Thursday, September 1, 2011

Paintball and the Economy - Guest Post by Doug Brown

Connor wrote on my facebook page the other day and asked if I would like to write about “paintball economics”.  Being one of my facebook friends, Connor is subjected daily to my tirades on what is wrong with the economy, who caused it, and how to fix it. The more I thought about it, the more I thought, why not?  I’ve read enough “economic theory” over the last couple of years to come to the conclusion that the truest statement ever made about economics is... economics is the only science where two identical experiments can result in two completely different outcomes. There are two major economic theories.  John Keynes’ theory says when it all goes sideways, print money (deficit spending). This is what America has been doing the last couple of years. The other school of thought, promoted by Friedrich Hayek, is to cut government spending (austerity) when it all goes sideways. This is what Europe has been doing for the last couple of years. Looking at things that way… it appears you can conduct different economic experiments and get the same outcome. I suspect there is a lesson to be learned there.

The easiest place to make the comparison between the real economy and paintball is by using paintballs and housing. Now I could bore you to death telling you all the reasons and events that led to the latest housing boom / bust in the United States. There was the S&L crisis, the Community Re-investment Act, Mortgage Securitazation, and a dozen other things that would make your eyes roll back in your head, but suffice it to say, everybody wants a home.  Paintballs are easier to explain to you. Everybody wants one that shoots straighter, goes farther, never breaks in the gun, breaks on target every time... and is cheaper.  The US government, mortgage underwriters, the banks, and Wall Street did everything in its power to make it easier for you to get into a home. The paintball industry did everything it could to make you a better and cheaper paintball. The results were the same. The markets crashed.

When you first get into paintball you don’t think much about paint. By far the vast majority of your time is spent day dreaming about what type of gun to get. You want to be a sniper, you want to be a machine gunner, you want to look bad-ass. You want. You search, you talk, you listen. You just KNOW that if you choose wisely (or have unlimited funds) that your first gun purchase will put you light years ahead of the other guys on the field. It is one of the great disappointments of paintball to learn that a .68 caliber projectile fired at 300 feet per second from one gun behaves almost identically to a paintball fired from another gun. It doesn’t take you long to learn the truth. Shooting more paint is the easiest way to hit the other guy.

Your first home is no different. You don’t give a lot of thought to how many pieces of furniture it’s going to take to fill it up, how much the heating bill is going to be come winter, or how much time and money it’s going to take you to maintain the place. You just know when you see it, that this is the house you want.

So we buy our paintball guns and our homes with very little thought about the realities that occur once we have them.  We buy the gun, the goggle, the tank, and the loader, only to find out that the fortune we just spent is nothing compared to what it takes to feed it paintballs.  The entire history of paintball can be summed up in how we went from shooting one ball per second to shooting 30 balls per second. Every equipment advance from the day the first game was held until now drove towards that goal. Tubes went from 10 rounds, to 40, to 50, to 100, to 140 rounds. Tanks went from 12 grams, to 7oz, to 12oz, to 20oz, to 3000 psi HPA, to 4500 psi HPA. Loaders went from 40 rounds, to 100 , to 150 , to 200 rounds. When I first started playing around 1986 the average cost of a paintball was somewhere around 15 cents. It’s now around 2 cents.  So why is the #1 consumer complaint “paintballs cost too much”?  Because shooting more per second was secondary to shooting more.

What killed the housing market was the same thing that killed paintball. More. It wasn’t BPS that changed the market though, it was how we bought homes. 40 years ago there was one kind of mortgage, 20% down and 20 years. That was it. When the housing market crashed in 2008 Countrywide, the largest home mortgage provider in the US, had over 200 different kinds of mortgages.  Adjustable rate, 30 years, no interest, negative amortization… the list went on and on. It was just easier to buy a home. So we built more houses.  The more mortgage products that came out, the easier it became to buy, and the more homes we built. The end result was, everybody thought they could afford a home.  In 2006 the same thing happened in paintball. A gun called the ION came out, and everybody thought they could shoot 25 balls per second.

There were plenty of warning signs of what was about to happen. In the 2005 inaugural meeting of the Paintball Sports Trade Association the president of the largest company in paintball told everyone (and I do mean everyone) that the number of new players coming into the sport had fallen off a cliff. At the same meeting the founder of one of the largest paintball manufacturers told the owners of the paintball leagues to merge or he wasn’t supporting them. He couldn’t afford to support both the leagues  (ironically, the rumor that they are merging is going around as I write this). We all knew it was going sideways . With the exception of one company, every representative in the room said business was off and off drastically. It was why we were all at the meeting. Did we do anything? No. There was still money to be made. So we all went back to our businesses and did what we had been doing. 

The housing market was no different. It had happened before. It should have been easy to see it coming. Did the government, banks, or mortgage underwriters do anything about it? No. Wall Street had figured out a new game. There was a new financial innovation called “the securitization process”. They took your mortgage, sliced and diced it into 100 pieces, then stuck it with 1000 other mortgages that have been sliced and diced, and sold them. The odds of enough people defaulting (not paying) on one of these “collateralized debt obligations” to make it a bad investment was zero. That earned them a AAA credit rating.  These “CDOs” sold like crazy. Wall Street couldn’t get enough of them.  Literally. So they manufactured more. Liars loans, stated income loans, paying  S&P, Moody’s, and Fitch to keep rating CDOs AAA, and more mortgage “innovations”. You name it, if there was a way to keep the game going, Wall Street did it. They knew it was going to blow up. They could see it coming. But there was still money to be made. So they kept doing the same thing until every Tom, Dick, and Harry bought a new home. But it wasn’t enough. Wall Street needed more. So they talked  Tom, Dick, and Harry into refinancing until Tom, Dick, and Harry couldn’t pay anymore  and it all fell apart. Bear Stearns and Lehman Brothers, both huge sellers of mortgage backed CDOs,  collapsed in 2008... and the rest of the world followed.

And that is where paintball and housing part ways. Nobody is going to bail paintball out.
If you look at the chart below, you can see where paintball has been and where we are. It is a Google Trend search of the term “paintball”. You’ll notice that things started going downhill in 2004. You’ll notice a pretty big spike in 2006…..when the ION came out.  It’s all been downhill since then.  I’ve heard many an argument as to why this chart isn’t a valid indicator of paintball’s health over the years (I’ve been talking about this chart forever). Nobody has convinced me. It’s not an indicator of paintball players. It’s an indicator of new paintball players.  They can’t type in “field” or “store” or “gun” and find what they are looking for.

       So what do we do? How do we get the glory days back? A lot of people want to go back to the way things were. A lot of people are still doing the same things that got us into this mess (just like the banks and Wall Street are). These are generally the same people who believe the economy led to the downfall of paintball. It didn’t. One look at this chart should convince you of that . The story of the rise and fall of paintball, like the housing market, is entirely too complex to put down to one single thing in a single article though, so I won’t try. After all, I haven’t blamed any one yet and it has to be somebody's fault doesn’t it? If you want to hear more, I’ll write it. There is so much more to tell. I guess I ought to say it one more time just in case it didn’t sink in though. The problem was… more.

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