A number of authors have recently begun to explore improvements to the PTQ experience. While a number of issues are being debated, I suggested a very simple solution to many of the problems associated with the PTQ experience: increase prize support. Increase prize support, and you will have happier attendees and greater attendance.
Surprisingly, people from across the Magic community chimed in to criticize both my suggestion and the rational advanced for it. Variously, TOs and other community members complained that increasing prize support was infeasible, impractical, that doing so would not increase attendance, or that it was unnecessary or unimportant. In this post, I will explore this issue in more detail. Mike Flores, on twitter, called me a “moron.” (see for yourself: http://twitter.com/fivewithflores ) Tom Martell called me an idiot (again, see for yourself (http://twitter.com/semisober ). They claimed, without explaining why, that my arguments were bad. I will nonetheless engage the points they raise, giving their arguments the respect and due that they have failed to do for me.
But first, let me recapitulate the main argument. Many players already know this, but many do not or sense it, but have not ‘put their finger on it,’ but based upon experience, economic logic and some math, PTQ Tournament Organizers (TOs) overcharge for entry fees and provide substandard prizes. You pay $30 entry, can go 8-0 in a 200 player PTQ, lose in the first round of Top 8, and walk away with half a box of booster packs. And that’s when the TO takes in $6000 in entry fee revenue alone. Moreover, it’s my view that PTQ TOs treat attendees as if they are disposable and replaceable. They, too often, fail to actually create an environment where people want to play over time, and fail to retain players over the long-term. In other words, it’s my view that PTQ TO’s exploit players, gouging them, and then get away with it because new ones replace them.
Many people angrily denounced my arguments, claiming that I lacked a fundamental understanding of economic theory or business practice. Others claimed that I have ‘no idea’ what I’m talking about. Others said worse. I will specifically quote and cite what people have said.
But first, ket me spell it out. This isn’t rocket science/brain surgery. The facts are known or easily knowable, and any unknowns are ‘known unknowns,’ and can be estimated within a reliable range.
Let’s start with the basics. Economic profit is revenue minus cost. Let’s look at each component separately.
The main source of revenue is entry fees, but it’s by no means the only source. TOs can also charge dealers to operate in the room, sell cards, or charge other TOs to host side events or market other wares. These sources of revenue of often substantial, particularly at larger events. For example, at GPs, TOs can charge as much as $3,000 for a table! Many experience retailers and dealers can tell us what the going price for a table at a PTQ is, but it’s worth something.
Now let’s look at their costs. There are two kinds of costs: fixed and variable. The only variable cost in terms of running a PTQ is prize support, which generally scales to the number of players in a tournament. Fixed costs include: 1) Space (i.e. hall rentals), 2) personnel (i.e. judges, support staff), 3) equipment (i.e. computers, printers, ink, paper, pens, etc), and 4) marketing/promotion.
Yes, there are other costs involved, such as taxes, other overhead costs such as maintaining a website to market your events, maintaining an office or business address, full time personnel, insurance, etc. These costs are real, and important. But it’s also true that they aren’t costs incurred from a single event. Nonetheless, we can factor them in, or at least, make reasonable guesses about many of these. And yes, I know that the TO’s time and effort is a cost, at least an opportunity cost, and is counted as such in calculating economic profit. I will factor that in as well.
What we know? First, we know how much revenue a TO receives from entry fees. Space costs are not as readily known, but they are still knowable and easily discovered with a little bit of research. We can easily find out how much a particular space costs by simply calling the location and seeing what their rate is. People rent spaces like convention halls, hotel banquet rooms, party halls, and the like all of the time for seminars, weddings, bah mitzvah’s, meetings and other events. There are standard rental ranges for these kinds of spaces, with the main variables between square footage, amenities and location. I did some online research on space rentals around the country. After looking for a while, you see the same numbers when it comes to renting space. The only unknown is whether the TO receives a discount for regular or repeat business.
We don’t know exactly how much personnel cost, nor how much the prize support costs, but we can make reasonable estimates, and, with a little bit of digging, they can be discovered. We know, for example, what a box of Magic costs to a retailer (i.e. the wholesale price), and we know that large TOs and retailers get boxes for even less. Thus, while we may not know this with exact precision, reasonable guesses can be made. We also know, for example, that judges often get a box of product for their efforts on the day. We can also know what reams of paper, ink, etc cost. We also can guess, within a reasonable range, what marketing costs are (i.e. running a website).
One of the criticisms that was leveled against me is that these are all just guesses. Yes, some of these factors are guesses, but they are educated guesses. They are reasonable guesses. They are estimates based upon research, experience, and common sense. I couldn’t tell you the exact cost of hamburger, but that doesn’t mean I couldn’t give you a ballpark of the cost inputs. To ignore these facts simply because they may not be true in every case or be *exact* figures is simply an attempt to dismiss the arguments here out of hand, rather than to consider their actual merit. Below, I put actual numerical estimates to each of these variables.
Revenue
Suppose 200 people show up to a PTQ. The entry fee revenue is then $6000. Suppose, further, that you sold a dealer table for $500. Total revenue is $6500. Now, what are the costs?
Space
Some TOs already own or lease the space, so there is no additional cost involved, except as part of doing regular business. In those instances, you amortize the cost of the space for the day. Some TOs rent space for the day. Other TOs rent space in high rent places like New York City, where the costs are much higher. We could imagine a PTQ that that fits 250 players could cost as much as $1500 to $2000 per day in places like NYC, if not more once security and other amenities are added. But in most places, it’s substantially less for a PTQ room. Rooms to accommodate only several hundred for one day can probably be rented under $1000, depending on the location. Halls plus kitchen cost more, as does security. In addition, a security deposit is usually required. Based upon web searches for hall space, I estimate that a hall and kitchen for one day costs around $1200 for a larger space, while others can be secured for $800 or much less. Therefore, for hypothetical purposes, a $1,000 figure can be used, even though that’s probably still on the high end.
Personnel
Judges are a very important element of a smoothly run event. However, Magic judges can be bought on the cheap. And, what’s more, Wizards actually subsidizes these costs. For example, a few years ago, industry practice was (and probably still is) to give judges product, such as a box of product for their work on the day. In addition, judges receive promos and other awards for service rendered, which helps defray costs for TOs because it is a WOTC subsidy/reward. According to an article by Peter Hahn, the rule of thumb is one judge per 75 players. A two hundred player event would mean 2.5 judges, although I’m not sure if he’s counting a head judge. So for simplification, I will assume that the average PTQ has 4 judges, and each judge is awarded a box of product. Let’s also assume that each judge is given a box of product. Other personnel are also needed, such as people to process results and receive entries, etc. Judges can do this, but sometimes they don’t. We’ll add another staff person to the costs, and give them a box as well. We know that retailers can get boxes of magic for $75-80, and big retailers for substantially less. For simplification, I will assume that the box here costs the TO $70. With 5 personnel, the personnel costs are $350.
Prizes
This is the only variable cost. Prizes scale based on attendance. One TO practice is to add 3 boosters for every player in the prize pool. So, if we have 200 players, that’s 16.67 boxes being awarded. That’s $1250.
Equipment
Let’s assume that the TO uses a container of ink and a several reams of paper, and gas to and from, and parking we’ll say is about $100. Even if the costs are double, that won’t change our basic ballpark estimates.
The main fixed and variable costs of a PTQ have now been deduced. Let’s do the math:
Now, this is just an accounting profit because I haven’t factored in the opportunity cost of the TO’s time. I will discuss this issue later. Also, keep in mind that we’ve calculated all of this within a range. Many of these costs may be more or less. Certainly, the variable cost will change depending upon attendance. But the only variable cost was prize support.
And, yes, I am aware of the other costs are of course overhead, marketing, etc. Of course, maintaining a website is not cheap, but you have many events to cover it. And, marketing is also not that expensive. You have free marketing on Wizards website, and you have other websites, community sites, etc that all advertise for you. Let’s just take out another grand to cover these expenses, and that’s being pretty generous, considering the number of events these TOs host per year to defray these expenses.
That means still produces a $2700 profit on $6500 of revenue. Simply put, the profit likely to be quite substantial. The question is: is this fair? Moreover: should TOs put more of the revenue into the prize pool?
While this may appear to be a subjective question, there are a number of ways of addressing it, and getting to a real answer.
First of all, there are standards by which we can compare it. Simply put, I would argue that giving out only 20% of gross revenues in prize support is grossly below average for most Magic tournaments, despite the fact that many PTQ TOs have much greater overhead, particular those that don’t host PTQs in a retail store.
More importantly, an answer to a question like this is determined by the market, and by competition. In any other environment, we would compare the price or value of a service by looking at what a competitor is offering. Unfortunately, that’s not how PTQ’s work. Wizards awards regional monopolies to certain TOs, barring very substandard service. Why does this matter?
It matters for a number of reasons. First of all, without competition, we have no way of knowing what would be fair or what the market would bear. A market of TOs truly competing with each other in a region would tell us who does the best job and offers the best value for their service. Secondly, economic theory tells us that monopolist price where marginal revenue equals marginal cost, not where price equals marginal cost. In layman’s terms, what that means is that because the monopolist does not face competition, they can get away with charging a higher price. That price can come in the form of higher entry fees or lower prize support. While I believe that awarding such a small amount of revenue into the prize support is exploitative, that’s simply my evaluation based upon comparable standards in non-PTQ contexts. Even if we can’t say that, we can say that having monopoly power at least raises serious doubt over whether these events are fairly awarded. In the absence of a competitive market and in the presence of monopoly power, I would argue that our current system is presumptively unfair, and the burden of proof would be on those to establish otherwise.
On twitter, Mike Flores said: “The guy [me] clearly has no understanding of economics. I understood econ better as a first year.”
He also said: “His [my] arguments defy a basic understanding of "supply" and "demand"” Mike isn’t alone. A number of people have made similar remarks.
Tom Martell said: “[There are] gaping holes in your logic several times and you've failed to respond to any of them, so I'm not going to try and educate you about economics.”
But what I’ve described is not rocket science, nor is it really that complicated. I would love for Flores to tell me how I “clearly have no understanding of economics.” Not only is that a very broad statement to make (since understanding even a very simple economic concept would refute his statement), but neither he nor anyone else in the critique have actually taken the time to explain how my logic fails. Saying I don’t understand economics is not an argument. It’s an assertion. If TOs are regional monopolies, then they can engage in rent-seeking behavior. And why wouldn’t they?
One argument that I made is that by increasing prize support, you would increase attendance. It’s incredible, but a number of people actually object to this rather non-controversial claim. Increasing prize support is another way of increasing the value of the event. By increasing the value of the event, you make it more likely that the benefits of attendance outweigh the costs, and necessarily influence player’s decision of whether to attend.
It flies in the face of both economic logic and common sense to say that increasing prize support does not produce an increase in attendance. That is not to say that there aren’t diminishing returns associated with greater prizes. But that’s not the argument that is being advanced. People are actually saying that increasing prize support doesn’t increase attendance. And, I’m being called idiotic or ignorant for making a claim that are undeniable.
The more important point is that it may not be in the economic self-interest of the TO to increase prize support. That’s because, as I said before, the monopolist prices where MR = MC. Consequently, the monopolist isn’t actually interested in maximizing tournament attendance because they actually make more money if they don’t. If you were to lower the cost of entry (or increase price support) you would be moving along the demand, and increase the number of players who would attend. However, you wouldn’t be maximizing profits if you are a monopolist. That’s because you’d have to price substantially below where you could otherwise price.
A simple supply and demand graph could bear this out, and, roughly speaking, it looks like this: http://en.wikipedia.org/wiki/File:Monopoly-surpluses.svg If you lowered the price of entry (or increased prize support) to Pc (or price in a competitive market) you increase the number of players, since more players would then be willing to play. However, you can see from this chart that the monopolist actually makes more money pricing at Pm.
Why, then, is this system sustainable? If people are being exploited, why compete? It’s simple: the aggregate demand curve reflects the willingness of everyone to purchase the service or product. The monopolist prices the product or service at a point where they maximize profits. This only happens if they price where people are willing to pay. Over time, as people quit magic or shift their demand to lower on the curve because of diminished time, energy, enthusiasm, etc, more people replace them. The demand for PTQs is quite high. People really want to compete on the Pro Tour, and Wizards does a great job making Magic fun to play. It also happens that if more people are priced out or drop out, that only makes it more valuable to the remaining players since the chances of winning go up. Thus, the system is sustainable so long as Magic is popular, fun, and new players replace those that quit.
But that doesn’t mean that the system is optimal or fair. In fact, it’s very likely, for the reasons I’ve just surveyed, that the system is deeply flawed. By not maximizing tournament attendance, we are actually hurting retention into the game. Competition would not only mean price competition, but also service competition, and allow the market to do its magic. Over time, new player replace old ones. But what if those old ones didn’t go away, at least not at current rates? Simple stock and flows shows you that you’d increase the number of players playing. It’s like filling up a bathtub, but slowing the drainage rate. You increase the water level in the tub. This would produce many positive feedback loops. You increase the number of players, increase the demand for other tournaments, increase card sales, etc, etc. Everyone wins, except for, perhaps PTQ TOs, who actually maximize profits, since they aren’t interested in maximizing attendance.
It’s a short term gain for PTQ TOs, and a long-term loss for Magic. Now, let’s look at some of the other arguments advanced:
1) The “They Provide a Quality Service” Argument.
A number of people have advanced this argument. It goes like this: these TOs have proven their ability to provide a quality service. They are well run, well organized, and experienced. Why risk letting inferior or bad TOs run PTQs? The answer is several fold. First of all, just because they provide a quality service, and provide a smoothly run event doesn’t mean that they aren’t gouging players and hurting magic. In fact, it’s the fact that they do provide at least a minimally quality service that excuses the monopoly power.
Secondly, while they may be providing a quality service, isn’t that for the market to decide? The defense:"we provide a great service, we are experienced, we provide quality,” is what they say in every industry. And I'm sure it's true. I'm sure these TOs really do a great job. They make the trains run on time, so to speak. But that doesn’t mean they are providing the best service that the market can bear. Open up competition, take away monopoly power, and then see what people think. We’ve lived in the monopoly system for so long that we haven’t even experienced the alternative. The TO system exists because these TOs, by and large, have always had it this way. One judge said that they’d estimate that it would take 1-3 seasons for other TOs to ‘catch up.’ That’s an empirical question that can only be known by trying it. But everything we know about economics suggests that competition is the only way to know who provides the best service. Saying that these TOs provide great service is not an answer because a competitive market would likely provide a much better service, especially for consumers. Isn’t that the whole idea behind our economic system?
2) “Why aren’t TO’s allowed to make a profit?”
Again, I’m making a pro-market argument. I’m not opposed to TOs making profits. I hope they do! But I hope they do it in the best interests of the game, and do so by outperforming their competition by providing a better experience and better value. Only competition will tell who is doing that. In any case, I’m not opposed to TOs walking away with several grand per PTQ. What I’m saying is that the arguments TOs are using in defense of their prize structure is nonsense. Increasing Prizes does increase attendance, it’s just not in the economic interest of these TOs to do so because of their pricing scheme. Moreover, I’m also saying that this degree of profiteering is unfair, and prizes should be increased.
In connection with these arguments, people point out that TO time and money is an opportunity cost, which I’m not factoring in. My answer to this is simple: That’s a question that would determined by a market. Competition would show what the appropriate opportunity cost for TOs is. We can’t assume that they are receiving what the market would otherwise bear.
3) “You aren’t factoring in all of the real costs” argument.
This argument is repeated ad nauseam. For example, Mike Flores said: “Why is $650 in hard cost product unacceptable relative to $6000 in total revenue for instance? Overhead much?”
Frankly, I’m astonished that anyone could think that $650 for $6000 in revenue is fair in a competitive system. But more important, despite what Flores and others say, I am not ignoring the presence of overhead. In fact, I explicitly recognize this fact. I’m still saying that these prize payouts are unfair. Moreover, the point is much broader than just a particular TO’s profits. It’s a structural argument, about how these TOs aren’t actually interested in maximizing attendance because of the system of regional monopolies.
4) “Other prizes don’t matter, I’m only playing for the invite” argument
Sperling, Flores and others all made this argument, or variations of it. Taken on its face, this argument is so absurd that it’s easy to straw man the underlying point, even though some folks apparently actually subscribe to the extreme and overly broad version of it. Let’s say that what they really mean is that adjusting the other prizes isn’t really worth it because most players are just there for the invite.
An individual’s decision is, logically, not the sum total of a single factor, such as the presence of an invite. Demand curves reflect people’s willingness to purchase a service or good at a particular price/value. While the invite is important, it’s not the only thing that matters. After all, logically, if PTQ entry fees were $100,000, then few would attend. Thus, price matters. Even if a player is playing only for an invite, the entry fee is a part of the calcluation of whether to attend, and therefore goes to the heart of the issue of monopoly pricing.
Price includes more than entry fees though, it includes time, gas, card needs, miles on the car, intangible costs such as cost to relationships, time away from family, and the like. All rational behavior is cost/benefit. The value of these prizes clearly affects people’s decisionmaking, otherwise no other prizes would need to be offered. A PTQ TO could just award first place and that’s it. Again, an individual person’s decision of whether to attend a PTQ is a cost/benefit decision, and all of the relevant factors fill that matrix, including job responsibilities, gas, expected prize earnings, etc. While it is likely the case for many players that the invite is the most important goal, it’s unbelievably reductionist to say that it’s the only factor to consider, since that’s logically untrue (as I proved above). It’s also reductionist to discount or minimize the other important reasons play, such as to hang out with friends, enjoy an afternoon, etc. For more on this particular aspect of the argument, read my free SCG article here: http://www.starcitygames.com/magic/misc/19411_So_Many_Insane_Plays_The_Ages_of_Magic_and_the_Future_of_the_Game.html
When things are going well, it’s difficult to see the flaws in the system. The structural flaws in our housing market only manifested once the housing bubble burst. PTQs are a very important part of the Magic experience, and the system in place now is exploitative. It’s no wonder that so many adults, when saddled with more ‘real life’ responsibilities and less time, find it less and less valuable to compete. Yet, maybe if real competition occurred, we’d see a transformation in the PTQ experience. Magic is being prevented from reaching its full potential. We need a system that maximizes PTQ attendance, not one that limits its to maximize profits. We need a system that opens competition between PTQ TOs to provide better value and better service, no matter how well people think those TOs are doing now. Maybe more people would play longer, and only then would Magic reach its full growth potential.
I was disturbed when I discovered (on Twitter) that Tom Martell and his friends were intentionally trolling me on this issue to entertain their friend (even before they felt I "called them out." Martell admitted that his initial posts were "in jest" for entertainment. And, on twitter I saw them linking the thread to each other to keep the 'fun' going. I think that is despicable behavior, especially for people who are supposed to represent the community. Then, bashing people without explaining one’s position, ad hominem attacks and the like, especially from Flores, are equally troubling. Too many people in the Magic community act like 4Chan denizens than serious professionals representing this game. I recognize that this is a topic that is likely to alarm many, whose bread and butter is built on the status quo. I also recognize that lobbying for change would be particularly difficult, since it’s Wizards that needs to change the system, not just TOs. But you play a role. You have a voice. I hope that we can have a serious conservation about this issue without such trolling, and when it happens, I hope that the community does not encourage it and condone it, but rather condemns it as unprofessional and immature.
I, personally, am only there for the invite. The other prizes really don't matter to me. I often have to drive 5+ hours to PTQs, so the $20 in gas, the cost of my deck, having to stay in a hotel (about 50% of the time), food, etc, is rarely matched by the prizes, if ever. The prize for top 8ing would have to be at least 250$ for it to even matter if I top 8. As it is now, top8ing means i get a few free drafts. It doesnt matter at all.
Magic is like a highly addictive substance. Playing the game in a competitive environment increases the addiction. As with any such substance, the demand is inelastic. As such, the player base will not change much with any change in prize support.
I, personally, am only there for the invite. The other prizes really don't matter to me. I often have to drive 5+ hours to PTQs, so the $20 in gas, the cost of my deck, having to stay in a hotel (about 50% of the time), food, etc, is rarely matched by the prizes, if ever. The prize for top 8ing would have to be at least 250$ for it to even matter if I top 8. As it is now, top8ing means i get a few free drafts. It doesnt matter at all.
I don't have to drive that far, but I'm in a similar place. The closest PTQs to me are almost 3 hours away. Even when I go with 3 friends to carpool, it's still gonna cost me 15-20 bucks for gas, money for food, possibly for a hotel, the entry fee, all that, is rarely worth how much I could have bought in packs/singles GUARANTEED, rather than a 'shot' at packs. I go for the gameplay and fun, possible trades/casual games, a chance at the invite, and mostly to test my mettle against other players. The prizes are nice, and they help me justify going, but they're icing, not cake.
I responded to your claim that PES is one of the most exploitive TOs, when they infact give away far more product than average, have a level 3 at most PTQs, and have excellent customer service. I can respond to the rest of this later, but I refuse to let you drag their name in the mud on this one.
An individual’s decision is, logically, not the sum total of a single factor, such as the presence of an invite.
Sure. But the relative weights on those factors are not equal.
The people on the margin of PTQs - the ones who you would be trying to pick up with increased prizes - are, for the most part, not people who have a high chance of winning. You need a significant multiplier on each dollar you add to the prize in order to add a dollar to their expected value. What's worse, the relative value between the main prize (invite to the pro tour) and the secondary prize (cash) is often beyond the rationality threshold. In theory, it's nice to model people as rational decision engines that take into account the full cost/benefit matrix. In practice, people look at the top factors on the cost and benefit sides and ignore anything that falls under a given threshold. It's like a $1000 grand prize lottery vs. a $1000 plus a teddy bear lottery. In theory, the latter is strictly better and you could construct a theoretical demand curve where that just pushes someone over the edge into buying a ticket. In practice, no one is going to think "$1000 just isn't enough, but with that teddy bear, maybe I should give it a shot!"
Perhaps I don't have enough understanding as you, Smennen, but why would a business willingly lower profitability?
If your call is to Wizards of the Coast to de-monopolize, then your argument is absurd. The ability to award invitations to the Pro Tour must be closely controlled and regulated, thus a Monopoly. Take Boise, ID. There should not be more than one invitation per season coming out of that "area" (and some might argue less than that)
So, then, who is your call to action to? Players? If they truly felt gouged, they wouldn't attend. shockingly, they still have the ability to not attend events. No one is forcing them to go to the PTQ's. Players are making decisions on their own, with no guns held to their head. I know plenty of players who believe it is too expensive to attend, and thus don't.
Also, your pricing model assumes a sealed PTQ (that's the only $30 ones I've ever attended, and thus I assume your model based on said facts) yet you don't factor in the cost of the sealed product.
Okay, seriously, just because you repeat the same flawed logic doesn't make it true. As someone on SCG commented, he increased prize support and it didn't increase turnout. As such, it doesn't make sense for them to increase support.
Also good job insulting Mike Flores. I dare you to challenge his logic.
You really should quit while you're behind. Everyone thinks your a pompass jackass now.
Your point has literally NOTHING to do with economics or with business. You are attempting to disguise your moral argument (it is wrong for TOs to make more than X% of entry fees in profit) as an economic one. There is no connection whatsoever.
This entire post consists of two things - you lashing out at everyone about how you have been mistreated by "me and my friends" and how despicable we are, and you going into a detailed analysis attempting to identify how much money TOs are actually making.
The former is pathetic and misguided, and the latter is totally irrelevant.
You repeatedly use your "pedigree" and "standing" to simply steamroll over people in the forums. You attempted to do this with me and were snapcalled. Instead of just acknowledging that you erred and made a bad assumption about my level of education and intelligence, you tried desperately to save face by becoming the aggrieved party. You tried to make the discussion a referendum on my character instead of a discussion about the (lacking) merits of your posts. You explicitly called me out ("I graduated Summa *** Laude with a degree in Economics. You?") and then backtracked twice - first by editing out just the "You" and then by deleting the post entirely - to try and make me look like a prick.
You don't get to cry about a spilled milk when you threw the carton at me.
With respect to the aforementioned merits of your posts, the only thing you are doing is pulling people into the weeds. You get them to squabble with you over how much money TOs are actually taking home instead of having a discussion on what a fair profit margin is, which is what your actual grievance is. You think it is unfair for TOs to take home 50% of gate fees as profit. If I disagree, then who cares how much they actually make. You are trying to force people to agree as assumed that 50% of entry fees is a heinous level by pulling them into some ridiculous argument about how much it actually costs to rent a tournament hall.
THIS IS NOT ECONOMICS. I have said this a dozen times. You made half of an economics based argument at one point in the SCG thread, got demolished, and without acknowledging it you switched your entire point to be a moralist one where you could not be disproved.
This is not how adults or intellectuals have a discussion. When you put forward a thesis and it gets disproved, act like an adult and acknowledge you were wrong before putting forward a different idea. Your bait and switch tactics simply waste everyone's time.
Your point has literally NOTHING to do with economics or with business. You are attempting to disguise your moral argument (it is wrong for TOs to make more than X% of entry fees in profit) as an economic one. There is no connection whatsoever.
The crux of the argument is that by setting up regional monopolies, PTQ TO's are engaing in monopolistic rent-seeking.
How is that not an economic argument?
How is this NOT an economic argument?
Consequently, the monopolist isn’t actually interested in maximizing tournament attendance because they actually make more money if they don’t. If you were to lower the cost of entry (or increase price support) you would be moving along the demand, and increase the number of players who would attend. However, you wouldn’t be maximizing profits if you are a monopolist. That’s because you’d have to price substantially below where you could otherwise price.
A simple supply and demand graph could bear this out, and, roughly speaking, it looks like this: http://en.wikipedia.org/wiki/File:Monopoly-surpluses.svg If you lowered the price of entry (or increased prize support) to Pc (or price in a competitive market) you increase the number of players, since more players would then be willing to play. However, you can see from this chart that the monopolist actually makes more money pricing at Pm.
Why, then, is this system sustainable? If people are being exploited, why compete? It’s simple: the aggregate demand curve reflects the willingness of everyone to purchase the service or product. The monopolist prices the product or service at a point where they maximize profits. This only happens if they price where people are willing to pay. Over time, as people quit magic or shift their demand to lower on the curve because of diminished time, energy, enthusiasm, etc, more people replace them. The demand for PTQs is quite high. People really want to compete on the Pro Tour, and Wizards does a great job making Magic fun to play. It also happens that if more people are priced out or drop out, that only makes it more valuable to the remaining players since the chances of winning go up. Thus, the system is sustainable so long as Magic is popular, fun, and new players replace those that quit.
How is arguing that competition would produce better outcomes NOT an economic argument?
It's the essence of an economc argument. Economic arguments are based on economic principles and economic logic. Arguing that competition in the market for PTQs would produce better services and value is the essence of an economic argument. Arguing that monopolistic behavior produces suboptimal outcomes and reduces tournament attendances is a quintessential economic argument.
Not a single person, let alone you, nor Flores, has actually explained where exactly this logic fails. Trolling or making humorous remarks is not a substitute for actual logical argumentation, nor are your continued and persistent ad hominem attacks. When someone actually takes the time to explain where this logic is flawed, I will respond appropriately.
smenendian: TOs are GREEDY and BAD PEOPLE.
Us: Why?
smenendian: They make too much money! They should give us more prizes!
Us: Why?
smenendian: We need more players in PTQs or the game will die! More prizes = more players = yay magic!
Us: That does not logically follow from any set of facts you've identified or assumptions we've agreed to.
smenendian: I have a degree in economics! What do you have?
Me: Snap Call. Sup?
smenendian: You are a BAD PERSON and MEAN.
Everyone: That was so funny!
smenendian: The community sucks! What jerks!
[100 Tweets later, scene change to mtgsalvation]
smenendian: TOs are GREEDY and BAD PEOPLE
<repeat>
You: TOs are GREEDY and BAD PEOPLE.
Us: Why?
You: They make too much money! They should give us more prizes!
Us: Why?
You: We need more players in PTQs or the game will die! More prizes = more players = yay magic!
Us: That does not logically follow from any set of facts you've identified or assumptions we've agreed to.
You: I have a degree in economics! What do you have?
Me: Snap Call. Sup?
You: You are a BAD PERSON and MEAN.
Everyone: That was so funny!
You: The community sucks! What jerks!
Lets say there are 2 tournaments the same day. One awards 2 PT invites but no product. The other awards 5x the product usually given at a PTQ but no invite. Same entry cost.
With my eyes closed I will attend the one with the PT invites. As many people have posted, product prize is the icing, not the cake.
You: TOs are GREEDY and BAD PEOPLE.
Us: Why?
You: They make too much money! They should give us more prizes!
Us: Why?
You: We need more players in PTQs or the game will die! More prizes = more players = yay magic!
Us: That does not logically follow from any set of facts you've identified or assumptions we've agreed to.
You: I have a degree in economics! What do you have?
Me: Snap Call. Sup?
You: You are a BAD PERSON and MEAN.
Everyone: That was so funny!
You: The community sucks! What jerks!
[100 Tweets later, scene change to mtgsalvation]
You: TOs are GREEDY and BAD PEOPLE
<repeat>
Great, now I have to explain why I'm laughing during the discussion of Aristotle and Plato.
Again, I’m making a pro-market argument. I’m not opposed to TOs making profits. I hope they do! But I hope they do it in the best interests of the game, and do so by outperforming their competition by providing a better experience and better value. Only competition will tell who is doing that. In any case, I’m not opposed to TOs walking away with several grand per PTQ. What I’m saying is that the arguments TOs are using in defense of their prize structure is nonsense. Increasing Prizes does increase attendance, it’s just not in the economic interest of these TOs to do so because of their pricing scheme. Moreover, I’m also saying that this degree of profiteering is unfair, and prizes should be increased.
In connection with these arguments, people point out that TO time and money is an opportunity cost, which I’m not factoring in. My answer to this is simple: That’s a question that would determined by a market. Competition would show what the appropriate opportunity cost for TOs is. We can’t assume that they are receiving what the market would otherwise bear.
Yes, people point out that there's opportunity cost. Even with all the "non-rocketsurgery" you seem to be missing the big picture. This is exactly why people who think they understand economics so well stay in academics, because they never stop to ask themselves: "How does this affect decisions in the real world?" Even with your estimates, which I'd deem somewhat sloppy, for purposes of this arugment, lets say they're fine.
You're proposing that their profit on a full day event is in the ballpark of a few thousand dollars. How does this on its own not tell you why everyone of these people is calling you names?
Now, allow me to ballpark a few things:
I'll assume that the organization who runs these events has employees, beyond the sole proprieter. I'll say at a minimum Owner/Manager +3. So they've got some overhead costs you haven't considered like Social Security, benefits, workers compensation insurance, general liability insurance, oh yeah and taxes. I'll ignore that so your head doesn't explode thinking about all the things that theoretical models typically don't waste their pretty formulas on.
Yes, of course there's an opportunity cost, lets just "make educated guesses" about what those might be, instead of just writing them off as "determined by a market". I'm sure all your education has taught you what an opportunity cost actually is, right?
Suppose you owned a business giving your Vintage Magic Lessons that you advertise in your signature in SCG forums. Lets also make the big jump, that potentially a couple hundred people might come to a full day seminar of sorts, and that your operating costs of this seminar were similar to a PTQ. How much time would it take you to simply contact all the vendors you require to make the event happen? How much time would it take you to communicate and prepare with ushers/assistants (judges for a ptq)? How many other people help you run your business, and how many hours of paid wage did they spend on this project as well? Also, how much upfront money did you need to put into this to make it happen? NOW, we're talking opportunity cost.
My VERY rough and conservative estimates are:
Even if you had no other employees, the proprietor would spend a MINIMUM of 10-12 hours coordinating the Venue, Judges, Product/Prizes, and paperwork with WotC. Additionally another couple hours marketing table space to dealers, and another couple marketing the event itself.
Just to be conservative, I'll say 12 hours, but I'm sure if we were still on a thread that Glen was reading, I"m sure he'd jump in and laugh, as these events probably take much more planning than that.
I'd also assume it would take about $2-3k in upfront money.
Since you've told us how highly educated you are, how much would you value 12 hours of your time, and the need to have $2-3k free to use for this profit venture?
So, for this PTQ proprietor, He's got 12 hours of planning and probably 12hours on site. Supposing they net 3k profit, and spend 24 hours total labor on it, they make $125/hr before taxes. And you say they're Gouging?
I really simplified these numbers, and made VERY conservative estimates. This is also not considering that they have to tie up $2-3k of their operating cash to make it all happen.
Sure, It may seem like a lot of money, but for a TO who, as deemed by WotC OP, is very good at what they do $125/hr (or less) really isn't something to be in upheaval about.
Second: You say that let competition determine the market. Have you thought this through? Most local low REL events are extremely unorganized, and handled by TO's who are inexperienced and don't know what's going on. Putting PTQ's in the hands of any TO off the street opens to doors to cheating, poorly run events, and overall disasters. Sure, the market would eventually weed these people out, but since some players just want their PT shot, people would still attend all of the available ptq's. I'd really prefer that an interested party (aka WotC OP) determine which TO's are best prepared to provide the grinders their outlet to success. Just like McDonalds won't give you a franchise if you're in massive debt, or right next door to another McDonalds, or have no evidence that you COULD successfuly run a McDonalds. it's not good for the brand when people represent it poorly.
I think you're simply being stubborn. I think you've read the counter arguments, you see their merits, but you keep asserting your same points that have HUGE holes in them.
I applaud Martell et al. If you can't deal with trolling, avoid forums. My mommy once taught me to ignore people who tease me, not to re-post and quote every last one of them, so that everyone knows how much it got to you.
Lets say there are 2 tournaments the same day. One awards 2 PT invites but no product. The other awards 5x the product usually given at a PTQ but no invite. Same entry cost.
With my eyes closed I will attend the one with the PT invites. As many people have posted, product prize is the icing, not the cake.
Not that I agree with Menendian, but your example is horribly flawed.
You would need to compare something like a PTQ with prizes and a PT invite and a PTQ with 2x prizes and an invite, and then see how significant the change in attendance is. This would also need to occur with as many similar factors as possible (same time frame, same area, same format potentially even).
Lets say there are 2 tournaments the same day. One awards 2 PT invites but no product. The other awards 5x the product usually given at a PTQ but no invite. Same entry cost.
With my eyes closed I will attend the one with the PT invites. As many people have posted, product prize is the icing, not the cake.
You beat me to making this very point. Invites are a finite, non substitutable good. If anything, I question why TOs waste even a single pack on prize support. The MTGO PTQs certainly don't (something like 16 packs for 5th place in a 500! person tournament) and clearly the market forces are reinforcing that valuation of the first prize.
Menendian - Instead of spending 10,000 words trying to quantify how much money TOs make (BECAUSE THIS IS IRRELEVANT TO YOUR "ECONOMIC" ARGUMENT), you should spend that time and those words attempting to quantify the necessary growth in attendance that would be needed to support your proposed pack distribution plan. You should also model future tournament growth under the traditional and your alternative methods to show that TOs would be better off in 3 years under your plan.
I know constructing a model is a foreign idea for an economics major. Oh, wait...
Your point has literally NOTHING to do with economics or with business. You are attempting to disguise your moral argument (it is wrong for TOs to make more than X% of entry fees in profit) as an economic one. There is no connection whatsoever.
This entire post consists of two things - you lashing out at everyone about how you have been mistreated by "me and my friends" and how despicable we are, and you going into a detailed analysis attempting to identify how much money TOs are actually making.
The former is pathetic and misguided, and the latter is totally irrelevant.
You repeatedly use your "pedigree" and "standing" to simply steamroll over people in the forums. You attempted to do this with me and were snapcalled. Instead of just acknowledging that you erred and made a bad assumption about my level of education and intelligence, you tried desperately to save face by becoming the aggrieved party. You tried to make the discussion a referendum on my character instead of a discussion about the (lacking) merits of your posts. You explicitly called me out ("I graduated Summa *** Laude with a degree in Economics. You?") and then backtracked twice - first by editing out just the "You" and then by deleting the post entirely - to try and make me look like a prick.
You don't get to cry about a spilled milk when you threw the carton at me.
With respect to the aforementioned merits of your posts, the only thing you are doing is pulling people into the weeds. You get them to squabble with you over how much money TOs are actually taking home instead of having a discussion on what a fair profit margin is, which is what your actual grievance is. You think it is unfair for TOs to take home 50% of gate fees as profit. If I disagree, then who cares how much they actually make. You are trying to force people to agree as assumed that 50% of entry fees is a heinous level by pulling them into some ridiculous argument about how much it actually costs to rent a tournament hall.
THIS IS NOT ECONOMICS. I have said this a dozen times. You made half of an economics based argument at one point in the SCG thread, got demolished, and without acknowledging it you switched your entire point to be a moralist one where you could not be disproved.
This is not how adults or intellectuals have a discussion. When you put forward a thesis and it gets disproved, act like an adult and acknowledge you were wrong before putting forward a different idea. Your bait and switch tactics simply waste everyone's time.
Yours,
TM
This, all of this, and more of this. Thanks Tom. If only i could say it like you.
the problem with your arguments have nothing to do with a grasp of finances, or logic, it's the assumptions. many are dead wrong, and others suspect.
I'm all for raising awareness, but what can we actually do to instigate change? i know what i can do, and it's more then write an article or comment on one. i'll let you know what comes of it.
Perhaps I don't have enough understanding as you, Smennen, but why would a business willingly lower profitability?
Reread the first post. They wouldn't, and that's the problem. As I said:
the monopolist isn’t actually interested in maximizing tournament attendance because they actually make more money if they don’t. If you were to lower the cost of entry (or increase price support) you would be moving along the demand, and increase the number of players who would attend. However, you wouldn’t be maximizing profits if you are a monopolist. That’s because you’d have to price substantially below where you could otherwise price.
A simple supply and demand graph could bear this out, and, roughly speaking, it looks like this: http://en.wikipedia.org/wiki/File:Monopoly-surpluses.svg If you lowered the price of entry (or increased prize support) to Pc (or price in a competitive market) you increase the number of players, since more players would then be willing to play. However, you can see from this chart that the monopolist actually makes more money pricing at Pm.
If your call is to Wizards of the Coast to de-monopolize, then your argument is absurd.
My call is to get wizards to create greater competition between TOs for PTQs, not for Wizards to demonopolize. I'm not sure why you think I would be asking WOTC to demonopolize it's trademarked product.
So, then, who is your call to action to? Players? If they truly felt gouged, they wouldn't attend.
Not necessarily, as I already explained:
Why, then, is this system sustainable? If people are being exploited, why compete? It’s simple: the aggregate demand curve reflects the willingness of everyone to purchase the service or product. The monopolist prices the product or service at a point where they maximize profits. This only happens if they price where people are willing to pay. Over time, as people quit magic or shift their demand to lower on the curve because of diminished time, energy, enthusiasm, etc, more people replace them. The demand for PTQs is quite high. People really want to compete on the Pro Tour, and Wizards does a great job making Magic fun to play. It also happens that if more people are priced out or drop out, that only makes it more valuable to the remaining players since the chances of winning go up. Thus, the system is sustainable so long as Magic is popular, fun, and new players replace those that quit.
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Surprisingly, people from across the Magic community chimed in to criticize both my suggestion and the rational advanced for it. Variously, TOs and other community members complained that increasing prize support was infeasible, impractical, that doing so would not increase attendance, or that it was unnecessary or unimportant. In this post, I will explore this issue in more detail. Mike Flores, on twitter, called me a “moron.” (see for yourself: http://twitter.com/fivewithflores ) Tom Martell called me an idiot (again, see for yourself (http://twitter.com/semisober ). They claimed, without explaining why, that my arguments were bad. I will nonetheless engage the points they raise, giving their arguments the respect and due that they have failed to do for me.
But first, let me recapitulate the main argument. Many players already know this, but many do not or sense it, but have not ‘put their finger on it,’ but based upon experience, economic logic and some math, PTQ Tournament Organizers (TOs) overcharge for entry fees and provide substandard prizes. You pay $30 entry, can go 8-0 in a 200 player PTQ, lose in the first round of Top 8, and walk away with half a box of booster packs. And that’s when the TO takes in $6000 in entry fee revenue alone. Moreover, it’s my view that PTQ TOs treat attendees as if they are disposable and replaceable. They, too often, fail to actually create an environment where people want to play over time, and fail to retain players over the long-term. In other words, it’s my view that PTQ TO’s exploit players, gouging them, and then get away with it because new ones replace them.
Many people angrily denounced my arguments, claiming that I lacked a fundamental understanding of economic theory or business practice. Others claimed that I have ‘no idea’ what I’m talking about. Others said worse. I will specifically quote and cite what people have said.
But first, ket me spell it out. This isn’t rocket science/brain surgery. The facts are known or easily knowable, and any unknowns are ‘known unknowns,’ and can be estimated within a reliable range.
Let’s start with the basics. Economic profit is revenue minus cost. Let’s look at each component separately.
The main source of revenue is entry fees, but it’s by no means the only source. TOs can also charge dealers to operate in the room, sell cards, or charge other TOs to host side events or market other wares. These sources of revenue of often substantial, particularly at larger events. For example, at GPs, TOs can charge as much as $3,000 for a table! Many experience retailers and dealers can tell us what the going price for a table at a PTQ is, but it’s worth something.
Now let’s look at their costs. There are two kinds of costs: fixed and variable. The only variable cost in terms of running a PTQ is prize support, which generally scales to the number of players in a tournament. Fixed costs include: 1) Space (i.e. hall rentals), 2) personnel (i.e. judges, support staff), 3) equipment (i.e. computers, printers, ink, paper, pens, etc), and 4) marketing/promotion.
Yes, there are other costs involved, such as taxes, other overhead costs such as maintaining a website to market your events, maintaining an office or business address, full time personnel, insurance, etc. These costs are real, and important. But it’s also true that they aren’t costs incurred from a single event. Nonetheless, we can factor them in, or at least, make reasonable guesses about many of these. And yes, I know that the TO’s time and effort is a cost, at least an opportunity cost, and is counted as such in calculating economic profit. I will factor that in as well.
What we know? First, we know how much revenue a TO receives from entry fees. Space costs are not as readily known, but they are still knowable and easily discovered with a little bit of research. We can easily find out how much a particular space costs by simply calling the location and seeing what their rate is. People rent spaces like convention halls, hotel banquet rooms, party halls, and the like all of the time for seminars, weddings, bah mitzvah’s, meetings and other events. There are standard rental ranges for these kinds of spaces, with the main variables between square footage, amenities and location. I did some online research on space rentals around the country. After looking for a while, you see the same numbers when it comes to renting space. The only unknown is whether the TO receives a discount for regular or repeat business.
We don’t know exactly how much personnel cost, nor how much the prize support costs, but we can make reasonable estimates, and, with a little bit of digging, they can be discovered. We know, for example, what a box of Magic costs to a retailer (i.e. the wholesale price), and we know that large TOs and retailers get boxes for even less. Thus, while we may not know this with exact precision, reasonable guesses can be made. We also know, for example, that judges often get a box of product for their efforts on the day. We can also know what reams of paper, ink, etc cost. We also can guess, within a reasonable range, what marketing costs are (i.e. running a website).
One of the criticisms that was leveled against me is that these are all just guesses. Yes, some of these factors are guesses, but they are educated guesses. They are reasonable guesses. They are estimates based upon research, experience, and common sense. I couldn’t tell you the exact cost of hamburger, but that doesn’t mean I couldn’t give you a ballpark of the cost inputs. To ignore these facts simply because they may not be true in every case or be *exact* figures is simply an attempt to dismiss the arguments here out of hand, rather than to consider their actual merit. Below, I put actual numerical estimates to each of these variables.
Revenue
Suppose 200 people show up to a PTQ. The entry fee revenue is then $6000. Suppose, further, that you sold a dealer table for $500. Total revenue is $6500.
Now, what are the costs?
Space
Some TOs already own or lease the space, so there is no additional cost involved, except as part of doing regular business. In those instances, you amortize the cost of the space for the day. Some TOs rent space for the day. Other TOs rent space in high rent places like New York City, where the costs are much higher. We could imagine a PTQ that that fits 250 players could cost as much as $1500 to $2000 per day in places like NYC, if not more once security and other amenities are added. But in most places, it’s substantially less for a PTQ room. Rooms to accommodate only several hundred for one day can probably be rented under $1000, depending on the location. Halls plus kitchen cost more, as does security. In addition, a security deposit is usually required. Based upon web searches for hall space, I estimate that a hall and kitchen for one day costs around $1200 for a larger space, while others can be secured for $800 or much less. Therefore, for hypothetical purposes, a $1,000 figure can be used, even though that’s probably still on the high end.
Personnel
Judges are a very important element of a smoothly run event. However, Magic judges can be bought on the cheap. And, what’s more, Wizards actually subsidizes these costs. For example, a few years ago, industry practice was (and probably still is) to give judges product, such as a box of product for their work on the day. In addition, judges receive promos and other awards for service rendered, which helps defray costs for TOs because it is a WOTC subsidy/reward. According to an article by Peter Hahn, the rule of thumb is one judge per 75 players. A two hundred player event would mean 2.5 judges, although I’m not sure if he’s counting a head judge. So for simplification, I will assume that the average PTQ has 4 judges, and each judge is awarded a box of product. Let’s also assume that each judge is given a box of product. Other personnel are also needed, such as people to process results and receive entries, etc. Judges can do this, but sometimes they don’t. We’ll add another staff person to the costs, and give them a box as well. We know that retailers can get boxes of magic for $75-80, and big retailers for substantially less. For simplification, I will assume that the box here costs the TO $70. With 5 personnel, the personnel costs are $350.
Prizes
This is the only variable cost. Prizes scale based on attendance. One TO practice is to add 3 boosters for every player in the prize pool. So, if we have 200 players, that’s 16.67 boxes being awarded. That’s $1250.
Equipment
Let’s assume that the TO uses a container of ink and a several reams of paper, and gas to and from, and parking we’ll say is about $100. Even if the costs are double, that won’t change our basic ballpark estimates.
The main fixed and variable costs of a PTQ have now been deduced. Let’s do the math:
Profit = Gross Revenue – Total Costs
Gross Revenue = $6500
Costs = $1000 + $350 + $1250 + $100 = $2700
Profit = $6500-$2700=$3800
Now, this is just an accounting profit because I haven’t factored in the opportunity cost of the TO’s time. I will discuss this issue later. Also, keep in mind that we’ve calculated all of this within a range. Many of these costs may be more or less. Certainly, the variable cost will change depending upon attendance. But the only variable cost was prize support.
And, yes, I am aware of the other costs are of course overhead, marketing, etc. Of course, maintaining a website is not cheap, but you have many events to cover it. And, marketing is also not that expensive. You have free marketing on Wizards website, and you have other websites, community sites, etc that all advertise for you. Let’s just take out another grand to cover these expenses, and that’s being pretty generous, considering the number of events these TOs host per year to defray these expenses.
That means still produces a $2700 profit on $6500 of revenue. Simply put, the profit likely to be quite substantial. The question is: is this fair? Moreover: should TOs put more of the revenue into the prize pool?
While this may appear to be a subjective question, there are a number of ways of addressing it, and getting to a real answer.
First of all, there are standards by which we can compare it. Simply put, I would argue that giving out only 20% of gross revenues in prize support is grossly below average for most Magic tournaments, despite the fact that many PTQ TOs have much greater overhead, particular those that don’t host PTQs in a retail store.
More importantly, an answer to a question like this is determined by the market, and by competition. In any other environment, we would compare the price or value of a service by looking at what a competitor is offering. Unfortunately, that’s not how PTQ’s work. Wizards awards regional monopolies to certain TOs, barring very substandard service. Why does this matter?
It matters for a number of reasons. First of all, without competition, we have no way of knowing what would be fair or what the market would bear. A market of TOs truly competing with each other in a region would tell us who does the best job and offers the best value for their service. Secondly, economic theory tells us that monopolist price where marginal revenue equals marginal cost, not where price equals marginal cost. In layman’s terms, what that means is that because the monopolist does not face competition, they can get away with charging a higher price. That price can come in the form of higher entry fees or lower prize support. While I believe that awarding such a small amount of revenue into the prize support is exploitative, that’s simply my evaluation based upon comparable standards in non-PTQ contexts. Even if we can’t say that, we can say that having monopoly power at least raises serious doubt over whether these events are fairly awarded. In the absence of a competitive market and in the presence of monopoly power, I would argue that our current system is presumptively unfair, and the burden of proof would be on those to establish otherwise.
On twitter, Mike Flores said:
“The guy [me] clearly has no understanding of economics. I understood econ better as a first year.”
He also said:
“His [my] arguments defy a basic understanding of "supply" and "demand"”
Mike isn’t alone. A number of people have made similar remarks.
Tom Martell said:
“[There are] gaping holes in your logic several times and you've failed to respond to any of them, so I'm not going to try and educate you about economics.”
But what I’ve described is not rocket science, nor is it really that complicated. I would love for Flores to tell me how I “clearly have no understanding of economics.” Not only is that a very broad statement to make (since understanding even a very simple economic concept would refute his statement), but neither he nor anyone else in the critique have actually taken the time to explain how my logic fails. Saying I don’t understand economics is not an argument. It’s an assertion. If TOs are regional monopolies, then they can engage in rent-seeking behavior. And why wouldn’t they?
One argument that I made is that by increasing prize support, you would increase attendance. It’s incredible, but a number of people actually object to this rather non-controversial claim. Increasing prize support is another way of increasing the value of the event. By increasing the value of the event, you make it more likely that the benefits of attendance outweigh the costs, and necessarily influence player’s decision of whether to attend.
It flies in the face of both economic logic and common sense to say that increasing prize support does not produce an increase in attendance. That is not to say that there aren’t diminishing returns associated with greater prizes. But that’s not the argument that is being advanced. People are actually saying that increasing prize support doesn’t increase attendance. And, I’m being called idiotic or ignorant for making a claim that are undeniable.
The more important point is that it may not be in the economic self-interest of the TO to increase prize support. That’s because, as I said before, the monopolist prices where MR = MC. Consequently, the monopolist isn’t actually interested in maximizing tournament attendance because they actually make more money if they don’t. If you were to lower the cost of entry (or increase price support) you would be moving along the demand, and increase the number of players who would attend. However, you wouldn’t be maximizing profits if you are a monopolist. That’s because you’d have to price substantially below where you could otherwise price.
A simple supply and demand graph could bear this out, and, roughly speaking, it looks like this: http://en.wikipedia.org/wiki/File:Monopoly-surpluses.svg If you lowered the price of entry (or increased prize support) to Pc (or price in a competitive market) you increase the number of players, since more players would then be willing to play. However, you can see from this chart that the monopolist actually makes more money pricing at Pm.
Why, then, is this system sustainable? If people are being exploited, why compete? It’s simple: the aggregate demand curve reflects the willingness of everyone to purchase the service or product. The monopolist prices the product or service at a point where they maximize profits. This only happens if they price where people are willing to pay. Over time, as people quit magic or shift their demand to lower on the curve because of diminished time, energy, enthusiasm, etc, more people replace them. The demand for PTQs is quite high. People really want to compete on the Pro Tour, and Wizards does a great job making Magic fun to play. It also happens that if more people are priced out or drop out, that only makes it more valuable to the remaining players since the chances of winning go up. Thus, the system is sustainable so long as Magic is popular, fun, and new players replace those that quit.
But that doesn’t mean that the system is optimal or fair. In fact, it’s very likely, for the reasons I’ve just surveyed, that the system is deeply flawed. By not maximizing tournament attendance, we are actually hurting retention into the game. Competition would not only mean price competition, but also service competition, and allow the market to do its magic. Over time, new player replace old ones. But what if those old ones didn’t go away, at least not at current rates? Simple stock and flows shows you that you’d increase the number of players playing. It’s like filling up a bathtub, but slowing the drainage rate. You increase the water level in the tub. This would produce many positive feedback loops. You increase the number of players, increase the demand for other tournaments, increase card sales, etc, etc. Everyone wins, except for, perhaps PTQ TOs, who actually maximize profits, since they aren’t interested in maximizing attendance.
It’s a short term gain for PTQ TOs, and a long-term loss for Magic.
Now, let’s look at some of the other arguments advanced:
1) The “They Provide a Quality Service” Argument.
A number of people have advanced this argument. It goes like this: these TOs have proven their ability to provide a quality service. They are well run, well organized, and experienced. Why risk letting inferior or bad TOs run PTQs?
The answer is several fold. First of all, just because they provide a quality service, and provide a smoothly run event doesn’t mean that they aren’t gouging players and hurting magic. In fact, it’s the fact that they do provide at least a minimally quality service that excuses the monopoly power.
Secondly, while they may be providing a quality service, isn’t that for the market to decide? The defense:"we provide a great service, we are experienced, we provide quality,” is what they say in every industry. And I'm sure it's true. I'm sure these TOs really do a great job. They make the trains run on time, so to speak. But that doesn’t mean they are providing the best service that the market can bear. Open up competition, take away monopoly power, and then see what people think. We’ve lived in the monopoly system for so long that we haven’t even experienced the alternative. The TO system exists because these TOs, by and large, have always had it this way. One judge said that they’d estimate that it would take 1-3 seasons for other TOs to ‘catch up.’ That’s an empirical question that can only be known by trying it. But everything we know about economics suggests that competition is the only way to know who provides the best service. Saying that these TOs provide great service is not an answer because a competitive market would likely provide a much better service, especially for consumers. Isn’t that the whole idea behind our economic system?
2) “Why aren’t TO’s allowed to make a profit?”
Again, I’m making a pro-market argument. I’m not opposed to TOs making profits. I hope they do! But I hope they do it in the best interests of the game, and do so by outperforming their competition by providing a better experience and better value. Only competition will tell who is doing that. In any case, I’m not opposed to TOs walking away with several grand per PTQ. What I’m saying is that the arguments TOs are using in defense of their prize structure is nonsense. Increasing Prizes does increase attendance, it’s just not in the economic interest of these TOs to do so because of their pricing scheme. Moreover, I’m also saying that this degree of profiteering is unfair, and prizes should be increased.
In connection with these arguments, people point out that TO time and money is an opportunity cost, which I’m not factoring in. My answer to this is simple: That’s a question that would determined by a market. Competition would show what the appropriate opportunity cost for TOs is. We can’t assume that they are receiving what the market would otherwise bear.
3) “You aren’t factoring in all of the real costs” argument.
This argument is repeated ad nauseam. For example, Mike Flores said:
“Why is $650 in hard cost product unacceptable relative to $6000 in total revenue for instance? Overhead much?”
Frankly, I’m astonished that anyone could think that $650 for $6000 in revenue is fair in a competitive system. But more important, despite what Flores and others say, I am not ignoring the presence of overhead. In fact, I explicitly recognize this fact. I’m still saying that these prize payouts are unfair.
Moreover, the point is much broader than just a particular TO’s profits. It’s a structural argument, about how these TOs aren’t actually interested in maximizing attendance because of the system of regional monopolies.
4) “Other prizes don’t matter, I’m only playing for the invite” argument
Sperling, Flores and others all made this argument, or variations of it. Taken on its face, this argument is so absurd that it’s easy to straw man the underlying point, even though some folks apparently actually subscribe to the extreme and overly broad version of it. Let’s say that what they really mean is that adjusting the other prizes isn’t really worth it because most players are just there for the invite.
An individual’s decision is, logically, not the sum total of a single factor, such as the presence of an invite. Demand curves reflect people’s willingness to purchase a service or good at a particular price/value. While the invite is important, it’s not the only thing that matters. After all, logically, if PTQ entry fees were $100,000, then few would attend. Thus, price matters. Even if a player is playing only for an invite, the entry fee is a part of the calcluation of whether to attend, and therefore goes to the heart of the issue of monopoly pricing.
Price includes more than entry fees though, it includes time, gas, card needs, miles on the car, intangible costs such as cost to relationships, time away from family, and the like. All rational behavior is cost/benefit. The value of these prizes clearly affects people’s decisionmaking, otherwise no other prizes would need to be offered. A PTQ TO could just award first place and that’s it. Again, an individual person’s decision of whether to attend a PTQ is a cost/benefit decision, and all of the relevant factors fill that matrix, including job responsibilities, gas, expected prize earnings, etc. While it is likely the case for many players that the invite is the most important goal, it’s unbelievably reductionist to say that it’s the only factor to consider, since that’s logically untrue (as I proved above). It’s also reductionist to discount or minimize the other important reasons play, such as to hang out with friends, enjoy an afternoon, etc. For more on this particular aspect of the argument, read my free SCG article here: http://www.starcitygames.com/magic/misc/19411_So_Many_Insane_Plays_The_Ages_of_Magic_and_the_Future_of_the_Game.html
When things are going well, it’s difficult to see the flaws in the system. The structural flaws in our housing market only manifested once the housing bubble burst. PTQs are a very important part of the Magic experience, and the system in place now is exploitative. It’s no wonder that so many adults, when saddled with more ‘real life’ responsibilities and less time, find it less and less valuable to compete. Yet, maybe if real competition occurred, we’d see a transformation in the PTQ experience. Magic is being prevented from reaching its full potential. We need a system that maximizes PTQ attendance, not one that limits its to maximize profits. We need a system that opens competition between PTQ TOs to provide better value and better service, no matter how well people think those TOs are doing now. Maybe more people would play longer, and only then would Magic reach its full growth potential.
I was disturbed when I discovered (on Twitter) that Tom Martell and his friends were intentionally trolling me on this issue to entertain their friend (even before they felt I "called them out." Martell admitted that his initial posts were "in jest" for entertainment. And, on twitter I saw them linking the thread to each other to keep the 'fun' going. I think that is despicable behavior, especially for people who are supposed to represent the community. Then, bashing people without explaining one’s position, ad hominem attacks and the like, especially from Flores, are equally troubling. Too many people in the Magic community act like 4Chan denizens than serious professionals representing this game. I recognize that this is a topic that is likely to alarm many, whose bread and butter is built on the status quo. I also recognize that lobbying for change would be particularly difficult, since it’s Wizards that needs to change the system, not just TOs. But you play a role. You have a voice. I hope that we can have a serious conservation about this issue without such trolling, and when it happens, I hope that the community does not encourage it and condone it, but rather condemns it as unprofessional and immature.
I don't have to drive that far, but I'm in a similar place. The closest PTQs to me are almost 3 hours away. Even when I go with 3 friends to carpool, it's still gonna cost me 15-20 bucks for gas, money for food, possibly for a hotel, the entry fee, all that, is rarely worth how much I could have bought in packs/singles GUARANTEED, rather than a 'shot' at packs. I go for the gameplay and fun, possible trades/casual games, a chance at the invite, and mostly to test my mettle against other players. The prizes are nice, and they help me justify going, but they're icing, not cake.
The latest Comprehensive Rules are also good, and can be found here.
The people on the margin of PTQs - the ones who you would be trying to pick up with increased prizes - are, for the most part, not people who have a high chance of winning. You need a significant multiplier on each dollar you add to the prize in order to add a dollar to their expected value. What's worse, the relative value between the main prize (invite to the pro tour) and the secondary prize (cash) is often beyond the rationality threshold. In theory, it's nice to model people as rational decision engines that take into account the full cost/benefit matrix. In practice, people look at the top factors on the cost and benefit sides and ignore anything that falls under a given threshold. It's like a $1000 grand prize lottery vs. a $1000 plus a teddy bear lottery. In theory, the latter is strictly better and you could construct a theoretical demand curve where that just pushes someone over the edge into buying a ticket. In practice, no one is going to think "$1000 just isn't enough, but with that teddy bear, maybe I should give it a shot!"
Twitter
If your call is to Wizards of the Coast to de-monopolize, then your argument is absurd. The ability to award invitations to the Pro Tour must be closely controlled and regulated, thus a Monopoly. Take Boise, ID. There should not be more than one invitation per season coming out of that "area" (and some might argue less than that)
So, then, who is your call to action to? Players? If they truly felt gouged, they wouldn't attend. shockingly, they still have the ability to not attend events. No one is forcing them to go to the PTQ's. Players are making decisions on their own, with no guns held to their head. I know plenty of players who believe it is too expensive to attend, and thus don't.
Also, your pricing model assumes a sealed PTQ (that's the only $30 ones I've ever attended, and thus I assume your model based on said facts) yet you don't factor in the cost of the sealed product.
You should read them.
"Rejoice, for bad things are about to happen"
Also good job insulting Mike Flores. I dare you to challenge his logic.
You really should quit while you're behind. Everyone thinks your a pompass jackass now.
Your point has literally NOTHING to do with economics or with business. You are attempting to disguise your moral argument (it is wrong for TOs to make more than X% of entry fees in profit) as an economic one. There is no connection whatsoever.
This entire post consists of two things - you lashing out at everyone about how you have been mistreated by "me and my friends" and how despicable we are, and you going into a detailed analysis attempting to identify how much money TOs are actually making.
The former is pathetic and misguided, and the latter is totally irrelevant.
You repeatedly use your "pedigree" and "standing" to simply steamroll over people in the forums. You attempted to do this with me and were snapcalled. Instead of just acknowledging that you erred and made a bad assumption about my level of education and intelligence, you tried desperately to save face by becoming the aggrieved party. You tried to make the discussion a referendum on my character instead of a discussion about the (lacking) merits of your posts. You explicitly called me out ("I graduated Summa *** Laude with a degree in Economics. You?") and then backtracked twice - first by editing out just the "You" and then by deleting the post entirely - to try and make me look like a prick.
You don't get to cry about a spilled milk when you threw the carton at me.
With respect to the aforementioned merits of your posts, the only thing you are doing is pulling people into the weeds. You get them to squabble with you over how much money TOs are actually taking home instead of having a discussion on what a fair profit margin is, which is what your actual grievance is. You think it is unfair for TOs to take home 50% of gate fees as profit. If I disagree, then who cares how much they actually make. You are trying to force people to agree as assumed that 50% of entry fees is a heinous level by pulling them into some ridiculous argument about how much it actually costs to rent a tournament hall.
THIS IS NOT ECONOMICS. I have said this a dozen times. You made half of an economics based argument at one point in the SCG thread, got demolished, and without acknowledging it you switched your entire point to be a moralist one where you could not be disproved.
This is not how adults or intellectuals have a discussion. When you put forward a thesis and it gets disproved, act like an adult and acknowledge you were wrong before putting forward a different idea. Your bait and switch tactics simply waste everyone's time.
Yours,
TM
You should read them.
"Rejoice, for bad things are about to happen"
Now, now...I thought your name was Tom Martroll...
My twitter account: @Kengy5
My blog about cube:
Slaughter Cry
The crux of the argument is that by setting up regional monopolies, PTQ TO's are engaing in monopolistic rent-seeking.
How is that not an economic argument?
How is this NOT an economic argument?
How is arguing that competition would produce better outcomes NOT an economic argument?
It's the essence of an economc argument. Economic arguments are based on economic principles and economic logic. Arguing that competition in the market for PTQs would produce better services and value is the essence of an economic argument. Arguing that monopolistic behavior produces suboptimal outcomes and reduces tournament attendances is a quintessential economic argument.
Not a single person, let alone you, nor Flores, has actually explained where exactly this logic fails. Trolling or making humorous remarks is not a substitute for actual logical argumentation, nor are your continued and persistent ad hominem attacks. When someone actually takes the time to explain where this logic is flawed, I will respond appropriately.
Spam Warning.
On a SCG forum far far away....
smenendian: TOs are GREEDY and BAD PEOPLE.
Us: Why?
smenendian: They make too much money! They should give us more prizes!
Us: Why?
smenendian: We need more players in PTQs or the game will die! More prizes = more players = yay magic!
Us: That does not logically follow from any set of facts you've identified or assumptions we've agreed to.
smenendian: I have a degree in economics! What do you have?
Me: Snap Call. Sup?
smenendian: You are a BAD PERSON and MEAN.
Everyone: That was so funny!
smenendian: The community sucks! What jerks!
[100 Tweets later, scene change to mtgsalvation]
smenendian: TOs are GREEDY and BAD PEOPLE
<repeat>
/brofist
Spam Warning.
With my eyes closed I will attend the one with the PT invites. As many people have posted, product prize is the icing, not the cake.
Great, now I have to explain why I'm laughing during the discussion of Aristotle and Plato.
You should read them.
"Rejoice, for bad things are about to happen"
Yes, people point out that there's opportunity cost. Even with all the "non-rocketsurgery" you seem to be missing the big picture. This is exactly why people who think they understand economics so well stay in academics, because they never stop to ask themselves: "How does this affect decisions in the real world?" Even with your estimates, which I'd deem somewhat sloppy, for purposes of this arugment, lets say they're fine.
You're proposing that their profit on a full day event is in the ballpark of a few thousand dollars. How does this on its own not tell you why everyone of these people is calling you names?
Now, allow me to ballpark a few things:
I'll assume that the organization who runs these events has employees, beyond the sole proprieter. I'll say at a minimum Owner/Manager +3. So they've got some overhead costs you haven't considered like Social Security, benefits, workers compensation insurance, general liability insurance, oh yeah and taxes. I'll ignore that so your head doesn't explode thinking about all the things that theoretical models typically don't waste their pretty formulas on.
Yes, of course there's an opportunity cost, lets just "make educated guesses" about what those might be, instead of just writing them off as "determined by a market". I'm sure all your education has taught you what an opportunity cost actually is, right?
Suppose you owned a business giving your Vintage Magic Lessons that you advertise in your signature in SCG forums. Lets also make the big jump, that potentially a couple hundred people might come to a full day seminar of sorts, and that your operating costs of this seminar were similar to a PTQ. How much time would it take you to simply contact all the vendors you require to make the event happen? How much time would it take you to communicate and prepare with ushers/assistants (judges for a ptq)? How many other people help you run your business, and how many hours of paid wage did they spend on this project as well? Also, how much upfront money did you need to put into this to make it happen? NOW, we're talking opportunity cost.
My VERY rough and conservative estimates are:
Even if you had no other employees, the proprietor would spend a MINIMUM of 10-12 hours coordinating the Venue, Judges, Product/Prizes, and paperwork with WotC. Additionally another couple hours marketing table space to dealers, and another couple marketing the event itself.
Just to be conservative, I'll say 12 hours, but I'm sure if we were still on a thread that Glen was reading, I"m sure he'd jump in and laugh, as these events probably take much more planning than that.
I'd also assume it would take about $2-3k in upfront money.
Since you've told us how highly educated you are, how much would you value 12 hours of your time, and the need to have $2-3k free to use for this profit venture?
So, for this PTQ proprietor, He's got 12 hours of planning and probably 12hours on site. Supposing they net 3k profit, and spend 24 hours total labor on it, they make $125/hr before taxes. And you say they're Gouging?
I really simplified these numbers, and made VERY conservative estimates. This is also not considering that they have to tie up $2-3k of their operating cash to make it all happen.
Sure, It may seem like a lot of money, but for a TO who, as deemed by WotC OP, is very good at what they do $125/hr (or less) really isn't something to be in upheaval about.
Second: You say that let competition determine the market. Have you thought this through? Most local low REL events are extremely unorganized, and handled by TO's who are inexperienced and don't know what's going on. Putting PTQ's in the hands of any TO off the street opens to doors to cheating, poorly run events, and overall disasters. Sure, the market would eventually weed these people out, but since some players just want their PT shot, people would still attend all of the available ptq's. I'd really prefer that an interested party (aka WotC OP) determine which TO's are best prepared to provide the grinders their outlet to success. Just like McDonalds won't give you a franchise if you're in massive debt, or right next door to another McDonalds, or have no evidence that you COULD successfuly run a McDonalds. it's not good for the brand when people represent it poorly.
I think you're simply being stubborn. I think you've read the counter arguments, you see their merits, but you keep asserting your same points that have HUGE holes in them.
I applaud Martell et al. If you can't deal with trolling, avoid forums. My mommy once taught me to ignore people who tease me, not to re-post and quote every last one of them, so that everyone knows how much it got to you.
@torerotutor
Not that I agree with Menendian, but your example is horribly flawed.
You would need to compare something like a PTQ with prizes and a PT invite and a PTQ with 2x prizes and an invite, and then see how significant the change in attendance is. This would also need to occur with as many similar factors as possible (same time frame, same area, same format potentially even).
My twitter account: @Kengy5
My blog about cube:
Slaughter Cry
You beat me to making this very point. Invites are a finite, non substitutable good. If anything, I question why TOs waste even a single pack on prize support. The MTGO PTQs certainly don't (something like 16 packs for 5th place in a 500! person tournament) and clearly the market forces are reinforcing that valuation of the first prize.
Menendian - Instead of spending 10,000 words trying to quantify how much money TOs make (BECAUSE THIS IS IRRELEVANT TO YOUR "ECONOMIC" ARGUMENT), you should spend that time and those words attempting to quantify the necessary growth in attendance that would be needed to support your proposed pack distribution plan. You should also model future tournament growth under the traditional and your alternative methods to show that TOs would be better off in 3 years under your plan.
I know constructing a model is a foreign idea for an economics major. Oh, wait...
This, all of this, and more of this. Thanks Tom. If only i could say it like you.
I'm all for raising awareness, but what can we actually do to instigate change? i know what i can do, and it's more then write an article or comment on one. i'll let you know what comes of it.
Reread the first post. They wouldn't, and that's the problem. As I said:
My call is to get wizards to create greater competition between TOs for PTQs, not for Wizards to demonopolize. I'm not sure why you think I would be asking WOTC to demonopolize it's trademarked product.
Not necessarily, as I already explained: