If you’re at all tuned in to the Magic community, you’ve probably heard a lot of things like this lately:

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It sounds a little hyperbolic, but it isn’t that far off. Booster prices on Magic Online are lower than they have ever been, with the value of a draft set of Dragons of Tarkir/Fate Reforged falling to 6.2 tickets last week. As a result, many Constructed queues aren’t firing, and when they are, players who win are often finding the prizes are worth less than their entry fee.

Things are definitely bad, but how did they get to this point? In this article, I’m going to explain how things are supposed to work and how they’re working right now, which unfortunately are not the same thing. I’ll also posit my theory as to why, and what can be done to turn it around.

The Healthy Magic Economy (and a Brief Introduction to Economics)

In a healthy MTGO economy, a set is released. Boosters enter the market in two ways: being purchased from the official MTGO store at $4 per booster, or being awarded as prizes in Constructed and Limited queues. Players sell their boosters to bots, and buy them to play in Limited queues. After being drafted or used for Sealed, boosters turn into singles, which are then sold to bots. Those bots then redeem complete sets for their paper counterparts, which are then sold in the real world. It’s a chain of supply and demand curves, with the eventual demand for paper singles connecting to the demand for digital boosters.

Econ 101

Time for a brief economics primer. If you’ve taken Econ 101, you can skip this section, but if not, it will hopefully make the rest of the article comprehensible. In general, a demand curve measures how much of a given item will be bought at a given price, and looks something like this first chart. When prices increase (go up the vertical axis), the quantity purchased falls (moves left along the horizontal axis), since fewer people will find the item worth the money required to have it. On the other hand, supply curves measure how much of a given item will be put up for sale at a given price, and look something like the second chart. When prices increase, the quantity sold also increases, since more people will find the money they receive for an item more valuable than the item itself.

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We can graph both the curves on the same chart, and at some point, they will cross. The quantity and price at which they cross is known as the equilibrium point, since it’s where the market will generally settle into balance. If prices are higher than the equilibrium point, fewer people will be buying the item than people are looking to sell it, and sellers will be faced with the choice of not selling the item at all or lowering their price. Some will do the first, and leave the market, causing the quantity for sale to fall, and some will do the second, lowering their price. As the price falls, the number of people looking to buy the item will increase, until the point where the curves cross is reached, and everyone looking to buy or sell an item is able to do so. A similar process happens if the price is too low, where buyers have to decide between not buying the item or bidding up the price, and more sellers move into the market in response.

Importantly, these curves ONLY measure the interaction of quantity and price. If something else changes, we change the curves themselves rather than moving up or down. For example, if we’re looking at the market for gasoline, and a new electric car is released, that’s going to decrease the demand for gasoline at every price, and we would draw a new curve, to the left and below the former demand curve. This concludes the economic primer; back to Magic.

The Unhealthy Magic Economy

We’ve laid out our healthy Magic economy, with a series of transactions running from digital booster to physical card. What has happened recently that could disrupt this chain? The most commonly cited culprit is the increase in redemption fee that occurred more than two years ago, in February of 2013. People looking to redeem a complete set have to pay Wizards of the Coast a fee to do so, which was $5 from Magic Online’s inception in 2002 until 2013, and was increasedmagic economy4 to $25 at that time. What impact did this have?

If you’re familiar with economics, you’ll recognize this as essentially a tax. Imagine the market is in equilibrium, with the price at $100 and 100 sets redeemed per month. Then, redemption fees increase by $20. For sellers, this means the market price is no longer their price. Even though the market price is $100, they’re only getting $80 of that, so they’re going to reduce their quantity sold at every price level. If they previously sold 100 sets at $100, 80 sets at $80, 60 sets at $60, etc., now they sell 80 sets at $100, 60 sets at $80, etc. This is a shifting of the supply curve, as illustrated in the chart. When this happens, the market price will rise by some amount less than $20, and fewer sets will be sold.

But online booster prices are falling! If they’re connected to the paper singles market, and prices for complete sets are rising, what’s the explanation? The key is that, while the market price is higher, the effective price for the sellers is not. If the market settles into a new equilibrium, with 90 sets redeemed and sold per month at $110 each, the sellers are still making less per set than they were before. As a result, their demand for singles falls, which causes the value of boosters to fall, and the demand for those boosters falls with it.

The Constructed/Limited Disconnect

I don’t think that’s the only driver behind the crashing market, however, since the singles inside are not the only thing that gives a booster value. Their ability to be used in a draft or Sealed event is the other reason why unopened boosters are sought after. While I don’t know what the exact difference in price would be between a sealed booster and a collection of 15 random cards that couldn’t be used to draft, it would be considerable.

There are several factors that impact an individual’s desire to purchase boosters for Limited. Somewhat counterintuitively, the price of the booster is a relatively small one, I suspect. A low-price booster means the cost of entry is lower, but it also means the value of the prizes is lower. I believe that means that Limited demand is relatively insensitive to price changes. Instead, the main driver of demand is interest in the Limited format in question. If booster prices were $2 for a format I didn’t enjoy, I wouldn’t play it—it costs me little to enter, but the prize benefits are correspondingly small, and I wouldn’t enjoy myself. Similarly, I’ll play expensive and fun formats, like MM2015, because the prizes are more valuable as well, and I like drafting them. I’ll say this up front: I don’t have any data to support or reject this idea, just my own gut feeling, so if you disagree, I’d love to hear why.

Constructed queues are different. On the one hand, since they have a ticket-based entry rather than a booster-based entry, the value of playing is tied much more closely to the value of potential prizes. I like Pauper, but I’m not paying 2 tickets to enter a two-player queue for a booster that sells for $2.50, thought I will for one that sells for $3.50. On the other hand, certain Constructed formats (mainly Standard) are extremely popular regardless of prizes, and people will always play them, often to practice for larger tournaments, test brews, or keep up with the metagame. As a result, certain Constructed queues are very sensitive to booster prices, while a few specific Constructed formats have extremely high, extremely stable interest that will keep them firing almost no matter what the price of boosters.

Issues arise as a result of the different levels of interest. Limited formats are fairly stable, and have a relatively short lifespan, as people get bored after some number of drafts and look forward to the next set. The highly popular Constructed formats are also reenergized by infusions of new cards, but with a much larger card pool and a metagame that shifts much more meaningfully, the format does not grow nearly as stale between set releases. The following is a hypothetical graph of interest levels over time:

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Standard falls off gradually until a set release, while Limited declines more sharply, with both increasing upon the release of a new set. Don’t view this as a measurement of the popularity of Constructed and Limited relative to each other, just as a measurement of change over time. Again, I have no data to back this up, just a sense of this trend.

In the meantime, let’s assume this is true. As a format gets older, the ratio of Limited queues firing to Constructed queues firing falls. Limited queues are a net consumer of unopened boosters—a draft takes 3 and pays out 1.5 per person, while a Sealed DE takes 6 and pays out 3.3125 per person—and Constructed queues are a net generator. As Constructed queues continue to produce boosters, i.e., our supply curve stays constant, and Limited queues slow their rate of consumption of boosters, our demand curve falls—a surplus of boosters comes about, and booster prices fall. In graphic form:

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This is true even in the healthy MTGO economy, but the scope of the problem is relatively small. Even years ago, Standard queues would basically always fire, but as a format aged, prices would fall to $3 a booster, and Pauper queues (my go-to example for fun, non-Standard Constructed) would fire rarely, if ever. As long as prices weren’t too low for too long, however, things were okay—this only happened toward the very end of a set, when a new set was on the horizon already.

The Culprit

I think it was that lack of interest that actually motivated this next move. I believe the biggest change, and the biggest contributor to the collapse of the MTGO economy, has been the trend toward alternative draft formats in the waning days of a set. It pains me to say this; I love Cube, I love MM2, and I especially love playing them instead of playing a months-old draft format. But when the Limited formats switch, the Constructed payouts don’t. People still play Standard in high quantities, but the prizes are no longer used to draft, and the market floods with unopened boosters, causing the price to plummet. The interest curve looks like this now:

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By providing alternative draft formats, Wizards has made it so that the drop-off in interest in a Limited format is far steeper and comes earlier than it did in the past. This has exacerbated the normal decline in booster prices over the course of a format. Again, in graphical form:

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Previously, demand for unopened boosters declined slowly over the course of a format, from D1 to D2. Now, the bottom drops out after a couple months, moving from D1 to D3.

Normally, the value of the singles in the booster would provide a price floor, but this trend comes at a time when redemption fees are higher and the value of the singles has fallen as a result. Both aspects of the value of an unopened booster—draftability, and the singles inside—have undergone a substantial decline in recent years, and in conjunction, led to the collapse in booster prices.

Now, non-Standard Constructed queues fire rarely, if ever, and drafts are more expensive relative to the boosters required, since the $2 entry fee remains constant. Things are in bad shape, and I believe the mismatch between Constructed prizes and Limited entries in combination with the increased redemption fee are to blame.

Going Forward

If you’re looking for reasons for optimism, there are a few. One, it does appear that the Wizards team responsible for overseeing the economy is aware of the mismatch, and trying to remedy it. The recent announcement of Phantom Points being rebranded as “Play Points” sounds like it might be a step toward a single currency, tradeable and usable for entry to many different types of events. That would be huge, since it would allow Constructed prizes to be converted to whatever Limited format is currently popular, and would reduce the surplus of boosters and bring prices back toward normal.

Similarly, Wizards announced that the Modern Masters 2015 draft events would continue through the Modern Festival scheduled for June 24th through July 8th. Originally, the plan was for Modern Masters 2015 Limited events to stop on June 3rd, and Constructed tournaments to switch to Modern Masters 2015 prizes on June 24th. I believe that would’ve been a disaster, even worse than the current situation, with Constructed formats paying out in boosters that literally could not be used for drafts. The fact that Wizards apparently saw this catastrophe coming and changed the event schedule in time suggests they are aware of the forces at play.

Finally, even in the last week, things have improved somewhat, with Modern, Legacy, and Vintage formats paying out in Modern Masters 2015 boosters rather than DTK/FRF. This has caused those queues to start firing again, brought the price of a DTK booster back up from its nadir of 2.4 tickets on June 3rd to 3.3 tickets today, and even brought FRF packs up somewhat, from 1.4 tickets to 1.6. Over that same period, Modern Masters 2015 booster prices have fallen from 7.1 tickets to 6.0, but that is a much less destructive price point for them to settle at than 2.4 tickets was for DTK, and I think the economy is slightly healthier now than it was last week.

All that said, this is still a major issue, and it could be that the increase in Modern Masters boosters from prizes during the Modern Festival will cause those prices to crash as well. I don’t think the MTGO economy will be completely fixed until Constructed payouts become totally fungible, either via Play Points or a Wizards-created price floor of, say, 3 tickets per pack. The specifics of gambling law concerning prizes being a single digital currency rather than packs are beyond me, and I don’t know if either of these suggestions are legally feasible. From an economic perspective, however, I think they might be the only way to fix Magic Online.