Dope and Dead Presidents or Wall Street?

We are entering, or perhaps already are at, an inflection point where the hobby either stays an informal pastime or becomes an organized and regulated investment vehicle dominated by a few vertically integrated companies designed to serve wealthy clients. Is the hobby destined to become a market where vast sums are exchanged, the industry caters to the ultra-wealthy, and very few average people can meaningfully participate? Is the status quo of an unorganized and fragmented business with anyone able to jump right in to prevail? Is there a middle path?

I am not idly speculating. Over the past few years, we have seen some dealmaking that has vertically integrated several significant hobby businesses. Collectors Universe was taken private and the new group acquired Goldin Auctions and established a vault. Fanatics purchased Topps and has now announced a deal to purchase PWCC, which has a vault and auction service. eBay has a vault. All three companies are positioning themselves to offer multiple levels of services to wealthy collectors, for a fee at each level. The Fanatics deals are quite telling: it now has the means to create the cards, sell the cards on the primary market direct to collectors (via vehicles like Topps Now), store the cards, presumably have them slabbed (Fanatics Holdings, Inc., does not own the Certified Collectibles Group that owns CSG, but CCG's parent is Blackstone, Inc., and Michael Rubin, founder and executive chairman of Fanatics, is a minority investor in the Blackstone CCG acquisition), and then sell the cards on the secondary market via PWCC, with the card stored in the vault the whole way. We are thus at the point where a valuable card could theoretically never even leave Fanatics’ hands from manufacture to secondary sale except for a brief trip to a friendly CSG. To me, that sounds analogous to an electronically traded uncertificated share of stock trading through a market.

As this all plays out, I see three distinct groups of participants in the hobby with differing and in some cases conflicting incentives who will be competing to create the rules that will govern the way the card business is run. Let me preface the following series of generalizations with a disclaimer: I am not saying that any one person is not a collector, doesn’t enjoy it, isn’t passionate, etc., and I am not judging one group or saying this one is better than the others. Nor am I saying that everyone fits into every little box neatly. So don’t flood me with pissy emails about how unfair or prejudiced I am; I am already aware of the pitfalls of generalizations, and I choose to acknowledge them and plow ahead anyway. That said, there is an undeniable tension between the groups who think of the hobby as an investment and the ones who think of it as a pastime, and I do not think you can be agnostic on the issue. If you are involved in this thing of ours, you have a stake in the outcome whether you like it or not. The question is nothing less than how the hobby functions and whose needs it serves in the end. To answer this, I think we need to understand the competing interest groups within the hobby.

There is a cohort of extremely wealthy collectors, more than ever before, who buy cards at a financial level most of us cannot even fathom. The hobby’s 1%. Some of these collectors are wonderful hobbyists and I am happy to call them friends. I’d certainly not have been able to hold a T206 Wagner or a Ruth gamer without them. That said, for most of us, their actions are on the same level as reality tv: perhaps entertaining but basically irrelevant. For example, whether a PSA 10 Jordan rookie is a $700,000 card or a $300,000 card literally has no meaning to me because I could never hope to own one at either price point. It might as well be a bajillion versus a gazillion dollars because it has absolutely no impact on the value of my 1989 pack-pulled Hoops MJ card.

With the hobby 1%, I group those who own the emerging industry infrastructure because their financial interests are aligned. The investors in the industry are in it to make money, make no mistakes. These are seasoned businessmen, they are putting a lot of money into their investments, and it isn’t to save the fuckin’ manatees. The card makers want to sell lots of new product, so every six or seven figure insert card sale is a priceless marketing tool. The auction houses want record high auction prices because it jacks up their commissions and pulls more consignments. The third-party graders want ultra-high prices because they price their services based on value. The owners of the National also want to make money via more corporate attendees paying premiums for corporate booths and fewer PITA mom and pop collectors paying the minimum table fee and griping about the locale and venue.

For ease of reference, I will call the groups I’ve outlined above the hobby upper class. All elements of the hobby upper class have an interest in seeing cards become a regulated, well-funded, safe alternative asset class because the money to be had if other wealthy players jump in is staggering compared to the current card market, and they all stand to take a big piece of it.

The conceit of the upper class of the hobby is that they believe that their desires and concerns are shared and are of interest to everyone else. They are not. Quite the opposite. For those who style themselves as ‘true’ collectors, if every uber-wealthy collector dropped out tomorrow and all the investment-speak stopped, all it would mean is that they could afford some currently untouchable cards again and round out their collections. Boo-friggedy-hoo.

The next group are what I would call the hobby 9%, putting it in the 1%-10%-90% wealth vernacular. As is the case with the next 9% on the wealth scale, the amount they own collectively dwarfs the 1% so they are an important constituency. They are either financially capable of participating in the hobby on a collectively meaningful but individually small level as compared to the1%, or they have been involved for some time and have built collections that are far more valuable than anything they could afford to build today. They buy and sell thousands of dollars with the auction houses and get cards slabbed pretty regularly. They are the bread and butter of auctioneers and smaller dealers but do not participate in things like card vaults.

I put myself in this group due to my 50+ years of collecting. I got the bulk of my good cards 30+ ago when prices were modest, so I am sitting on way better stuff than I could afford to buy today. Many in the 9% are on the fence about which direction things should go, me included. I don’t have six or seven figure investor-class cards, which is a mixed blessing, because I am not faced with a dilemma right now of whether to cash in my collection for a life-altering sum, but I also don’t have the luxury of generating retirement money by selling a card or two. Also, I am old enough to have to start considering the end game. If what I own becomes more liquid and demanded by an expanded investor class through a more structured market with lower costs of entry and exit, it would be to my financial benefit as I ease out of my collection. Honestly, the entry of so many wealthy collectors who want Ruth, Gehrig, Robinson, etc., and will pay for it, has tripled the value of my collection in a few years. Contravening that is the fact that I am priced out of an increasingly larger segment of the cards I want to own while I am collecting, which sucks. The price surges of 20 years ago drove me out of vintage baseball card collecting for quite some time and threaten to do it again now. I want a 1933 Goudey Ruth but get a nosebleed when I see a barely presentable card selling for $10,000 or more.

The remaining 90% of the hobby are the younger, the newer, and the less well-off collectors. They are the largest cohort and perhaps the group with the most to lose if the hobby morphs into a top-down investment driven endeavor, even though they often come across as the crassest, money-grubbiest group of all. This seeming contradiction bears some scrutiny.

One of the things I've noticed about both old school card hustlers, like the guy I profiled who was bragging about the cash he was raking selling rookie cards in 1990, and today’s young card bros, is an almost palpable sense of giving the middle finger to The Man by dealing in cash in an underground market, skirting regulations, and cheating on taxes. Check out any thread on Network 54 regarding changes to the tax reporting requirements for marketplace facilitated sales (like eBay) and you’d think the barbarians were at the gate because eBay must report total sales over $600 starting this year. Oh, the humanity, having to worry about actually tracking and reporting your sales from eBay and at auction like every legitimate business does. Pissing and moaning about the unfairness of having to pay your taxes like everyone else is just weak. Ironically, though, this mindset is the main bulwark against a top-down takeover of the hobby. People who think this way want no part of a regulated infrastructure where they are bound by rules set by an oligarchy of powerful market makers and business interests; they prefer to swagger around card shows with stacks of $100 bills in hand making deals, a "dope and dead presidents" street hustler attitude, as Ice T would have said. The fact that there is no real regulation or infrastructure to the hobby is a selling point for them because they do not want one to interfere with their activities. They like the free-for-all of the hobby.

I don’t know where this ends up, but my suspicion is that we are on the road to developing a very stratified, two-tier, collecting system where an entire piece of the hobby infrastructure caters exclusively to the hobby upper class and has no meaning to the rest of the collectors, and an entirely different segment caters to everyone else. We already see the start of this stratification in a variety of ways:

--Walk a show and see how readily the groups of collectors self-differentiate by class. Not many vintage collectors hanging around the breaking pavilion, and very few card bros are unloading their Zion cases at mom and pop tables of vintage cards.

--The proliferation of vaults. No true collector in the classical sense would give a shit about a vault; what's the point in owning a card you can't even hold in your hand? An investor, on the other hand, would rather not risk the loss of transporting or bear the cost of insurance on a valuable asset.

--I don’t think it is any accident that the rise of organized investment-collecting catering to the hobby 1% and modern speculators has resulted in a two-tiered auction system where there are expensive catalog auctions and internet only $10 starting point auctions. Now I also happen to think that much of the monthly auction business is stuff that used to go to eBay instead and represents a shift in sale venue rather than an expansion of material per se. The way eBay's fees have gone up (owing to the quirks of eBay's system, the spread between eBay and a typical BP is around 5.5%), and the hostility towards sellers, make the monthlies quite attractive. Do I consign a $300 card to a monthly at 20% or do I sell it via eBay at 14.5% and be responsible for shipping and potential losses? It is becoming a closer question. But the salient point for our analysis is that there is a secondary tier of auctions that are quite popular with less well-heeled collectors.

-- Walk the floor at the National now as compared to a decade ago and it is obvious that the total number of retail card dealer tables at the National has declined markedly, while the total floor area devoted to auctioneers, service providers, corporate booths, card breaks and manufactured memorabilia (e.g., autographs and related paraphernalia) has filled in the gap. I think we are in for more of this, perhaps even to the point where the vintage card dealer is no longer the backbone of the National, as is the case with Comicon’s show floor versus all of the other activities.

In sum, the tectonic shift is already under way. What we make of it depends on us. The move to vertically integrate in a way that most collectors do not like or value leaves an opening for businesses to cater to the mass of collectors, and I suspect that is one reason why local shows and modestly priced auctions are thriving while a venture like Collectable, which sought to securitize cards and create a card stock market that required mass participation, fell on its face (more on that debacle next week). The clientele who likes the financialization of card collecting can buy the big cards directly rather than trading theoretical interests in them and ceding control over the asset and its sale to the promoter, and the group that cannot afford them doesn’t want to screw around with a share of a card they never actually touch and cannot control.

What will be interesting to watch over the next several years is what happens to lesser grade examples of major cards. I think those are very sound long term investments because of the tendency of collectors who are priced out of higher grade cards to move down the condition scale, driving demand for those cards. I don't see the extinction of the collector class, so I see an ongoing demand for low grade 1952 Mantles, Bill Russell RCs, etc. I also see further demand for alternative assets in the hobby: photos, pins, premiums, etc. Again, as collectors are priced out of an increasing number of cards, they will move to other things that are card-adjacent. We are already seeing strong prices on professional photos and vintage snapshots. A nice career-contemporary Ruth snapshot in uniform on the field is now a four-figure item.

What will happen to modern cards is interesting. Existing modern is basically fucked: too much stuff in essentially pristine condition. It is investment road-kill and hobby kindling. The stuff that is going to be cranked out in the future, not necessarily so. The investors in the infrastructure have too much tied up in the ongoing sales of new product to not try and devise ways to protect their investments. I think we will see more exclusive and special items to manufacture the rarity and cachet that drives demand.