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Magic’s Economics — Actual and Expected Values

By Kelly Reid ⋅ October 1, 2009 ⋅ Post a comment ⋅

Hey every­one!

Wel­come to Quiet Spec­u­la­tion’s inau­gural arti­cle on Man­a­na­tion. I’m Kelly Reid, founder and edi­tor of QS.com. If you’ve seen my columns or read my site lately, you’ll have a pretty good idea of what to expect in the com­ing weeks. If not, you’re in for a treat. I started Quiet Spec­u­la­tion this past spring with the intent of being the best finan­cial resource for Magic play­ers on the inter­net. I wanted it to be impar­tial, with­out the sway of any one dealer or retailer, and I wanted to teach Magic play­ers how to get the most out of their money dur­ing dif­fi­cult eco­nomic times.

I’ve been play­ing the game we love for over 15 years. I began with a Revised starter deck in which I opened an Aladdin’s Lamp and a Mahamoti Djinn. The sec­ond piece of Magic para­pher­na­lia I ever bought? A Scrye mag­a­zine, for the price guide. Since day one, I’ve been fas­ci­nated by the sin­gles mar­ket of Magic the Gath­er­ing. Strat­egy arti­cles are abun­dant — I can­not offer you the hottest ‘tech from the front lines of the Pro Tour, but I can offer you a unique per­spec­tive on the nuances of buy­ing, sell­ing and trad­ing Magic cards. After all, this is a col­lectible card game!

Before jump­ing in to advanced top­ics like pre­dict­ing trends, spec­u­lat­ing on pre-orders, and for­mu­lat­ing trad­ing strate­gies, I’d like to take the first few weeks to lay down some core con­cepts. For the more math­e­mat­i­cally minded, bear with me. It’s impor­tant to build fun­da­men­tals so that when we dis­cuss some of these con­cepts down the road, no one is left behind.

The sin­gle most impor­tant con­cept in Magic finance, and pos­si­bly in Magic itself, is the con­cept of Expected Value “EV” is a term you’ll hear often when read­ing or dis­cussing Magic. The con­cept of EV is slightly ethe­real. EV is not a rep­re­sen­ta­tion of what has hap­pened in the past, nor is it a mea­sure of what will hap­pen in the future. Those are very con­crete con­cepts, but EV is more abstract. The best way to explain this is through the anal­ogy of the booster pack. Assum­ing a nor­mal booster pack dis­tri­b­u­tion of 1 rare, 3 uncom­mons, and 10 com­mons and set­ting aside Mythics, foils and ‘Price­less Trea­sures,’ any player can see where the value is gen­er­ated in these packs. It comes from the Rare slot. The first thing most play­ers do when they bust open a pack is check the rare, so let’s set aside the rest of the pack and focus only on the rare.

With­out get­ting too bogged down in num­bers, let’s say you open a sin­gle pack. Your rare is one of the 20 dol­lar Fetch Lands (Arid Mesa or Ver­dant Cat­a­comb for exam­ple.) After you do a lit­tle dance, you can cal­cu­late that your EV for that pack was 20 dol­lars. Not bad for a pack that retails at just four dol­lars! So you open a sec­ond pack to find an anony­mous “Crap Rare”. For argument’s sake, let’s call its value a dol­lar. So now you’ve opened 21 dol­lars of cards in two packs. Your sam­ple size is 2. Your actual value is $10.50/pack. Add another pack with a junk rare, your sam­ple size increases to 3 and your Actual Value falls to a hair over 7 dollars.

In the above exam­ple, we’ve played around with Actual Value. Expected Value is a lit­tle less con­crete. Let’s say that you are able, through some for­tu­nate cir­cum­stance, to open an infi­nite amount of Zendikar packs. The exact num­ber is unim­por­tant — the more packs you open, the closer to your EV you will get. EV rep­re­sents the aver­age value of a pack over a sta­tis­ti­cally sig­nif­i­cant sam­ple size. Remem­ber, sam­ple size is just the num­ber of “exper­i­ments” you per­form. In the case of open­ing booster packs, an exper­i­ment is a sin­gle booster pack. Open a case worth of packs (216 packs), you’ll get closer to your cal­cu­lated EV than if you open a sin­gle pack. If the EV of a set is higher or equal to its retail price, there is a very good chance you can make money by order­ing sealed prod­uct in bulk.

EV is a very impor­tant con­cept when eval­u­at­ing a new set. Magic 2010 was a fan­tas­tic set for open­ing sealed prod­uct. The dual lands, the mythic rares and the high-dollar non-mythics all com­bined to make the expected value of a booster pack about four dol­lars upon release. Zendikar is slightly less lucra­tive, falling some­where in the mid-three dol­lar range. The EV of a set will help you deter­mine if your boost­ers are worth open­ing or if they’re worth sav­ing for drafts at a later date. For ref­er­ence, the major­ity of Alara Block packs never passed 2.50, whereas Lor­wyn through Even­tide man­aged to aver­age in the high 2’s. It’s clear, then, that if you have a choice of what packs to open, you should be open­ing M10 or Zendikar.

Vari­ance is con­cept that is directly cor­re­lated to EV. Some sets have a high dis­tri­b­u­tion of mid-range rares, whereas some sets (like Zendikar) have a few very expen­sive cards and a lot of crap rares. Sets where there are many mid-range rares are said to have low vari­ance — that is to say that while a given pack may not con­tain a “home run” card, it is likely to return a card of above-average value. A high vari­ance set means that the major­ity of the value is con­densed into a few chase cards . Over the long run, vari­ance doesn’t really effect EV. If you are open­ing a large num­ber of packs, it makes lit­tle dif­fer­ence whether your value is dis­trib­uted over many packs or con­tained in a few “home run” packs.

The con­cepts of EV and Vari­ance are only a few of many that you will need to under­stand to become the best trader you can be. Just like man­ag­ing a mana base, man­ag­ing your resources when col­lect­ing cards is vital to your suc­cess. The first step to under­stand­ing resource man­age­ment is under­stand­ing when to open sealed prod­uct. So hope­fully this primer on EV has given you the tools you need to make an edu­cated decision.

Next week we’ll explore the wild world of spec­u­lat­ing on cards and dis­cuss what to look for when eval­u­at­ing “sleeper rares”. Until then, make sure you’re always look­ing for the high­est expected value in every play, trade or pur­chase and we’ll see you next week!

Kelly Reid, editor of financial news site http://www.quietspeculation.com, has been playing Magic the Gathering since 1994. With 15 years experience in the game, his goal is to teach others to fund their gaming through proactive speculation and intelligent trading.

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