit comes from. Amazon doesn’t make the majority of their income from ecommerce, but rather from AWS. From business large and small, finding sustainability comes down to being able to know where your profit margins come from and maximizing them.