This article first appeared in Personal Wealth, The Edge Malaysia Weekly on September 4, 2017 - September 10, 2017

Once considered a children’s hobby, trading card games now have robust secondary markets. Some collectors have been able to generate high enough returns to pay for weddings, cars and even down payments on properties. Several investors and collectors discuss the potential returns and risks of investing in two of the most popular games in Malaysia.

When trading card games (TCGs) — such as Magic: The Gathering (MTG), Pokémon, World of Warcraft and Yu-Gi-Oh — entered the Malaysian market in the late 1990s, they were intended as cheap collectibles for children and teenagers. Each booster pack, which comprised common and rare cards, cost between RM3 and RM15. 

But a demand for rare cards soon emerged, creating a secondary market where single cards can be sold up to 10 times their original price. Over the years, interest in the games themselves has subsided, but the trading activity in the secondary market has not. 

By selling single cards, collectors and investors have been able to make a profit of more than 5,000% from their purchase of booster packs. Last year, an extremely rare Pokémon card — the Pikachu Illustrator — was sold for US$54,970 at an auction while the most sought-after MTG card — the Black Lotus — was sold on eBay for US$27,302 in 2013. 

Despite being a niche market, TCGs are considered highly risky but liquid assets for investors — who may or may not even play the games — due to the robust secondary market. According to Syed Khaled, director of sales and procurement at local hobby shop East Tolaria Sdn Bhd, the standard return on investment for popular TCGs is 100% over a five-year period. 

“Generally, if investors know how to correctly store their cards, their collections would stand the test of time and increase in value as the supply is cut,” he says.

“MTG, for example, releases new sets of cards every three to four months. Once the print run ends in six to eight months, the cards in the sets — especially the rare ones — will see an increase in demand due to the limited supply as players start to search for them to add to their collections.” 

When the MTG developers came up with the game in 1993, it was a small project intended to keep people busy while waiting in line at conventions. Today, there are more than 20,000 unique MTG cards and 20 million players worldwide.

Due to the long-term nature of the investment, TCGs have been used as alternative assets by investors looking to diversify their portfolios. Syed Khaled says he has about US$40,000 worth of cards in his collection, which he bought for RM30,000 five years ago. 

“I recently sold a card for US$2,000, which I had bought for RM1,500 in 2012. It was actually valued at US$4,000, but I already made money [by selling it at US$2,000] and I know that older cards are harder to trade. So, I decided to bite the bullet and sell it at a discount,” he says. 

Meanwhile, Egon Olieux, founder of the Pokémon card database and collection management tool TCGcollector.com, says he has more than 10,000 Pokémon cards in his collection, 3,000 of which are unique pieces. He estimates that his collection is worth more than €2,500. 

“The most valuable Pokémon cards by far are those printed by Wizard of the Coast [before Nintendo took over]. These cards were from the first two generations when Pokémon was at the peak of its popularity. The original base set booster box, for example, is worth thousands of dollars. A first edition print is worth even more. I saw boxes of this selling for more than US$8,000 each,” says Olieux.

“The most popular and expensive Pokémon card I know of is the base set first edition Shadowless Charizard. People are selling these cards for more than US$1,000 on eBay. They are rarer than the subsequent prints of the card as they were initially printed without a shadow around the picture.”

The value of TCGs not only depend on their scarcity but also their playability, market trends and whether the cards come with a special foil layer, which give them a holographic effect. Rare cards that come with the special foil layer fetch an even higher price as the likelihood of getting them is extremely low, says Top Deckers Enterprise founder Cheng Kel Veen, who started collecting trading cards after he finished secondary school. He now owns almost RM400,000 worth of MTG cards. 

“Most TCGs have foil cards. There may be one foil card in every six booster packs. But it is a very rare find for casual players. Normally, these cards are valuable on their own, but some collectors create an entire deck of foil cards and sell them to buy a car or pay for a down payment on a house,” says Cheng. 

Some aggressive TCG investors try to make an even bigger profit by betting on newer cards, for instance, when MTG releases teasers on its website to introduce new sets of cards, he says. “Sometimes, when there is heavy speculation on new cards, the speculators may claim that the cards are useful when they are played in a particular format — or something along that line. This can cause prices to surge in a short period of time. 

“For example, if a card is priced at US$10, the hype can cause it to jump to US$20 or US$30. Later, if the card is not actually used in games and people start to realise this, the value will immediately drop. That is why it is not very wise to bet on cards if you do not really know what you are doing.” 

However, there are cases where betting against certain cards can generate a huge profit, says Syed Khaled. “I know of this Indonesian player who spotted a card called Tarmagoyf when it was super cheap — it was initially valued at only US$1 — as people were getting rid of the cards. He bought thousands of the regular and foil versions of the card. 

“Over the years, players started to realise that the card actually performs well in both offence and defence and it became a staple for multiple playing formats. The regular version of the card went as high as US$180 apiece while a well-kept foil version could fetch as much as US$800 each. 

“The player said he sold 300 copies of the card to pay for his wedding. In the MTG community, you hear these kinds of stories a lot — people who sell their collections to go on luxury vacations or send their children to college. It is normal because it is highly possible.”

Price fluctuations

According to the Digital Collectible Card Games Report 2017 by market intelligence provider SuperData, MTG collectibles is a US$4.3 billion industry. Famous players include actors Joseph Gordon-Levitt, Seth Rogen and Wil Wheaton. Before American businessman Martin Shkreli was found guilty of securities fraud, he was reported to have shown interest in investing in the TCG due to nostalgic factors. 

Olieux says he started his Pokémon TCG collection during his childhood, when the Pokémon craze was at its height. “At first, the cards did not really interest me. But after playing the original games on the Nintendo Game Boy, I started collecting them because it felt like I was completing my Pokédex (an in-game Pokémon encyclopaedia) in real life. When I went to high school, my interest faded because the game was not as popular anymore and was seen as something for children.”

According to Cheng, most Pokémon TCG players in Malaysia are schoolchildren, so the cards do not have as much appeal as MTG when it comes to collecting them for investment purposes. For Pokémon and Vanguard (another TCG), the secondary market is not as liquid and the demand not as strong as the cards with higher value. 

By contrast, most MTG players are working adults in the 20 to 35 age group, who have more cash to spend. Thus, the secondary market is more vibrant than that of other TCGs. 

MTG is played by two or more players who use their own decks of 60 cards. Typically, a player starts the game with 20 life points and loses when they fall to zero, says Amir Rasyidi Johari, director of consumer engagement at East Tolaria Sdn Bhd. 

“I like to compare MTG to chess. In chess, each player has 16 pieces and the pieces can move in various directions. In MTG, there are about 25,000 unique pieces and you are able to bring 60 to a game. From there, it becomes like chess. When I make a move, you must figure out the best way to counter it and I have to do the same after that,” he says.

“In MTG, some cards are more powerful than others, thus they are more sought after. You are only able to bring 60 to a game, so obviously you want to bring the best. This is the dynamic of the secondary market.” 

In MTG, there are three types of players — casual, semi-professional and professional — and there are several playing formats. For instance, there are four constructed formats — standard, modern, legacy and vintage.

Casual tournaments are played using the standard format and are held every day at game centres while other formats are played at more formal tournaments and the Grand Prix, which is conducted every weekend at three venues around the world. 

Malaysia’s Grand Prix is held every two years, where players compete for a prize pool of US$50,000. The top four players in every Grand Prix around the world are invited to join the Pro Tour, where they compete for a prize pool of US$250,000. 

“There are people who play MTG professionally. The tournaments actually determine the price of the cards because if a deck keeps winning, the price of the cards in the deck will shoot up. There are many online sites that keep track of the winning cards. Investors and sellers use these sites to determine the prices of the single cards,” says Syed Khaled. 

As the number of participants in an MTG tournament can go up to 4,000 players, an official sanctioning body called 

Duelists’ Convocation International is employed to ensure fair play. If a card is found to be too powerful, it can be banned. This causes the price of the card to fall drastically.

“If the cards are so powerful that it is ruining the fun, the MTG developers will ban the card from tournaments or only allow them in certain formats. If this happens to a card, the price will drop significantly. For example, a newly introduced card called Smuggler’s Copter was selling well at RM80 each. But shortly after it was introduced, it was banned and the price fell to only RM5 each,” says Syed Khaled. 

This is not only limited to MTG. There are cards in other TCGs that have been banned in certain formats too. For example, there are more than 70 cards in Yu-Gi-Oh that have been banned in the advanced format.

Amir says the complete opposite can also happen. If a player is able to find a way to make old, less valued cards work with new cards, the demand for and price of the old card can increase. 

“For example, a five-year-old card valued at RM5 may surge to RM50 if it is found to be very strong when coupled with a newly introduced card. If you own and can sell 10 copies of this card, your returns could be quite substantial,” he says.

“However, the MTG developers do reprint certain sets. If an old card fits into a new set they are trying to introduce, they may want to reprint it. Although this may not affect the price of the card very much, it will be very hard to trade. People would rather buy the newer cards because they are cheaper.”

This is the reason investors should apply the law of averages when investing in MTG, says Syed Khaled. “You cannot simply buy certain sets of cards and hope that they will excel down the road. You have to keep on selling and buying new cards besides making sure that you have an exit strategy to liquidate the cards.” 

Certain cards, such as the Black Lotus, will never be reprinted. According to Cheng, there are about 500 cards on the reserved list created by the MTG developers to maintain the cards as collectibles. 

“Even if you own a card in mint condition, as long as it is not on the reserved list, you cannot be too sure that they will not reprint it. The safest investment is in cards called lands. The demand for lands will never change because you need them no matter what format you play — they create a real estate play in the game. That is why the lands gain traction very quickly if they are on the reserved list,” he says.

It is relatively easy to sell MTG cards as the market is very liquid. According to Cheng, it is even easier for Malaysians to sell their cards online to players in the US and the UK. He recommends selling them on platforms such as eBay and Facebook. 

“eBay used to be the easiest platform on which to trade your cards. But now, there are also curated Facebook groups. There are so many Facebook groups that allow members to sell cards to the community. One group, with 46,000 members, took a step further by only allowing high-end cards. Posts for cards that are valued at less than US$50 are not approved,” says Cheng. 

“While selling offline is a bit difficult, it is not impossible. The best venues are the Grand Prix, when international players come to Malaysia, or at shops in Singapore. In fact, there are more trading card shops in the city state than in Malaysia.” 

Syed Khaled agrees, saying that it is difficult to find buyers in Malaysia because the ringgit is currently weak. “What investors need to understand is that the market is denominated in the US dollar. People from the US especially love to buy cards in Malaysia because we are willing to sell them at 20% below market price [due to the stronger US dollar]. But the local players will ask for discounts. If the ringgit strengthens, we may see more buying activity.” 

Current and future risks

In the world of collectibles, counterfeiting is a major threat. As Cheng buys TCG cards in bulk for his store, he sometimes finds imitations in his stock. “If you play long enough, you will notice the difference straight away. But there are counterfeit cards that look 99% genuine. There are people exploiting how easy it is for them to print these cards, especially in the China market,” he says. 

To avoid falling victim to counterfeiters, Cheng advises investors to only buy TCG cards from reputable sellers. “If you buy directly from individual sellers, most of the time, you cannot get a refund because the item is considered sold the moment you pay for it. Platforms such as eBay, however, has a buyers’ protection policy. So, if you can prove that you have received fake cards, you can get the platform to refund your money,” he says. 

Cheng is concerned that interest in TCGs will diminish in the future. Pokémon TCG, for example, was extremely popular when it was launched, but lost its charm about five years later. Interest only returned due to the recent Pokémon Go craze.

Some TCGs have evolved into mobile games. One of them is World of Warcraft, which used to be one of the most popular TCGs.

“The TCG, which started in 2006, had a large fan base as it was tied to an online role-playing game. Suddenly, after eight years, the developers announced that they would be discontinuing the physical TCG and migrating to a mobile version called Hearthstone. Some say it was a good move for the developers as there have been more than 10 million downloads of the game, but the physical TCG players were very upset,” says Cheng.

“MTG, which is still going strong, actually has had its own online version since 2002. It is free to play, but the interface is pretty bad. It cannot be compared with the physical version at all. But what if one day, the MTG developers decide to revamp the whole system? Who will play the physical version anymore? 

“That is the biggest risk. If it does happen, then who knows what will happen to the value of your collection. That is why I do not recommend hoarding the cards. Make sure you always move them so that you do not suffer if something like this happens.”

While Syed Khaled acknowledges that such risks exist, he is optimistic that MTG will continue to be played because it provides a very strong social benefit. “In the MTG community, there is a saying that if you play the game for 21 days, you will be hooked for seven to nine years. I remember that when my friends and I started playing 20 years ago, it was the only thing we talked about. The friends I made while playing the game 20 years ago are still my friends today,” he says. 

“The sense of camaraderie is possibly something you cannot get from online games such as Dota. You always see your opponents and your teammates if you are playing in a group. You build a strong sense of connection with each other. 

“That is why I don’t see interest in the game slowing down over the next 10 years. But you never know, anything can happen. After all, this is not a conservative asset.”

Detecting counterfeit cards

Last March, an anonymous writer wrote on humour website Cracked about how he managed to get away with printing and selling counterfeit trading card game (TCG) cards by outsourcing them to a Chinese factory. The writer claimed that he had managed to fool even the savviest buyers at tournaments. While the authenticity of the story cannot be ascertained, it does raise a valid issue — how can investors protect themselves from counterfeit cards?

The first step is to check the visual factors thoroughly. Counterfeiters do not own the original digital file of the cards for printing, so there are always parts that cannot be replicated such as the colour, logo, symbols, picture quality and font. Potential investors can use a magnifying glass to examine the details of the cards. 

There are also tests that can be used to prove the card’s authenticity. The first is the light test, where a torchlight is placed directly under a card. For most genuine Pokémon cards, light will not be able to pass through due to the lining. 

The light test for an authentic Magic: The Gathering (MTG) card reveals “veins” that are only visible when light is directly applied to the card. While some counterfeit cards are able to produce the “veins” as well, their shape is different from those in the original cards.

 A bending test can also be done to determine whether the cards are counterfeit or not. Counterfeit cards are often flimsy and do not bounce back if they are bent. If done correctly, the test will not affect the value of the cards. 

One final way to determine whether a card is authentic is to tear it. Original cards have blue or black linings inside them, which counterfeiters cannot emulate. 

Preserving and increasing the value of your cards

Despite their value, trading card game (TCG) cards are just normal cards made out of print sheets. If they are not kept properly, they can be scratched, nicked or even torn, which drastically changes the price point of the cards. It is very easy to damage cards, especially if the collectors or investors use them in tournaments, says Syed Khaled, director of sales and procurement at local hobby shop East Tolaria Sdn Bhd.

“I am an investor, so I do not play with the cards I intend to sell. But it is a game and it is fun. Ultimately, that is the reason why Magic: The Gathering (MTG) has lasted so long. Many other TCGs have either dropped in sales or died out over the years, but MTG has maintained its momentum largely because it is fun to play. That is why there are ways to keep the cards safe. Players can buy card sleeves, binders and boxes that are made specifically for this purpose,” he adds.

Egon Olieux, founder of the Pokémon card database and collection management tool TCGcollector.com, says the general rule when it comes to protecting the cards from damage is to ensure that they are dry and kept away from sunlight. If the cards are not used for playing the game, they can be kept in binders such as Ultra Pro Platinum, one of the most popular card storage products for collectors and investors. 

“The sleeves in the binders protect your cards from ultraviolet (UV) light and grease from your hands. If you want to be really careful, you can also put your really valuable cards in single sleeves before putting them in the multi-pocket sleeves,” says Olieux.

“For the storage of valuable cards outside of binders, hard sleeves are recommended. Apart from protecting the cards from UV radiation, the sleeves also protect the cards from accidental bending. For less valuable cards, specialised storage boxes are recommended, such as those from BCW Supplies.”

Some investors even pay to get their cards graded so that they can fetch a higher price. Top Deckers Enterprise founder Cheng Kel Veen says several companies offer this service, including Beckett Grading Services and Professional Sports Authenticator. The cost for grading can vary from US$10 to US$1,200 per card, depending on the turnaround time and declared value of the card. 

“Usually, only cards that cost more than US$10,000 are sent to be graded. These cards are handled with gloves to prevent the moisture on our hands from damaging them – just like how fine art is handled,” says Cheng.

“The cards are graded from 1 to 10, with 10 being the best. Once they have been graded, they will stay in their case and are not used in any tournaments.”

Besides trading single cards, investors also trade old sealed booster packs. These booster packs sell well because older cards usually fetch a high price by default and there is a possibility that there is a rare card in them that could be five times the value of the booster pack. 

“Old sealed booster packs can go as high as RM13,000 per pack, but people still buy them because the chance of getting a RM100,000 card is there. There is a video online that shows a guy opening older packs and finding the Black Lotus card. Unfortunately, the packaging was really bad, so he was not able to get a grade 10 for it,” says Syed Khaled. 

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