The Pitfalls of an Intangible Currency

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The changes that are coming to Magic Online in a few weeks are more drastic than any I have ever experienced and their meteoric impact will affect every one of us. So often when we see upcoming changes we immediately turn to ourselves and ask whether the proposed changes will benefit or hurt us personally. The proposed changes are so fundamental that we need to reflect on how they will affect the Magic Online economy as a whole in order to fully and accurately appreciate how they will affect us individually.

Preliminary Intentions

The unhealthy state of the Magic Online economy is well-known. This Channel Fireball article addresses it. Undoubtedly you all have experienced it; I certainly have. It was really disappointing for me when Block Constructed queues and Dailies stopped firing. For those of you who don’t know, beginning with the set Gatecrash, Wizards quintupled the redemption tax from $5 to $25. The effect of those changes on the value of sets can be seen in the following graph.

The reason that set prices plummeted is fairly straightforward. Because of the dramatic redemption tax increase, it became less profitable to redeem sets so virtual cards were not leaving the online system with anywhere near the same frequency that they had in the past. With this increased supply online and no new demand, card prices fell, taking booster prices down along with it.

At first glance, it is not obviously bad for card prices and booster prices to be lower. That means that the cost of entering a draft or sealed event is lower, and the cost of acquiring new cards to build new constructed decks for a Standard tournament is lower. However, a problem arises when we look at prize payouts for tournament play. Because prize payouts are given in boosters, if boosters decline in value, then the overall level of prize support for a tournament decreases as booster prices decrease. The only surefire fix is to compensate by increasing the number of boosters in prize support, but the result of this is that even more boosters and cards enter the system, thus causing card and booster prices to further decline and thus necessitating a new increase of boosters in prize payout. This spiral would continue until the point at which online prices were so low that the $25 redemption fee no longer constitute a hindrance to turning a profit by redeeming the set (i.e. if you could buy an entire Magic Online set of Khans of Tarkir for $35 and then sell it for $100 in paper). The best way to understand the redemption tax, then, is as a value compresser. The lower the redemption tax, the closer the value of the virtual cards will be to the paper prices. The higher the redemption tax, the lower the value of the virtual cards will be relative to their paper counterparts.

Wizards, of course, did not increase prize payout as booster prices fell. The result, unsurprisingly, has been a sharp decline in constructed queue and constructed daily event (DE) participation. Block Constructed has completely disappeared as a format. 8-man queues now exist only for Standard and Modern. DE participation has been down across the board. Much of this is because prize support is now relatively lower so less players are interested in participating. This decline in event participation prevents the economy from continuing to revolve around the loops of a shrinking value spiral. Even with this check on the negative force of the steep redemption tax, however, the Magic Online economy has still teetered on the brink of a fiscal cliff. As the Channel Fireball article noted, the Modern Festival was not extended because the player base requested it; it was extended so that more DTK and FRF boosters would not enter the system. At the time the FRF boosters were worth $1.30/pack and DTK boosters were worth $2.40/pack, both dangerously low levels for their respective sets.

Which leads us to Mr. Sharpe’s recently announced changes regarding Magic Online. Albeit I tip my hat to his exquisite doublespeak that might as well come straight out of 1984, these changes are not solely intended to rectify the problems with the economy. Had that been the lone intention, the redemption tax would have been reduced down to either original $5, or maybe $10 or $15. Another solution, this one “innovative”, would be to allow two booster packs of a Standard-legal set (or the most recent Standard-legal set, or perhaps the two most recent Standard-legal sets) to gain you entry into events like 8-man queues and DEs that cost 6 ticekts to enter. I do not want to discuss the merits and detriments of this latter approach because that is not the focus of this article. What I will say is that the former approach directly addresses the heart of the problem, and yet Wizards chose to do neither it nor something comparable. We must ask, then, why Wizards is enacting this change.

I see two large reasons for these changes: profit and providing an added safeguard against the implosion of the economy (an economy that might well have teetered over the edge without the sobering influence of Modern Masters 2). Consider for a moment how Wizards makes money from Magic Online. There is the initial $10 needed to acquire an account. Furthermore, just like in paper, Standard rotation presents an impetus to acquire new cards as old cards will no longer be used — an acquisition which costs money. Above and beyond these two things, however, Wizards makes money primarily from the entry fees it collects from all of its limited and constructed events. And so it comes as no surprise that a decrease in queue and DE participation deals a huge blow to the profit margins Wizards accrues from Magic Online. Ghost-quartered constructed queues means that events are not firing, and every event that does not fire is money Wizards would have made in the past but is not making in the present. We thus have reason to firmly believe that the goal of these changes is to address the decline in event participation while simultaneously bolstering booster pack and card prices to prevent the market from collapsing in the future.

If a few assumptions bear out, these changes should have the intended effect. First we must assume that the player base will perceive 10 play points to be equivalent to $1 or 1 event ticket. Second we must assume that Wizards adjusted the DE entry fee and prize structure in a manner that does not completely decentivize DE events. Undoubtedly booster prices will shoot up by a lot because their supply will be lower. The amount of booster packs entering the system from 8-man queues will drop by 75% (12 to 3), from 2-man queues by 100% (1 to 0), and from DE events by 48% (29 to 15 per 16 people). With less boosters entering the system, there will be less cards as well, and so if demand for those cards remains constant, card prices should increase to reflect this relative scarcity and should match the increase in booster prices.

A Most Faulty Assumption

I am dumbstruck that Wizards could ever imagine that the vast majority of Magic Online users would consider 10 play points to be the equivalent to 1 ticket or $1. I have even seen some on social media equate 10 play points and $1. It is time to dispel that myth right now. 10 play points will be worth far less than $1. Fundamentally, play points are not money. They cannot be converted into tickets. They cannot be converted into booster packs. They cannot be transferred between players. They are the Multiverse’s version of a bread voucher handed to you by Stalin with an inserted microchip to verify that you are the government’s intended user of the voucher. This loss of liquidity is spared the term “complete” only because you can use play points to enter a limited event or PPTQ. By entering a limited event or PPTQ, you are able to indirectly convert play points into two of the three forms of liquid currency available on Magic Online – cards and boosters. SaffronOlive discusses this issue here, and I will echo his claims when I say that you will be highly unlikely to recoup a full 1 event ticket for every 10 play points you try to convert for two reasons: every limited event is taxed at 2 tickets per event, and the cards found in an opened booster pack are usually not worth the full cost of a booster. By forcing you to go through limited events to convert play points into real fluid currency, Wizards is building in an extra tax that directly benefits them. The craftiness of Mr. Sharpe is quite brilliiant here; so opaque and difficult to see! This tax that will be levied on each of us, although it will affect some more than others. The worse a limited player you are, the harder this tax will hit you because the less likely you will be to win a prize in your event. Nevertheless, the tax will hit every Constructed user of Magic Online in both the wallet and another important way: time. It takes multiple hours to convert between 140 and 300 playerpoints into event tickets. Assuming that you manage to convert every 10 play points into 1 event ticket and assuming that your drafts and PPTQs all take 3 hours, you will be able to transfer your play points into tickets at a rate of between $4.67/hr and $10/hr. That is a massive cost. This isn’t hitting “download now” and leaving your computer for several hours while the conversion takes place: this requires active presence and attention in order to convert those play points into a real liquid currency. May God help us all.

In yet another subtle way, 10 of these play points are not at all worth $1 or 1 event ticket. Because play points are not transferable, convertible, or refundable, players will often be forced to overpay to participate in their next event. We will be able to enter a draft for 140 play points, 14 tickets, or 2 tickets plus 3 boosters. If you have 120 play points and 5 tickets, you cannot pay 120 play points and 2 tickets. Instead, you will have to purchase 9 tickets or 3 boosters to enter the draft – the play points will lie listless in your account until you win a prize that pushes it beyond the 140 mark. From the perspective of Wizards’ pocketbook, this is fantastic! This means that at least 95% of the time you will have to have invested more money into the system than is needed to participate in your next desired event. It will feel like trading with bots with whom you have .65 tickets with – you are obligated to go back to try to reach that magical “1” number so that the bot no longer owes you money. If you are unable to get it perfectly even, Wizards wins. Rarely am I ever able to trade evenly with a bot to where the bot does not get to keep extra fractions of tickets of mine and I expect nothing different when dealing with Wizards’ play points.

Modeling the Value of Player Points

So how much do I think a play point is worth? It is impossible to predict with absolute precision. It will definitely be different for different players. Play points will be closest to the ideal 10/1 ratio for constructed players who also play a decent amount of limited with high limited win-rates. For them, the value of 10 play points will probably be ~.75 tickets. For constructed players who play a decent amount of limited with normal limited winrates, the value of 10 play points will probably be closer to ~.5 tickets. For constructed players who do not play limited at all or who are really bad at limited, the value of 10 play points will probably be close to ~.4 tickets. And then there is simply the feel of the currency not being tangible and real, which I expect will hurt its value. All in all, I would not be shocked if the average valuation of 10 playerpoints were between .4 and .65 tickets. I’d be highly surprised if two months from now people evaluate 10 playerpoints as anything above .7 tickets.

As usual, an image is worth a thousand words. What follows are some charts that will help us understand how the value of future constructed events will change based upon the real value of player points relative to events of the past and present. For the hard data used to generate this graph, you can view the google document here. What these three charts depict is the net value of events under the economic conditions of different player point valuations, and by “net value” I mean the difference between the entry fees for all participants and the prize support awarded to all participants. The “past” model shows the net value of events if payouts were as they were prior to Gatecrash when the redemption tax was $5 – all booster packs are given a $3 value. The “present” model shows the net value of events with present day DTK and FRF booster prices – $2.50 for a Dragons of Tarkir booster and $1.50 for a Fate Reforged booster. The “10 PP” model shows the net value of events if 10 player points is considered equivalent to $1 and if each booster is worth $3.50. The “13.3 PP” model shows the net value of events if 13.3 player points are considered equivalent to $1 (when 10 PP = .75 tickets). The “20 PP” model shows the net value of events if 20 player points are considered equiavelent to $1 (when 10 PP = .5 tickets). In my estimation, the economic conditions of the immediate future will be somewhere between the 13.3 PP model and the 20 PP model.

We can glean some important conclusions from this data. First is that DEs will go the way of the dinosaurs unless prize support is increased or the entry fee is reduced – no matter the valuation of player points, 8-man queues will offer significantly better rates of return than will DEs. Second is that if Wizards opts not to revisit the DE fee and prize structure, they will be unlikely to accomplish the desired goal of increasing Constructed event participation. There is little to no room for a dropoff in value of playerpoints from the ordained 10:1 ratio. At present, a Daily Event returns roughly 78.65% of entry fees back to the players. In bygone days, a Daily Event could easily return a staggering 109.38%. Although a return to that high of a mark is not needed, a number significantly higher than 78% will be needed to bolster constructed event participation. If the playerbase somehow manages to give 10 playerpoints a $1 valuation, Wizards will achieve this goal – 8-man queues will return 88% of the entry fees to its playerbase and completely replace DEs. However, if 10 playerpoints only prove to have a .75 event ticket evaluation (the 13.3 PP model), 8-man queues will return roughly a mere 71.88% and Constructed participation will continue to decrease. If play points are deemed even less valuable, this decline will be exacerbated. These graphs make it perfectly clear that these changes hurt the playerbase.

If anything makes me optimistic about the next month or so, it is that the implementation of these changes will be so detrminental to constructed event participation that Wizards will have to do an about-face.

I should explicate one assumption of the model I used to generate the above graphs. My model assumes that we pay entry fees in tickets, or in play points that are worth .1 ticket. As play points become less valuable, the entry fees to constructed events will become discounted, although that discount will not be transferable to anything else and will even be mitigated by some of the factors described earlier in this article. This effect is worth noting, but the larger tale the data tells us will still carry the day.

Conclusion

This article was written to highlight some of the major weaknesses of the upcoming changes not discussed in other articles. In particular, I discussed in detail several negative aspects of the virtual player point currency and how that will negatively affect the Magic Online user experience. These changes impose new taxes onto players in unsuspecting places and in unsuspecting ways. There are readily-discernable ways to address the problems of low booster prices and low constructed event participation that do not hurt the playerbase to the extent that Wizards is preparing to do moving forward. These upcoming changes are highly unlikely to spur an increase in constructed event participation, a primary reason why booster prices need to ascend from their abyssmally low levels.

If after reading this article you feel that these changes will negatively affect you or the Magic Online community at large, please send an email to magiconlinefeedback@wizards.com.