Money Talks: Interview with owner of MTGOTraders and CapeFearGames

Wow, today I met someone extremely interesting. He is the owner of MTGOTraders and an LGS in America called CapeFearGames. His name is Heath Newton and he is a complete badass, going from a $2000 student loan to one of the highest functioning MTGO vendors. Let’s get right into it.

--------------------------------------------------------------------------------------------------------------------

SW: We shall start with some introductions.

HN: My name is Heath Newton and I own MTGOTraders which sells Magic Online singles and CapeFearGames which is a LGS and sells singles online.

SW: Wow! I am actually quite honoured to hear from you. So, as the owner of MTGOTraders and CapeFearGames, it is your only source of income? Or do you own other non-MTG related businesses?

HN: It has been my only source of income for around 11 years now. Cape Fear Games however is only 6 years old. MTGOTraders was started in 2003.

SW: When did you start playing Magic: The Gathering?

HN: I was a freshman in high school so I believe '94. Yeah,I'm old.

SW: So, you were there since the very beginning! What made you decide to start MTGOTraders?

HN: So the guy that I played Magic with a lot back in high school and I were very good friends.  I quit playing Magic somewhere in-between my sophomore year of high school and junior year when I started caring about "being cool".  When I went off to college we my friend I still communicated occasionally and he started playing MTGO when it first came out.  Now that I was in college and being cool not on my priority list he was able to talk me into giving it a try.  I was instantly addicted and my friend, Gok and I played a TON.  I got very involved in the community and eventually started trading around because I was an extremely broke college student.  I saw how much more some singles were going for on eBay than they were within the in-game economy so I started buying and selling on eBay.  I then moved on to buying and selling complete sets, partnered up with another trader and started MTGOTraders.  We opened a website and I started filling orders in between classes in college.  The site was doing fair but I wasn't bringing in my income and my wife was a teach so they don't pay teachers that much here in NC so we were barely making ends meet.  I told my wife that I really wanted to give this a go and buy out my partner and do this full time.  I had a lot of ideas that my partner and I didn't agree on that I wanted the freedom to do.  He agreed and I setup a payment plan to pay him back over time.

Once I had the freedom to run the business the way I wanted, I had so much more drive for seeing the business do well.  Sales went up pretty fast and my wife was ,eventually, able to quit her job to stay at home with our kids.  Back in 2009 I was able to open Cape Fear Games here in Wilmington, NC with a friend from high school that wanted to manage it.  There wasn't a LGS here at the time and I had gotten really into board games as well so I wanted a place where people could play Magic, board games, etc.  I went to college for computer science so my business knowledge was very limited but I read a lot of books and have a close friend that runs a very successful large business here in town that also helped give me some solid advice.

SW: There may be many readers who have no ideas how a store is run on MTGO as it isn't as straightforward as being at a shop counter right? How does a store function on MTGO?

HN: Well when I first started there were not bots and we had to do everything by hand.  If you ordered 100 cards I had to sit there and type all 100 card names in and make each card trade-able one by one.  We would then message the buyer and let them know their order was ready for pickup.  We trade and then the buyer double clicks all the cards to take them and then confirms the trade.

Now we have much more efficient ways of doing things and a while ago WoTC added a way to import .csv files and Decks and make those lists instantly trade-able.  As you can imagine that was a major game changer for us as we were able to fulfill a lot more orders per hour.  We now even have automated delivery and 10 delivery bots that deliver orders so that if 1 person takes a very long to pick up their order they are not holding up everyone else in line.  We have seen our volume increase a lot due to this because people enjoy being able to get their orders quickly so they can hop into a game and use them.

SW: How much would you say was your initial investment for both MTGOTraders and CapeFearGames?

HN: My initial investment was a $2000 student loan. Like I said I literally had no money, infact I owed a fair amount of money due to poor choices I made with my credit card. I was one of those idiots that signed up for a credit card at spring break in Panama City FL. Then bought all sorts of things I didn't need.

SW: Yeah, credit cards are the bane of existence. As part of my Money Talks series, I wrote about Savings and cutting up the cards was one of the tips. How long did it take before you experienced enough returns to pull you out of debt?

HN: I honestly can't remember but I was getting a lot of threatening calls and was eventually able to settle with them.  I know it really stressed out my wife and I out as we were barely making it.  Being debt free other than my house and the building that my business is in is a great feeling.  We don't borrow money for cars or anything else that we can't afford.  If you can't afford it don't buy it. I am a big fan of Dave Ramsey and Clark Howard, both great listens for those trying to get out of debt.

SW: I completely agree with you there. What would you say were your biggest challenges juggling both an online business and a brick and mortar LGS?

HN: Where do I even start. To me having an LGS is soo much more difficult because you are dealing with people in person. People are difficult. 'm a difficult person too of course.For some reason in my head I just imagined all these perfect people coming to my store, having fun, being respectful, etc. In reality that doesn't happen.  I often think back to what a pain in the butt I was when I was 18 though and it helps me put it into perspective.

I actually stole a magic collection from a friend in highschool. Something that bothered me forever.  I actually found him on FB last year and told him what I had done and how it's always bothered me.  He told me it was no big deal and don't worry about it.  I told him it was a big deal to me and that I felt so bad and that I considered him a friend and I never should have done that.  I ended up sending him some money which he tried to refuse but I told him it would at least make me feel better paying him back since I didn't have the cards still.

SW: That is an interesting story. I am glad that you made amends for your actions.

HN:With MTGO the biggest issue is scams.  People are constantly trying to rip other people off, use stolen paypal accounts, etc. Also we have to deal with people that don't know the client and trading is very confusing and overwhelming at first. To us it makes perfect sense but you have to realize that the MTGO UI is not new player friendly and think about how it feels from their perspective.

SW: Yes. It is quite hard. The User Interface kinda turned me off from MTGO altogether. What advice would you give to anyone aspiring to start their own shop or online business?

HN:With a MTGO shop the margins are so razor thin that I wouldn't bother unless you think you are able to offer something that isn't already offered or you are just going to run a bot to help fund your draft habits.  Even then it's hard to get people to buy from a random bot that only has a small collection when there are large bot chains that have everything in stock and competitive prices. When I first started the margins on foils were 50% a lot of times. You could also sell any rare 3/1 back then.  Now you can buy some rares for .01. Bulk is also worthless on MTGO.  I have over 7 million cards just sitting in accounts that I would love to virtually shred to speed up the accounts.

Opening a LGS is a lot riskier as you need a lot more upfront which means you can end up losing a lot more especially if you end up taking out a loan.  You have to give people a reason to buy from you, play at your store, etc

You can't just open up a retail store these days and expect people to buy from you.  They will just buy online because it's cheaper.  If you convince them that them buying from you also helps keep the play space open, provide, events, etc and they value those things then hopefully they will buy from you. We went with the online and LGS model because that's what I feel I'm good at.

Doing paper magic has ended up being way more stressful than I imagined. Grading differences are such a pain in the butt. Luckily we have some awesome staff at both MTGOTraders and CapeFearGames.

SW: That is some really good advice. Would you have any advice for those who currently own an LGS and want to improve their businesses?

HN: First thing is read a lot and don't stop.  If you haven't read a single thing yet then read a book called "The E-Myth: Why most small businesses fail".  Listen to podcasts such as manager tools.  Come up with a business plan and operations manual BEFORE you open your business.  Do  a lot of research and run your store like a business and not a clubhouse.  There are way too many stores out there that are just man cave hangouts and not professionally run.   I'm extremely proud of how my store looks, how our staff treats our customers, etc.  I can't count the number of stores I've walked into and not been greeted and the person running the counter was either sitting and playing magic or was playing WoW.

The old retail business model doesn't work anymore so you need to know what you are going to be good at.  Are you going to be big into events?  Then make sure your city is big enough and your competition isn't too close.  Are you going to do singles?  Then how are you going to keep cards coming in and why would people sell to you over someone else more established.

One thing I did that has worked well was we also do Disc Golf in our store.  I play a lot so I know it well and there was not another store doing it well here in town.  It has done very well in our store and the locals are very supportive of us. 

( LINK )

You can see our disc golf racks as well as the rest of our store there. It has changed some since this was taking as this was right after we moved.  We have artwork on the walls now for instance as well as wooden signs for sections.

We don't hang posters on the wall or do a lot of things that typical game stores do.  We try to run a very professional business that could eventually be copied if we need to.

SW: So, you have plans to expand your business?

HN: Not currently but if we did we would be ready.  That is one of the things I believe E-Myth talks about.  About building your business so that someone else with your operations manual could easily run their own. Build it to franchise even if you don't plan on it.

SW: That's great. Do you engage in personal MTG Finance such as speculations and the like or are all your interests based on the overall LGS?

HN: I did that ages ago but it's a lot of work with little return unless you really know what you're doing.  We have algorithms on MTGO that help us keep up with it and we of course watch the banlists, events, etc and adjust prices when we need to.

I was a pretty poor at speculation and would typically buy up cards that were in a deck that I personally enjoyed playing and then try to play that deck a ton so that people would see how good the deck was. I'm also a bad Magic player so that didn't help.

SW: I see that Cape Fear Games has a wide variety of games other than MTG. Would you say that MTG is your most successful game?

HN: By far, Board games are extremely hard to make money on.  The margins are soooo tight and only the people that play in your store often are going to be loyal to your store. Most people just buy online.

I won't say any names but a few major online stores have gotten a bit too big IMO and have ruined it by making $1-$4 on a $50 game. I found this out when I saw a certain game for a price near our cost and tried to figure out how that store was able to do that.  Turns out they bought 10,000 copies directly from the publisher. I'm all for free market so I just like to complain about it because I'm not the one doing that

SW: What about Games Workshop products, have they done you well?

HN: I do however like to support publishers that care about the LGS. Games Workshop for instance is one of those companies.  They protect our margins so that we don't have to try to compete with online sellers.  Having public play space is not cheap and we have to sell a lot of games, cards, etc to pay for it.

SW: That is great to hear. What is your opinion on large card game sellers like Star City Games? I am not sure about how their presence affects prices over in the states but in Malaysia, we follow Star City Games (while using an alternative exchange rate).

HN: I personally like their company because they run a lot of events and do a lot for the game.  I know people love to hate them because they are big but MTGOTraders is often referred to as "the StarCityGames" of MTGO and I take that as a compliment.

The companies that I have a love/hate with are ones like tcgplayer/amazon/ebay or any other third party that receives a large fee for just listing your prices. I often let people know that a lot of stores either list their prices cheaper directly on their website or will give you better prices buying directly from their store.  So many people don't realize that we a paying a ton of fees when you buy through tcgplayer/amazon/ebay. So we both win if you buy direct. Not only that but more money is going to a LGS instead of just a corporation.

SW: I completely agree that it is better to give money to an LGS instead of a corporation. As an LGS owner, what is your opinion on the Battle For Zendikar fatback issue that happened awhile back? There was quite a bit of controversy over the prices.

HN: That's a tough one. I really wanted to just price them at MSRP but if I did 1 person would come in and buy them all and list them on ebay.  The simple solution is for WoTC to send more so that supply would hopefully equal or come closer to demand.

At the same time a lot of people were complaining that their LGS was ripping them off.  I bet they don't complain when their LGS sells boxes for less than MSRP.  If their game store always sells for MSRP then they should have sold these for MSRP.  We sell based on supply/demand.

That means most times things will be below MSRP but sometimes they will be more.

SW: What do you think was the cause for people wanting it so badly? Was it the expeditions or the full art lands? Or was it merely a supply issue.

HN: Full art lands for sure and low supply.

SW: However, if it is full art lands, do you expect the same thing to happen at a similar scale with Oath of the Gatewatch?

HN: I don't think so since full art lands are getting to be in high supply overall.

SW: Alright. That makes sense. Where do you see the future of LGSs and MTGO in general?

HN: Well I would have assumed that we would see MTGO on tablets/mobile by now.  I personally would love to get in a quick league game before bed on my tablet but for whatever reason Hasbro doesn't properly fund the MTGO side of WoTC.  That's something I've never understood.

LGS's are way too common.  I've heard horror stories of 5 within a 10 mile radius in a smaller sized city.  It's so easy to start a bad one and I personally think there are just too many right now.

Having said that if Magic ever completely tanked I would have to drastically downsize my store or just close shop and find something else to do.  My store could not survive without Magic.

Maybe I would try to become a professional disc golfer or surfer. In all seriousness, I've been trying to save up enough to prepare for that if it ever happened.

SW: Yeah, it is important to always have a contingency.

HN: I would have a really hard time doing anything else at this point as I really love what I do. I love games and while owning a LGS can be stressful it's also a really fun job.

SW: If a kid were to come up to you and say "I like games a lot, I want to start my own store one day." How would you respond?

HN: I would say if that's what you're really passionate about then go for it but still finish college, visit other stores that you think are run well and find out what they are doing differently than the poorly run ones, talk to a lot of store owners, read a lot and never stop learning.

Store owners are very helpful if you are not opening a store within your same city. We also have various facebook groups we use to communicate with each other and bounce ideas off each other or share problems and see how others have dealt with them. Those have personally been very useful to me and I've learned a lot from them.

SW: That's good. I think that is all the questions I have for today. Would you have any parting words for my readers?

HN: Support your LGS.  If you don't support them because you don't like them or some other reason then try to speak with the owner and share your feelings in a constructive manner.  They likely have a TON of overhead and you only playing in FNM there is not going to keep them open.  Try to buy from them first and if they don't have what you need then buy it online.

Lastly keep having fun with the game and don't take it too seriously.  The pros that I personally like the most such as LSV or Kibler I like not only because they are great players but because they also have great attitudes and love the game.  Be a good role model for the younger or newer players and help set the tone in your LGS.  Make it a place where all people feel welcome and comfortable.  Go out of your way to help new players so that we can keep growing the game.  If someone puts someone else down then let them know that's not acceptable in your community.

SW: Thank you for that. I really enjoyed this interview. I am sure many people will have learned a lot about LGSs and what you do. Hopefully, a few of my readers will become customers.

HN: Thanks and I appreciate you doing this.  I look forward to reading all of your future blog posts.

----------------------------------------------------------------------------------------------------------------------

Well, that was definitely a wild ride and an honour to do! I hope every learned a bit about MTGO and LGSs. Thank you for reading.

Visit Cape Fear Games at:
4107 Oleander Dr. Suite D
Wilmington, NC 28403 

Sharing is Caring,
Sean Wang