In October, 2019, multiple Magic: The Gathering sets will rotate out of the current Standard format card pool. Each fall, a few sets rotate out of Standard to update the format. An article on Card Game Base explains the 2019 Standard rotation. The specific MTG sets rotating this fall are Ixalan, Rivals of Ixalan, Dominaria, and Core 2019.
In my previous article, I evaluated the investment potential of former Standard set booster boxes. I looked at their historical prices over time to determine growth, profitability, and investment potential. In this article, I will attempt to forecast the future prices and potential returns of Standard set booster boxes rotating this fall.
There are multiple techniques one can use to forecast the future of a product's price and demand. This detailed article on forecasting techniques covers qualitative techniques, time series analysis, and causal models. I did a simple time series analysis to forecast booster box prices over the next year. The data used to predict and analyze rotating Standard booster boxes can be downloaded here. I referenced the worksheet titled October 2019 for this analysis. Data from my previous article is included under the October 2018 worksheet. The data and calculations found on the October 2018 worksheet can be used to establish a basic average growth rate for forecasting future booster box prices.
Evaluating Current Booster Box Prices
Before going into further details, I need to make an assumption that all rotating fall set print runs have ended. While I have no hard proof this has occurred, I believe it is a safe assumption at this time. As long as booster boxes are printed to current demand, their prices will remain fairly stagnant. In addition, this analysis assumes booster boxes were purchased at a low retail price of $80.00. This price is reflective of the cost from a distributor. In addition, some businesses sell booster boxes of Standard sets at their cost to move inventory. There are other methods of buying close to distributor pricing as well. The below graphic shows rotating booster box average market prices on Ebay for August, 2019.
It is interesting how much people are paying for a booster box of Dominaria. The other sets are selling for around the expected retail price of a Standard booster box. Why is Dominaria worth much more money than the other rotating sets? While I cannot provide specific evidence, Dominaria does have a few special qualities. It is considered one of the best drafting sets in recent history. In addition, the nostalgia of the set brought back many former MTG players to the game. Half of the players I spoke with at the pre-release came because they wanted to play with Llanowar Elves, Goblin Warchief, Icy Manipulator, and other iconic cards. I believe these qualitative reasons are reinforced by the lack of expected value (EV) from opening a booster box of Dominaria.
Next, I compared current booster box prices to the EV of each set found on MTG Dawnglare using the default TCGplayer Mid pricing. The set EV and booster box prices do not correlate well. Dominaria booster boxes are selling at two and a half times their set EV. Rivals of Ixalan has the highest set EV and the lowest booster box price. There are other factors beyond set EV affecting current booster box prices.
Forecasting Future Booster Box Prices
I used formulas combining set EV, booster box pricing, and a historic average monthly growth rate to forecast future price movement. First, I divided the current market value of a booster box by its set EV to get a percentage. This basic formula combines the present market prices and underlying value together. For example, Ixalan's booster box price of $90.00 divided by $56.12 equals 60.4%. After establishing the percentages across four sets, I wanted to apply known historical information. I multiplied the calculated percentages by the average monthly growth rate of the six previous Standard set booster boxes. The result from this calculation gave me adjusted average growth rates for each set rotating in October, 2019. As an example, Ixalan's adjusted average growth rate became 1.07% after multiplying 60.4% by 1.78%. Finally, I multiplied the average monthly growth rate by the number of months for the hold period and added $80.00 (price paid for a booster box). The results showed that Ixalan and Dominaria were likely profitable one year from now after applicable shipping and fees. Another point worth noting is that anyone who bought Dominaria booster boxes at $110.00 or less would likely make a profit. However, buying it now at the current market price of $120.00 is a risky bet.
Accuracy of a Forecast
This analysis is just one method to predict future price changes. While the future prices seem reasonable, the model is not without flaws. I am assuming that current market conditions do not change over the course of a year. If there is a global recession in 2020, it could negatively affect future growth rates of booster boxes. In addition, the logic is based on the accuracy of my historical booster box monthly growth rate average. If I wanted to test this number for accuracy, I could add additional data for previous Standard sets to the historical analysis. While my data analysis is not perfect, I hope it provides some insight in understanding forecasting models.
*The information in this article is of my own knowledge and opinion. It is meant for informational purposes only. I am not a registered financial professional or trying to act as one.*
In Magic: The Gathering, Standard format booster boxes contain 36 packs of trading cards. Each pack contains 15 individual cards with one at the rare or mythic rarity. In addition, there is a 1:67 chance to open premium foil versions of cards (changed to 1:45 in Core 2020). Some of the older sets also contain foil lottery cards with unique art. MTG Dawnglare is a website that tracks the average estimated value (EV) of MTG sets and individual packs. The set EV on MTG Dawnglare is calculated by multiplying a set's current pack EV by 36. In other words, this EV is the average expected value found in a booster box. EV can change over time as individual cards in a set move up and down in price. Booster box market prices can differ from set EV. This is because other factors, such as supply and demand, can impact booster box market pricing in addition to set EV.
Current Prices for Rotated Standard Booster Boxes
In this evaluation, I am covering sets that rotated out of Standard in October 2018. You can download a copy of the data file here. The reason for using rotated Standard sets is because current Standard booster box prices remains fairly constant while they are printed to demand. I am rounding box prices to whole numbers for the sake of easy math. The following graphic shows current market prices for sealed booster boxes of previous Standard sets.
The average sale price for Shadows Over Innistrad and Hour of Devastation is $90.00. Amonket is selling for $95.00. There is a large gap between the prices for these sets and the others shown. Kaladesh, Aether Revolt, and Eldrich Moon are selling for $180.00, $140.00, and $165.00 respectively. What I find interesting is the market price of a sealed booster box compared to the value of its contents. Sealed booster boxes carry a price premium relative to the EV of individual packs. A few reasons why players would pay a premium for out of print booster boxes include drafting, collecting, and investing. To understand if current booster box pricing is warranted, I compared it against the set EV. I used the default set EV values on MTG Dawnglare, which references TCG Player Mid. The following graphic shows these comparisons.
The gold line across the graphic shows the average July booster box prices on Ebay. The blue bars show current set EVs. The biggest takeaway from this graphic is where the gold line is respective to the top of each set's blue bar. Compared to other sets, Aether Revolt and Hour of Devastation booster boxes appear underpriced. On the other hand, Kaladesh and Eldrich Moon booster boxes appear overpriced. Since the sample size is small, I would look for other data to support selling Kaladesh booster boxes and buying Aether Revolt booster boxes.
Analyzing Rotated Standard Booster Box Growth and Profitability
When looking at current prices, all of the rotated Standard booster boxes have appreciated in value over time. Shadows Over Innistrad, Amonkhet, and Hour of Devastation have increased the least. They also have the lowest values among set EVs. The monthly average growth of the top three booster boxes far outpace the bottom three. Since their release, the average growth per month of the top three booster boxes has been $2.00 or higher. This equates to an estimated 12 month return of at least 30.0%. However, the growth of these boxes most likely occurred toward the end of their print cycle through today. If you assume booster boxes remained at $80.00 while in print for the first 12 months of availability, then the average growth per month would be higher than $2.00.
While 30.0% is a strong return, it is not necessary the net return on booster boxes. Since booster boxes are physical assets, you must mail or personally deliver them to a potential buyer. If you use an online platform to sell your booster boxes, a transaction fee is typically charged. In this evaluation, I used the USPS Priority Mail Medium Flat Rate Box as the shipping method of choice. This box, with a commercial price of $12.80, can ship one booster box anywhere in the United States. You may find cheaper rates through other delivery methods or utilizing a business account. I also calculated the fees for selling on Ebay as 12.9%. This includes the 10% Ebay fee and 2.9% Paypal fee. I purposely omitted the $0.29 additional transaction fee on Paypal for simplicity. When adding together the shipping costs and fees, you can expect a minimum transaction cost of $24.41 on a $90.00 booster box through Ebay. Unfortunately, these costs equate to 27.1% of the sale price. This high percentage means that selling one booster box of Shadows Over Innistrad, Amonkhet, or Hour of Devastation is unprofitable on Ebay. You would need to sell these booster boxes locally, through other Internet platforms, or as a bundle with discounted shipping to earn a profit.
I calculated the breakeven amounts for selling booster boxes on Ebay. In order to earn a profit of 0.0% on an $80.00 booster box, you will need to sell it for $106.54. This is essentially a 33.2% return on investment. If you paid $90.00 for a booster box, you will need to sell it for $118.03 to net 0.0% profit. The return on investment at 0.0% on a $90.00 box is 31.1%. It is clear in these calculations that shipping prices are detrimental to profit margins. Every $1.00 saved on shipping costs for a $90.00 sale price will lower your transaction costs by about 1.1%. For example, a $3.20 (20%) savings on shipping results in a total transaction cost of 23.6%.
However, selling one booster box at a higher price point can yield higher returns. Shipping is arguably a fixed cost since each Standard booster box has the same size and weight. The net return on selling a Kaladesh booster box on Ebay at $180.00 is 80.0%. Eldrich Moon's net return is 63.6% followed by Aether Revolt's net return at 36.4%. Assuming you sold one of each $80.00 rotated Standard set booster box on Ebay to different buyers, you would have earned a net profit of $105.16 or 21.9%.
Risk and Opportunity Cost
Investing in booster boxes is not without risk. Supply and demand for these collectible products have an affect on prices. In addition, booster boxes are physical assets that must be stored and protected. Any accidental damage to a sealed booster box can negatively impact its value. Other investment vehicles can be purchased digitally to avoid additional risk from physically holding products. However, the riskiness of holding booster boxes can pay off with potential double digit returns. Investment vehicles with little risk, such as Certificate of Deposits and Money Market accounts, would produce lower returns than the evaluated booster boxes in totality.
Current CD rates on Bankrate show the annual percent yield (APY) offered at one and two years fall between 2.50% and 2.70%. This article on the balance highlights the returns of other risky investment options over 10, 5, and 3-year time periods. I want to draw attention to the 3 year returns since the average hold period in the evaluation was 2 years and 8 months. You can see that the only investment vehicle with similar returns to the overall rotated Standard booster boxes was the S&P 500 Index. While I do not know the true risk level for MTG booster box investing, I would compare it to riskiness of purchasing stocks. My takeaway is that the evaluated booster boxes outperformed other investment vehicles with less riskiness.
Before investing in any type of product, I always think about my level of risk tolerance. Booster boxes do not seem to be a short-term investment (under a year). While they appear relatively easy to liquidate, the transaction fees can be steep. However, the returns calculated in this analysis match closest (after estimated fees) to the S&P 500 Index during a similar time period. Due to the overall results of this evaluation, I believe MTG booster boxes can be a profitable investment vehicle when held in a diverse portfolio.
*The information in this article is of my own knowledge and opinion. It is meant for informational purposes only. I am not a registered financial professional or trying to act as one.*
Over a 10 week period, I bought and sold 33 different Magic: The Gathering cards. In a previous article, I recapped some of the hits and misses after selling a majority of the cards. The final cards I was holding were likely to lose money and lower the overall profit. I ended the speculation test after attending the Star City Games Summer Convention in early June, 2019. This event was an opportunity to sell off any remaining speculations without incurring shipping costs or seller fees. In the final article of this series, I will review the overall performance and my thoughts regarding the test. A copy of my updated speculation sheet is available here.
I believe it is important to understand how to evaluate and measure performance. One method of evaluating an investment is by comparing its performance against a similar investment. However, I do not have specific information on the performance of other MTG speculation portfolios. Another option is to compare the performance of an investment against other investment opportunities. In my Masters of Business Administration program, we often use the S&P 500 market index as a benchmark for comparing an investment's performance. While the S&P 500 is not a collectibles market index, it is an alternative investment to MTG cards. I will use this market index to evaluate my speculation test performance.
The speculation test ran from April 3, 2019 to June 10th, 2019. An article on Seeking Alpha used a Monte Carlo simulation model to predict a 2.38% increase for the S&P 500 over the second quarter. Using this forecast as a baseline, I should expect my speculation test to achieve a profitable return higher than 2.38%. Otherwise, it would be a potentially better alternative to put $188.11 in a S&P 500 market index fund. I would like to note that this assumption does not account for the time it takes to buy and sell cards. Personally, I would goal a higher return than 2.38% to account for the additional opportunity cost of my time.
Between April 3, 2019 and June 10th, 2019, the S&P 500 increased by 13.33 points for a 0.05% gain. When looking at the entire second quarter, the S&P 500 increased 93.13 points for a 3.3% gain. The S&P 500 did not beat the forecast for my speculation test's time period, but it did beat the forecast for the entire second quarter. I will compare my speculation test results against the total quarter gain of 3.3% for the S&P 500.
Overall Performance Results
The speculation test consisted of cards bought for purchase, personal use, and with a promotional discount. I will share the overall performance results including and excluding certain cards to show their impact on net profit.
Overall Performance Including All Cards with and Without the Promotional Discount
The total purchase price for all cards was $188.11. The net profit of all cards was $20.06 or 10.7%. By adding in the credit card kickback of $2.71, the adjusted net profit is $22.77 or 12.1% A promotional discount of $6.56 was applied to Queen Marchesa and Lux Cannon. Adding back the promotional discount results in an adjusted total purchase price of $194.67. The adjusted net profit changes to $13.50 or 6.9%. Applying the credit card kickback of $2.71, plus 1.5% of $6.56, the net profit adjusts to $16.3 or 8.4%.
Overall Performance for Sold Cards
The purchase price for only cards sold was $166.64. The total net sales for the group of cards sold was $186.70. This sales total resulted in a net profit of $20.06 or 12.0%. Adding in the $2.39 credit card cash rebate at 1.5% results in a total net profit of $22.45 or 13.5%. This was my maximum return when looking at only cards that were bought and sold. By excluding the credit card kickback and removing the promotional discount of $6.56, the adjusted net profit is $13.50 or 7.8%. Adding in the credit card kickback, plus 1.5% on $6.56, results in an adjusted net profit of 15.98 or 9.2%.
Reflection of Overall Performance
Using the lowest calculated net profit margin of 6.9% (or 8.4% with credit card kickback), the speculation test performance beat the S&P 500 return during the same time period. In addition, I was able to earn enough money from the sales and kickback to cover my initial investment. The kickback of 1.5% helped raise profit margins by offsetting some of the purchasing costs. In totality, net profits and kickback covered the costs of the MTG cards I bought to keep.
One important component I have left out is the consideration of time. I spent many hours researching, buying, shipping, and selling cards. The amount of money I profited was not enough to make even half of minimum wage. If I had bought multiple sets of each card, I may have been able to make enough profit to cover my investment of time. I believe it is important to rationalize the amount of potential profit per hour of time. In the future, I would consider speculating on more expensive cards and purchasing sets that could sell for $25.00 or more on Ebay. Another point to consider is how much time it takes in other investments to produce the same amount of profit. Buying and selling shares of index funds over the Internet through a brokerage firm is less time consuming than handling MTG cards. While it is hard to compare the various investment risks, I do not have to worry about shares of index funds getting lost in the mail.
Market Watch provides statistical performance for the S&P 500 for various time periods. Looking the one year performance for the S&P 500 on July 7th, 2019, the index gained 9.27%. I believe this percentage is important as it sets a general benchmark for holding long-term speculations. If I was purchasing singles to hold for a year, I would only consider cards that had the potential to earn a net profit higher than 9.27%. Otherwise, I would consider investing my money in the S&P 500 index.
Regardless of the speculation test results, I had fun buying and selling MTG cards for a profit. There is a feeling of accomplishment calling a speculation target correctly. I also enjoyed compile data together to determine if a card was a strong speculation target. While my choices were not always right, I did have more success than failure.