It’s The End Of Worlds As We Know It…

Jon Agley takes a financial look into Hasbro’s inner workings and lays out how to make an argument to keep Worlds to the big wigs upstairs.

Although it hardly seems possible, there may still be a few Magic players who haven’t heard the recent announcement from Wizards of the Coast that Worlds will no longer be a Pro Tour tournament. It is now a 16-man, $100k tournament, attendance at which will be determined by Planeswalker Point standings rather than fed by National tournaments. There are now only three Pro Tour events each year, and they are all private (not open to the public). The best summary of the issue thus far was written by Patrick Chapin and published on Monday on this website. So what can I add to the story? There have been literally dozens of articles and perhaps thousands of forum posts addressing the issue.

I am neither a professional player nor an aspiring pro, but rather a player who approaches the game as a continually changing puzzle to be solved. At the same time, I have invested a lot of thought, time, and passion into this game. Part of the motivating force behind my interest is the ability to see high-level play as a spectacle—akin to American football, basketball, or baseball—but accomplished using a set of skills to which I have chosen to assign more value. I’m not an economist (this will become a relevant statement later), but I’ve nonetheless attempted to draw some reasonable conclusions about some fiscal concepts as they relate to Magic.

This is just another puzzle. Let’s work to solve it using a series of questions.

1) Who likely makes decisions about this type of marketing (which types of events to prioritize)?

In all likelihood, it is Hasbro, the parent company, and not Wizards of the Coast (WotC), which is the driving force behind decisions like these. While I would not be surprised if WotC has input into the process, the decision to remove the allocation of resources from one area and to move them to another seems relatively independent of Magic-related research and development. This means that we should be taking a harder look at Hasbro rather than WotC when we begin to analyze this issue (admittedly an assumption).

2) To what extent might this decision be prompted by overall difficulty with Hasbro’s economic situation?

A three-year summary of Hasbro’s stock prices reveals that the price per share of Hasbro’s stock has fluctuated but has risen from slightly above $29 to slightly under $39, no mean feat given the economic uncertainty that recently has plagued the stock market. In addition, analysts’ ratings of Hasbro’s stock have it positioned at a 1.77 on a scale of one to five, where a one is “Strong Buy” and a five is “Strong Sell.” The stock summary rating from MSN Money suggests that “Hasbro Inc, a mid-cap value company in the consumer non-durables sector, is expected to match the market over the next six months with less than average risk.” None of this information, on the surface, suggests that Hasbro’s overall fiscal situation is such that it would prompt drastic reorganization of specific commodities in order to “plug a leak.”

3) Does Magic: The Gathering contribute to Hasbro’s fiscal growth?

In his Quarter 4, 2010 report, Brian Goldner, Hasbro’s CEO, stated that “The combination of the traditional Magic: The Gathering trading card game with Magic: The Gathering Online and Duels of the Planeswalker on Xbox LIVE Arcade, PlayStation 3 and on the PC produced strong growth in Magic: The Gathering players and a more than 30% increase in the brand’s revenue in 2010.” Similarly, nine months later, in his Quarter 3, 2011 report, Goldner stated that “We had several Hasbro brands perform well and contribute to our overall growth. BABY ALIVE, MY LITTLE PONY, MAGIC: THE GATHERING and TRANSFORMERS, including the new KRE-O-branded products, all continued their growth trends in the quarter.”

Our takeaway from these summaries is that Magic: The Gathering is valued as a contributor to Hasbro’s overall growth and profitability as a company, so it probably isn’t the case that Magic is being deemphasized in favor of another product that likely will be more fiscally viable in the future (although, again, we have no way of knowing for certain whether or not this is the case).

“Well damn! We thought you’d tell us something new!”

We’re getting to that. A lot of the posts that I’ve read about this issue have focused on the macro-level questions like those that I just asked, which don’t seem to suggest that Hasbro has hit the big red PANIC button for Magic. So what might be prompting these decisions?

Let’s return to basic business principles, as described on nearly every website on the Internet. We’ll use a standard, mass-media answer to the question,

4) What is the purpose of a company?

“The main purpose of a company is to take money from investors (their creditors and shareholders) and generate profits on their investments.” (Stocks 105, MSN Money)

Hasbro, and by association Wizards of the Coast, is a company, the purpose of which is to generate profit. While it probably isn’t the case that people like Mark Rosewater sit in a room and dream up ways to make Hasbro a more profitable company, they are employed because they are good at their jobs (i.e., making Magic cards), and to the extent that they do their jobs well, more people play the game, buy cards, become engaged in the secondary market, etc…

We should suspect that decisions made with regard to organized play and player acquisition are made to optimize the company’s profit because this allows it to fulfill its purpose.

5) How are organized play and profit related?

This is a complex question. To begin, let’s see what broad-based information we can find on the Internet. A quick Google search on “how does Wizards of the Coast contribute to Hasbro” reveals the following article, written for the Boston Examiner by David Leavitt of MTGSalvation fame: Magic: The Gathering a contributing factor in Hasbro’s 10% profit growth.

The second paragraph of the article reads: “With Innistrad Prerelease attendance up by an astounding 32%, that’s a number that both Hasbro corporate and investors must be impressed with. Attributed to the new Planeswalker Points, can the record number attendance of Magic: The Gathering players remain sustained and help keep Hasbro’s profits high?” [emphasis added]

Let’s review that one more time to be clear. The record number of attendees at the Innistrad Prerelease has been attributed to the Planeswalker Points system. Using “cross-sectional logic” (that uses correlation improperly to infer causation), we observe the following systematic thought process:

Announcement and Implementation of Planeswalker Points → Increased Number of Attendees at INN Prerelease → Profit!

Given our prior understanding that the purpose of a company is to make profit, if we subscribe to the pseudo-logical flow noted above, then it makes perfect sense, from a marketing standpoint, to support the new Planeswalker Points system, a deviation from organized play with which many members of the Magic community are unhappy.

In other words, while it’s good that Hasbro has been fiscally successful (per questions two and three above), we need to examine their thinking: why do they think that Magic: The Gathering has been profitable? The things that executives identify as being the profitable aspects and marketing techniques of the brand probably are the same things that they will continue to support.

But are those aspects the things that we consider to be the “core” of Magic culture?

This forces us to delve into the whole “correlation/causation issue.” To wit:

More crimes are committed in the summer.
More people eat ice cream in the summer.
Therefore, eating ice cream causes people to commit crimes.

This is the fallacy of assuming that a correlation is equivalent to causation. There is no evidence directly linking the consumption of ice cream to the commission of crime, but, on the surface, it’s “plausible.” This example illustrates the need to look at intervening factors when examining correlations. For example, why might attendance at Innistrad Prereleases have increased other than the implementation of Planeswalker Points?

Banning Jace, the Mind Sculptor and Stoneforge Mystic may have revived interest in competitive Magic, and the opportunity to obtain cards for a new Standard environment may have excited people.

INN is a very flavorful set that may resonate with players more strongly than did Scars of Mirrodin.

Incomes of those involved in attending Magic Prereleases might have undergone a systematic but unmeasured change.

Stores might have effectively marketed the Innistrad Prerelease because they are becoming more accustomed to running large events (i.e., Prereleases).

High perceived value of single cards on the secondary market (off-color dual lands, Snapcaster Mage, Liliana of the Veil, Garruk Relentless) might have influenced interest in the set.

Any other potential change that might have affected attendance.

The increased attendance at the INN Prerelease likely was a synergistic result of any number of factors. However, recall, again, that Hasbro’s primary goal is to make money. If it seems as though Planeswalker Points are a means of increasing profit, then it is likely that that will be the system that will remain in place.

6) So what can be done about this?

It is a given that running a high-profile event like Worlds is a costly endeavor. In addition to the reservation of the venue, payment for all of the judging and support staff, prize support, and travel/appearance costs for the participants, there are numerous hidden costs associated with most components of such a tournament. In its current incarnation, the Pro Tour is a marketing expense for WotC/Hasbro. As such, a profit-driven company will hold Pro-level tournaments without entry fees only as long as the cost of expense is less than the profit margin after accounting for revenue. I’m speculating here, but if I were in charge of finding an optimal profit margin for a product like Magic, I would slowly remove Pro-level events over time (while increasing the number of Grand Prix tournaments, which have an entry fee component to offset organizational costs) in order to find the point at which it seems that their removal affects the bottom line. This would be the number of Pro Tour events that I’d sponsor each year (minimum investment for maximum yield). Unfortunately, it is difficult to demonstrate the effect that the Pro Tour, “the dream,” has on the amount of money spent on sealed Magic product.

While I’ve read articles indicating that the Magic community, as we know it, will no longer exist in 2012, I don’t agree. Magic players are nothing if not an intelligent, resourceful group of people. What we need to do—somehow—is to prove the value of the Pro Tour at the level of profit. We need to demonstrate that the marketing expense of holding Pro Tours produces sufficient revenue, both proximally and distally, to create profit. To do anything else—to create emotional appeals about the value of the community, for example—is to speak a language that a company does not comprehend.

Who is spending money on sealed product? What are the goals, beliefs, and ideals of those who purchase sealed product?

These relationships are understandably complex, especially since many serious Magic players don’t purchase sealed product, but purchase a lot of cards on the secondary market, which only can exist because others open booster packs. What we need to consider now is: how can we demonstrate the value of the Pro Tour? How can we quantify the value, to Hasbro, of those players who are trying to live “the dream?” Almost more importantly, who would be interested in purchasing a constantly changing, tournament-driven set of trading cards if there were no upper-echelon tournament series to which we might aspire?

These are the questions for which answers might begin to provoke change.