The MTGO Economy: It's About Trust Oct 3, 2016 • by Cardhoarder

Following the rash of major announcements WOTC made last week, we have seen significant community backlash, price drops across the board on MTGO, and a significant increase in players selling their collections outright and quitting the game. These three things are not new - the same thing happened last year when Play Points were announced. The difference between that announcement and this set of announcements, though, is the lack of transparency from WOTC -- something WOTC had promised to improve -- and the significant uncertainty these changes bring to the economy and gameplay of Magic Online.



Play Points accomplished what WOTC set out to do: fix the broken pack prices on MTGO. The Play Points change, however, had ripple effects across the entire MTGO economy -- ultimately correcting the careful balance between drafters and constructed players. Many players quit MTGO because they were unwilling to accept untradeable compensation, but WOTC was clear on their intent and things panned out mostly as expected. Last week, in contrast, we had three major announcements hidden in the guise of “positive changes”. My goal with this article is to explain

Why these changes are ill-conceived Why trust of WOTC’s intentions are paramount; and Implore WOTC to reconsider these changes.

Before we discuss the changes, I wanted to discuss a few pre-conceived notions:

Dealers Are Just Upset They Will Lose Money

I often hear that my negative opinions about these kind of WOTC announcements, or the negative opinions of other dealers, are based on our self interests as Magic Online dealers. I’d like to set the record straight. First, as a dealer, I have no notion that WOTC owes me anything or that I deserve to make a living from this game; I think that since MTGO’s inception, dealers collectively have played an important role in the game’s success, and that alone should be enough to at least give us a voice in macro matters. Whether or not that translates into anything meaningful, being listened to is about all we can ask.

Second, I want to address about how dealers make money on MTGO. Dealers on MTGO do not make money when card values go up. Dealers make money on MTGO through volume. Price volatility is what hurts dealers. So, although big changes like this cause some short-term pain for us (in the form of lost inventory value), value loss is made up for later when prices stabilize and we go back to buying and selling cards. The people hurt most by major changes like this are the players holding cards they think are worth X, which instantly lose 20% or more of their value and become very illiquid - they are not running a business that allows them to later make up the value lost - it is simply gone.

The two things that worry dealers are:

Things which hamper the MTGO economy substantially (that is, the economy functioning - more players are more customers for us - people quitting the game is bad for us) Things which create substantial price uncertainty. We lose money when cards go up in price - people buy our existing stock, and we rebuy that stock at the higher price - and we lose money when cards go down in price - people sell us stock at the higher price and the value at which we can sell those cards drops. This also hurts players because they cannot accurately gauge how expensive it is to play the game.

The crux of why these changes are bad relate to these two things. And just so I’m clear, things that hurt the game overall hurt us. Our interests are firmly aligned with the game being a success.

These Changes Make Cards Cheaper, Which is Good For ME

This is another common argument I see - and it sort of falls in line with the one above. That is, this is good for me because I’m not invested in MTGO, and I can play MTGO more cheaply than I could before. First, let me just say it is a little bit heartless for you to not care about the invested players (not dealers - players) losing their shirts because of some drastic changes made by WOTC. Second, and more importantly, I propose that the trustworthiness of the company making our game is incredibly important for its future success. Just because this change doesn’t negatively affect you, it negatively affecting the entire economy will almost certainly be bad for you in the long run. And even if you refuse to acknowledge that, your ability to trust what WOTC tells you about the game has a very large impact on your ability to enjoy the game now and in the future. [EDIT: Removing a quote which was intended to underscore that it not affecting you negatively right now does not mean it will not in the future, but was insensitive and ill-chosen.]

Treasure Chests

What we lose versus what we gain

I’m not planning on getting into too much depth about the known information about what cards are in the Treasure Chests, or what the EV of Treasure Chests may or may not be - primarily because we simply have no idea, as WOTC has not told us how likely we are to receive the most expensive cards in Treasure Chests versus those worth practically nothing. We also don’t know how or when WOTC will change what cards can be in Treasure Chests - an alarming lack of transparency with this announcement.

To recap what we know about the contents of a Treasure Chest:

Each Chest has three slots

Slot 1 will be either a “curated card”, a modern-set rare or Mythic Rare or some amount of Play Points

Slot 2 will be a standard-set common or uncommon most times, but 1 in every 4.5 it will be a “curated card” or a modern-set rare or Mythic Rare.

Slot 3 will be a standard-set common or uncommon most times, but 1 in every 239 it will also be a “curated card” or a modern-set rare or Mythic Rare in conjunction with slot 2.

We do know that the inclusion of these Chests comes at the expense of receiving Booster Packs, which are a reliable commodity on MTGO with a real, liquid market and significant demand from drafters. Play Points, which I noted above, were actually added to address the issue in that market last year; this change is strange in the context of last year’s fix.

Also notable, Booster Packs are a consumable item on MTGO. This means that the rash of supply of Booster Packs disappears once used to enter a draft - and therefore the supply of boosters is automatically removed via normal actions in the economy (playing a draft). Cards, on the other hand, can only leave the system via one way - redemption. We will discuss the changes to redemption later, but redemption only applies to the most recent set. The cards in the Treasure Chests are not redeemable; therefore, the supply of these cards can only increase. As any person who has ever taken an intro Economics course can tell you, increasing supply of something will drive the price down without a corresponding increase in demand. There is nothing in the plans here which might suggest we will see an increase in demand. Normally, a drop in prices could cause a corresponding increase in demand; however, I don’t think we will see this here. Why? Uncertainty. We have no idea how many of these cards will be entering the system, how WOTC can control how many of these cards will enter into the system, nor which cards might later be added as Treasures to be had. This creates a situation where you can only lose by holding cards. You know the prices are going to fall under these circumstances. The only people who should hold cards should be people who need them at that exact moment - that is, if you need to play in an event or you are a dealer and need to hold stock. Anyone else holding cards is at risk from the uncertainty, which could cause the value of their cards to drop drastically at a moment’s notice.

I’m sure you can guess the consequences of no one being willing to hold cards, and everyone looking to sell them. Certainty curtails this. It happens in Magic constantly - WOTC does reprints in sets, and those that get reprinted plummet in price and those that missed the axe skyrocket. The same thing happens in MTG paper.

The bottom line here is that we’ve lost certainty with the implementation of Treasure Chests; we’ve gained a temporary lottery ticket. There is nowhere for prices to go but down. And WOTC has given themselves a golden key to monetize the secondary market at the expense of anyone participating in it.

For those of you in the paper market but not the MTGO market, consider what would happen if WOTC started to give LGSes promos en masse to give out as prizes in events. There is no supply limit, and WOTC can change which cards they give away at any time - and their primary goal is to monetize the events; that is, choose the most expensive cards in paper and use that to get people to buy more product. It would be mayhem in the streets: collectors would vanish, and you’d be in the situation facing MTGO right now (though in our case, collectors have long since vanished - which is why, in part, many foils on MTGO are actually worth less than their non-foil counterparts).

What is the EV and does it matter?

Not only can we not determine the EV of Treasure Chests given the current information from WOTC, it would not be relevant because as the supply of the expensive cards increases, those cards will be sold and have their prices driven down. The only way for WOTC to keep the EV of Treasure Chests high is to constantly change the contents based on what cards are expensive online. This direct impact on secondary market prices compromises WOTC’s entire business model, and as noted previously, creates an incredible amount of uncertainty.

So, either Treasure Chests will plummet in EV or WOTC will continue to rotate expensive cards into the Treasure Chest curated cards set. If you assume the latter, there becomes no incentive to hold valuable cards in your Magic Online collection. Doing so would be putting the value of your collection at significant risk. Thus, any success from WOTC with this approach will stem from one of two things (assuming WOTC refuses to scrap the idea entirely). Either WOTC will make it very clear how often these curated cards will be rotating and the likelihood of receiving the most rare items (allowing people the ability to plan around these things) or WOTC will create an outlet in the MTGO economy for the new supply introduced by Treasure Chests.

What might an outlet for Treasure Chests in the MTGO economy look like? Simply making them tradable is not sufficient - we saw this with the PZ1 prize packs; Treasure Chests need to have a use on MTGO (e.g., Event Entry) which gives them value. Right now, you must open them up and hope you get something good. If they were tradable, you could monetize them as a player up to their current EV - but that EV will constantly be on the decline as people open them and introduce more supply into the system. Fundamentally, Treasure Chests change event compensation, and do not give players an effective means to extract consistent value from such compensation.

Conclusion on Treasure Chests

This amount of uncertainty is potentially catastrophic for the MTGO economy. Every Event Ticket or Booster Pack ever sold by WOTC was purchased with the implicit agreement of WOTC’s business model as a collectible card game. Providing rare cards as direct compensation for Magic Online events is, in effect, monetizing the secondary market value of those cards and flies in the face of Magic’s business model to date. WOTC is relying on the secondary market value of cards to act as direct compensation for Magic Online events…and this has troubling implications for our trust as consumers. In essence, it’s a case of a snake eating its own tail and has long term negative effects on the secondary economy -- to the detriment of the player base.

Redemption Changes

Some of the more cynical of us might suggest that this announcement was made in conjunction with the Treasure Chest announcement to hide it. Whether or not you think that is the case, it certainly isn’t receiving the amount of attention it should be.

Redemption was WOTC’s original plan to legitimize charging full MSRP for a digital product back when it was introduced - back when it was very common to ask why you would possibly pay this much money for something that doesn’t exist in the physical realm. The recent success of other online games likely marks the end of this backstop; these days, people don’t need to be convinced there is value in a digital object. WOTC very clearly wishes redemption wasn’t a thing. They have made notable changes to redemption to make it less desirable, and the negative consequences on MTGO and its economy have been extensively explored.

I’ve read theories -- which I think are correct theories -- that WOTC wants to do away with Redemption entirely. Their plan has been to slowly whittle away our reliance on it so that when they do take it away, it isn’t catastrophic. I can totally understand their wish it wasn’t there; the problem, however, is that MTGO was introduced with this promise. Taking it away is a severe breach of trust of the community, and a slap in the face to anyone who has ever purchased a MTGO product.

The only legitimate way for WOTC to remove redemption would be to build the MTGO economy to a self-sustaining entity that doesn’t even need to borrow paper demand for new sets to function. That is, have such a thriving Magic Online economy that it rivals or surpasses that of the paper market. At that point, you can remove redemption and doing so would be fine. However, WOTC can’t do this - the MTGO client as is cannot support a large enough client base to rival paper’s demand since the software isn’t currently able to handle that many players. Existing Magic Online players that bought in, despite the program’s shortcomings, should not be punished because WOTC wishes they hadn’t made the promise of redemption when MTGO was originally made.

As to what this actual change is, the redemption period for sets moving forward is as short as 3 month, and as long as 6 months for the first set of a block. This compares to 18-24 months currently. Although this attack on Redemption has been ongoing for some time, this latest announcement poses a grave threat to MTGO because, once again, it introduces a significant amount of uncertainty to the Magic Online economy.

Almost certainly, when second sets become unredeemable, they will lose a huge amount of value. Will it be 30%? 40%? 50%? We have no idea. Big price movements like this drastically hurt the average player - they make it notably more expensive to play standard on MTGO, and again, as discussed above, create a disincentive to actually hold cards. These forces are likely to create significant fluctuations of prices during the period these products are actually redeemable. We may see big swings in price during sell-offs, which in turn will make redemption more profitable, resulting in further wild price fluctuations. Rinse and repeat.

Uncertainty in price, and major shifts in prices - these are the two things I noted above that are terrible for the economy (for dealers - and for players).

WOTC needs to understand that the promise of redemption has been the foundation of MTGO since its inception. Breaking that promise will have substantial ramifications in the MTGO market, and more importantly for those that don’t already play MTGO, on your ability to trust WOTC as a company. Can you trust them not to cut pro player benefits on a whim? Can you trust them to uphold the reserve list? Their trustworthiness is the backbone of their business - both MTGO and paper MTG.

Event Changes

Lastly, we had an announcement regarding the entry fees of events on MTGO. In a vacuum, this sort of announcement -- where they are effectively dropping the entry fee on all draft/sealed events on MTGO -- is enough to get even the most cynical MTGO player a little excited. When announced in conjunction with the other two changes, it seems to be an attempt to mitigate the loss of value that results from a decrease in the demand for constructed on MTGO.

Without the other two announcements, is this a good change? I think it is hard to say. It fundamentally alters the value of a booster on MTGO. Previously you could draft for 14 tix or 3 packs + 2 tix. Now that becomes 12 tix or 3 packs + 2 tix. Tickets aren’t changing in value (or cost), so by definition the value of the boosters has to go down. Demand for Event Tickets will go up - and demand for boosters will go down - so expect the prices of both to be in a very strange place. You can buy a draft for $12 directly from WOTC (12 Event Tickets), or $14 (2 Event Tickets + 3 packs) - so boosters are extremely unlikely to be purchased from the store. If you can draft for $12 direct from the store, it makes it very hard for boosters to go above 10 tickets for 3. I don’t think it is a hard cap, but it likely comes close to pegging booster prices to 3.33 in the secondary market. This happens in conjunction with removing boosters as prizes from constructed events - a terrible thing for those constructed events. So, it seems to me, this change will create more certainty in the secondary market for booster prices -- but those that benefit most (constructed players) are now being punished with extreme uncertainty in the form of Treasure Chests.

In addition, and as largely an aside for our purposes, they are removing all draft for DTK/ORI/OGW/BFZ. There is not really any explanation here, but I do wonder if it is to reduce the potential supply for future redemption of these sets.

Ultimately, I think these were not well-thought through as to their consequences in the marketplace. Rather, they were seen as a band-aid to throw to their primary customers on MTGO (drafters) because they know the pain is coming. The question is whether it will be enough to shield those players from the negative consequences. I highly doubt it is, and would strongly urge WOTC to consider the ramifications of all of these announcements and their collective consequences.

I Don’t Play MTGO, Why Should I Care?

There are two very real concerns you need to have - even if you don’t play MTGO.

If WOTC is willing to abuse the trust of one of its major player bases, can I trust them not to do the same to the market(s) I care about? If WOTC inadvertently ruins the economic engine of a game which brings in a substantial percentage (I’ve heard 30-40%) of WOTC’s Magic revenue, will I really be unaffected?

Conclusion

My intent is not to bash WOTC for a poor decision. WOTC does amazing things with Magic cards, and they have created a game that we all love - and one that even poor schmoes like me are able to make a living from being involved with. I highly respect everyone at WOTC and what they have done for my life and our community.

What I want is for WOTC to very, very strongly reconsider implementing these changes, and return the respect they receive from this community. Respect the community that has supported you despite an inferior Magic Online product for 15 years. Respect the promises made previously to your customers and how those promises affected the decisions and actions of those customers. Respect that we all want the same thing: an ever growing game that we can all be proud of. Our interests are already aligned. We ask WOTC suspend or make significant adjustments to these planned changes in the interest of its long term business goals and its player community.