StarCity's new buy list

[Grand Inquisitor]

auto sales

It's an interesting side discussion, but there really isn't much in common between Magic cards and automobiles.

[Purple Hat]

Run this out across a couple dozen cards and you can quickly see that a general $10 increase in both the buy and sell prices for legacy staples could easily represent a 50,000-100,000 increase in the amount of cash Ben needs to put his hands on every week just to maintain his business without increasing his net profits at all.

This is a little simplistic, foremost because of the reason why we're all interested in this topic: much of the eroding profit margin loss due to price increases is mitigated by asset appreciation when your inventory value goes up faster than your carrying cost does.

Don't cry for SCG.

I'm talking about Bens cash requirement to turn his inventory, not his carrying costs, which I assume are actually pretty negligible and wouldn't change anyway.

Ben is now turning an inventory worth 50,000-100,000 more.  That cash comes from somewhere and has to keep getting plowed back into the inventory turns. The increase represents a permanent increase in operating cash requirements to generate the same profit.

It is true that the asset value of Bens inventory increases, but that isn't really relevant to his cash requirements because he already owns those cards.  He doesn't have to pay for them again, and he has not sold the cards at the higher prices when he has to pay the new buy list prices.  He has to come up with the cash to fill that gap.

[Eastman]

That's some fuzzy math hat. You are assuming that the profit he makes on each card is fixed, and based on that assumption concluding that increases in card cost increases the cost to turn inventory for a given total profit.  Of course the profit margin on magic cards, like all collectibles that I know of, varies widely with the cost of the card.  Given a profit proportional to card cost, bleiweiss could respond to an increase in card cost by decreasing volume to hold inventory turnover cost steady, resulting in the same total profit.


What is challenging here is understanding what services the card companies provide to justify their margins. I have never understood why dealers get to buy cards at 60% of their "value", except that when you want to sell you have no options.  One would think that there are enough dealers that their competition would drive the overall margin down, but for the most part I haven't seen that happen.

And re car sales, I think the margins are low for new cars because the market is pretty competitive.  The margins are equally low for low-cost items in competitive markets, like eggs or bubble gum. 

[Diakonov]

And re car sales, I think the margins are low for new cars because the market is pretty competitive.  The margins are equally low for low-cost items in competitive markets, like eggs or bubble gum. 

I'm not sure why, but your choice of items made me laugh.

[Grand Inquisitor]

I'm not sure why, but your choice of items made me laugh.

It's because chewing gum with eggs in your mouth is icky.

[Will]

I feel as though you guys are looking at the SCG Buylist situation from the wrong end.  If you look at it in terms of what they buy cards for and then immediately sell them then they need to invest more to turn the same profit as before.  However, if you look at it from what they have already invested which is a big question mark then it becomes clearer.  No one knows if SCG has hundreds of each dual stockpiled, but if they have a large supply of them which I think they do, then increasing buy prices which pushes up sale prices seems like a great idea.  Although they likely do not own enough of most cards to dictate the market through scarcity at this point, by increasing their buy prices they started an avalanche of prices and who would of thought that they stand to benefit from all of this because of their large stock of Legacy cards?

[Troy_Costisick]

However, if you look at it from what they have already invested which is a big question mark then it becomes clearer.  No one knows if SCG has hundreds of each dual stockpiled, but if they have a large supply of them which I think they do, then increasing buy prices which pushes up sale prices seems like a great idea. 

You need to read Ben's posts here, at SCG, and at MTGS.  He has stated over and over again that they list on their website for sale any card on their hot buy list (including the eternals listed at the beginning of this thread).  They do not have hidden stock of any dual lands, force of wills, wastelands, or any other of those cards.  There are no piles of eternal staples hidden away at SCG. 

[Purple Hat]

That's some fuzzy math hat. You are assuming that the profit he makes on each card is fixed, and based on that assumption concluding that increases in card cost increases the cost to turn inventory for a given total profit.  Of course the profit margin on magic cards, like all collectibles that I know of, varies widely with the cost of the card.  Given a profit proportional to card cost, bleiweiss could respond to an increase in card cost by decreasing volume to hold inventory turnover cost steady, resulting in the same total profit.

I'm basing my numbers on what ben said he was doing.  I see no reason not to believe him when he says that he bought 50 forces for $50 and sold 47 of them for $80 within a week.  He says he then upped the prices to $60/$90 and was considering going to $70/$100 if he had to.  Ben could be lying, but I see no reason to attribute a sinister motive without evidence.

Ben changed the size of his inventory and increased his markup, he could improve his working capital situation.  He could do that regardless of the prices he pays and charges for cards and hasn't.  Probably because he'd have issues filling orders without a constant source of cards. 

In my opinion sites like SCG and Troll and Toad charge a premium based on the scale of their inventories.  If I buy from SCG it's because I want the convenience of knowing that they always have whatever I need and I won't have to search around or wait for ebay.  Reducing inventory would put that competitive advantage in jeopardy, which also is a non trivial trade off for SCG to make.

In either case my point that given the business considerations involved this is unlikely to be something undertaken on a whim at a successful business like SCG still holds.

[Dr. Sylvan]

What is challenging here is understanding what services the card companies provide to justify their margins. I have never understood why dealers get to buy cards at 60% of their "value", except that when you want to sell you have no options.  One would think that there are enough dealers that their competition would drive the overall margin down, but for the most part I haven't seen that happen.

The reason is that, while each player may know many players who acknowledge a certain valuation for a card, and even many players who want that card, the player seeking to sell a card for cash has to find someone looking to put that much cash into their Magic collection for that specific card. Most of the players I know are looking to trade cards for cards rather than shell out real money.

This is similar to why SCG, for instance, offers +25% if you accept store credit instead of cash---it erodes their margins, but you'll be buying other items that have profit built in. (Plus the classic retailer's love of the gift card, since IIRC only 85% of the value is ever redeemed, and if it's 100% redeemed, the customer probably bought $X above that.)

So if I were looking to cash out my Ancestral, even if everyone at FNM would agree it's worth maybe $300, and a few want to play Vintage or aspire to own every card, one of those guys has to have the money for the transaction to take place at that price. Using something like Ebay to get closer to full value includes additional transaction costs and risks that many (myself included) don't want to bother with. There's no efficient mechanism for me to have the dealers bid against each other besides their public buylists, and all the major dealers have very similar business models that require similar margins.

The issue is liquidity. The middlemen exist because, for many players, it's too much effort to seek out the customers that the dealers will eventually use their scale to find.

[Grand Inquisitor]

The issue is liquidity.

This is ass-backwards.  People agree the Ancestral is worth $300 because there are fungible options.  It's not a priori.

The dealers certainly play a role here, and certain card prices are stickier than others, but there seems to be enough supply and churn to function close to what we expect.

[Eastman]

That's some fuzzy math hat. You are assuming that the profit he makes on each card is fixed, and based on that assumption concluding that increases in card cost increases the cost to turn inventory for a given total profit.  Of course the profit margin on magic cards, like all collectibles that I know of, varies widely with the cost of the card.  Given a profit proportional to card cost, bleiweiss could respond to an increase in card cost by decreasing volume to hold inventory turnover cost steady, resulting in the same total profit.

I'm basing my numbers on what ben said he was doing.  I see no reason not to believe him when he says that he bought 50 forces for $50 and sold 47 of them for $80 within a week.  He says he then upped the prices to $60/$90 and was considering going to $70/$100 if he had to.  Ben could be lying, but I see no reason to attribute a sinister motive without evidence.

I guess I am less concerned with what the business is doing than with what it could be doing.  More expensive cards have greater capital investment costs which justify a greater markup for the dealer.  I can't imagine why the dealer would decline to charge an increased markup for more expensive cards that require greater capital investment, unless competition forecloses him from doing so.  But if competition is driving down the margins on more expensive cards, it is not clear to me why it wouldn't similarly drive down the margins on lower priced cards or on the card in question prior to the base price increase. 

[Godder]

That's some fuzzy math hat. You are assuming that the profit he makes on each card is fixed, and based on that assumption concluding that increases in card cost increases the cost to turn inventory for a given total profit.  Of course the profit margin on magic cards, like all collectibles that I know of, varies widely with the cost of the card.  Given a profit proportional to card cost, bleiweiss could respond to an increase in card cost by decreasing volume to hold inventory turnover cost steady, resulting in the same total profit.

I'm basing my numbers on what ben said he was doing.  I see no reason not to believe him when he says that he bought 50 forces for $50 and sold 47 of them for $80 within a week.  He says he then upped the prices to $60/$90 and was considering going to $70/$100 if he had to.  Ben could be lying, but I see no reason to attribute a sinister motive without evidence.

I guess I am less concerned with what the business is doing than with what it could be doing.  More expensive cards have greater capital investment costs which justify a greater markup for the dealer.  I can't imagine why the dealer would decline to charge an increased markup for more expensive cards that require greater capital investment, unless competition forecloses him from doing so.  But if competition is driving down the margins on more expensive cards, it is not clear to me why it wouldn't similarly drive down the margins on lower priced cards or on the card in question prior to the base price increase.  

It's pretty common in retail for bigger-ticket items to have lower mark-ups, as a percentage, than small-ticket items. Competition plays a large part in that, but so does the fact that holding costs are often similar (identical in the case of trading cards), so the only real difference is the cost of buying the goods in the first place.

In this case, the difference in capital required is likely to be a few hundred for each card, but if they're selling as fast as all indications point to, and there's plenty of capital on hand anyway, there's no great need to increase the mark-up since the money is coming straight back in. Increasing the price of cheaper singles is a lot less noticeable, and with higher volumes, may actually make more money in the long run.