Identifying Arbitrage Opportunities in Non-Traditional Markets

A unique arbitrage opportunity exists in the world of collectible trading card games, which may be of interest to the savvy investor.

An estimated arbitrage based off analysis of market data and trends

There are a number of rare and valuable Magic: The Gathering (MTG) cards up for auction today, with the high bids on many of these cards well below normal market prices. This is due in part to the auction occurring at Heritage Auctions rather than one of the more traditional marketplaces where the world of MTG Finance typically operates. In my own time buying and selling MTG cards over the past 5+ years, I have yet to see an auction of this magnitude in terms of quality and rarity.

Magic: The Gathering is a collectible trading card game that was first released in 1993 by Wizards of the Coast (now a subsidiary of Hasbro). 86 expansion sets have been released to date, the most recent of which is the Norse-inspired Kaldheim set. Hasbro recently noted that 2020 was Wizards’ best year ever, generating $816 million in revenue, up 23% year over year. eBay just announced a new tool specifically created to streamline the process of listing cards for sale, which will be a boon to existing sellers and may encourage people otherwise unfamiliar with the process to join the market.

The collectibles market has seen a significant and sustained increase in interest over the past few years, with the secondary market for Magic the Gathering cards often outperforming the stock market in terms of investment opportunities and returns, especially with older cards which are in limited supply and thus command a premium among players, collectors, and investors alike.

MTG Finance Basics

Many older cards are found on the Reserved List, which is a list of Magic: The Gathering cards that will never be reprinted, as a matter of company policy, in order to preserve their value on the secondary market. Cards found on the Reserved List have historically commanded premium prices in MTG Finance due to this no-reprint policy, and as such many specific Reserved List cards represent good investment opportunities in and of themselves.

Investors in MTG Finance typically sell cards on platforms like eBay, tcgplayer.com, or within public or private groups on social media, in addition to utilizing the buylisting programs run by large vendors.

Some larger vendors (such as Card Kingdom and Channel Fireball) offer to buy Magic the Gathering cards directly from individuals, paying in either cash or store credit. These “buylist” prices are typically well below the price a card would sell for on the open market, but offer a more immediate ROI and thus can present excellent arbitrage opportunities, especially in cases like this auction. Additionally, buylisting cards for store credit rather than cash can help an investor quickly offload a number of less-valuable cards, trading them in for ones that have historically held higher value.

A Deeper Reading of the MTG Finance Market

As Magic The Gathering is an actively played game, there are other market forces at work here that can be identified and acted upon as well. Cards will “spike” in price when demand rises for them, typically as a result of those cards seeing major tournament play. In this way, Magic the Gathering as a game influences the MTG financial market in many subtle ways, and it takes a deep understanding of the game itself to really take advantage of investment opportunities.

Savvy investors can identify which cards from old sets may see a sudden and unexpected spike in price as a result of how they interact with more recently released cards. Cards that may have languished at low prices for years may suddenly experience huge jumps in value. The same can be said for the opposite, in that if a card is banned from tournament play it typically sees a drop in price on the secondary market. Understanding why a card may be banned (or unbanned, which happens from time to time, presenting yet another investment opportunity angle in and of itself) requires a specialized knowledge of the game in the context of a constantly-evolving tournament field. These aspects of MTG Finance aren’t as applicable in this specific case, as the cards in this auction are some of the earliest and most desirable cards that exist in Magic the Gathering as both a game and as an investment vehicle.

There are other angles to MTG Finance that exist, such as a sub-market that exists specifically for ultra-rare cards, the ones that hold the highest significance due to their desirability as a status symbol, utility in legacy formats of the game (where games are played with the utmost care when decks are valued in the hundreds of thousands of dollar range), to scarcity, and so on. One such card, Splendid Genesis, is included in this auction, of which only 110 copies were ever made, and handed out to close family and friends of the game’s original designer, Richard Garfield, on the occasion of his daughter’s birth.

Another rarity in this auction is the Magic: The Gathering Collectors Edition sealed set. There were only 9,000 sets of these ever created, and to see one in sealed condition is a rare sight indeed. They typically sell for $15000 to $22000 in this condition.

Applied Theory and Auction Analysis

We have the basics down, and we’ve explored some of the deeper aspects of investing when it comes to MTG Finance, but let’s take a look at it specifically within the context of the investment opportunities available in this auction.

There are some important aspects of MTG Finance that need to be discussed with regard to this auction specifically, and the arbitrage opportunity that exists therein. All of the cards up for sale are either in sealed condition (in the cases of booster boxes and the collector’s set), or have been graded by Beckett Grading Services (BGS). Beckett will grade the card on a scale of 1 to 10, based on the condition of four aspects of the card: Centering, Corners, Edges, and Surface, with those individual condition grades contributing to the card’s final grade.

While the condition of the card as determined by Beckett is valid for as long as the card remains sealed inside the slab of plastic, if one were to buylist the cards they would be removed from the slab and regraded by the buylist vendor, potentially resulting in a higher or lower card grade. In this area one would need to have a deep understanding of how cards are graded specifically within the world of Magic the Gathering finance, where cards are both played with and invested in, resulting in a unique market environment. If a person has sufficient experience with grading cards, they are better able to determine situations where arbitrage opportunities like this one occur.

Other things that investors would need to be aware of are how online auction houses work, and even the differences between the various auction houses where MTG Finance often takes place. In this case, the 20% buyer’s premium on all card sales means some would definitely be out as a value proposition, arbitrage-wise, in my books. Similarly other cards up for sale at this auction may not present arbitrage opportunities but instead would be safe bets for longer-term investment strategies when it comes to the market for Magic the Gathering cards. Another aspect of MTG Finance to be aware of with regards to this auction is how autographed cards are typically valued (buylist vendors don’t typically want autographed cards, but some autographed cards command a higher value due to things like scarcity or death of the artist). For example, I wouldn’t purchase the autographed cards available in this auction with the intent of trying to buylist them, as the signature is worth more in its already-authenticated BGS slab form.

Another aspect of investing in Magic the Gathering that would factor into my decisions were I to bid on this auction (which I am not, sadly), would be the fact that foreign printings of cards typically do not hold as high of values as their English language equivalents, but some opportunities still present themselves when it comes to sealed product such as the foreign-language booster boxes available in this auction, as long as one is aware of the price differences and invests accordingly.

There’s plenty more I could discuss regarding this auction and these cards, as well as other aspects of MTG Finance (such as its intersection with the art world for original card art), but I should wrap this up so I can send it while the auction is still live.

Going Beyond MTG Finance

I’ve mentioned this particular and decidedly non-traditional field of finance to you previously, so this represents my analysis of a unique investment opportunity based off my own particular skills within that field. This is just one small investment opportunity that caught my interest and that I can speak to.

Being able to identify trends before they reach general public awareness is something I happen to be adept in, and I believe it’s a valuable skill; one I would like to be able to pursue for a living rather than simply as a hobby.

Further, I strongly believe this skill is teachable, not simply for something like making money off Magic the Gathering cards (although that could easily be turned into a class on its own), but for teaching others the skills and techniques involved in being able to not only identify trends in non-traditional environments, but to also identify the unique opportunities they present in investment and other areas.

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