Magic’s Economics – Actual and Expected Values
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!