Magic, Tariffs, and Market Turbulence

Even if you’ve never looked at the S&P 500 before, or the Dow Jones, or any other broad market index out there, odds are that you’ve heard something about how this week has been pretty bad for the stock market. It’s down, it’s up, it’s back down again – volatility has been absurd recently, and it all comes down to one thing: tariffs. 

So, what are they, how do they affect Hasbro, and what can we learn from previous episodes of market turbulence?

What Are Tariffs?

Let’s get one thing out of the way immediately – tariffs are taxes, plain and simple. More specifically, a tariff is a tax placed on an imported good. So, if there’s – I don’t know – a 104% tariff placed on China, this doesn’t mean that China is suddenly going to start paying $1.04 to the United States government for each dollar of goods which we import from them. Instead, what happens is that the importer pays for it. Importing a pair of $10 shoes from China? Those shoes are now going to cost you $20.40.

The point of tariffs – broadly speaking – is to act as a barrier to trade, disincentivizing imports and promoting domestic goods. Going back to our shoe example, if an American pair of those same shoes cost $15, then there’s no incentive to buy them without tariffs in place. Adding tariffs makes them seem cheap by comparison – you’re saving $5.40, relative to the import, after all – but at the end of the day you’re still paying $5 more than you would have spent without tariffs.

Part of the problem with tariffs, however, is that reality isn’t as simple as American shoes vs Chinese shoes. Decades of globalization have led to a densely knit web of trade partners which have consolidated production of the goods for which they hold some sort of comparative advantage, meaning that even our model American shoes are likely going to have some components in them which are manufactured overseas – maybe the glue holding them together came from Ireland, or the leather came from Mexico. 

This means that, when sweeping tariffs are applied against essentially every country on the planet – exactly what the Trump Administration has done over these past two weeks – just about every good gets impacted somehow, American or not.

How Tariffs Affect Hasbro

So, beyond just the stock value, how does it impact Hasbro and – more importantly for us – Magic? Well, let’s start big and work down.

Hasbro makes a whole lot of things beyond Magic, meaning that it’s heavily dependent on manufacturing. Sure, Magic has been among the most profitable branches of Hasbro for a while now, but that doesn’t offset the fact that Hasbro still produces action figures and the like. Manufacturing for toys like these is almost exclusively overseas, and that means that the toy division of Hasbro is likely going to get hit hard.

This presents Hasbro with two short-term strategies: consolidated manufacturing costs on the products they’re associated with, or spread them out across the whole portfolio. It’s still early enough for the choice to be an unclear one, but if I had to make a bet then I would argue that Hasbro would spread out some of the manufacturing costs to other products so as to not front-load any one product with excessive fees.

Let’s be clear – the tariffs proposed recently have been massive. Beyond China, Hasbro is also highly dependent on Vietnam (tariff rate: 46%) and India (tariff rate: 26%) for its manufacturing, meaning that its board games, action figures, and the like are all going to become significantly more expensive to produce. These are also some of Hasbro’s less-popular products recently, meaning that there is a greater chance that these more expensive products may sit for longer before Hasbro can recoup their expenses. 

All of this points to more incentive for Hasbro to spread the cost around a little bit, diluting the tariffs across some of their more popular products – products like Magic.

Speaking of which, let’s talk about Magic’s manufacturing. Printing for Magic cards takes place in three locations – the United States, Belgium, and Japan. Fortunately, this means that Magic cards can be somewhat readily reallocated such that the U.S. prints for the U.S. market, Belgium for Europe, and Japan for Asia. Now, such a re-alignment may not perfectly reflect the actual demand in those regions – the United States will likely still need some degree of card imports given Magic’s regional popularity here – but it’s not as bad as it could be.

That being said – like our shoe example – network effects will undoubtedly still play out here. Ink to print the cards, for example, is largely imported (nearly a quarter of which comes from, you guessed it, China). So, while the United States may get by without importing all of its Magic cards, the costs to Hasbro to keep stock of those cards – as well as support the rest of the business – will be significant.

Market Turbulence and Magic: The Gathering

Tariffs aren’t just limited to first-order impacts on prices, however (those being the direct cost of the tariffs themselves). Collectibles like Magic are an asset class, and that means that we need to consider not just how the company supporting them is doing, but also how the class as a whole is likely to behave given the macroeconomic volatility which these tariffs are inspiring.

Right now, sealed Magic is in a bull market. Look at just about any sealed product – Collector Booster Box, Commander Deck, etc. – and you’ll see a positive trend. Importantly, however, this isn’t just a 1-1 correlation with the broader stock market. This is thanks in large part to better direction from Magic’s management about production runs, set design, and all the splashy extras – from serialized cards to Universes Beyond crossovers. 

Say what you will about the actual cost to players of these products, but the secondary market is thriving.

Despite the increase in costs associated with tariffs, I don’t see a reason for sealed to enter anything like the bear market volatility we’ve been seeing with stocks this week. Instead, if anything, it might actually go up – but whether or not it does comes down to a counterbalancing factor between sources of purchasing power.

Magic is primarily bought by two groups of people: players and collectors. This isn’t to say that they’re mutually exclusive, but the purchasing trends of these two groups are starkly different, with a big difference being the dollar value of the average purchase of the two groups. Players may pick up a Booster Box here or there – maybe even a Collector Box – but collectors are the ones who buy out whole cases or more. So, despite there being far fewer collectors than players, the push and pull of money from these two groups is more closely matched than you might think.

In the world of sealed product, I can see a future where player spending goes down a bit along with the rest of discretionary spending while people weather economic turbulence, although this would be readily accounted for by the continued investment by collectors. “Buy the dip” applies to Magic, too, but the market is already strong enough that the dip from players exiting might only manifest as a slight weakening in this bull’s run, rather than an actual correction or retracement.

Things get a bit more interesting when you look at Reserved List cards. Vintage magic has been absolutely abysmal right now – not necessarily eroding in value, but very far from its highs and essentially flat across the board. Players have largely exited this market, save for a few staples (dual lands, Gaea’s Cradle, etc.), meanwhile the collector base for it has slowly dwindled. However, the gold tier of the Reserved List maintains an air of safety to it, so it’s not too far out of reality to imagine people taking some of their gains from this year’s previous stock market run and putting it into “safe” Reserved List cards.

Wrap Up

Tariffs – like all other taxes – tend to make things more expensive. The reason things are so crazy right now, though, is because these tariffs aren’t just high, but they’re volatile, too. One minute they’re on, the next they’re paused for 90 days – not enough time for companies to reasonably adjust their manufacturing schedules, but more than enough time for their effects to begin percolating through the market. 

Fortunately, Magic’s in a strong spot right now, but I wouldn’t be terribly surprised if by this time next year Hasbro had announced some sort of price restructuring – and not one which would make anything cheaper.

Further Reading

Cards In Tarkir: Dragonstorm That Could See Play in Modern

Underplayed Partner Pairings in Commander

How the Holidays Affect Magic Prices