I spent a lot of time on this article, but it’s really just for people already interested in Magic (the card game) and Artifact (the upcoming card game), especially people with a large collection of Magic cards or plans to develop a large collection of Artifact cards. Full disclosure: I am developing a card game, but because this article is not about it at all, I’m not posting it onto that blog, I didn’t add pictures to the article to make it easier to read, and I’m not promoting this article on social media.
Cards as Investments
I’m going to talk about Magic a lot in this article, but you should think of it as a potential future for Artifact, as well, because Artifact’s business model is the same as Magic, not Hearthstone.
Like in Artifact, you have to pay money to start playing Magic, and you have to keep paying to play. Also like Magic, you will own the cards, and be able to trade and sell them to other people. When you do well, you get more cards, and theoretically you could make enough to not have to pay anymore.
Magic cards have inherent utility: they can be used to play a very fun game. You can easily make the argument that their value is due to them being a durable good, like a bike or a car. However, if the prices are inflated due to artificial scarcity, they become increasingly similar to a commodity which can be speculated on. Their inherent value is that they are physical toys, so they cannot ever become completely worthless; however, the same could be said of Beanie Babies.
As fans will readily tell you, it’s possible to play with a $20 deck and beat everyone else who plays with $400 decks, but usually you’re handicapping yourself and reducing the likelihood that you can make a profit from playing. Sometimes you actually make a profit, or at least it would be a profit if you actually sold your cards. You can even speculate on which ones will go up in value, like penny stocks. For all these reasons it’s not easy to figure out exactly how expensive Magic is as a hobby — and in fact, sometimes you actually make money.
I’m worried about a crash, or a market panic, where players feel like their cards are becoming much less valuable and underbid one another to get rid of their collection as soon as they can. The value of a Magic card can’t go to zero, but it could easily become much lower.
Potential Crash Cause #1: Deck Prices Keep Going Up, On Purpose
The big problem is: In a game where cards are investments, the game maker is cursed with an incentive to slowly increase average deck prices over time, not drop them. I believe this is unsustainable.
Over time, Magic’s quickly rotating format is sharing more of its popularity with formats which are more stable, partially because it makes for a safer investment. (Modern is the most popular longer-term format, including cards printed since 2003, and is becoming more popular every year while Standard has been running into a lot of road bumps.) But prices in these formats are going up too, and it’s not because of a recent change; it’s because it looks unlikely that the expensive cards will be printed again soon, which was keeping prices down. This was an intentional decision: in 2016, prices for a deck had dropped 20% from two years prior because they reprinted some of the expensive cards; then they stopped doing that, and prices rose again, to higher rates than before.
Individual cards aside, the best “land” cards in Magic are notoriously expensive because every non-Standard format deck needs to be made up of about 38% lands, and most of these decks fight over the same 30–50 valuable lands. (Each one of these lands costs between $10 and $150, making the price of a Modern format deck start out around $500.) Wizards can simply print these cards more often and lower the price of entry for the format by hundreds of dollars, but they don’t. They want to keep prices of “very stable” cards like these lands steadily climbing or at least flat, so that players who have invested that money can feel like they’re holding on to solid value. Some dedicated fans don’t actually seem to mind the cost once they’ve put the money in. You could say that Magic has already become preposterous, with its choice of $500 cost of entry for the more stable Modern format vs. $200 (if you’re lucky) for the rotating format which expires in a year. But for the fans, high prices are preferable to unpredictable prices.
So the first impression people get when they hear that Magic costs $200 to play competitively (and that’s to play the less interesting decks) is actually one of its greatest features. The makers of Magic are encouraged to slowly increase the value of their cards so that players don’t leave, meaning that the entry level price will keep going up as it has been — by design.
As the cheaper formats like Standard become less popular and prices slowly rise, the barrier of entry to play Magic will continue going up, which could lead to popularity dwindling over time, which then could lead to a crash if demand goes down. The alternative — making the cost of entry go down — would be a betrayal of people who have invested in a large collection of valuable cards, which could then cause a crash.
Potential Crash Cause #2: The Reserved List, or Paper Bitcoin
Magic’s equivalent of gold (in terms of its status as an asset) is a set list of a few hundred old cards which Wizards of the Coast has said will never be reprinted. It’s called the Reserved List. They made this list to bolster player confidence when collectors complained that their old cards had become devalued over time. The famous Black Lotus is on the list, which is why it’s so expensive — they have promised to never make more. Cards on this list keep going up in value, even if they’re truly useless, because the company has now staked its reputation on keeping the promise.
Decks that use these cards now cost thousands (or tens of thousands) of dollars, walling off fun because the .1% of Magic players who treat them as investments would protest if more copies were printed and theirs went down in value. Regular players of the game want to play with cards of this era, but can’t because of the reserved list; another potential pitfall the makers of Magic have to avoid is making a format which is too similar to the ones that use cards from the Reserved List while banning all cards from the list, which would effectively turn all those cards into useless collectors items by deprecating their formats.
When you see something obviously being bought and sold at speculative value, it’s hard not to imagine that some of these cards are being traded by people coming off the hype of those bitcoin knockoffs which have all been doing poorly in the last nine months, during which the total Reserved List price has doubled. Fans of cryptocurrencies as well as fans of magic will tell you that the first big bitcoin exchange, MtGox, started as a market for Magic cards. There are even cryptocurrency-based CCGs, one of which spammed our subreddit with an ad for their game recently.
The reserved list market is essentially separate from other Magic markets. However, it has a large potential to crash, and market crashes can have ripple effects that spread to other areas. Additionally, it’s a good example of how the interests of people with large collections directly conflict with the interest of new players who want to get into the game, as well as an extreme example of obvious speculation to show that this behavior is already happening due to policies of the publishers of Magic.
Potential Crash Cause #3: Artifact Eats Magic, or Vice Versa
The previously discussed development of a few expensive items is inevitable, and will happen with Artifact, despite what Valve tells you. Card games start with a googol of technically possible decks and quickly narrow down to a handful of viable and expensive ones, leaving the rest of the cards at the “pennies” Garfield describes in the article and the actually good cards likely to be closer to the prices of good Magic cards or Dota 2 items. Note that the only upper bound they give is that a single card won’t cost you $1000 — a very low bar to clear — and the Cornell article shows that the vast majority of cards are worth the “pennies” that Newell describes. The players may actually prefer that some cards end up expensive, because it’s much easier to manage and conceptualize your digital wealth as a handful of big, impressive items than thousands of cards worth almost nothing.
With the release of Artifact, we could see either of these games eat the other one alive by functioning as a much better investment. Valve has plenty of experience making digital economies and billions of dollars that they could use cleverly to make Artifact look like the next bitcoin, and because they can add cosmetics all over the place, it wouldn’t be a surprise if they pulled a Moviepass and essentially threw money at anyone willing to play enough as a way to quickly become a clear competitor to games like Hearthstone. On the other hand, Magic cards are much more illiquid than those of Artifact, and has 25 years of stable growth to back it up. Similarly, the already impressive success of MTG Arena could make Wizards shift focus away from paper Magic, or it could just boost Magic’s popularity and further hurt Artifact’s position as an investment platform. The big difference between Magic and Artifact here is that Magic has everything to lose, and Artifact has everything to gain.
Despite the vast majority of Magic players not thinking about their cards as an investment, those who do shouldn’t be underestimated — the size of the /r/mtgfinance subreddit is 12% of the size of the main Magic subreddit. If one of these games is way more profitable than the other one, thought leaders and the most serious players will flock to it, because not playing it is just losing out on free money.
A Crash Could Be Really Bad…
Magic cards are a completely unregulated market, leading to a bizarre legal situation where the company cannot acknowledge the market’s existence, and as a result it can and has been easily manipulated. Since the internet began tracking Magic cards there hasn’t been anything close to a crash, and the idea of a crash has been suggested before as well. What’s really scary to me is that the investors in Magic cards don’t think of themselves as investors, don’t consider the possibility of a crash, don’t have a past experience of an in-game investment crash to compare it to, and don’t even necessarily know what a market panic is. They simply have a bunch of cards that are worth money, and the value seems to be continually going up. A crash could blindside casual players.
But It’ll Happen to Someone Eventually
Did you know that Warhammer 40k makers Games Workshop doubled its profits last year? I sure didn’t — I looked into it because I was trying to find an example of an expensive game like Magic which had years of player investment and failed. But it hasn’t. Other than all the tiny Magic knockoffs in the 90’s, I can’t think of a game’s secondary market crashing like this. For people who grew up on the internet playing lots of video games, this may be a new concept. But it’ll happen eventually.
I wrote this article because I almost never hear people talk about it as a possibility. I don’t think a crash is guaranteed for any specific game, but if you’re going to spend hundreds of dollars on a game a year, you should always know that you’re still their customer, and you might be buying beanie babies.