What I Don't Understand about Baseball Card Economics

[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.