Since you guys have gotten into the financial well being of PSA's publicly traded parent company, I thought I'd take a look at the their most recent annual report and financials for 2018 myself. Interesting!!!! The red colored sections are taken right out of the Annual Report documents.
Grading Warranty Costs. We offer a limited warranty covering the coins and trading cards that we authenticate and grade.
Under the warranty, if such a collectible that was previously authenticated and graded by us is later submitted to us for re-grading
and either (i) receives a lower grade upon re-submittal or (ii) is determined not to have been authentic, we will offer to purchase the
collectible for a price equal to the value of collectible at its original grade, or, at the customer’s option, pay the difference between
the value of the collectible at its original grade as compared with the value at its lower grade. However, this warranty is voided if
the collectible, upon re-submittal to us, is not in the same tamper-resistant holder in which it was placed at the time we last graded
the item or if we otherwise determine that the collectible had been altered after we had authenticated and graded it. If we purchase
an item under a warranty claim, we recognize the difference in the value of the item at its original grade and its re-graded estimated
value as a reduction in our warranty reserve. We include the purchased item in our inventory at the estimated value of the regraded collectible,
which will be lower than the price we paid to purchase the item. We accrue for estimated warranty costs based
on historical trends and related experience, and we monitor the adequacy of our warranty reserve on an ongoing basis. There also
are a number of factors that can cause the estimated values of the collectibles purchased under our warranty program to change over
time and, as a result, we review the market values of those collectibles on a quarterly basis (see Inventory Valuation Reserves above).
However, once we have classified such items as inventory and they have been held in inventory beyond the end of the fiscal quarter
in which we purchased them, we classify any further losses in the estimated fair value of the items or the subsequent disposal of such
items, as part of the gain or loss on product sales on a quarterly basis.
Due to the higher level of warranty payment in fiscal 2018, warranty expense recognized was $764,000 in fiscal 2018 as
compared to $302,000, and ($145,000) in fiscals, 2017 and 2016, respectively. Our warranty reserves were $862,000 and $834,000
at June 30, 2018 and 2017, respectively.
This section refers to the reserves set up to cover Warranty Costs to be paid to buy back collectibles that were originally over graded or later found to not be authentic. Based on this declared policy it would look like any items improperly graded by PSA should be subject to them buying them back. Notice how over the past several years these reserves have been increasing dramatically. With all the new issues coming to light I would think that PSA and not PWCC should be the ones handing out refunds and buying back altered/doctored cards. Of course, at this point all the info provided by the Blowout card guys and others is still only speculative and despite the seemingly overwhelming and incriminating evidence so far presented, no formal or authoritative group or person has definitively been able to prove or declare that in fact a specific card has actually been doctored or altered, just the presentation of overwhelming and unbelievable volumes of evidence to show that numerous items most likely were doctored/altered and then resubmitted to PSA (and other TPGs) where they were given higher, undeserving grades when they should have been deemed no better than just authentic because of the doctoring/alterations taking place.
I wonder, has anyone (or do you know anyone) who has purchased one of those PSA graded cards that were being shown via the before and after scans to most likely have been altered/doctored, taken their card and the online evidence available and gone to PSA and demanded they buy the card back because it was altered/doctored? If so, how were they received and treated by PSA, and most importantly, were they paid? And think about this, because PSA is part of a publicly traded company that is required to report about such things in their financials that can effect their business, the bigger this issue becomes the more detrimental the impact it can have on their business and public perception going forward. And apparently the company has a June 30 year end so, their auditors are working on their year end audit and financials right now. Part of that job is to assess the adequacy of reserves for things like the warranty costs, and to note potential legal issues and subsequent events that could impact the business, whether positively or negatively now and going forward. The auditors name can be easily found in the annual report and financials.
http://investors.collectors.com/stat...3-6a45441cf111
I can see and understand PWCC paying some of these refunds back to try and help maintain their reputation and business, but in the end, I believe the true liability should actually start (and stop) with PSA as they were the ones who were actually paid to review, evaluate and grade these cards, and apparently missed all the alterations and doctoring. The fact that they may have been duped by a card doctor does not relieve them of their own prescribed policy and liability, at least not if they don't want to completely trash their reputation and business with the collecting community. Of course now PSA (and the other TPGs also involved) should have perfectly good reasons and cases to then go back after the card doctorers or others involved in submitting these altered/doctored cards to them, and sue for damages and to get back what they had to pay out to their customers under their warranty policies. The fact that PWCC instead is the one apparently starting to pay money out to people, plus the question raised by others in this thread as to whether or not PSA may be reimbursing them or contributing to them doing so, raises the question if both parties realize they are somehow in this together and trying to figure out how to appease people and not have the financial and economic consequences blow back on a publicly traded company like PSA.
This next excerpt from PSA's Annual Report really has me thinking about exactly what it is that they do. It states that PSA had 22 experts employed as of 6/30/2018 to grade cards, and I believe it noted/stated elsewhere in their Annual Report that PSA claimed to have evaluated and graded over 2 million submissions in 2018 as well. So, doing some rather simple math, 5 days a week times 52 weeks is 260 days, knock off say 10 days for vacations, another 5 days for sick/other down time, and say another 7 days for holidays and you're down to 238 working days per expert. Well, 2 million submissions divided by 22 experts is 90,909 evaluations/gradings performed by each expert in 2018. Those 90,909 gradings divided by 238 working days comes to 382 cards graded/evaluated each day. With 480 minutes in an 8 hour work day, that comes out to roughly 1.25 minutes (only 75 seconds) spent evaluating/grading each and every card graded and evaluated by PSA last year. And that includes all the time spent to write up and document any notes or issues, do any measuring, testing, reviewing required, handle and pass on the items, and I did't take into consideration going to the bathroom or getting cup of coffee during the day. Quite frankly, even without spending any additional time to properly assess the nuances and differences that occur in the higher end cards to do things like document and prove whether a card should rate as an 8.0 or an 8.5, I find that kind of production physically impossible for that few number of so called "experts" to be able to perform. And there is no way someone would or could be spending any significant time to really look at and determine sophisticated alterations and doctoring of cards and still be putting out that kind of production per year, let alone 22 different people all churning out work at that speed and level. Is it any wonder they are missing so many doctoring/alteration issues if those reported figures and volume of business are accurately stated in their own reports then? And to prove it, just take a watch and time yourself to see exactly how long 75 seconds is and how much you can actually get done in looking at a card and figuring the proper size, grade, condition, etc. And then figure out how to keep that pace up for an entire day. Ain't happening!!!
PSA Trading Card Authentication and Grading Services. Leveraging the credibility and using the methodologies that we
had established with PCGS in the coin market, in 1991 we launched Professional Sports Authenticator (PSA), which instituted
a similar authentication and grading system for trading cards. We are now the leading authenticator and grader of trading cards.
Our independent trading card experts certify the authenticity of and assign quality grades to trading cards using a numeric system
with a scale from 1-to-10 that we developed, together with an adjectival system to describe their condition. At June 30, 2018, we
employed 22 experts who have an average of 14 years of service with the Company. We believe that our authentication and grading
services have removed barriers that were created by the historical seller-biased grading process and, thereby, have improved the
overall marketability of and facilitated commerce in trading cards, including over the Internet and at telephonic sports memorabilia
auctions.
In this last excerpt from their Annual Report I found it intriguing that PSA states that their fees are generally NOT based on the value of the collectible, except for special coin services requested by customers. I've never submitted anything to PSA for grading, but was kind of under the understanding that if I submitted a 1952 Topps Mickey Mantle and a 1952 Topps common card for grading that I'd end up paying a whole lot more to get the Mantle card graded. And if so, how is that not a value based fee that goes completely against what they stated?
The amounts of our authentication and grading revenues are affected by (i) the volume and mix of authentication and
grading submissions among coins and trading cards, (ii) in the case of coins and trading cards, the “turnaround” times requested by
our customers, because we charge higher fees for faster service times; and (iii) the mix of authentication and grading submissions
between vintage or “classic” coins and trading cards, on the one hand, and modern coins and trading cards, on the other hand,
because, as vintage or classic collectibles are of significantly higher value they justify a higher average service fee. Our fees are
generally not based on the value of the collectible, except for special coin services requested by customers, for which we charge
supplemental fees that are based on the value of the coin. In fiscal 2018, U.S. vintage coin revenues decreased by $2.0 million
or 13% due to a general slowness in the coin market, although in the fourth quarter of fiscal 2018, vintage coin revenues were
consistent with the level generated in the fourth quarter of fiscal 2017.
And for those of you talking about and looking into where a company's cash is going, always be sure to check out the Cash Flow statement in the financials (page 52 in the Annual Report) and look at the different categories. Pay attention to increases and decreases to debt, acquisitions of fixed/capital assets, and anything else that may look unusual. The decrease in the dividend definitely shows up in the Cash Flow statement and the explanation and most probable reasoning behind that dividend cut is the combination of expansion into the China/Asian markets and the recent year's downturn in revenue from the coin side of the business, possibly coupled with the fact they are aware of the need to bump up their warranty reserves which may (or may not) be even more radically impacted and reflected for their 6/30/19 year-end with all the recent findings and discoveries involving altered/doctored cards in their holders. In the Company's own commentary to the financials they allude to the reasoning for the dividend reduction has to do with sustainability of cash flows in light of recent activities and expected/projected trends. Of course that was for the 6/30/18 year-end, from a year ago. Will be interesting to see what, if any effect, these recent allegations may have on their financial future, and how they decide to report it, that is for sure. If nothing else, I can assure you that if knowledge of these potential issues does get to PSA's auditors ears, PSA/Collector's Universe will try to sway and convince their auditors that any potential impact to the business would be immaterial and not worth mentioning. Last year's Annual Report for them came out in early September it seems. Too bad it wouldn't make it out before this year's National. Will definitely keep my eyes out for it when it does hit to see how they address and handle this. Should be interesting to say the least!