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Tuesday, December 15, 2015

Why Paying Grinders to Play Magic is Both Unwise and Wrong

Virtually every game store of consequence sells Magic: the Gathering right now, and this article is most topical for that game, though the principles in theory carry over to any other game that is supported by organized play (OP).  A substantial number of game stores today, in particular Magic-centric stores, are engaging in a toxic practice: awarding more money in tournament prizes (or store credit or product equivalent) than the store collects for the event in admission fees.  (This creates negative escrow, essentially a rebate with recipient to be determined.)  Since most tournaments are won by competitive players, or "grinders," this practice results in the store "paying grinders to play Magic."  This practice is both unwise and wrong, and today's article is going to demonstrate why.

Once upon a time, as recently as 2008 or thereabouts, OP was economically healthy across the industry.  I regularly played in events in the 2006-2008 period where most stores charged $5-$10 for constructed-deck events and added one to three booster packs into the prize pool per player.  Even after offsetting some of the staff and facility costs that OP incurs, those stores made a little bit of money on OP, even if the players didn't buy anything else.  The store did much better if the players did buy things, of course.  Not enough to pay for the owner's next ivory back-scratcher, but bread-and-butter staying-in-business revenue at least.

By today's standards, that cost and payout would seem terribly shallow.  But it was the standard at the time, and we were playing for entertainment anyway, not in a misguided effort to grind for EV (expected value).  Don't mistake this for casual play -- I was entirely a competitive player back then, and twice I reached the finals of a Pro-Tour Qualifier and scooped to the other player rather than traveling, which I abhor -- but I knew what I was doing with my time and money, and that was entertaining myself.  Magic was recreation, not work.  Importantly, the majority of other competitive players at the time treated the game the same way, even the pros and pro hopefuls.  Jonny Magic Finkel himself, literally one of a tiny number of people skilled enough to make grinding for EV a realistic plan, worked in financial management as his day job.

In that time, there were already Magic-centric stores willing to flip boxes for a buck over cost, and these typically sported the most aggressive tournament payout structures, yet they rarely ran negative escrow, and even if they did, who cared, those usually failed and healthier stores chugged along.  Then in 2009 the Magic 2010 Core Set and the first Zendikar expansion ignited a boom market that has lasted to this day, and brought with it an explosion in the number of game stores, especially those focused on Magic.  Now, of course, we're in year, oh, five or six of that boom, and Magic-centric stores continue to sprout up all over.  With that has come a saturation level: there are only so many players needing a store where they can play, even with the market in a peak cycle.

As you might guess, with supply outgrowing demand, prices must fall, and where OP is concerned that meant some combination of lower admission fees and/or higher prize payouts.  As of this writing, the end of 2015, the competitive standard in most regions I've kept tabs on has been a 100% prize payout.  In other words, the store breaks even on organized play, with no extra earnings to offset the added costs of conducting events.  Fortunately, stores have become somewhat more efficient in the singles trade and adept at monetizing concessions and the like, but still, a revenue stream has dried up.  Yet Magic has been so hot that the stores running negative escrow remain alive on pure adrenaline.

Desert Sky Games and Comics is at the standard par, paying out 100% of admission fees collected for OP.  That is to say, each player buys in for $5, we add $5 in store credit to the prize pool.  I charge sales tax separately, which one of my competitors enjoys pointing out, but that cancels out because sales tax is included in the credit prize payout and thus is not charged again when the player makes a purchase redeeming that credit.

By and large, my customer base is cool with this.  The majority of my customers don't participate in organized play at all, of course, which is how a retail store is meant to operate.  I don't have to conduct a tournament for the guy who just wants to read Batman or the girl who wants to bring Dead of Winter to game night with her friends.  But from among my customers who do enjoy OP, mostly Magic or Fantasy Flight players, the substantial majority of them are happy with the 100% or 1:1 prize payout.  Many have told me as much.  They are aware it's not the most any store in town pays out, but they think it's fair, they understand it's sustainable, it is more than some stores pay out, and it comes bundled with a great environment, a friendly staff, a good selection, competitive pricing on merchandise, and so on.

The problem, of course, is the same as when you feed the squirrels at the Grand Canyon.  They come to demand more.  And in a market where new stores continue to proliferate, and supply continues to outstrip demand even despite the ongoing growth in demand, that meant that comic and hobby game stores, especially Magic-centric stores, have had to pay more and more generously to attract more players.  And attracting players has serious rewards: a store's OP numbers directly impact the amount of premium product that store will be allocated by Wizards of the Coast.  Beyond Magic there are also rewards for attracting high OP attendance from Fantasy Flight (Regionals event hosting) and WizKids (product allocations) and others.  Stores are told by publishers that they need to run themselves as cozy ultra-boutiques, but all the economics are geared to reward the store that leases a former Elk Moose Lodge Hall and sets up seating for 350-player mega-tournaments, regardless of what they do on the retail side of the equation.

Thus it is that the Magic-centric stores in my region, as elsewhere, have begun offering tournament payouts of more than 100% of admissions collected.  Some of them fudge it on a pack payout, some of them do credit, whatever.  They use this as an opportunity to hide or bury that sales tax charge, and if there's some loose math in there, what's the big deal?  Point being, now the competitive or "grinder" players in my area, a vocal minority of my customer base, inform me with regularity that DSG is unacceptably stingy with prize payout.  They tell me I am offering subpar EV to compensate them for their time and effort.  As though people were supposed to get paid to engage in recreation.  Remind me to have a frank discussion with the people at Harkins Theaters and Golfland Arcades, who apparently owe me decades of back pay.

The grinders tell me that I'm missing the boat on how this is supposed to work.  I'm supposed to pay out more generously on tournaments, and in return they'll be my regular customers, shopping with me, buying singles, sleeves, sodas, and snacks.  Organized play is promotional, you see.  You use it like advertising.  To bring people into the store.  And then they'll buy things.

That's the agreement, the contract if you will (in the looser, social sense of the word "contract").  I pay them more, running my events with negative escrow, and they'll spend money in my store.  I refer to this, for lack of a better term, as "social OP prizing."

Unfortunately, social OP prizing is a terrible deal for a store, making it unwise, and what's more, it cheats a store's best customers, the ones who spend the most, making it wrong.

Can you see the glaring defect in social OP prizing?

It's unilaterally unenforceable, and thus fatally one-sided.

Here's the thing.  Players can enforce the payout the store promises.  A store has a reputation to maintain, and is generally expected to keep its word.  In this modern age of social media especially, any store that welched on a payout would be castigated on regional Magic player Facebook groups and competitive player message boards and the like.  Every community has a player or players who "do the math" on every prize payout and publish their findings, deciding whether or how much the store might be making or losing running the event.  If they decide the store isn't walking the talk, it will go viral and Friday Night Magic at that store will have Crickets vs. Tumbleweeds at the feature table every round.

This scrutiny is a good thing to some extent.*  It prevents the shadier stores operating at the margins from claiming Big Money! Big Prizes! Big Winnahs! to draw in business and then skimming off the escrow.  The bad side of the prizing scrutiny is that it only goes one way.  The community will hold the store accountable for social OP prizing.  Nobody holds the grinders accountable for whether or how much they spend in return.  It's not even realistically possible to do so.  As a result, the store pays out all this money, fronting it in fact, and might get nothing out of it from a significant portion of participants.

Okay, so what?  There are surely some deep-pocketed spenders who will make up for that, right?

That line of thought is the reason paying grinders to play Magic is not just unwise, but wrong.

Let me put it a simpler way: It is cheating the big spenders to force them to subsidize the players who don't spend.

Is that clear enough?

Those big spenders, angel customers, whatever you want to name them, are purchasing recreational entertainment for some amount of money dollars.  They are entitled to personally consume and enjoy every bit of the value they are paying for.   After all, they paid for it!  While many of these individuals are sufficiently generous that they might allow a poorer player to bum an event entry off them once in a while, if you asked them if they were willing to cover a portion of nut for everybody every day, I'm sure their charitable inclinations would diminish quickly.

But a store that uses social OP prizing does cheat those players, and may not even realize it.  Somebody is paying to cover the cost side of that equation, and if the store is paying out more than 1:1, by definition somebody is subsidizing somebody else, unless every participant is spending in precisely equal amounts on singles, sleeves, sodas, and snacks, which we know doesn't ever happen.

This is why many competitive/grinder players love social OP prizing so much.  They will never admit this out loud, but they know full well they can spend little or nothing and the store will have no recourse, and the big spenders who are supporting their EV grinding by proxy will also have no recourse.  But if the store doesn't pay out in full, it's straight to Facebook or Reddit with an angry screed, and a giant splash of mud all over the store's Sunday shirt.  Either way, the grinder wins.  Why wouldn't a grinder push for such a prizing policy?  The grinder just wants money.


If there's no recourse, the contract really isn't a contract at all.  There's no mutual exchange of value.  There are some parties paying in and not getting full value out, and there are other parties taking value out that they didn't pay for.  Free-riders.  And an ecosystem cannot sustain the presence of free-riders indefinitely.  Once the providers decide to withdraw their contributions, or are incapable of continuing to provide them (such as for a store that goes out of business because it allowed social OP prizing to bleed dry its cash flow), the party's over.

Some store owners who are socially adept can extract payment from underspending or non-spending players more effectively than others.  There are stores in my area whose owners are exceptionally talented at this.  Good for them.  To the extent that they do that, it reduces the costs wrongfully incurred by the big spenders under the social OP prizing scheme.  Doubtful it eliminates the subsidy entirely, as that's just not realistically possible, but it softens the blow.  They're still cheating their angel customers, just not as much as they otherwise would be.

But that skill doesn't scale.  That socially talented owner can never truly step away from the wheel sustainably.  If he or she did, things would seem normal at first, but the more often that owner was absent, the more the social compliance would taper off.  A grinder who does not have to spend money, usually won't, in the end.  A store that plans to be around for a while with an owner who plans to have a life outside of work needs to have a sustainable, delegable workflow, which is where social OP prizing is a non-starter.

The wrongness of social OP prizing becomes even clearer as soon as you reverse the filter and look at the image from the other side.  If a store is not running social OP prizing, we're at a default, no-strings-attached status quo.  Every player is responsible only for the cost of his or her own entertainment.  That's all.  The store gets paid when it provides mutually agreeable value in exchange -- when it offers something the customer wants and is willing to purchase, full stop.  In regular OP with positive or no escrow, some of that money gets shuffled around in accordance with the final standings, but everybody bought in fairly and everybody has the same skin in the game.

Under normal OP prizing, the customer doesn't owe me anything.  And let me tell you, I find it very easy to enforce when someone owes me nothing.  See?  I've collected it already.  I'm collecting it right now.  Check out all that nothing I'm collecting.  It's sparkly.

Seriously though, under normal OP prizing, the store has not fronted social money to the players above and beyond 1:1, so there is no nebulous social requirement that the player spend... some amount.  That he or she must spend it at... some time.  And some frequency.  Nope; the player is free to spend or not spend as he or she wishes, and the store may sustainably offer anything within its arsenal, from products to services and all in between.  It's fair and it's legitimate and there are no strings attached.

I'll close with a few thoughts addressed toward each party involved.

Store Owner Paying Grinders to Play Magic -- Look, I'm not your mother, you own your business and you can do whatever you want.   It probably feels like you're doing everything right, especially if you're the "cool" store to be at.  You're paying players generously and man, they love you!  The hardest-bitten grinder speaks of you in glowing tones.  It can be a really addicting thrill rush to be so popular so fast and seemingly so easily.  But that fame is mercenary, fleeting and fickle.

You can't let yourself be drawn into a race to the bottom, especially this way.   If your area is really competitive, I get that.  Man, do I ever get that.   But you're cutting your own throat and screwing your angel customers, and that won't last.  Magic won't be red hot forever, and the day you close, all those grinders who loved you will rattle your door handle for thirty seconds, shrug, and move on to another store.

Angel Customer -- Now you know the truth.  If you're playing at a store that pays out more than 100%, I hope you win a lot, because the store is underwriting that prize structure out of your wallet.  They may not realize how unfair it is for them to do this, or else they know full well and they're playing you for a sucker, hoping you won't notice.  The store will make you feel like a celebrity, just like the grinders make the store feel like the cool place to be, but it's illusory.  They hope you don't take your money somewhere else, where you and only you get the full EV of it, whether you win or lose.  If their respect for you was real, they wouldn't be the middleman conveying your money to the grinders.

I regret and hereby apologize unconditionally for every single tournament where my store paid negative escrow, especially now that I realize how unfair it was to you.  When I came to the understanding of how toxic the practice was, I ended it in my business forever.  I've lost a lot of angel customers over the years and I realize now some of them probably got tired of being the main contributors to the grinder economy.  If so, I deserved to lose them.  If I ever earn them back, they will be doing me a kindness.  I strive to treat my present-day angel customers right.

Grinder -- This article hasn't been kind to you, and that's a little bit unfair too.  I've said before that a customer's preferences are neither right nor wrong, but just a pattern of behavior, and it's up to store owners to adapt to it.  The difficulty level comes in because grinding for EV is a level of action that it is not beneficial for a store to service.  You can hardly be blamed for making hay where you can: you know you have store owners eating out of your hand and willing to pay you money.  Maybe they're in distress, maybe they don't realize what they're doing to themselves, maybe they even think they're in on the deal with you -- an illusion they'll be broken of when the next new shiny store opens up five miles away and promises you the moon in order to get their numbers for Advanced Plus.  Whatever the reason, you are justified in accepting money freely offered to you.

But stay with me just a little bit longer here.  Look: I don't have a problem with you being competitive.  I dig that all the way, that's the side of the game I came from, I used to be a DCI Level 3 Judge, been there done that.  I do have a problem when your desire to make money playing Magic has a negative impact on the player community.  I rejoice for the day when you discover that doing almost any other labor with your time will pay you considerably more in virtually all cases.  Look at the top pros, and notice how most of them finished school and got decent jobs and earn more in an hour at work than they could grind in a month going 4-0 at a local Friday Night Magic.  When they play, it's a pure game, and the stakes don't figure in until they're on a greater stage.  You say you want to be like them, and that's great!  Go with good fortune.  Finish school, get that job, and become a player who focuses on superior play, not on the fingernail of local-level EV.  You'll be a lot happier, and so will everybody else.

And if it really is just about the money and nothing else and you are absolutely determined to play cards to grind for that money, go play casino poker or blackjack and become an expert at it.  That's what casinos are for, and you wouldn't be the first Magic player to strike gold at poker.  Why waste your time here, in an industry that is going to resist your preferences at every turn, except where it facilitates your needs and then falls on its own sword in doing so.  Just step up to the big leagues.  Nobody plays poker for love of the game theory.  They play for money.  If you want money, get good at playing casino card games.  The casino is where your heart already is anyway, whether you ever reflected on it or not.  That guidance is my gift to you.

That's it for this week!  Next week I'll put a holiday spin on my observations from within the comic and hobby game trade, and I welcome you here Tuesday morning for your Backstage Pass to the festivities!

* In fact, I welcome scrutiny, provided it's fair and even-handed, and everyone incurs it.  I'm one of the more transparent store operators I know -- witness this blog, for example -- mainly because I've learned that in order to grow to a healthy long-term size and scope, you need to have defined processes, delegation, and workflows that scale, and you just can't do that and be keeping secrets.  Too many people need to be taught how things work.  If you're burying bodies out behind the dumpster, the employees with the shovels are gonna figure out that it's not just rolls of carpet they're carrying.  So you run a clean store with clean books and clean money protocols and fair policies and rules, and you don't apologize for making a living off the single-digit-percentage profits from that.  There are things I keep confidential, but operational methods have to stand up in the light.


8 comments:

  1. Well written. I fully understand your point of view and support it fully. I've never understood why anyone thinks that they have to be paid for entertainment. I don't recall anyone expecting to make money because they went to a movie or a concert. Honestly, I'd love to find a store that took in $5 per player and only $1-2 went to the prize pool for each of them. You know that store is going to be healthy for a long time and will value you more as a customer. They're more likely to have demo days where customers can come learn more about other games. They're more likely to have fun "freebie" events where everyone can come play casually and still have fun (you know, fun...that thing that so few people seem to want to have when playing Magic these days).

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  2. Hi there! I'm a local, but haven't actually been to DSG yet -- probably will end up coming there once PPTQ season is upon us again at some point.

    Just to say this up front -- I personally believe 1:1 is appropriate, and I really don't care whether sales tax is on the tournament or on product, it comes out in the wash. I generally agree with the sentiment of this article.

    I've been a grinder in a number of places over the years, and I think one thing you don't note in terms of the social contract is the good things grinders bring to your store outside of strictly business. The main thing a good grinder should bring to your store is a genial predisposition and willingness to help things be run smoothly. Generally, this means teaching newer players, both how to play Magic, but also how to be good sports. They speak up for the playerbase to management about things besides payouts, too, like what sorts of tournaments should be run.

    Anyways, as your article mentions, someone who's worried about squeezing every ounce of EV out of this community has mistaken what playing Magic is about, and should go to the casino. But having good grinders in your shop should be beneficial in the long run for everybody, so I'd say if you can attract them without damaging your store's "staying in business" money, you should. But yeah, this boom of stores does seem like it's predicated on a level of demand that won't persist forever.

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  3. Hi and thanks so much for commenting.

    Frost - I do agree, in fact having free events isn't actually a bad thing at all, even from a business perspective. Negative escrow by itself isn't even necessarily toxic. It has to do with the expectation that is set, and what is being promised for what. I think a lot of readers may have assumed more than I actually wrote, that I had some fundamental objection to big prizes and meaningful stakes, or to competitive play. I am perfectly OK with both of those things, it just has to be in a healthy ecosystem. As you observe, it's entertainment.

    Cat - You raise a good point and I'll gladly credit it. Competitive players who are personable and friendly do improve the store's play environment. They help with teaching players the proper etiquette and as you say, they're part of keeping things running smoothly.

    The boom is the X factor right now, stores are opening so fast people can't even keep up with it, and what does the new store that's exactly like the last one bring to the table, if not a higher payout? And then another new store comes along. It escalates.

    I'm always delighted to service competitive players who don't have any moral objection to my running OP at 1:1, and who are able to keep in mind that fun is the primary goal of the host venue. A lot of my regular players are like this and I'm deeply grateful for their business. :)

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  4. I like your article very much. I come in thursdays and play EDH and sometimes other times and buy things. I like you store. It isn't perfect but it is nice. Especially the recent improvements in customer service.

    I think a store has a responsibility to stay in business. I also understand that anytime the store pays out more than it takes in that money has to come from somewhere. I think that the best thing a store can do is be as transparent as possible. The next best thing is be honest and fair. Your store is these things in spades and I salute you for it.

    Keep doing what you do and I'll keep driving 45 minutes to play and buy things. I think the store should turn a profit. And I understand how difficult that must be right now.

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  5. Since you're all about equity, and promoting such via your 1:1 prizing, I assume you allow people to spend their winnings (via credit) on items at your cost, not your marked-up price, right?

    If you spend $20 on a Facebook ad, is that also "negative escrow"? No, it's a marketing expense. Sometimes it will result in $40 in extra sales. Sometimes it will result in $10 in extra sales. Either way, there's no social contract broken. In the case of the $40 in extra sales scenario, do you rebate the profit to your customers? Of course you don't; no one would expect you to. It's a for-profit business in which you are trying to find methods to generate the highest profit possible (and if you're smart, you're looking at the long-term, not just this week or this month's ledger). If you don't want to compete over prizes, that's fine - it may even be the correct business decision - but please don't complain about your competitors' choices. Either find another way to compete (better selection, better comfort in the gaming area, as a couple of examples) or if you're sure your competitors are making a mistake, wait for them to go out of business and reap the benefits.

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  6. Thank you both for commenting!

    Unknown - Very glad to hear it, I'm delighted to have you at DSG and if at any time you aren't having a great experience I hope you'll reach out to management, either Patrick at the store or me online. I do try to be extremely transparent, honest, and fair, and it's nice to have it get noticed. Thank you!

    Tracey - Even though your comment is critical, I approved it anyway because I think it's fair to have a reasoned discussion. You've made some assumptions (and you aren't the only one to make them) that I'll address at greater length in next week's follow-up article.

    DSG competes on selection and price, and business is just fine; this blog is a way of paying forward all the business education I got from other store owners in the past, to those stores that are struggling to get underway and run solid, healthy businesses. Although I welcome anyone to read the articles here, they're primarily addressed at a readership of others in the trade. However I do respect that many customers read it too.

    Advertising is different and has nothing to do with OP payout escrow; that might be a great blog article in and of itself. The purpose of advertising is to generate new arrivals, while the purpose of organized play is to generate retention business. In short, OP is where stores service the existing client base, while advertising seeks to grow that client base. Attrition will always winnow away the competitive players. They get older, get married, have kids, drift away from the game. Not all of them, but enough of them. There has to be new blood cycling in or the store withers away. A healthy store always wants to be finding new faces, new people who are just getting into hobby games and comics for the first time, and who can feel at home in the first store they are welcomed.

    There's more in your comment I'd love to visit but I'm going to hold off until I can do it a little better -- and answer a lot of similar comments in the process that I've seen from around the net -- next week.

    Thanks for visiting!

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  7. Tracey - I just realized I didn't answer your other question. So what does the store do with the store credit margins.

    In terms of using credit, DSG accepts it same as cash for purchases of anything. We don't like devaluing our credit. What that means is that it is most often used on the lowest margin item possible. Usually this is booster box pre-orders for new sets, which are discounted 30% or more prior to release. It's true that a player might spend their credit on singles, but the store has to assume it will go to the lowest possible margin item. After taking into account transaction costs and some tiny amount of labor, each tournament dollar paid in, then, only contributes 15-20 cents to overhead. Much less than a walk-in-buy-product-take-it-home transaction.

    That 15-20 cents, or however much, ends up offsetting to some extent the cost of the ~1000 square feet of game space that has tables and chairs in it, but no product, and no other way of directly producing revenue, but that I still pay full rent on. This is part of why so many LGSes open in cheap locations, it's the only way to avoid being hammered by that cost.

    Some stores cite staffing costs here, but I don't see that as the biggest obstacle. My staff has no trouble running several pods of draft and multiple constructed events at a time, this is a workflow most stores are fairly proficient at these days. For the entire night of business, labor is a significant cost, but on a player by player basis the amount is very small.

    That's a very simplified version of the tournament math, but hopefully it reaches your question and illustrates that whatever marginal gain is accrued from paying out in store credit for tournaments at 1:1, simply offsets some of the costs of having organized play in the store at all, versus just running a conventional storefront. Nobody among the ownership is driving a rocket car back home each night to a solid gold house. :)

    Thanks again!

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  8. Love your blog. Recently two tucson based stores folded. And after reading you blogs i see the signs where there. Folks coming in and never buying anything. Or instead of buying drink from the store they head across the street for circle k.

    And with the stores closing folk cried about losing a place to play. And i explain maybe id they supported yhe FLGS more then amazon they still have a place

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