Nathan “Pandad” McNair here with the second of what I intend to be a series of blog posts that explore the world of business as it related to the board game industry.
This week, I want to talk about an issue called “The Superstar Phenomenon” and the chaos that it creates in markets, specifically focusing on the board game industry, and why games are very often out of print.
The Cabbage Patch Effect
So, there is a long-standing “common knowledge” theory that companies like to intentionally constrain supply in order to create a false sense of demand in the market, thereby making a thing really hard to get, and that scarcity making people want the thing that they can’t have even if it’s not a thing that they would have otherwise wanted. This all operates under a blanked term called Artificial Scarcity.
This has absolutely happened in collectible markets. Sports cards, magic cards, beanie babies…any consumer products whose value is derived from the collecting or speculation in the secondary market prices. Rares have to be...well...rare. I was an avid collector of basketball cards as a kid, and I loved grabbing my Beckett and valuing my cards. If the rare cards had been more abundant and you could easily get them from a blind pack then there would be little point in collecting them, as you could cheaply and easily get whatever collectibles you wanted.
Oddly enough, the most famous examples of artificial scarcity (Cabbage Patch Kids, Tickle Me Elmo, Furby, Ocarina of Time, Popeyes chicken sandwiches) were likely not actually artificially scarce. They were unexpected hits. Or at least, bigger hits than expected that wound up out-stripping the producers capacity to make them. There is a famous story about the factory that made Etch-a-Sketch working around the clock on Christmas Eve to produce more to sell on Christmas morning.
The initial short-fall of supply for most of these products is just a matter of guessing wrong about how badly people would want the item. And after that, they just couldn’t catch up to the demand. At least not for months after Christmas.
Cabbage Patch Kids were all completely unique dolls. No two were ever going to be the same again (I see you Keyforge) and that caused massive issues at Coleco trying to keep up with the production demand of creating millions of completely unique dolls for Christmas...and they just couldn’t. This led to angry parents fighting each other in malls and mass chaos.
The vast majority of things that are supply-constrained are not artificially constrained. They were actually constrained in the supply chain (i.e. how fast they could be produced in quantity to meet demand).
The board game industry is not supply constrained. At least not the hobby board game market. If our company wanted 100,000 units of a game, I could likely have them produced in 3–4 months, and 100,000 units is a massive success in the hobby game space. There is, of course, some upward theoretical limit of board game production capacity and at certain times of the year we definitely come close to hitting it, but in reality the board game industry does not have a production capacity issue.
So, if that’s the case, why is it that board games sell out all the time?
The Superstar Effect
The superstar effect isn’t a new idea. The basic theory is this: If something is perceived to be of a higher quality it will get a disproportionate number of dollars.
I’ll put this into some board game terms. Let’s say that Root is 10% better than some similar game that came out in the same year. We’ll call the other game Little Root. He has the heart of a champion, he’s just not as good as Root. In this theory we’ll assume Little Root is mechanically, artistically, thematically and cost-wise similar, but a little worse than Root.
Logically speaking, Little Root is 10% worse, so you would expect sales to be about 10% worse if demand were linear.
And in a world in which consumer information was low, you would expect Little Root to do pretty well. After all, a game that is 10% worse than Root is still a good game. Why wouldn’t it do well?
The problem for Little Root is, Root exists. Reddit exists, BGG exists, Facebook groups exist. And consumers talk. They talk about how good Root is. They talk about how Root is better than Little Root. They may even say things like “Little Root is actually pretty good. But it’s not as good as Root”. Consensus starts to form around how good Root is. People are playing Root. So then other people want to see why everyone is making cute woodland creatures war with one another so they buy Root.
Little Root is not going to sell 10% worse than Root. It’s going to sell a lot worse. Sherwin Rosen’s formula for the Superstar Effect is complicated, but the net result is this: Root is going to get almost all of the sales. Little Root is probably going to not fare well.
It’s simple. If there is a limited amount of money to go around for consumers, and Root is better...why buy Little Root at all? Just buy Root.
Now, of course there are other hits out there besides Root in the board game world. But they tend to fill a different niche, either mechanically, in game weight, or thematically. So, Scythe and Dinosaur Island and Wingspan, and Root and Spirit Island can all coexist with one another. Santorini, Azul, Sagrada and Machi Koro can all sell well. They all scratch a different itch from one another and will find an audience.
When you ask someone: What's the better game, Root or Azul? the answers will probably be more along the lines of, “Uh, those are super different, that’s a weird question, they are both good”. But if you asked the differences between Azul and a hundred other gateway level games from 2018…well, you may find Azul coming out on top.
The hits are HITS. The non-hits are...well, going to do poorly.
Wait, What About the Sell-Outs?
Wait, I thought this was about, “Why are games sold out all the time”?
I’m getting there, I swear. The reason games are sold out all the time is because of the Superstar effect. Not every game can be a hit. For every Root there are probably a hundred or more Little Roots that don’t sell very well.
And here is the big twist: Before the consumers vote with their dollars it is very hard to tell the difference between Root and Little Root. It’s not like Little Root is bad, it’s a really good game. It’s 90% as good as Root!
And it’s not as though Little Root was aware that Root was coming out. If so, Little Root's publishers would have done something different. Now for the second twist: Root didn’t know it was the Superstar either.
Leder Games has talented people top to bottom, and Root is a fantastic game…but Root could have been Little Someothergame. I think most talented publishers and designers are setting out to make the best game they can. But, there is always the chance that another game will be better, or be perceived as better.
See, publishers no matter how hard we try and no matter what we put into a game, do not decide who the Superstars are. Consumers do. It can be a combination of gameplay and art, and price and right-place-at-the-right-time. It could be a perfectly timed review or reviews.
Good publishers tend to have more than one hit title, so there are somethings that we can do (release fewer games, be choosier about games released, put them through longer development cycles, spend more on art and components, etc.) to try and give our games a chance at becoming a Superstar...but we don’t actually get to decide what is or is not a Superstar.
This means, we have to be cautious.
So, let’s MATH!
I’m going to keep the math brief this week.
If we run a 30% profit margin on a game (made up numbers, but close enough to average, I would say) that means we need to sell 70% of our print-run to break even. There are fixed cost we are going to ignore in this calculation; I got into in my last post. So, just understand these number are likely *worse* than what we are describing here.
If I print 1,000 copies at a 30% margin I need to sell 700 copies to break even.
If I print 5,000 copies at a 30% margin I need to sell 3,500 to break even.
If I print 10,000 copies at a 30% margin I need to sell 7,000 to break even.
Let’s reverse this though.
If I sell 3,500 games and I print 5,000 I have broken even.
If I sell 3,500 games and I print 10,000 I have lost money. A lot of money.
If we assume this is a 50 dollar game and the publisher sells the game into distribution at 40% of SRP we’re talking numbers like this:
Revenue from selling 3,500 units: 70,000 dollars
Cost of printing 5,000 units: 70,000 dollars
Cost of printing 10,000 units: 140,000 dollars
So, the swing is from breaking even to losing 70,000 USD by overprinting. Overprinting is a huge risk for publishers.
If I am Root, printing 10,000 copies is probably safe. Hell, printing 100,000 copies is probably safe. But if I am Little Root, printing 10,000 copies is bad. Like, my company could be out of business bad.
But, if Little Root doesn’t know he’s not Root, and Root doesn’t know he’s not Little someothergame than what does a publisher do? The answer is simple: We go to store owners and distributors and ask them, “Hey, how many of this thing do you want?”.
Perfect, So You Solved It!
So, it turns out Distribution and Store Owners…they also don’t know what is going to be the big hit. They have more information than Publishers do. Generally they know far more about the games that are coming out across the world.
We all learned that Stonemaier games was putting out Tapestery a few weeks ago. The distributors have likely known for like 5 months. So, if I went to one of our distributors and excitedly showed them a Civilization building game they would probably not take very many because they would likely feel that Tapestry is going to be the bigger hit.
So, sometimes distributors have enough information to have a good sense that given all the games that they know are going to come out; that Game X is likely to be a success. But, they aren’t always right. There are games that surprise them. They certainly have under-purchased games from us in the past. And they have over-purchased games in the past as well. I mean, a quick perusal of games that are regularly on sale for 80% off SRP is a good guess as to where someone bet wrong.
Distributors Are More Risk-Averse Than Publishers
So, it turns out Distribution also has to worry about risk.
Distribution generally buys board games at about a 40% of SRP and tends to sell them somewhere in the range of 50% of SRP to retailers. It’s more complicated than that, and there are minimum order quantities, and free freight shipping, and discounting, so that number can range from a little less to a bit more than 50%, but I don’t want to overcomplicate stuff here.
So, if distribution buys a 50 dollar game for 20 dollars a copy, they are going to sell that game for 25 dollars a copy. Distribution's profit margin per game (not accounting for fixed costs, shipping, marketing, employees, running a warehouse, etc.) is 5 dollar for every game sold.
So let's run some math. Let’s say a single distributor buys 1,000 copies of a 50 dollar game.
Cost to Distribution: 20,000 USD
Revenue from selling 500 copies: 12,500 USD
Revenue from selling 1,000 copies: 25,000 USD
So, you're starting to see part of the problem: Distribution’s margin is thinner and their risk on overbuying a title is higher than it is for even the publisher.
Distribution has some advantages over a publisher: namely (not accounting for exclusives) they are more likely to be able to spread the risk of games that underperform around more. For example: Little Leder Games and Little Root are in a world of hurt. Leder Games and Root are doing great. The distributor may have taken too much Little Root, but they’ll also get to sell Root to offset some of those losses.
So, the per risk title is worse for Distribution, and their overhead costs are far worse, but they do get to spread the Superstar risk around more than a publisher does...but they still can’t make a habit of running around buying 5,000 copies of everything hoping that they are all Root.
Retailers have similar limitations. I actually will likely have a store owner do a guest blog at some point about all of their risk. But their business model isn’t standard since there are lots of ways to run retail stores, and would have me cranking out another 20,000 words and this is already too long. Just remember: Stores also have risk and don’t generally run around buying cases of most games. They buy one or two and take a wait and see approach to most games for the same reason we don’t run around printing 20,000 units of every single title.
So, Where Does That Leave Us?
It leaves us in a pickle without a really good way out. The reality is for the vast majority of games, no one knows how big of a hit it’s going to be until the game has come out and consumers have played it. Given that I don’t want to go out of business, it also means that we are basically going to have to print most titles as though they are Little Root.
Then, if we have a breakout hit we’ll simply print more and run with it. It may take us 6-9 months to find the right balance between demand and production, and that means gamers are likely to be annoyed when they can’t get games. We also run the risk of losing shelf space on store owners' shelves, and losing mind-share in the marketplace while the game is unavailable.
We also don’t actually know how many people want the game. Just because we sell out of 5,000 copies doesn’t mean we should go print 100,000. Demand for the game may be for 6,000 copies. Or 10,000. Or maybe over the next year and more that demand will grow as more people play it.
We also risk another game coming along in the interim and firing us. It happens, and it happens not infrequently. You sell out of your first print run of a game, enthusiastically print more and then some other new game comes along and the next thing you know you're Little Root.
Basically, everyone is cautious. And if everyone is cautious, it means hit games will be hard to get ahold of for the first 6-9 months of release.
What is Pandasaurus Games Doing About It?
So, we would be a pretty poor company if our solution to the whole “how to gauge demand” issue was to throw our hands up and say there is nothing to be done. Here's what we're doing instead:
Step 1: Make fewer games that are better.
So, there is a business model out there that says print 3,000 copies of loads of games. Sell the first 3,000 and move on. There are companies that certainly follow that model.
It’s a bad model.
If consumers figure out that a company can’t be relied upon to make consistently good games they will take a “wait and see” approach to your games. If stores get stiffed and have loads of your old games collecting dust or being put into sidewalk discount sales, they will remember. If distribution has loads of your games in a warehouse not moving they will take less of your next game.
Our goal is for all our games to sell 10,000 copies in their first twelve months. And we are getting close to that being true. And we’ve done that buy releasing fewer games and making sure that every single one of them is special.
Our goal is that most of our games get a third and fourth printing. And that one or two titles every year become evergreens—games that continue to sell for the next ten years and beyond. So far, we’ve had a lot of luck there with several games that continue to sell extremely well year after year.
Fun fact: Machi Koro sold more this year than last year. It’s five years old.
The way that we are getting our average sale per game up is by making sure every single game is good, and by putting money into art budget, marketing, and store outreach. It takes years to earn gamers' trust that our games will be high quality and of an expected sort of game. This usually means family-friendly games in a gateway to midweight category. Dinosaur Island is probably the upper limit of difficulty that we release.
It means Molly and I have a lot of frequent flyer miles. We are on the road all the time looking for new games, meeting with store owners and distributors globally to make sure they know about our games.
Jonathan Gilmour has been to four conventions in the last six weeks looking for new games for 2021. (2020 is already fully set in stone.) It’s a ton of work. Jonathan probably looks at a hundred games on average at any given show. If we put out 6–8 releases every single year we are likely looking at 400 designs to find the ones we want to release.
Now, it’s not just that we only put out the best eight games we find every year. Sometimes a game is fantastic, but it’s a weird fit for us. Normally we send those designers to friends in the industry who would be a better fit for the title.
We then send those games through a 6–12 month internal and blind playtesting network. Games go through the ringer and come out substantially better for it. Wayfinders is probably about 90% the same as the game that we originally signed. But those small tweaks that Thomas and Jon made took the game from a very high-quality gateway plus game to something incredibly special. And it took a lot of hard work and time.
After development we go through graphic design, art and production. And that’s a blog post for Molly and Stevo to write at some point. But I think our artwork is top-notch and our production quality tends to be on the higher side of the industry.
Wait, Why Don’t You Just Make Root?
Well, for one thing I don’t think Patrick will give it to us. But for another, it’s because of everything I said. We don’t get to decide which games are going to be Superstars. We just put out high quality game after high quality game and figure if we play the odds enough we’ll get one occasionally. All we can do is make the best games we possibly can and hope that what made a game resonate with us also resonates with all of y’all. And we have to be cautious about the numbers that we print. Most of our games have print-runs of 5,000 copies. Machi Koro Legacy was several times that amount.
All that we can do as a company is try to make our non-Superstar games more successful. If we can't do anything to make Root, we can do something to make sure our Little Roots find a bit more success in the market as a baseline, and give them every chance we can for them to become Superstars.
It also means something crazy has happened, and this entire blog post was very prescient on my mind because we have a “good” problem: All our new releases are completely sold out at the publisher level. Now, this doesn’t mean that all of them are going to be the next Root. But it does mean you should probably snag any of our new games you want quickly. We’re reprinting all of them, but it’ll be December before they are back in stock.
@Josh – Absolutely it could help. I think that’s exactly why you see a lot of mass market game companies produce in the US where lead time is super critical.
For us it would save about 5-6 weeks in the cycle. Or about 25-30% of the time it takes to print.. It wouldnt solve the issue described but could lessen the length of time that game is unavailable.
Very well written and thought out. Great read Nathan!
This post is phenomenal. Thanks for going into such detail.
Also, congratulations on selling through your games!
Isn’t another solution to shorten the time lag in the supply chain? If board games could be printed closer to where they are being sold, restocking could take weeks instead of months. I know this isn’t currently possible without large cost increases (if at all for some games), but I wonder if further automation of production might make it more feasible in the future.
Also, just noticed while I tried to tweet about this that this post is not tagged with The Business of Board Games tag…
Interesting insights – thanks for that read!