What I Don't Understand about Baseball Card Economics

[barrysloate]

So if these high rollers who don't know about this message board found out about it, would they bail out? And I think this issue will spread much further than just Net54. I think this is pretty big news for the hobby.

and to Peter- sure some of these people love what they buy. But they don't want to feel that they are being ripped off. You can be passionate about far less expensive cards too.

[Peter_Spaeth]

Originally Posted by barrysloate

So if these high rollers who don't know about this message board found out about it, would they bail out? And I think this issue will spread much further than just Net54. I think this is pretty big news for the hobby.

and to Peter- sure some of these people love what they buy. But they don't want to feel that they are being ripped off. You can be passionate about far less expensive cards too.

I expect more significant press coverage soon. A couple of days maybe. We'll see.

[barrysloate]

David- I think PSA will deem most of these cards good after review for a very obvious reason.

[Dpeck100]

Originally Posted by barrysloate

David- I think PSA will deem most of these cards good after review for a very obvious reason.

I understand what you are getting at.

That said I don't think it will change going forward because they are grading the card in front of them. I do know they are scanning all images of cards sent at the quicker turn around times so perhaps this deters folks but I am not so sure if now this will be an option that Brent offers to clients.

I am more inclined to think the market "matures" and just has to deal with the facts.

I am not really a cynic by nature but does anyone really think that a card that sat inside with cracker jacks or tobacco was ever 100% clean? I don't. I assume they all have had some stain removal of some kind. I might be wrong but this has always been my belief.

[Peter_Spaeth]

Originally Posted by Dpeck100

I understand what you are getting at.

That said I don't think it will change going forward because they are grading the card in front of them. I do know they are scanning all images of cards sent at the quicker turn around times so perhaps this deters folks but I am not so sure if now this will be an option that Brent offers to clients.

I am more inclined to think the market "matures" and just has to deal with the facts.

I am not really a cynic by nature but does anyone really think that a card that sat inside with cracker jacks or tobacco was ever 100% clean? I don't. I assume they all have had some stain removal of some kind. I might be wrong but this has always been my belief.

Or had razor sharp corners.

[barrysloate]

Yes David, any one hundred year old baseball card with pure white borders gives me pause. They are generally made with cheap paper, and paper tones over time.

But I want to get back to the idea of processing information. If I am thinking of buying a card in PSA 10, I really have to consider that the card may have been bumped from a 9 holder, or it may have had a slight alteration. I just don't know. As such, while I might deem it to still be worth a premium over a 9, and cannot see any way it could reasonably worth ten times that. Ask the fellow who just purchased the 52B Musial in a PSA 10 how he is feeling right now. Again, I don't think the information that is out there is being calculated into purchases.

I understand the idea that people who pay a lot of money to get a 10 are willing to do so because they want to own the best. But in so many instances they are not getting a 10. And nobody likes to feel he was ripped off. Again, I know some disagree but I find all of this unfathomable. I guess to each his own.

[Dpeck100]

Originally Posted by barrysloate

Yes David, any one hundred year old baseball card with pure white borders gives me pause. They are generally made with cheap paper, and paper tones over time.

But I want to get back to the idea of processing information. If I am thinking of buying a card in PSA 10, I really have to consider that the card may have been bumped from a 9 holder, or it may have had a slight alteration. I just don't know. As such, while I might deem it to still be worth a premium over a 9, and cannot see any way it could reasonably worth ten times that. Ask the fellow who just purchased the 52B Musial in a PSA 10 how he is feeling right now. Again, I don't think the information that is out there is being calculated into purchases.

I understand the idea that people who pay a lot of money to get a 10 are willing to do so because they want to own the best. But in so many instances they are not getting a 10. And nobody likes to feel he was ripped off. Again, I know some disagree but I find all of this unfathomable. I guess to each his own.

I have done it twice. Ego and personal satisfaction are the two primary reasons. Money was a distant third.

One was $2,500 the other was just over $3,000 so not life changing money but it is all relative. Both were 9's bumped to 10's.

I have never looked back with any level of dissatisfaction.

[70ToppsFanatic]

Originally Posted by barrysloate

David- I think PSA will deem most of these cards good after review for a very obvious reason.

This will not happen. Any TPG that did something like that would then become complicit in perpetuating a fraud and put their officers at risk of criminal charges assuming that they detect alteration doing the review but say otherwise.

More likely is a strategy to minimize the number of reviews done by tactics such as:

1) directing people with items that are potentially tainted to 3rd parties that they have some leverage over such that the 3rd party provides refunds, the suspected/tainted itema are returned to the TPG for review and any item found to be tainted is destroyed. The benefit to the 3rd party is that they don’t find themselves the subjects of wire fraud and mail fraud investigations based on complaints and evidence coming from the TPG.

2) not providing an itemized “recall” list

3) giving reviews the lowest priority for service due to the high demand of backlogged orders

[seanofjapan]

If we are using economic analysis, then I think its worth discussing whether PSA is "too big to fail" within the card collecting market. I think it is and that understanding that fact is the key to explaining why the top end of the market looks so stupid to the rest of us.

When economists use the phrase "too big to fail" they refer to an institution (like a bank) whose failure (bankruptcy) would be a disaster for the economy or a market as a whole. Because of its position, other actors will always step in to bail it out no matter how bad a situation it is in (like the US government bailout of Ford and GM a few years ago).

PSA is kind of in the same situation vis a vis the hobby - too many people with too much money are too invested in PSA (not directly as shareholders, but in a broader sense of owning and putting value in PSA graded cards) to let it disappear no matter how egregious a scandal it gets itself into.

The value of so many cards at the top end of the hobby is determined now more or less solely by the PSA number on the top of the stupid slabs they come in. If the brand were irreparably tarnished or the company went bankrupt (ending the registry, turning off the tap of newly graded PSA cards coming into the market, etc) then that would pose a serious financial threat to a lot of very financially powerful people within the hobby, who are all thus incentivized to prop PSA up by whatever means they have at their disposal and ensure that it survives whatever scandal it is going through at a given time point (in most cases all this requires is that they simply ignore the scandals and keep on buying PSA cards as if nothing was wrong).

Other grading companies aren't at anywhere near the same scale as PSA and would probably be allowed to fail since the value of top end cards in Beckett or SCG holders isn't anywhere near as tied to the holder as it is with PSA cards. Its sort of like PSA has a never ending supply of get out of jail free cards while its competitors don't.

Its a huge problem for the hobby IMHO.

[perezfan]

If that's really the case, then I just want to be done. This money-fueled corruption is just too depressing. What a ridiculous hobby this has become, where unseen microscopic differences lead to outright fraud that commands tens of thousands of dollars.

Some probably thought Mastro was too big to fail as well. They were by far the #1 Auction House during their prolonged peak, but that came to a rather abrupt end. Perhaps not an apples-to-apples comparison, but there is at least some precedent.

[seanofjapan]

Originally Posted by perezfan

If that's really the case, then I just want to be done. This money-fueled corruption is just too depressing. What a ridiculous hobby this has become, where unseen microscopic differences lead to outright fraud that commands tens of thousands of dollars.

Some probably thought Mastro was too big to fail as well. They were by far the #1 Auction House during their prolonged peak, but that came to a rather abrupt end. Perhaps not an apples-to-apples comparison, but there is at least some precedent.

I don't think Mastro,as an auction house, was in the same category as PSA, a grader in terms of a "too big to fail" analysis. If an auction house fails then collectors can pretty easily shift to another one to buy/sell high end cards, so it doesn't have the same positioning. There isn't a replacement for PSA, which draws most of its importance simply based on the fact that so many existing high end cards are in PSA holders (which no new entrant can hope to replicate) waiting in the wings like that.

An example might illustrate the point. If you've got a PSA 10 1952 Topps Mickey Mantle that you paid $500,000 for (or whatever they go for these days), what happens to the value of that if PSA goes under?

The difficulty is in separating the value of the card from the value of the PSA number attached to it. If PSA no longer exists, the PSA number isn't going to be worth as much because the trust (real or imagined) that it was based on no longer exists, and the infrastructure that supported it (the registry, etc) also no longer exists. So the value of that PSA number has nowhere to go but down (independent of the value of the card).

This wouldn't be a problem if the "PSA 10" (or 9, 8 etc) premium wasn't too big, but its now astronomical. A mere single step down that grade hierarchy can reduce a top end card's value by a factor of 10 or more, which is going to be tens or hundreds of thousands of dollars in a lot of cases. Switching it from a PSA holder to an SCG one is likewise going to put a lot of money at risk, since the market doesn't value SCG as highly and its unlikely that they would be able to step in to replace a defunct PSA (in part because of the likely negative fallout towards graders in general from a PSA collapse).

So if you've got that PSA 10 1952 Mantle and you hear about a scandal involving PSA, you've got a huge incentive to ignore it and carry on as usual. And every other collector wealthy enough to have high end cards like that is playing the same game with the same incentives. All of them will collectively have millions, maybe hundreds of millions, to lose from a PSA collapse and nothing to gain. So their incentive, oddly enough, might be not just to carry on as usual, but even to double down on their PSA card investment.

Its why the top end of the hobby looks so stupid to those of us with more modest means. Wealthy card collectors are likely extremely paranoid about anything happening to PSA (I would be if I was one) because so much of the value of their own collections is now based on the stupid slabs their cards are in rather than the cards themselves. And they are the people with the resources available to keep the market winds blowing in PSAs favor no matter what the scandal.

[benjulmag]

Originally Posted by seanofjapan

If we are using economic analysis, then I think its worth discussing whether PSA is "too big to fail" within the card collecting market. I think it is and that understanding that fact is the key to explaining why the top end of the market looks so stupid to the rest of us.

When economists use the phrase "too big to fail" they refer to an institution (like a bank) whose failure (bankruptcy) would be a disaster for the economy or a market as a whole. Because of its position, other actors will always step in to bail it out no matter how bad a situation it is in (like the US government bailout of Ford and GM a few years ago).

PSA is kind of in the same situation vis a vis the hobby - too many people with too much money are too invested in PSA (not directly as shareholders, but in a broader sense of owning and putting value in PSA graded cards) to let it disappear no matter how egregious a scandal it gets itself into.

The value of so many cards at the top end of the hobby is determined now more or less solely by the PSA number on the top of the stupid slabs they come in. If the brand were irreparably tarnished or the company went bankrupt (ending the registry, turning off the tap of newly graded PSA cards coming into the market, etc) then that would pose a serious financial threat to a lot of very financially powerful people within the hobby, who are all thus incentivized to prop PSA up by whatever means they have at their disposal and ensure that it survives whatever scandal it is going through at a given time point (in most cases all this requires is that they simply ignore the scandals and keep on buying PSA cards as if nothing was wrong).

Other grading companies aren't at anywhere near the same scale as PSA and would probably be allowed to fail since the value of top end cards in Beckett or SCG holders isn't anywhere near as tied to the holder as it is with PSA cards. Its sort of like PSA has a never ending supply of get out of jail free cards while its competitors don't.

Its a huge problem for the hobby IMHO.

I respectfully disagree PSA is too big to fail.

The value of a PSA slabbed card is not the slab, it is the card. Yes, I get it that a PSA slabbed card might sell for more than an SGC slabbed card, but assuming the card was properly evaluated, the asset still exists. In contrast, if a big car company fails, so many jobs both within the failed company as well as the companies that constitute that company's supply chain will be lost. People will be out of work, and communities will suffer greatly.

Bubbles built on fiction eventually burst. We saw that in the housing market where securitized mortgage prices built on vacant or grossly overpriced realty eventually fell to the level the value of the collateralized assets dictated they fall to.

IMO the value of high grade PSA slabbed vintage cards are similarly built on overpriced assets -- altered baseball cards that pass as unaltered. For this bubble to burst all that is needed is enough publicity to come out for it to be widespread knowledge OUTSIDE THIS BOARD that the majority (yes, I mean majority) of 8s, 9s and 10s are altered. What do you have then? Are you saying the private club of wealthy people who are invested in these cards will continue to sell them amongst themselves and that will sustain the prices? Don't you think at least some of them purchased the cards believing they were as advertised, and will not continue to purchase them as it nothing happened? And don't you think new people will be hesitant to join a club whose membership is predicated on purchasing altered baseball cards? And what about entities such as PWCC who look at cards as assets and are forerunners to major funds invested in such cards. I would think they would be taking one huge legal risk investing in such assets if it is general knowledge the assets are tainted. Should the fund collapse, I can only imagine the lawsuits that will follow, and the ensuing outcry for criminal accountability.

And let's talk about bragging rights. I display all my 9s and 10s in a display case prominently displayed in my home where my cocktail party guests can ooh and ahh at how great they are and how important I must be. Then one of my guests in a loud voice asks my opinion about that recent newspaper article claiming most of these cards are altered and worth a fraction of what they sold for. It sort of reminds me of that scene in the movie "Dave" where the fired chief of staff was gathered in his living room with his powerful friends to watch Dave deliver his speech to Congress. Then when Dave exposes who was behind the scam (the former chief of staff) and the camera returns to the guy's living room, all the high-powered guests have left and former chief of staff is sitting all alone with this shell-shocked look on his face.

IMO the sooner this bubble bursts the better. I'm not saying there will not be fallout and some wealthy (and powerful) people will not be hurt. But such people were hurt (a lot worse) when other bubbles burst, and the fact they were did not prevent those bubbles from bursting.

[seanofjapan]

Originally Posted by benjulmag

I respectfully disagree PSA is too big to fail.

The value of a PSA slabbed card is not the slab, it is the card. Yes, I get it that a PSA slabbed card might sell for more than an SGC slabbed card, but assuming the card was properly evaluated, the asset still exists. In contrast, if a big car company fails, so many jobs both within the failed company as well as the companies that constitute that company's supply chain will be lost. People will be out of work, and communities will suffer greatly.

Bubbles built on fiction eventually burst. We saw that in the housing market where securitized mortgage prices built on vacant or grossly overpriced realty eventually fell to the level the value of the collateralized assets dictated they fall to.

IMO the value of high grade PSA slabbed vintage cards are similarly built on overpriced assets -- altered baseball cards that pass as unaltered. For this bubble to burst all that is needed is enough publicity to come out for it to be widespread knowledge OUTSIDE THIS BOARD that the majority (yes, I mean majority) of 8s, 9s and 10s are altered. What do you have then? Are you saying the private club of wealthy people who are invested in these cards will continue to sell them amongst themselves and that will sustain the prices? Don't you think at least some of them purchased the cards believing they were as advertised, and will not continue to purchase them as it nothing happened? And don't you think new people will be hesitant to join a club whose membership is predicated on purchasing altered baseball cards? And what about entities such as PWCC who look at cards at assets and are forerunners to major funds invested in such cards. I would think they would be taking one huge legal risk investing in such assets if it is general knowledge the assets are tainted. Should the fund collapse, I can only imagine the lawsuits that will follow, and the ensuing outcry for criminal accountability.

And let's talk about bragging rights. I display all my 9s and 10s in a display case prominently displayed in my home where my cocktail party guests can ooh and ahh at how great they are and how important I must be. Then one of my guests in a loud voice asks my opinion about that recent newspaper article claiming most of these cards are altered and worth a fraction of what they sold for. It sort of reminds me of that scene in the movie "Dave" where the fired chief of staff was gathered in his living room with his powerful friends to watch Dave deliver his speech to Congress. Then when Dave exposes who was behind the scam (the former chief of staff) and the camera returns to the guy's living room, all the high-powered guests have left and former chief of staff is sitting all alone with this shell-shocked look on his face.

IMO the sooner this bubble bursts the better. I'm not saying there will not be fallout and some wealthy (and powerful) people will not be hurt. But such people were hurt (a lot worse) when other bubbles burst, and the fact they were did not prevent those bubbles from bursting.

Hey, we are on the same page, I agree with you: it is a bubble and I have no problem with it bursting. By “too big to fail” I didn’t mean to literally say PSA can’t ever go under. I just meant that if you want to understand why it seems to defy gravity despite the constant scandals, complaints and sheer insanity of the market for 9s and 10s, you need to analyze its position in the market from that perspective. The wealthy end of the market has a lot invested in PSA stuff and a lot to lose if they go under. If a really massive scandal or other event breaks the spell, then of course they’ll cut their losses and jump ship. But short of that, they have tied their fortunes to the PSA bandwagon and are pretty incentivized to keep things the way they are, no matter how insane it looks to the rest of us.

[packs]

If you invest in something it'll never be fun. Why is everyone worried about prices anyway? Aren't we all collectors? If your collection was suddenly worthless, would it keep you from buying more cards?

[benjulmag]

Originally Posted by seanofjapan

Hey, we are on the same page, I agree with you: it is a bubble and I have no problem with it bursting. By “too big to fail” I didn’t mean to literally say PSA can’t ever go under. I just meant that if you want to understand why it seems to defy gravity despite the constant scandals, complaints and sheer insanity of the market for 9s and 10s, you need to analyze its position in the market from that perspective. The wealthy end of the market has a lot invested in PSA stuff and a lot to lose if they go under. If a really massive scandal or other event breaks the spell, then of course they’ll cut their losses and jump ship. But short of that, they have tied their fortunes to the PSA bandwagon and are pretty incentivized to keep things the way they are, no matter how insane it looks to the rest of us.

I don't disagree with what you said. The only twist I would put on it is that because IMO the bubble is built on a fiction (unaltered high grade slabbed cards), the bubble inevitably must burst. You are correct there are powerful forces incentivized to keep it going and to prevent it from bursting. And that could very well prolong how long it will take. But as we have seen with other bubbles, eventually the forces of fact will overcome the forces of fiction.

[swarmee]

Originally Posted by seanofjapan

Other grading companies aren't at anywhere near the same scale as PSA and would probably be allowed to fail since the value of top end cards in Beckett or SCG holders isn't anywhere near as tied to the holder as it is with PSA cards.

Maybe not in the vintage realm, but Beckett most certainly gets exponential growth curve value improvements on modern cards. You should read this thread:
https://www.blowoutforums.com/showthread.php?t=1297069