Borrowing against graded cards

[vthobby]

Originally Posted by RedsFan1941

isn't that pwcc's big pitch right now? they store your cards in their facility and will loan you money against the value?

Yes, it's called "The Vault" from PWCC and I am already signed up!

Peace, Mike

[Peter_Spaeth]

Pre-War Pawnbroker?

[sphere and ash]

Originally Posted by vtgmsc

Yes, it's called "The Vault" from PWCC and I am already signed up!

Peace, Mike

Thanks for pointing this out. It’s listed on the PWCC as “coming soon.” Rates are 1% per month, which is higher than I was thinking, but PWCC’s presence may be enough to kill the idea for me unless the volume is relatively high.

[RedsFan1941]

what could go wrong?

[stlcardsfan]

Originally Posted by RedsFan1941

what could go wrong?

As a banker speaking, plenty! Whoever enters into this endeavor better have an understanding of the Dodd Frank Act. Good luck!

[Leon]

Originally Posted by stlcardsfan

As a banker speaking, plenty! Whoever enters into this endeavor better have an understanding of the Dodd Frank Act. Good luck!

Well, there is that. But my guess is someone (or business) can loan someone money if done the right way. I have to think there are some lawyers and/or financial fiduciary types looking at the business.
I don't do lending or intend to but for tax and accounting purposes I just give everything to my CPA. It's fairly easy.

[Aquarian Sports Cards]

Originally Posted by Leon

Well, there is that. But my guess is someone (or business) can loan someone money if done the right way. I have to think there are some lawyers and/or financial fiduciary types looking at the business.
I don't do lending or intend to but for tax and accounting purposes I just give everything to my CPA. It's fairly easy.

I'm pretty sure I remember reading they went through all the regulatory hurdles for securities.

[autograf]

I used to have L+ loans against company stock to buy more company stock. While it was ultimately a good deal and a vehicle to buy a lot more stock in an era when it was going up significantly faster value-wise than the L+ amount was, it was riskier than probably we all realized. Fortunately, those loans are all gone now. The L+ rates were typically L+1 or less depending on the amount borrowed so much better than L+6 or L+8. When L is steady or declining, it's a much more attractive proposition than when it's rising or fluctuating wildly. Borrowing against cards would have to be a much riskier proposition than against a stock obviously. Guessing that's why the number is so much higher. Good luck........

[vthobby]

You can actually sign up and have cards that you win on Ebay or any major auction house sent to the Vault right now BUT you can't send them cards yet from your personal collection. I'm not sure why that is but that is the latest from them.
I think they will be accepting more in mid 2019 from personal collections.

My opinion is that it is a brand new concept and they want to test it out slowly rather than having collectors sending them hundreds of graded cards at once.

Just IMO, thanks.

Peace, Mike

[Peter_Spaeth]

Originally Posted by vtgmsc

You can actually sign up and have cards that you win on Ebay or any major auction house sent to the Vault right now BUT you can't send them cards yet from your personal collection. I'm not sure why that is but that is the latest from them.
I think they will be accepting more in mid 2019 from personal collections.

My opinion is that it is a brand new concept and they want to test it out slowly rather than having collectors sending them hundreds of graded cards at once.

Just IMO, thanks.

Peace, Mike

So you buy a card for X, have it sent to PWCC, and they send you back half X which you now owe them on top of the X you just spent and you don't have possession of the card? What am I missing?

[oldjudge]

Originally Posted by Peter_Spaeth

So you buy a card for X, have it sent to PWCC, and they send you back half X which you now owe them on top of the X you just spent and you don't have possession of the card? What am I missing?

Let's say you want to buy $1500 worth of cards(a $1000 card and a $500 card) but only have $1000 now (but will have more to spend next month). You buy the $1000 card, pawn it to PWCC and get $500 to buy your second card. Next month when the money comes in you repay PWCC and get your card back. The concept seems good, however, the interest rate seems excessive.

[Peter_Spaeth]

Originally Posted by oldjudge

Let's say you want to buy $1500 worth of cards(a $1000 card and a $500 card) but only have $1000 now (but will have more to spend next month). You buy the $1000 card, pawn it to PWCC and get $500 to buy your second card. Next month when the money comes in you repay PWCC and get your card back. The concept seems good, however, the interest rate seems excessive.

At the risk of sounding very preachy, one should not make card purchases if one has to finance them, in my opinion. If things are that tight, suppose next month's money doesn't come in or you need it for something else? You're out big time in this scenario, you're out your $1000 card which was collateral. Or you borrow the $500 from someone else to repay PWCC and you're off to the familiar races.

[Peter_Spaeth]

Maybe PWCC can issue its own credit cards.

[chalupacollects]

Originally Posted by oldjudge

Let's say you want to buy $1500 worth of cards(a $1000 card and a $500 card) but only have $1000 now (but will have more to spend next month). You buy the $1000 card, pawn it to PWCC and get $500 to buy your second card. Next month when the money comes in you repay PWCC and get your card back. The concept seems good, however, the interest rate seems excessive.

Not really necessary as Paypal has a 6 month no interest deal they started that is part of your account - not a special... so buy an item for $1000 pay it off in 6 months and you are done...

[oldjudge]

So let me get this straight: Someone is making essentially a risk free loan (unless the sportscard market absolutely craters) at LIBOR +6-8%. Sounds like a good business to me. You have storage and insurance expenses and have to make sure that the SMRs are not overstated. Other than that seems pretty lucrative.

Jay

[sphere and ash]

Originally Posted by oldjudge

So let me get this straight: Someone is making essentially a risk free loan (unless the sportscard market absolutely craters) at LIBOR +6-8%. Sounds like a good business to me. You have storage and insurance expenses and have to make sure that the SMRs are not overstated. Other than that seems pretty lucrative.

Jay

Pretty lucrative, I agree—even more lucrative at PWCC’s rates. As someone who understands financial turbulence for a living, I would argue there’s nothing risk-free about it.

[Dpeck100]

This is such a complicated topic in reality. I work in financial services and there are quite a few clients that borrow against their securities positions using them as collateral and not in the form of a margin account but an asset backed line that is LIBOR plus 0.50 up to 2.25%. There are different advance rates on different securities and some that don't qualify at all. The advance rates are driven by liquidity and by the implied volatility of the asset class. If this was to be successful you would need to limit it to the most liquid cards because trading cards can be inherently volatile and using a lower advance rate for loans lasting more than a few months. Imagine a one off sale of an auction going for much lower than the VCP average and triggering a margin call. Or worse yet using data from a few years ago where many cards collapsed from record selling prices and once more triggering a margin call. The interest rates you quoted are on the high side and obviously due to the risk associated with this scenario. I have over 50k in graded cards and If I needed to borrow 25k I would use other avenues. I really hope this doesn't become a popular form of lending for hobby participants because if there is a downturn this could exacerbate it significantly. The reason banks and broker dealers will lend against securities is the ones they choose are liquid and can be sold quickly. Just imagine if a margin clerk said we are calling this loan and then simply auctioned your cards off with limited notice and if there was a few hobbyist getting called at the same time the cards in question could sink significantly and cause a cascading event. Another big issue would be if these same collectors are using the funds to buy more cards their risk has increased significantly making it harder to pay back and potentially driving up card values in the short run and making their new entry points at higher levels and amplifying the risk in the card market. Where I do think this is reasonable is for very short term loans. For example if you are auctioning off cards in a month or two and want an advance to purchase something that comes up and the lender has your cards as collateral lined up for sale then it becomes more of a bridge loan and doesn't create the issues I mentioned above.

[Rhotchkiss]

This is PWCC’s intended model, and personally, I think it’s brilliant theoretically but fails in reality. Some have expressed concern over licenses, interstate activity, usury laws, etc. Thats a huge deal. But assuming the legal stuff is worked out, I think it’s a great business at its core - you are fully secured (collateral will not likely drop 50% in value), you are physically holding the collateral, and you can liquidate with ease considering you have a large auction house. Borrow from investors at 5-6%, lend at 8%+ and keep the spread. The only question (aside from legal) is whether there is enough volume to make going into this lending business worthwhile - 200bps on $1mm is only $20k, and I would think one would have/want to clear $500k/year to make this business worthwhile, and the lender would need to generate $25mm of loans to gross $500k (of course, these economic terms are purely hypothetical). However, I do believe neither the investors nor the volume will be there.

First, Assuming we are using accredited investors (which we must), i doubt investors would be content with anything less than 6%, and many would require more, especially with no tax shelter on the income (e.g., depreciation, pass through expenses, etc). Second, I don’t know that you could drum up the lending volume to make it worthwhile, unless you are dealing in tons of lower-value cards, which is like death by paper cut. I imagine that (unless cards have been owned for many years), collectors owning high-value cards would not borrow at 8%; if borrowing was necessary, they would more likely resort to lower-interest, tax deductible HELOCs or business loans. Thus, I imagine most of your borrowers would be lower net worth individuals, borrowing against 3 and 4-figure cards; and remember that 50% on $1000 is only a $500 loan, at 8%, is only $40/year in interest, which means you need to make 12,500 of these loans to gross $500k in interest (you still owe your investors their 6%)- death by paper cut.

Great idea in theory. However, I have my doubts that it works in real life, due mostly to a lack of volume. If it did, I’d be an investor.

[sphere and ash]

Originally Posted by Rhotchkiss

This is PWCC’s intended model, and personally, I think it’s brilliant theoretically but fails in reality. Some have expressed concern over licenses, interstate activity, usury laws, etc. Thats a huge deal. But assuming the legal stuff is worked out, I think it’s a great business at its core - you are fully secured (collateral will not likely drop 50% in value), you are physically holding the collateral, and you can liquidate with ease considering you have a large auction house. Borrow from investors at 5-6%, lend at 8%+ and keep the spread. The only question (aside from legal) is whether there is enough volume to make going into this lending business worthwhile - 200bps on $1mm is only $20k, and I would think one would have/want to clear $500k/year to make this business worthwhile, and the lender would need to generate $25mm of loans to gross $500k (of course, these economic terms are purely hypothetical). However, I do believe neither the investors nor the volume will be there.

First, Assuming we are using accredited investors (which we must), i doubt investors would be content with anything less than 6%, and many would require more, especially with no tax shelter on the income (e.g., depreciation, pass through expenses, etc). Second, I don’t know that you could drum up the lending volume to make it worthwhile, unless you are dealing in tons of lower-value cards, which is like death by paper cut. I imagine that (unless cards have been owned for many years), collectors owning high-value cards would not borrow at 8%; if borrowing was necessary, they would more likely resort to lower-interest, tax deductible HELOCs or business loans. Thus, I imagine most of your borrowers would be lower net worth individuals, borrowing against 3 and 4-figure cards; and remember that 50% on $1000 is only a $500 loan, at 8%, is only $40/year in interest, which means you need to make 12,500 of these loans to gross $500k in interest - death by paper cut.

Great idea in theory. However, I have my doubts that it works in real life, due mostly to a lack of volume. If it did, I’d be an investor.

I’m with you.

[Peter_Spaeth]

Originally Posted by Rhotchkiss

This is PWCC’s intended model, and personally, I think it’s brilliant theoretically but fails in reality. Some have expressed concern over licenses, interstate activity, usury laws, etc. Thats a huge deal. But assuming the legal stuff is worked out, I think it’s a great business at its core - you are fully secured (collateral will not likely drop 50% in value), you are physically holding the collateral, and you can liquidate with ease considering you have a large auction house. Borrow from investors at 5-6%, lend at 8%+ and keep the spread. The only question (aside from legal) is whether there is enough volume to make going into this lending business worthwhile - 200bps on $1mm is only $20k, and I would think one would have/want to clear $500k/year to make this business worthwhile, and the lender would need to generate $25mm of loans to gross $500k (of course, these economic terms are purely hypothetical). However, I do believe neither the investors nor the volume will be there.

First, Assuming we are using accredited investors (which we must), i doubt investors would be content with anything less than 6%, and many would require more, especially with no tax shelter on the income (e.g., depreciation, pass through expenses, etc). Second, I don’t know that you could drum up the lending volume to make it worthwhile, unless you are dealing in tons of lower-value cards, which is like death by paper cut. I imagine that (unless cards have been owned for many years), collectors owning high-value cards would not borrow at 8%; if borrowing was necessary, they would more likely resort to lower-interest, tax deductible HELOCs or business loans. Thus, I imagine most of your borrowers would be lower net worth individuals, borrowing against 3 and 4-figure cards; and remember that 50% on $1000 is only a $500 loan, at 8%, is only $40/year in interest, which means you need to make 12,500 of these loans to gross $500k in interest - death by paper cut.

Great idea in theory. However, I have my doubts that it works in real life, due mostly to a lack of volume. If it did, I’d be an investor.

Maybe not enough to change the math, but some percentage of borrowers are going to default, no?

[Rhotchkiss]

Sure Peter, there will be defaults, but in PWCC’s case it’s no big deal and could actually be a windfall - they hold the collateral, which is only leveraged at 50%, and they have the vehicle to immediately monetize the collateral (their auction) and make up the debt l, plus costs. And here is the best part - they make 8%-12% of the sale at their auction (“cost”). So a default could actually be good for the “lender” not bad...

I really like the post by the guy in the securities market - I never considered the market effect of defaults, calling of loans, etc. It could rock the industry, but that’s a whole different matter (but one well worth considering as well)

[Peter_Spaeth]

Originally Posted by Rhotchkiss

Sure Peter, there will be defaults, but in PWCC’s case it’s no big deal and could actually be a windfall - they hold the collateral, which is only leveraged at 50%, and they have the vehicle to immediately monetize the collateral (their auction) and make up the debt l, plus costs. And here is the best part - they make 8%-12% of the sale at their auction (“cost”). So a default could actually be good for the “lender” not bad...

I really like the post by the guy in the securities market - I never considered the market effect of defaults, calling of loans, etc. It could rock the industry, but that’s a whole different matter (but one well worth considering as well)

That was my point, albeit not stated very well, you are understating the math from PWCC's point of view a little. They don't have to do quite as much volume as you say because they profit on some collateral.

[vthobby]

"The Vault" is not just for leveraging capital. I have no intention of getting a loan off the value of my submissions.

My interest is solely a VERY secure Compound that is FULLY insured with instant access to my digital collection online 24/7. I will have the ability to click a button and list any of my items with PWCC or lets say I sell one of my cards to someone on here......I simply click a button, enter the address, and PWCC ships the card for me. Think COMC only HIGH end.

It is with a company that I have dealt with for 4 years now and NEVER had an issue. EVER!

My plan is to send them a sampling of cards to test the Vault out this summer and if I like the process then I will send more cards. I am embarrassed to tell you that my collection is NOT insured but it is in safety deposit boxes. Even these though are not infallible and I constantly worry about water breaks at the bank, theft, or fire. PWCC will FULLY insure my cards. Of course I will pay a fee for this but why not? it is a valuable service as far as I can tell. Only time will tell but I am excited to send them some goodies.

Just my humble opinion.

Peace, Mike

[Dpeck100]

Not sure if this item will post with how much more complicated it has become to post EBAY links so the item number is 401648000866.


https://www.ebay.com/itm/1986-Fleer-...p2047675.l2557


This PSA 9 Jordan went for $6,800 with the PWCC PQ sticker on it. What makes this situation even more difficult is how do you determine the value of the card that is being used as collateral. The range on EBAY for the Jordan PSA 9 is $3,350 all the way up to the one I posted above at $6,800. From peak to trough that is a 50.7% decline and from the bottom to the top a 103% increase just in the same grade. With so much focus on eye appeal these days and cards selling for such a variance in the same grade and in some cases more in lower grades how do you reasonably value the collateral? A bank would probably use the low number as they would want the risk to be as little as possible. How do you tell the guy that just ponied up over two times the lowest price for the PWCC PQ that he can only get $1,675 of margin or 24.6% of his purchase price and keep him happy? There are so many fake sales on EBAY so how do you determine what is real or fake? Just the other day a card was posted on CU of an Aaron Judge Heritage red auto that sold for nearly three times the prior sale and from a very questionable dealer. There is so much room for fraud and mismanagement with this issue. Think back to when the Mantle 8 went for $660,000 and then a sale at the all star game went for $282,000. Does this trigger a margin call with a decline of 57.2%? This is a situation that really needs a lot of thought and caution.

[bnorth]

Originally Posted by Peter_Spaeth

Maybe not enough to change the math, but some percentage of borrowers are going to default, no?

You also have to figure that most "lenders" would charge whatever the max interest rate is in their state. Then the added fees associated with the "paper work" to make up for the low interest rates. I would think most places would operate like the pay day loan companies to maximize profits.