Market
Market Overview
Trading Cards have a long history in America, originally used as a marketing tool to sell tobacco or gum. Eventually, the cards became the product with gum becoming a throw in relic and eventually phased out.
Subjects of trading cards have ranged from historical figures, depictions of war, entertainment subjects and of course sports figures. Sports is one of the most unifying pieces of Americana and typically a subject that provided a common ground between different generations and strangers with the phrase “How about those [Insert local team name]” likely only being second to “How about the weather”.
According to Wikipedia’s list of the most expensive sports cards there was one card that sold for over $1M before 2020. As of July 2021, there are now sixteen cards that have sold for over $1M, five in 2020 and ten so far in 2021. Almost every sport has recognized a new record price; baseball, basketball, football, hockey, soccer and wrestling among others. While sports cards are the dominant subject of investable trading cards the market has been rapidly expanding to include gaming and entertainment. A generation that grew up playing Pokemon is now reaching the point in life where they have disposable income and often look to collectables from their youth. Pokemon has seen sales in the mid $300k range for an individual card and almost $1M for a set. Magic the Gathering cards have gone for six figures and Star Wars cards are also seeing a serious uptick in price.
Gaming Cards
Unopened Products
Entertainment Cards
Modern Trading Cards
Vintage Trading Cards
Why Private Equity Funds for Trading Cards?
Collectors and investors in trading cards are usually very emotionally vested and passionate, but once emotion is removed the economics indicate that trading cards are an investable asset along the line of art, wine and coins, all of which have seen organized investment vehicles. In fact trading cards might be the best suited for investments compared to these other alternative tangible assets. The fact that there are usually multiple copies of a card helps provide more exact comparable sales compared to art, grading then creates multiple tiers amongst a card with multiple copies. Art, wine and coins, do not even come close to offering the number of potential catalysts as trading cards. From active players setting records or winning championships to retired players being inducted into the hall of fame to documentaries or movies, although it is important to keep in mind that not all catalysts are positive.
Attic Investments founder David Arons, CFA has spent a significant amount of his career either in the institutional investment management or the private equity sector. As a long-time collector and investor in trading cards, he recognizes the potential of trading cards and other collectibles to become a small portion of Institutions’ private equity allocation.
In order for this to happen, there would need to be a history of investment vehicles up to the standard that Institutions are familiar with. Attic Investments believes that the funds and/or other investment vehicles will provide the performance history needed to attract institutional investment. Therefore, Attic Investment Funds will be managed with the same fiduciary duty expected by institutions. This includes the oversight and reporting that institutions expect.
Demand Drivers
Restructured Market
Market-wide overproduction lead to extreme sports card value diminutions, tanking the sports card market in the late eighties and early nineties. Manufacturers responded by limiting production. Since the implementation of this new production strategy, focused on scarcity and promoted by restricted licensing between leagues and manufacturers, the market has rebounded. The crash, otherwise known as the Junk Wax Era, left lasting impressions, ensuring that manufacturers will continue to produce in a responsible manner and avoid further production miscalculations in the future.
Manufactured Scarcity
Leisure Collectibles to True Investment Assets
Additional Trading Platforms
eBay has created a marketplace for almost everything and for trading cards it laid the foundation for the modern market. There are numerous other marketplaces and trading platforms but eBay is likely to remain the 800 lb gorilla.
Auction houses have always played a role in the high end of the market. Goldin Auctions and Heritage Auctions have led the way in this hybrid physical/virtual market that is primarily focused on high-value assets, known for its integrity in product quality and capability when storing, handling, and distributing product. The majority of the record breaking prices occur through these auction houses.
Over the years there have been a number of other platforms that have established a market with various degrees of success. ThePit.com was originally built by Topps and was meant to create a stock market feel for trading cards. Check out My Cards, COMC.com has been a marketplace that has created it’s own ecosystem.
An Influx of Money into Ecosystem
Large Venture Capital firms and even Institutions have made numerous moves that are changing the landscape of trading cards. It turns out that the portion of the hobby that is even hotter than the cards are the various companies that play pivotal roles. So far in 2021 PSA has been taken private and Topps, which was last a public company in 2007 before being taken private by a group led by former Disney-CEO Michael Eisner has announced it is going public again.
The type of investment groups that have placed investments in the space has shifted as well. There are a number of former or current players and celebrities that have made notable investments in collectible driven companies. Goldin Auctions received an investment of $40M by a group of investors that include Kevin Durant, Mark Cuban, Bill Simmons and social media influencers. NBA TopShot, a purely digital marketplace for moments that use NFT technology has a license from the NBA and just received a $300M investment from a group that includes Michael Jordan. These athlete investors have not just limited themselves to investing in the ecosystem, many invest in cards themselves. Giannis Antetokounmpo collects his own cards, Lebron James has admitted he owns some of his own rookie cards. These athletes and celebrities have also helped to shed some of the stigma that had been lingering over trading cards since the junk wax era and have helped make collecting cards ‘cool’. Five years ago a serious collector might have tried to avoid discussing the fact that they collect when today that collector is posting pictures on instagram and twitter showing off the cards they own.
The Thrill of the Chase
Demand is fueled by the possibility of pulling variations/parallels from wax packs and boxes. Rare assets, such as desirable rookie cards, entire teams, or unusual variations of a card increase value.
Breakers: Individuals who live-stream openings of wax packs. Individuals watching pay for specific player cards or team slots. Purchasing these slots gives the individual the opportunity to win high-value cards.
Prospectors: Collectors also target younger talented players that could potentially develop into the next superstar. Players like Mike Trout or Luka Doncic experience exponential growth in prices as their career matures.
For many collectors, assets are viewed as pieces of art. Their fascination with the acquisition of assets is driven by more than financial incentives. This mindset, which has added to the growth of the sports card industry, is very similar to the mindset of avid art collectors.
Multi-Generational Investor Base
Just as a love for sports spans across multiple generations, a love for sports cards does the same. Albeit on differing capital scales, investors in the sports card industry can range from eight years old to people well into their eighties.
The generation that grew up in the “Junk Wax Era”, from the late-1980s to the early-1990s, looks back at the period with nostalgia. This generation, now at an age with kids and disposable income, has increased its activity in the trading card markets. It is very common to see father/son pairs at card shows and opening wax together.
It is not uncommon to see a parent and child playing some of the trading card games like Pokemon as well. The multi-generational aspect of Pokemon has propelled some of the older cards into the six figures. While the demographic for trading card games still skews male, there are definitely a lot more female participants in this portion of the trading card market.
Quality Improvements
Ameliorated paper stock and printing technology have increased average market prices significantly. A Higher-quality product holds its value longer, as it is less susceptible to physical degradation. As a result, these cards will continue to receive high-level grades late into their lifespans. In addition to the intrinsic quality improvements of the cards, the methods used to protect these cards have also seen serious innovation. Cutting-edge safes, magnetized individual card containers, and third-party storage facilities further the long-term value stability in trading cards. A higher-quality product augments consumer confidence in sports card’s abilities to retain value over longer periods of time, contributing to the view of assets as an investment and drawing more capital to the space.
Graded Cards
Third-party grading companies now encapsulate and assign a grade to cards based on conditions, similar to the grading of coins that previously existed. While these grades are objective and assigned by a human, they provide a way for a buyer to gain confidence in the authenticity and quality of a card which can be critical when the buyer is unable to inspect the card in person. This ability has led to the rise of secondary markets, particularly digital ones, driving growth in a new segment in the market. Grades also serve to authenticate autographs, something that is very important to both collectors with an autograph focus and to an industry that is driven by an interest in the autographed products. Grading activities have also created a tiered market for a specific card. The higher-graded cards often sell for multiples of what a lower-graded or ungraded version of the same card sells for. Examples of grading card companies are SGC, Beckett, and PSA.
Market Performance
COVID-19 Performance
In April 2021, Topps publicly announced first quarter sales increased 55% over the same quarter a year ago and adjusted earnings grew 56%. In particular physical sports & entertainment net sales increased 105.3% and digital sports & entertainment sales increased 111.1%.
According to sales data provided by eBay to Sports Collectors Daily in June, 2020, a couple of months into the pandemic, sales of basketball cards on the site have increased by 130% since the beginning of the pandemic. Baseball and football cards have also seen an increase, shooting up by 50% and 47%, respectively. [sportscollectorsdaily.com]
- Card values remained stable during both the Great Recession and the COVID-19 pandemic. [Forbes Trounce S&P]
- Since March (2020), some breakers have seen 25% increases in total business with regular customers increasing by 15-20%. [SI Baccellieri]
- The pandemic led to people spending more time at home and pushed them to get back into sports cards; this could be looking through an old collection, putting newly found time towards watching breakers or sports card research, and/or investors finding new ways to reduce inefficiencies in the market and creating new investment platforms.