Gaming Guilds, Part 2: Quantifying the Business Model

We’ll start putting some numbers together. Fancy.

In Part 1, we talked about the general business model of a gaming guild: what it does, how it works, and what value it brings to players and investors.

As a refresher, here is the general gaming guild business model today:

1. Gather a treasury of liquid capital.
2. Invest liquid capital into gaming NFTs.
3. Gather a community of gamers and people interested in web3 gaming.
4. Distribute scholarships to your community using your gaming NFTs.
5. Split income earned through your scholarships with your scholars.

Let’s illustrate this business model using Axie Infinity (or substitute it with your favorite game if you’d like). We’ll use some very general assumptions to think about some of the nuances of this business model:

1. 35 Small Love Potion (SLP, Axie Infinity’s utility token) quota a day and 20 working days a month (just Mon-Fri for 4 weeks).
2. Using an SLP price of ~$0.0035, we get $2.45 monthly earnings.
3. 50 / 50 scholar-guild split of earnings.
4. 3 Axies needed to play, purchased at a floor price of 0.002 ETH. This implies an initial ETH spend of 0.006, and at an ETH price of $1200, we get a spend of $7.20 per scholar. We’ll ignore gas (it shouldn’t change things too much).
5. Simplifying assumptions inherent in the above include a stable token price and 80% utilization (to account for not earning the full quota of 35 SLP a day and accounting for some holidays). We also assume there are enough scholars in the guild so if one scholar drops out, we can give their account to another scholar who wants to play.

Using these assumptions, here’s how the first year of operations for a single cohort of 50 scholars might look:

Quick Excel math for the cash flow of a scholar cohort of 50.

Here, I’ve calculated the NFT Capex, or initial NFT capital expenditure, and Scholar Income, or the guild’s cut of the earnings from scholars. I’ve also calculated the Cumulative Cash Flow, or the total amount of cash we’ve spent / earned over the lifetime of this scholar cohort.

As you can see, there are usually a couple of things to consider:

• How long does it take for a guild to make its money back from its initial investment?
  We’ll call this the Payback Period, or the time it takes for the cumulative cash flow to go from negative to positive–which is the period at which the guild has fully earned back its investment. In our example here it’s between 7–8 months.
• How long do we expect the game to be relevant?
  This basically ties back to our implied assumption on stable token price, but we’ll likely need to have an estimate of how long a game will be worth playing. This is important because if the game is expected to be relevant for only a couple more months but the payback period is longer than that, it doesn’t make sense to start another cohort of scholars.

Today, assuming that a given game will stay relevant somewhat decently far into the future, the general strategy of a gaming guild that follows from this business model is to recruit as many scholars as possible to maximize the guild’s cash flow. This is because each new scholar given a scholarship represents another stream of earnings, and therefore increases the volume of cash flow. To support this, guilds will also have to figure out a portfolio theory to optimize their portfolio of gaming assets and therefore their revenue potential. Do you buy into many games and see what happens? Do you choose deep ownership into one or two games you have a lot of interest in and buy a lot of assets there? Is it something in between?

Most guilds usually choose the deep ownership route to begin with, as this lets them create a specialty and attract scholars that way. However, going back to our simple model of a cohort, you need to carefully consider the “NFT Capex” spend as that is actual money that needs to go out of your treasury. That money is only made back through your scholar earnings and it will take a few months before you realistically make any profit. So, you need a good amount of cash to purchase those NFTs in the first place and have some money left over for float (and to pay any operating costs).

But how the hell do you get the money to do this? No matter how cheap they are, NFTs will cost a lot of money if you’re buying a lot of them.

The solution? To buy tokens and NFTs… you sell your own tokens and NFTs. While there are other ways to do this, this has usually been the most popular way. We’ll explore why and how tokens / NFTs make sense in future installments.