Part of the recent Fanatics announcement was that Josh Luber had been tapped to run the new sports card entity.  Many people knew of his history and success at StockX, and how he is a collector with some background in the hobby. 

Questions remained about what that background meant for this new undertaking.  How would things change?  How would they stay the same?  What is their vision for this hobby we love?

Well in early November, Josh penned a lengthly white paper titled “Trading Cards are Cool Again” which outlined some of his thoughts.  Let’s take a look at some of the key themes found inside.

How did we get here? - A history lesson

He opens things up by sharing a bit of historical context which was obtained from a variety of books written about the hobby.  Card Sharks, Mint Condition, and House of Cards were a few of the sources cited.

He shared that in the 60s, the issues the industry saw were on the demand side.  Even though close to 90% of boys collected cards in the 60s, the demand just wasn’t there for Topps to sell through their inventory.  In the 90s, it shifted to become a supply side issue.  The number of collectors had grown 15x, but the supply of cards had grown even more.  Some reports indicated the manufacturers were making 81 billion cards a year.  That’s billion with a B!

He then goes on to describe the market collapse which followed.  I appreciated how he spends some time pointing out the nuance between a correction and a collapse.  The whole idea is to allow us as readers to compare the rise and fall of the 80s and 90s to our current environment.  Is history going to repeat itself, or is something a bit different this time?

He attempts to answer this question throughout the rest of the paper.

What Happened in Early 2021?

First he covers the recent rise in the market.  Using the rise in selling prices of the 1986 Fleer Jordan, he outlines the pattern we saw of big cards, selling for big dollars, and then selling again for even more.  He has a theory for how (and why) that can happen, and he calls it the “Mark and Mark theory” based on a hypothetical conversation between Mark Cuban and Mark Wahlberg  Basically, it says when two people with large amounts of disposable income want to buy something, they are often willing to overpay to get it.  That starts to set a new market price, and when enough people do the same thing, a relatively small number of sales can influence an entire market.

But then things can change.  Using a couple charts from Card Ladder, he shows how the market appears to have peaked in the first quarter of 2021 and has since pulled back and stabilized well off its peak.  Is this cause for concern or is it healthy?  If you just look at it from a 2021 perspective it looks dire, but if you extend the range by several years, you can see a much different picture.  It paints a much more moderate dip in the midst of a prolonged increase.

He also discusses a few potential ideas on what has contributed to this dip.  First is the increase of card shows.  As more shows facilitated in person deals, fewer sales had to be done on eBay.  Inserting my own editorial comment, I’d add that several new online platforms and auction houses have pulled some bigger cards off eBay and onto those platforms.

Second is that if you compare the charts from the card market to the charts of the price of Bitcoin, there seem to be some similarities.  The theory is that new entrants to the market were also into crypto and as the value of crypto rose, they were using their profits to buy cards.  As Crypto pulled back, so did their card purchases.

Another possibility is that PSA closed.  A lot of people were following the buy, grade, flip approach to generating profits, and when PSA and BGS shut down, so did that pipeline.  This may have also contributed to the slowdown.  

He wraps this section by sharing his conclusion. Josh feels that while they all contributed in some way to the correction, in his opinion, they do not point towards a larger market crisis or a fundamental market dysfunction.

He goes on to share a timeline of industry events from February - September 2021 (ending with the Fanatics announcement) which highlight several positive signs of health.

In wrapping up my summary of this section, I want to highlight a couple things which Josh included that I don’t want people to miss. 

First is that the charts and prices I mentioned above deal with the peak prices and subsequent pullback from specific key cards.  This doesn’t necessarily reflect the whole picture.  For example in 21Q1 eBay’s sales volume for sports cards was about 871M.  In Q2, sales actually grew to 1.13B.  Yes, although some cards appeared to be in a free fall, the market actually grew 30%!  This would seem to reflect a growing demand of more moderately priced cards which is a healthy indicator of more widespread strength.

The second thing deals with a topic I highlighted during my National recap.  According to Josh (I’m not sure where he got such a specific number), 46% of the attendees of this year’s National were first timers.  That pretty much matches my estimate of 50% when the room was asked to self identify during the kickoff VIP event.  This is a great sign for the base of collectors growing.

Where Are We at Today? 

I really like how he approaches this section.  Instead of lumping the whole market together, he segments it out to three categories.  He evaluates where we are with Prices, People, and Companies.

In his opinion, prices are furthest along.  He feels there is room to grow, but prices can’t continue to grow at the same rate they have up to this point.  He feels there is a lot of room for more people to enter the market, and the same for the development of card related companies.

Let me share an exact quote from this section because I think with all the Fanatics angst we feel right now, we need to hear this. “…I want to reiterate one point that Fanatics CEO Michael Rubin said, which is that our goal is to not only to evolve manufacturing, but also to help improve the customer experience. Exactly how we do that, and with whom, is all TBD, but the important takeaway is that the only way forward for any company in the Hobby is to work together. From printers and manufacturers, to distributors, retailers, hobby shops, breakers, subbers, graders, vaulters, apps, marketplaces, buyers, sellers, investors, and, most importantly, collectors (plus those that I missed), it’s all one ecosystem.”

This is a great transition into the next phase of the paper where he shares some thoughts on how to think about the future.

Where are we Headed?

Basically, he says we need to think about things differently.  We can’t settle for doing things the way we’ve always done them.

So what does this mean?  How do manufacturers responsibly meet increasing demand without oversupplying the market?

I love where he goes next with this section.  He examines the ROI of wax.  In Josh’s explanation he outlines an ROI equation to use when thinking about ripping wax.  ROI = Actual Current Value of Cards Pulled + Appreciation + Expected Value of Player Emergence Over Time + Experience.  I love this primarily because it combines both financial and experiential returns.  

The ROI is almost always negative when ripping, but it is how negative that is key. For manufacturers, navigating that path is hard.  Increasing supply is really the primary way they can keep market values of sealed product lower, but that is dangerous for the long term health of the hobby for a variety of reasons.

We know increasing supply across the board drives down values of cards on the secondary market, but what about increasing supply via chase cards?  Well this has clearly been done, and the paper highlights the rise in parallels and chase cards we’ve seen over the last decade.

The warning he highlights here, is that parallels and inserts helped card values because they were special.  If you continue the proliferation of chase cards, at some point they are no more special than other base cards.  This would not be good.

His overall takeaway, is that the ultimate goal should be to grow the overall market so that you can continue to increase supply while always producing a bit less than the actual demand.

A couple ways he proposes manufacturers could give customers opportunities to rip without increasing overall supply is through Repacks and Buybacks.  Leaf and several breakers have done this.  It has its advantages and challenges.  Topps, Panini, and Upper Deck have used buybacks as inserts as well, but I don’t believe we’ve seen a stand alone product.

That was a bit about the supply side of the future. Finally, he spends some time discussing the demand side of the future.  In his mind, the card market appeals to four broad categories of consumers.  They can be a pure consumer good to purchase, they can be valued and pursued as a financial asset, they can be collected because they are culturally relevant and cool, and finally, the element of chance present when ripping packs appeals to those who are drawn to gambling.  

Cards are often compared to Sneakers, NFTs, and Daily Fantasy, but only Trading Cards have elements which hit on all four of those industries.

Wrapping it Up

Here’s a few things I’m taking away as I think about what this might mean for the future of Fanatics Trading Cards.

1. A serious understanding of the hobby (and hobby history) will influence their direction.

2. This isn’t going to be a short term money grab. They want to take steps to grow the overall market for years to come.

3. To grow the overall market, the whole hobby ecosystem needs to work together and thrive.

4. For that to happen, people need to be adaptable and open to change.

5. Growing the Market leads to Increased Demand. Increased Demand allows for increased supply. Increased Supply leads to increased revenue for all participants.

6. For any of this to work, the collector needs to have an enjoyable experience.

What do you think?