No, But Thank You For Playing

Not all of the hobby industry infrastructure experiments work out. Promoters who want to securitize cards, like Collectable, certainly wanted the hobby to go into a pure investment mode. For those who don’t follow it, Collectable offers fractional investments in high end cards. As they explained on their web site:

“Through securitized fractional ownership, Collectable offers simple, safe, and democratized access to iconic collectibles.”

Basically, you buy a share in card rather than the card and trade the shares on their board.

I don’t like shares. As I mentioned before, owning a few shares of stock is a popcorn fart in terms of what it really entitles you to; the same is true here. If the item receives an offer, you get something. If not, your money is sunk unless you can sell your interest, and who knows if that will be possible. Meanwhile, you cede all control over the item and material decisions about it to someone else. Collectable hoped there would be a market for these shares that it could own and take commissions on, but it turned out that people who like to trade baseball cards don’t like to trade shares in them. No one was trading. When prices stopped rapidly escalating on the securitized items, the nascent market for these shares locked up tighter than a bullfrog’s butt, and last week Collectable announced what basically amounted to an admission that the securitization business model doesn’t work:

“Despite our efforts to foster a healthy secondary trading market for our series, recent surveys of all Collectable shareholders regrettably showed clear majority support for finding new liquidity opportunities outside of our app.

Additionally, given current market conditions, the reality of Collectable’s financial position means that we cannot plan on keeping all assets trading on the platform indefinitely.

As such, we feel it is incumbent on us to take appropriate and decisive action in the interests of our shareholders and to communicate openly as we do so.

While an outcome hasn’t yet been finalized for all assets, currently our plan is as follows: Most Collectable assets will be sent to third-party auctions to secure the best possible shareholder returns in a timely manner.”

In other words, no one is trading this crap, we can’t keep the doors open, and we are going to sell out.

It remains to be seen what they get for the cards and memorabilia, but odds are that the shareholders lose money because the deal structure to get these items overvalued most of them in the first place. Collectable had to. The only way Collectable lured owners of valuable items to go with them rather than sell with REA was to give the seller a substantial cashout and a chunk of the float. It is the same thing that has brought down more than one auction venture: if the cash advance is too large and the item underperforms, good luck in getting the money back from the consignor.

This is not to say that securitization cannot work and is not something that will be tried again. The securitization of cards was an interesting idea, just badly executed. Like the recent regional banks that collapsed when their interest rate bets went sour, Collectable’s financial model was based on a bet on continuous and rapid price increases on the assets that would fuel both profitable sales and a vigorous trade of the shares on its internal market. When the pace of gains sputtered, the flaw in the model was revealed. There have been successful securitizations in other fields (notably, music catalogs) but those rely on an existing owned asset that generates income being turned out to investors, not on a flipping model of the asset itself. If a flipping model is to work the asset has to be obtained an an extreme discount to current market so that it can weather a lull or downturn. If I already owned a 1952 Topps Mantle PSA 9, I would seriously consider selling shares in it if the money penciled out, but to go on the market and buy one in the hope it will soar and pay off quickly enough to keep the investors from forming a lynch mob, that would be a foolish and risky bet on a set of atypical circumstances.

Turns out that no matter how you slice it, baloney is still baloney.