J
jwall22
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I wrote this article well over a year ago and posted it to the old Beckett boards. Since those boards have vanished, I thought I would post this here. You can also check it out at my blog at http://www.thehockeycardsblog.com.
The article is very, very long. In fact, it's long enough that HI made me break it into two posts. So if you'd rather spend your SuperBowl Sunday reading long articles on the internet, here you go:
http://www.thehockeycardsblog.com/2009/01/guide-to-collecting-hockey-cards.html
Before I begin this article, I want to be clear on the reasons why I collect sports cards. I don't collect to make money off cards, and I never nor will make money off cards. It's entertainment, like watching TV, or reading, or listening to music, or whatever else it is that people do for fun.
The economics of sports cards are, however, quite interesting. To understand the driving forces of the economy of cards also gives one a deeper understanding of the sports card marketplace. Understanding the market helps in understanding the history of sports cards, and creates a sense of where the industry is heading in the future. It also helps to sort the pros and cons of being a collector in a manner that's concise.
The foundation of the buying and selling of sports cards, particularly on the secondary market, is an example of microeconomics and supply and demand. That's probably obvious to most collectors. What's not so obvious to most collectors is the concept of investing in sports cards. A lot of collectors feel that investing in cards is silly. Others talk about it like they are discussing mutual funds. I'm part of the former group, because all of the empirical sales data (albeit there isn't much of it besides Beckett and Ebay) points to sports cards as being entertainment rather than investment. Investing in sports cards is kind of like investing in scratch-and-win tickets. It's not really an investment, as much as it is an entertaining way to gamble your money.
The problem is that there is little to no transparency in the sports card industry, particularly in the secondary market. Yes, there is Beckett, but that's merely an index of approximate current prices and the accuracy of Beckett is questionable. There's little to no analysis about the forces that are moving prices up or down. That's the study of economics, and there's little empirical evidence regarding the economy of sports cards.
The fundamentals of supply and demand are easy. If supply exceeds demands, prices go down. If demand exceeds supply, prices go up. Both of these happen until the market reaches equilibrium, which is the state of balance between supply and demand. So, the key to value for sports cards is a limited supply of a card with high demand. The higher level of rarity and the higher level of demand for the card increases its value.
What happened with sports cards in the 1990s is the opposite of this. Incredibly high print runs meant that every collector could easily attain any given card, which means there was no demand for any of these cards. If there was 500,000 copies of a 90-91 Pro Set Wayne Gretzky made and only 10,000 collectors were interested in purchasing this card, then the card will have little to no value.
The card industry responded by creating artificial rarity in two forms: serial numbering and professional grading. With serial numbering, limiting a card to 250 or 100 or 20 or fewer copies theoretically increases its value, although this isn't always the case. In economic theory, there are a type of goods called perfect substitute goods. These are goods that are different in branding, but have the same utility. An example would be Coke and Pepsi, or butter and margarine. They're different, yet perform almost the exact same function equally. There are also imperfect substitutes, which are things that have a similar enough utility that one would be willing to replace something better with something worse (or at least different) if the cost were less. An example would be someone willing to buy a cheaper Toyota instead of a more expensive Ford, when they just need some sort of a vehicle. These aren't exactly the same, but with enough incentives, one will rationalize the decision to purchase an item that is close enough to the item they actually want.
The sports card secondary market is loaded with examples of perfect and imperfect substitutes. Substitution is the serious problem faced by the sports card industry in the current era, because there are so many similar types of cards being produced. In hockey, only Upper Deck and ITG remain. Of course, Upper Deck produces many hockey sets during the era, seemingly one every other week during the season.
The problem isn't so much that there are too many sets being produced. The problem is that there are too many cards of the same or similar type being produced in each of these sets. This is why jersey cards are worth so little money. For example, let's say Upper Deck releases a Mats Sundin jersey card numbered to 250 in UD Series 1. There are only 250 copies of this card in existence, which is still high by contemporary standards, but it's not as high as print runs from fifteen years ago. Then they release a Sundin jersey card numbered to 250 in Series 2. And in Artifacts. And in SPx. And in Ultra. And in SPGU. And in Ice. And in The Cup. And in Ultimate. And in Power Play. And in MVP. And in O-Pee-Chee. And in SP Authentic. And in Trilogy. That's 3,500 jersey cards so far, in a single year, in just those sets.
Now, let's say you add in parallels for many of these sets. Sure, these parallels might be numbered to 100 or 50 or 25 or 1, but they add up. Let's up that 3,500 to 4,000 with the parallels included. Now let's add these cards up over a ten year period, so we multiply that number by ten. Now you're up to 40,000 Mats Sundin jersey cards in a decade. Start this print run in 2000, and we're now only one year away from that figure. This is ignoring patch cards, as well as the possibility that card manufacturers can produce jersey cards long after a player retires, or even dies, as long as they still have jerseys (or sticks, skates, gloves, helmets, pucks, jocks, whatever). You could easily multiply 4,000 by 20 or 30 or 50 years. I have no idea what the oldest memorabilia hockey card is. Maybe the ITG cards with Vezina's goalie pads. Those pads have to be getting close to a century old. Maybe you could multiple that total number of jersey cards by one hundred, then.
The point is that this is an example of an imperfect substitution. A Trilogy Sundin jersey card may sell for $5, but a Series 1 jersey may sell for $1, so that's going to bring the Trilogy jersey price down because either way, you're getting a piece of a Sundin jersey, which is the point of the jersey card. So all jersey cards become worth a dollar. The same thing happens with patch or autograph cards, or basically anything else.
Okay, so jersey cards are worthless. Patches, autographed patches and the like are worth more. That is because there is currently a more limited supply. Let's say there are 300 Sundin patch cards made in a year in all Upper Deck products. In ten years, that's 3,000. In 50 years, that's 15,000. And 300 is a conservative estimate, I think. Time will devalue these cards as they continue to be produced seemingly forever, just as jersey cards were once a valuable item, and overproduction destroyed their value.
Thus, serial numbering is meaningless. It's merely a cosmetic change over the mass production of the 1990s, which realistically has not ended. It's good for Upper Deck, because people buy more products on the primary market because they think there is a higher chance of pulling a rare card. It's bad for the secondary market, because rarity is largely an illusion.
Professional grading is the second means of artificial rarity that has been created. This is more of a case of collectors trying to increase value of their cards on the secondary market, rather than card manufacturers acquiescing to the demands of the secondary market in creating rarity through serial numbered cards. Grading is of more importance to vintage, because it authenticates cards that are easily counterfeited, and it creates rarity in cards where in many cases the print runs are very high, and few high quality examples exist.
It's important for modern cards, too, as a BGS card of a 9.5 or 10 can seriously increase the value of a card, despite the minimal (and maybe non-existent) difference in aesthetics between an 8 and a 9, or even an 8 and a 10. This is all luck. The luck of pulling, buying or trading for a high grade raw card, and the luck of subsequently pulling a high grade on that card. It has created rarity to a degree, but the concept of the imperfect substitute exists in modern cards more than vintage when it comes to grading, because people are aware of the minimal differences between a raw NM-M, or even mint, card and a graded 9 or 9.5 or 10 card, and will purchase the less expensive version in many circumstances, dragging the value of the high grade slabbed cards down. This isn't as much of a case with vintage, where people are more sensitive to the flaws in a card's condition, and issues such as poor centering, rough edges and yellowing are more far more common. Poor centering and yellowing are nearly non-existent in modern cards.
The secondary market for sports cards, however, will collapse again, because of the massive amount of perfect and imperfect substitutes. The secondary market is important for card manufacturers because if people believe the cards these companies are selling are worthless, sales will drop.
This is what Upper Deck, and any other sports card company, can do to avoid this: First, lower serial numbering on all cards, and serial number everything, including all memorabilia cards, autographed cards, inserts and even base cards. Everything. Base cards have become toilet paper because they are just seen as filler by so many collectors, despite that some base cards have especially striking photography and aesthetics. They have to do this for all sets, except maybe one or two sets aimed at children (such as Victory or Power Play). This means they have to provide less cards in a pack for mid-level products since print runs won't be as high, but the cards people will be receiving will be better. They could leave one product for adults, such as Power Play or MVP, completely unnumbered and provide more cards per pack, such as 15 cards or so, with the idea that people who don't care about value and just want as many cards for as little money as possible can buy these cards, and receive more cards in a pack than they would even under the current system. It would make this one particular product more unique than the others.
Second, limit the amount of memorabilia cards made for one player in a single season. They do this to a degree by providing a variety of different players with jersey and patch cards, but they need to set a hard cap on how many jersey cards of a single player will be produced in a given season. For example, maybe there should be no more than 500 Mats Sundin jerseys produced in every product in 2007-08.
Third, they need to limit the amount of products that have memorabilia cards. This requires improved branding and sets with unique themes to make up for the lake of memorabilia. MVP and OPC, for example, don't need jersey cards. Keep memorabilia cards only in high end products like Ultimate, The Cup, SPGU, and so on. That makes these products high end. It also would increase the value of numbered inserts and even numbered base cards in mid-level products, like Series 1 and Ultra, because with fewer jersey cards more people will collect these other cards. Also, they can increase the amount of inserts and subsets in mid-level products, but using a variety of different players in each subset, which means coming up with more unique ideas for insert sets. A player probably shouldn't have more than one insert in any set. If Sundin had one base card and one insert in each mid-level product, and each was serial numbered, the amount of Sundin cards available would go down drastically, and value would increase.
Fourth, the use of retired players needs to be limited to certain sets. Getting a Mike Bossy autographed card doesn't sound as cool now as it did twenty years ago, because there's too many. Something like Parkhurst and OPC, because of their relationship to vintage, could be used for only vintage players. Upper Deck did that this year with Legends Masterpieces, but it's not as effective if a lot of these players are featured in other sets.
Fifth, The NHL needs to give a license to ITG to produce cards, because no competition is bad for business. Either that, or Upper Deck needs to allow Fleer to be autonomous, and produce less UD brand sets and more Fleer brand sets. Or just sell Fleer. UD botched Fleer so poorly that any discussion of Fleer as a viable entity is probably a pipe dream now, though.
Sixth, fewer sets don't necessarily need to be produced. Getting rid of one or two sets that are dead weight would not be a terrible idea, but using the above ideas to revamp all of these sets would be more effective in the long-run.
Seventh, no more parallels. They merely devalue the cards by cluttering the market with imperfect substitutes. All of them should be gone, because if all cards, including base and inserts, are serial numbered, then parallel cards become even more ineffective. Parallels also complicate the industry for new collectors, and make it difficult for people getting started because they basically don't know where to start with the mass saturation of the marketplace.
The article is very, very long. In fact, it's long enough that HI made me break it into two posts. So if you'd rather spend your SuperBowl Sunday reading long articles on the internet, here you go:
http://www.thehockeycardsblog.com/2009/01/guide-to-collecting-hockey-cards.html
Before I begin this article, I want to be clear on the reasons why I collect sports cards. I don't collect to make money off cards, and I never nor will make money off cards. It's entertainment, like watching TV, or reading, or listening to music, or whatever else it is that people do for fun.
The economics of sports cards are, however, quite interesting. To understand the driving forces of the economy of cards also gives one a deeper understanding of the sports card marketplace. Understanding the market helps in understanding the history of sports cards, and creates a sense of where the industry is heading in the future. It also helps to sort the pros and cons of being a collector in a manner that's concise.
The foundation of the buying and selling of sports cards, particularly on the secondary market, is an example of microeconomics and supply and demand. That's probably obvious to most collectors. What's not so obvious to most collectors is the concept of investing in sports cards. A lot of collectors feel that investing in cards is silly. Others talk about it like they are discussing mutual funds. I'm part of the former group, because all of the empirical sales data (albeit there isn't much of it besides Beckett and Ebay) points to sports cards as being entertainment rather than investment. Investing in sports cards is kind of like investing in scratch-and-win tickets. It's not really an investment, as much as it is an entertaining way to gamble your money.
The problem is that there is little to no transparency in the sports card industry, particularly in the secondary market. Yes, there is Beckett, but that's merely an index of approximate current prices and the accuracy of Beckett is questionable. There's little to no analysis about the forces that are moving prices up or down. That's the study of economics, and there's little empirical evidence regarding the economy of sports cards.
The fundamentals of supply and demand are easy. If supply exceeds demands, prices go down. If demand exceeds supply, prices go up. Both of these happen until the market reaches equilibrium, which is the state of balance between supply and demand. So, the key to value for sports cards is a limited supply of a card with high demand. The higher level of rarity and the higher level of demand for the card increases its value.
What happened with sports cards in the 1990s is the opposite of this. Incredibly high print runs meant that every collector could easily attain any given card, which means there was no demand for any of these cards. If there was 500,000 copies of a 90-91 Pro Set Wayne Gretzky made and only 10,000 collectors were interested in purchasing this card, then the card will have little to no value.
The card industry responded by creating artificial rarity in two forms: serial numbering and professional grading. With serial numbering, limiting a card to 250 or 100 or 20 or fewer copies theoretically increases its value, although this isn't always the case. In economic theory, there are a type of goods called perfect substitute goods. These are goods that are different in branding, but have the same utility. An example would be Coke and Pepsi, or butter and margarine. They're different, yet perform almost the exact same function equally. There are also imperfect substitutes, which are things that have a similar enough utility that one would be willing to replace something better with something worse (or at least different) if the cost were less. An example would be someone willing to buy a cheaper Toyota instead of a more expensive Ford, when they just need some sort of a vehicle. These aren't exactly the same, but with enough incentives, one will rationalize the decision to purchase an item that is close enough to the item they actually want.
The sports card secondary market is loaded with examples of perfect and imperfect substitutes. Substitution is the serious problem faced by the sports card industry in the current era, because there are so many similar types of cards being produced. In hockey, only Upper Deck and ITG remain. Of course, Upper Deck produces many hockey sets during the era, seemingly one every other week during the season.
The problem isn't so much that there are too many sets being produced. The problem is that there are too many cards of the same or similar type being produced in each of these sets. This is why jersey cards are worth so little money. For example, let's say Upper Deck releases a Mats Sundin jersey card numbered to 250 in UD Series 1. There are only 250 copies of this card in existence, which is still high by contemporary standards, but it's not as high as print runs from fifteen years ago. Then they release a Sundin jersey card numbered to 250 in Series 2. And in Artifacts. And in SPx. And in Ultra. And in SPGU. And in Ice. And in The Cup. And in Ultimate. And in Power Play. And in MVP. And in O-Pee-Chee. And in SP Authentic. And in Trilogy. That's 3,500 jersey cards so far, in a single year, in just those sets.
Now, let's say you add in parallels for many of these sets. Sure, these parallels might be numbered to 100 or 50 or 25 or 1, but they add up. Let's up that 3,500 to 4,000 with the parallels included. Now let's add these cards up over a ten year period, so we multiply that number by ten. Now you're up to 40,000 Mats Sundin jersey cards in a decade. Start this print run in 2000, and we're now only one year away from that figure. This is ignoring patch cards, as well as the possibility that card manufacturers can produce jersey cards long after a player retires, or even dies, as long as they still have jerseys (or sticks, skates, gloves, helmets, pucks, jocks, whatever). You could easily multiply 4,000 by 20 or 30 or 50 years. I have no idea what the oldest memorabilia hockey card is. Maybe the ITG cards with Vezina's goalie pads. Those pads have to be getting close to a century old. Maybe you could multiple that total number of jersey cards by one hundred, then.
The point is that this is an example of an imperfect substitution. A Trilogy Sundin jersey card may sell for $5, but a Series 1 jersey may sell for $1, so that's going to bring the Trilogy jersey price down because either way, you're getting a piece of a Sundin jersey, which is the point of the jersey card. So all jersey cards become worth a dollar. The same thing happens with patch or autograph cards, or basically anything else.
Okay, so jersey cards are worthless. Patches, autographed patches and the like are worth more. That is because there is currently a more limited supply. Let's say there are 300 Sundin patch cards made in a year in all Upper Deck products. In ten years, that's 3,000. In 50 years, that's 15,000. And 300 is a conservative estimate, I think. Time will devalue these cards as they continue to be produced seemingly forever, just as jersey cards were once a valuable item, and overproduction destroyed their value.
Thus, serial numbering is meaningless. It's merely a cosmetic change over the mass production of the 1990s, which realistically has not ended. It's good for Upper Deck, because people buy more products on the primary market because they think there is a higher chance of pulling a rare card. It's bad for the secondary market, because rarity is largely an illusion.
Professional grading is the second means of artificial rarity that has been created. This is more of a case of collectors trying to increase value of their cards on the secondary market, rather than card manufacturers acquiescing to the demands of the secondary market in creating rarity through serial numbered cards. Grading is of more importance to vintage, because it authenticates cards that are easily counterfeited, and it creates rarity in cards where in many cases the print runs are very high, and few high quality examples exist.
It's important for modern cards, too, as a BGS card of a 9.5 or 10 can seriously increase the value of a card, despite the minimal (and maybe non-existent) difference in aesthetics between an 8 and a 9, or even an 8 and a 10. This is all luck. The luck of pulling, buying or trading for a high grade raw card, and the luck of subsequently pulling a high grade on that card. It has created rarity to a degree, but the concept of the imperfect substitute exists in modern cards more than vintage when it comes to grading, because people are aware of the minimal differences between a raw NM-M, or even mint, card and a graded 9 or 9.5 or 10 card, and will purchase the less expensive version in many circumstances, dragging the value of the high grade slabbed cards down. This isn't as much of a case with vintage, where people are more sensitive to the flaws in a card's condition, and issues such as poor centering, rough edges and yellowing are more far more common. Poor centering and yellowing are nearly non-existent in modern cards.
The secondary market for sports cards, however, will collapse again, because of the massive amount of perfect and imperfect substitutes. The secondary market is important for card manufacturers because if people believe the cards these companies are selling are worthless, sales will drop.
This is what Upper Deck, and any other sports card company, can do to avoid this: First, lower serial numbering on all cards, and serial number everything, including all memorabilia cards, autographed cards, inserts and even base cards. Everything. Base cards have become toilet paper because they are just seen as filler by so many collectors, despite that some base cards have especially striking photography and aesthetics. They have to do this for all sets, except maybe one or two sets aimed at children (such as Victory or Power Play). This means they have to provide less cards in a pack for mid-level products since print runs won't be as high, but the cards people will be receiving will be better. They could leave one product for adults, such as Power Play or MVP, completely unnumbered and provide more cards per pack, such as 15 cards or so, with the idea that people who don't care about value and just want as many cards for as little money as possible can buy these cards, and receive more cards in a pack than they would even under the current system. It would make this one particular product more unique than the others.
Second, limit the amount of memorabilia cards made for one player in a single season. They do this to a degree by providing a variety of different players with jersey and patch cards, but they need to set a hard cap on how many jersey cards of a single player will be produced in a given season. For example, maybe there should be no more than 500 Mats Sundin jerseys produced in every product in 2007-08.
Third, they need to limit the amount of products that have memorabilia cards. This requires improved branding and sets with unique themes to make up for the lake of memorabilia. MVP and OPC, for example, don't need jersey cards. Keep memorabilia cards only in high end products like Ultimate, The Cup, SPGU, and so on. That makes these products high end. It also would increase the value of numbered inserts and even numbered base cards in mid-level products, like Series 1 and Ultra, because with fewer jersey cards more people will collect these other cards. Also, they can increase the amount of inserts and subsets in mid-level products, but using a variety of different players in each subset, which means coming up with more unique ideas for insert sets. A player probably shouldn't have more than one insert in any set. If Sundin had one base card and one insert in each mid-level product, and each was serial numbered, the amount of Sundin cards available would go down drastically, and value would increase.
Fourth, the use of retired players needs to be limited to certain sets. Getting a Mike Bossy autographed card doesn't sound as cool now as it did twenty years ago, because there's too many. Something like Parkhurst and OPC, because of their relationship to vintage, could be used for only vintage players. Upper Deck did that this year with Legends Masterpieces, but it's not as effective if a lot of these players are featured in other sets.
Fifth, The NHL needs to give a license to ITG to produce cards, because no competition is bad for business. Either that, or Upper Deck needs to allow Fleer to be autonomous, and produce less UD brand sets and more Fleer brand sets. Or just sell Fleer. UD botched Fleer so poorly that any discussion of Fleer as a viable entity is probably a pipe dream now, though.
Sixth, fewer sets don't necessarily need to be produced. Getting rid of one or two sets that are dead weight would not be a terrible idea, but using the above ideas to revamp all of these sets would be more effective in the long-run.
Seventh, no more parallels. They merely devalue the cards by cluttering the market with imperfect substitutes. All of them should be gone, because if all cards, including base and inserts, are serial numbered, then parallel cards become even more ineffective. Parallels also complicate the industry for new collectors, and make it difficult for people getting started because they basically don't know where to start with the mass saturation of the marketplace.
