What To Make Of The BofA Report - Corbin Hosler

Spoiler Season is an oxymoron.

There is no "season" for previews anymore. Before one set hits (The Brothers' War in this instance), we're already onto previews for the next set. You've already forgotten about previews from sets ago, which may have been as many as three weeks ago. As my Brainstorm Brewery cohost Jason Alt says, it makes you want to take a nap.

I love Magic. It's my livelihood, my most-played hobby, my way of connecting with friends and chasing my passions. It's given me a lot in my life. It's literally my job to keep up with the newest cards and strategies. But like everyone else, I find it just impossible to keep up these days.

Turns out we're not alone.

Hasbro stock slid 5.2% following a double-downgrade to “underperform” from “buy” at Bank of America. BofA conducted a “deep dive” on Hasbro’s “Magic: The Gathering” trading card game. BofA said Hasbro has been overprinting cards and destroying the long-term value of the business. pic.twitter.com/sZGf8nXaAB

— Tolarian Community College (@TolarianCollege) November 14, 2022

Bank of America feels the same. They downgraded the Hasbro stock on Monday, dropping the already-beleaguered stock further into the red in what has been a disastrous year. Hasbro stocked closed at $57 a share on Monday, well off its high-water mark of over $100 earlier this year. BofA conducted what it calls a "deep dive" on Hasbro's "Magic: The Gathering" trading card game business and said Hasbro has been "overprinting cards and destroying the long-term value of the business."

Sound familiar?

What The Bank of America Downgrade Means - and Doesn't

I see a lot of people taking a victory lap of sorts. See, we told you it was too much and now you'll finally listen!

It's understandable, but I'm not sure how many waves this made inside of Wizards' headquarters. It must be noted that the CEO of Hasbro today is Chris Cocks, who made a name for himself at Wizards by leading them through the "esports era," which also included the creation of Secret Lairs and a massive increase in product moved. Do you think he's unaware of the risks of the strategy he implemented?

The entire stock market is down in 2022, and I don't think anyone at Wizards (or Hasbro) is shocked to hear Bank of America is downgrading their stock. In this case, the "deep dive" that BofA (how this acronym is real I have no idea) conducted seems to represent the concerns many people have voiced: overprinting and too many sets have increased backlog and is hurting the long-term value (read: profitability) of the game in exchange for short-term wins.

Whether you think there's something to that market analysis or not (I tend to think there is), I promise it's not coming as a surprise to anyone at Wizards or Hasbro. And that means, realistically, not much is likely to come of this.

What Changes Things?

The thing that the Bank of America analysis was missing: actual sales data.

Everything we know about Wizards and Magic ­- and by "we" I'm including BofA - we know based on reading tea leaves, so to speak. Sophisticated tea leaves, sure, but Wizards keeps the actual print run numbers hidden, in addition to other information about the execution of sets from creation through final business analysis.

No one can accuse Wizards of not being reactive. They put out an ill-fated Diablo clone five years too late. I fully suspect an auto-battler five years from now. The Russo brothers are no longer coming directly off of Endgame. How 'bout that Magic movie?

You get the idea.

Wizards does what works, and when something works, they do it again. And again. And again. And so on. We've seen this with specialty products and inserts like masterpieces. Eventually, something wears out its welcome and Wizards moves onto the next thing that showed promise. They've got access to the sales numbers - including salethrough, a key point brought up in the report - and they'll listen to what retailers are telling them. Eventually.

But a lot of that is information - hard data - that all of us including Bank of America are simply speculating on. I don't want to downplay the importance of the downgrade, but again, Wizards of the Coast are going to be the first ones to know.

How Many Secret Lairs Are There?

Go ahead and guess. Think about the superdrops of the past few months, The Walking Dead, Arcane, artist drops, whatever your favorite Secret Lair is. How many in total do you think they are up to?

The answer? Nearly 125. One hundred and twenty five. You could probably name a few dozen at most.

So yeah, when Bank of America talks about a glut of products, I believe it. The current rate of these releases seems to me to be unsustainable even if the basic models at work are reasonable in themselves. Heck, Secret Lairs are cool. But too much of a good thing is still too much. And like it or not, Chronicles existed for a reason; market insecurity is dangerous for Magic.

Where Do We Go From Here?

That's the question, isn't it? As the world slips into recession we're going to see just how recession-proof this luxury good is.

In the past, the game has done very well in times of economic downturns. As expensive as Magic can be, a night of Commander precons with friends is still a lot less expensive than a concert and a dinner. Entertainment budgets shrink while at the same time people refocus more on things they can do from home, and in the past that's been a good recipe for Magic.

But those were the days when the game was making four Standard sets a year and maybe somewhere between three and five additional releases of any kind. Hasbro has said they plan to double Wizards' profit in the next three years. Can Magic keep up the rocket trajectory it's been on? If it means $1,000 booster pack products, the workaround of the Reserved List, and more supplemental releases than anyone can keep straight, the answer might be yes, for better or worse.

I feel confident that change is coming. Not a full pullback or a Chronicles-level event. But for all of us who have thought the current course of releases is unsustainable, well, just know you have BofA on your side. If that makes you feel better.