Magic: The Gathering Finance Part 1: An Introduction and Analytical Test For Speculating on Collectible Trading Cards
Magic: The Gathering finance has become a hot topic among players interested in earning a profit from buying and selling collectible trading cards. Trying to understand a collectibles market driven by supply and demand is not always easy. Thankfully, there are resources available on the Internet to help with navigating the dynamic market. The popularity of MTG finance has risen thanks to MTG finance related podcasts and YouTube channels such as MTG Fast Finance, Cartel Aristocrats, and Alpha Investments. One of the points made by many of the podcast and YouTube personalities is that they understand speculating comes with inherent risk. There are plenty of stories and videos of people trying to invest in MTG products to turn a profit, but come up short.
Speculating involves long and short trading. A long trade is when you buy a trading card today with the intention of selling it later at a higher price. This type of speculation is more common than shorting in MTG finance. You can conceptually make a short bet on a trading card by selling it today with the intention of buying it back later at a lower price. I recently buylisted a copy of Vivien Reid from Core 2019 to an online vendor for $24.00 on March 13, 2019. The current selling price for a near mint copy on April 17, 2019 is $18.99. After free shipping and sales taxes, I will come out ahead if I purchased it back.
In my opinion, one of the issues with the MTG financial market is the imbalance of long and short trading. Think about how many articles and videos you have seen recommending to buy a card instead of selling a card. It is common knowledge when a Standard card will lose value from rotating, but there is much more uncertainty surrounding the timing of a reprint. Often times, people will buy cards that work well with a new reprint by betting that demand for a complete deck will rise. An imbalance in market trading can also give rise to market manipulation. Unfortunately, the MTG market is susceptible to manipulation through card buyouts. It does not take a large sum of money to buy all of the quantities of an older card from online vendors and websites. A buyout will drive up the price of a card to around the last known purchase price. Sometimes, these buyout price changes are temporary and the card will retrace back to a level close to its pre-buyout price. More often than not, the prices will hold at the new price or somewhere between the two. It is even easier for a group of people to work together and target a specific card. I encourage you to be aware of buyouts and how they may impact your decision making.
I am taking on the challenge of understanding the feasibility for an average player to make money on collectible trading cards. My goal is to maximize the cash return from speculating. I plan to use any profits to offset my recent, non-speculative purchases. This multi-post series will use a real-life speculating test to understand the barriers of entry, costs associated with speculating, outlets to sell products, and tactics for spotting trends in the market. I will analyze different steps in the process of buying and selling cards through public transactions across multiple websites. While I believe it is possible to make money speculating, my hypothesis is that the potential profit margin will not be worth the investment of time for the average player.
Speculation Spreadsheet Available
To begin my MTG speculation test, I purchased almost $200 in MTG trading cards from TCGPlayer, Toy Wiz, and Ebay. My speculation choices did not come from any form of paywall related to a website, Patreon, or insider information. I made choices based on information available to anyone with Internet access. I created an Excel spreadsheet to track my buys and costs associated with acquiring different MTG cards. You can download a copy of my speculation spreadsheet here. I encourage you to use it and follow price changes throughout this test.
Understanding Upfront and Selling Costs
Before analyzing my speculation picks, I wanted to understand the upfront costs of acquiring MTG cards. The fees associated with shipping and sales tax greatly impact the profit margins associated with speculating. When purchasing cards over the Internet, I incurred an average of 10% in additional costs between shipping and state sales tax. These costs were spread among the cards in each relevant transaction. Not only do I have to sell these cards later at a higher price, but I also have to cover the 10% fee hurdle.
Another cost incurred was my time to research and buy MTG cards. I spent a total of four hours researching and finding the lowest prices available. There is an opportunity cost of spending time purchasing cards instead of working another job or meeting up with friends. Opportunity costs exist in many forms of financial investing. When you decide to save money for retirement instead of spending it today, you are making an opportunity cost decision. This test will mainly focus on the cost of time versus potential profits in sales dollars. How much money do you expect to make for investing X hours of time on speculating? This is a question you should ask yourself before investing in MTG cards.
The third cost associated with speculating is when you sell a card. While different selling platforms have various fees, Ebay charges a 10% to 12% fee for sold listings. In addition, PayPal charges a $0.29 base fee plus 2.9% of the transaction. While the Paypal fees can vary based on your account and sales volume, I am using fees that an average person would pay. Shipping an item with a stamp, hard case, and envelop will run you 55 cents plus materials costs. If you need to use a padded envelop with tracking, PayPal offers a discounted rate starting at $2.67. I added all of these costs together and came to an average of 25% of my final sale price per card. This percentage can fluctuate depending on the sale price of a card and distance it needs to be shipped. If you sell a card at $50, the fees will be a lower percentage than another card sold for $20 assuming both were shipped with tracking and no insurance. I found that selling a card for $7.50 on Ebay is the lowest sale I can make to mail with a stamp. Anything lower than $7.50 will cost me higher than 25% of the final sale price in fees. I would be better off pooling multiple copies of a card together as one transaction, buylisting, or selling locally. As for tracking, my lowest sale price for Ebay is $25. I should only mail cards sold over $25 with tracking and a padded envelop. One other risk of selling online is shrinkage from becoming lost in the mail or buyer discrepancies. At a minimum, you should expect a loss of 1% of your total transactions. For example, if you average $20 per card across 100 transactions, you will incur $20 in unforeseen losses. Keep in mind that shrinkage affects your bottom line profit margins.
My overall transaction costs were estimated at 35% of the total MTG card costs when buying and selling online. These costs decrease when using a vendor buylist, but you should expect a lower cash offer than if you sold cards directly to a buyer. Also, I did not add in a cost for the time it takes to research, purchase, or sell cards. You should try to find ways to lower transaction costs by receiving free shipping from online orders, buying cards locally from other people, and taking advantage of discount promotions whenever possible.
In part 2, I will explain the benchmarks surrounding my card choices and the expected hold periods. I will also touch on different ways to lower transaction costs and purchase prices.
*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.*