Monday, January 11, 2016

♫ Do You Want to Play Some Magic? ♫

This weekend we'll see over 400 players gather at DSG to continue the Eldrazi War in the Battle for Zendikar small expansion "Oath of the Gatewatch."

Has it really been all the way since September that we had the biggest tournament in store history, the Battle for Zendikar prerelease?  Turns out.  After a flood of buy-and-drops, we seated 362 of 414 players and enjoyed a weekend of Expedition-fueled excitement.  I wrote about it shortly afterward.

Magic: the Gathering utterly defines the hobby game trade right now, though it's a tiny player in the entertainment market overall.  According to figures released by Hasbro for 2014, Magic grossed $330 million.  This was double the revenue from Uno, somewhat less than Play-Doh or My Little Pony, and miles behind Transformers, Nerf, or Star Wars.  Disney's Frozen license alone almost doubled up over MTG.  The $330 million, a single-digit percentage of Hasbro's more than $4 billion annual total, was nonetheless an improvement over MTG's $250 million take in 2013.

These are all piker bucks against the video game industry's absurd $46 billion in 2014 sales, of course.  If the entire entertainment industry were made up of James Bond actors, movies would be Sean Connery, television would be Roger Moore, video games would be Daniel Craig, music would be Pierce Brosnan, toys would be Timothy Dalton, and the entire comic and hobby game trade put together would be George Lazenby.  The analogy goes further: We have great content, just as Lazenby starred in one of the best Bond movies, but our portion has nowhere near the reach of the others.

Still, at our scale, with that kind of money in play, it's easy to see how typical game stores are tethered at the nostrils to how Magic performs.

So what happens when Magic runs weak for a while?

It turns out this is precisely what happened in 2015, and it's worsening heading into the beginning of this year.

In boom times, Magic-focused stores live from release to release.  There has been so much pent-up demand for each new expansion that stores have been free to collect pre-orders a month in advance or longer.  (Never mind that PayPal and many major credit card interchanges require delivery or pickup availability within 30 days of taking payment for a product purchase.)  Such a store has moribund cash movement generally.  A new set is on the horizon.  The store opens pre-orders, often heavily discounted.  It's just enough to pay for the big shipment and cover rent and costs for a month or so.  Scramble for singles sales for a couple months, and then repeat, as there are four major Magic booster releases per year.

In 2014, there was a fifth booster release, Conspiracy, but it didn't change the math that much as it was not Standard-legal for play and was ultimately viewed by players as a nonessential diversion, if an enjoyable one.  The year 2014 was defined by the mammoth autumn expansion Khans of Tarkir, which quite literally saved DSG as it was rebuilding from a partnership split earlier that year.

The year 2015 seemed like it should have been even better, but after turning the amplifiers up to eleven with Khans, the releases after that packed somewhat less punch, pound-for-pound.  Fate Reforged had some high notes but didn't have "legs" and tapered off sharply.  Dragons of Tarkir was the opposite: the set had minimal buzz up front, leading to a muted debut out of the gate, but did better as the weeks went on.  This effect, however, was strongest in stores that catered to casual players, not to grindhouses, where Timmy and his fun new Dragon deck isn't especially welcome.  The strongest seller of the mid-year, Modern Masters 2015, presented a mixed bowl of pluses and minuses.   I captured excellent sales by being among the first to tie my anchor to MSRP and go loud about it.  The customer public responded and loved us for it, and it worked.  Stores that hoped to speculate their way to riches are choking even now on MM15 boxes that can be had for $50 under retail on eBay.  We're not running a museum here... selling through is the goal.

Magic Origins, something of a gap-filler as expansions go, behaved like Dragons of Tarkir in its initial run and then became ridiculous as the value of its signature card, Jace, Vryn's Prodigy, soared later in the fall.  And then we had Battle for Zendikar, which out of the gate was the best-selling product in DSG's history, and then utterly cliffed as players got the Expeditions they wanted and little else from the set appeared in competitive constructed decks.  The high power level of Khans of Tarkir overwhelmed all; Wizards of the Coast needed to dial things back and used the Expeditions to mitigate the damage and give the players something shiny as consolation.

So with Zendikar's drop-off happening around late October, and Standard and Draft attendance cratering nationwide, stores that relied on tournament traffic to survive have been living frugally -- and, in some cases, closing.  In fact, we're seeing an interesting duality right now.  An explosion of new stores, mostly Magic-focused, appeared in mid- to late-2015, and they are still in their teaser rent rates and burning through their startup capital.  They can withstand a steep drop in revenue for a few months due to depressed traffic and a Magic set that's underperforming.  Their cost base is still small; the cost ratchet is not yet bearing down on them full-force.  Old wood stores know how to hunker down and survive and are diversified in product offerings anyway.  The most vulnerable stores right now are going to be the ones that opened between early 2013 and late 2014.  Their rent ramp points are coming up and in some cases have recently hit, they are no longer the shiny new hotness, and their initial capital is likely long gone.  You're going to see distress moves from these stores as they seek to weather the cash-flow pinch.  Some will survive.  After all, the Magic market is still pretty big, and no one release can kill that.  Otherwise we'd never have made it past Dragon's Maze.  Or Saviors of Kamigawa.  Or Prophecy.  Or Homelands.

Those mid-major stores had better hope Oath of the Gatewatch is good, because if three months of retrenchment in the trade's largest property was rough... just think what it will be like if we end up having six.

If the comic and hobby game trade as a whole could have one New Year's wish for 2016, it would be that people want to play some Magic.  So, do you?

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