Market Resilience

Future collapse will be impossible.

Collectibles markets collapse when item value is diminished. And nothing can diminish value faster or more severely in a collectibles market quite like a gross misalignment of supply and demand.

To understand this misalignment and the motivations that drive it, it is important to take a not-so-brief look at the history of the baseball trading card market.

Baseball cards were not collectibles in 1952. Collecting was the province of kids and teenagers that sought to play with and study their cards. They did it for fun, not money, and as a result many collectors neither saved their cards nor took good care of them. This made high-condition copies very hard to find years later.

Fast forward to the late 1980s. As older cards became scarce and gained collectible value in a small, but growing aftermarket, a new breed of collector emerged -- one who looked after his cards as though they were fragile antiques. In 1952 no one thought these pieces of cardboard would be valuable in 40 years. In 1992, they expected it. That is why they were there.

Influenced by the increased value of rare vintage cards, contemporary baseball card values were supposed to see steady climbs, eventually culminating in cashing in to fund college tuition, new cars, and lavish weddings.

This perception fundamentally altered the custody of cards, too. Modern-day collectors dared not put cards in bike spokes. Instead, they were all meticulously looked after, sealed in plastic sheets and metal vaults, in order to protect their “mint condition.”

After this initial surge in demand, the baseball card supply chain responded in order to cash in, triggering a three-step shockwave:

  1. More baseball card factories were built (e.g., licensors expanded the number of licensees that could produce officially-licensed trading cards).

  2. Each factory dramatically ramped up its print runs per existing set.

  3. Each factory increased its number of unique setsa and items produced per year.

The result was an incredible increase in the supply of contemporary baseball cards hitting the market. Or, as one anonymous poster on Reddit put it:

I know the card companies want to make money, but do they realize that by over producing the cards, they are decreasing their future value?

Not only was the market flooded with millions of cards and dozens of varieties, collectors meticulously cared for each one. More new production paired with less loss while in collectors’ custody turned into an abundance of perfect, mint condition cards. The abundance triggered a drop in perceived value, which then triggered a dramatic drop in demand. Supply and demand 101.

That is the popular story, but it is not the whole story.

The baseball card supply chain responded a second time. This second reaction is less well-known, but for insiders is equally as damaging as the earlier period of general over-production.

A few sports cards from the early-1990s managed to maintain their value. One such set is the 1991 Donruss Elite inserts. This set was the first in the market to include individual serial numbers per card and to be explicitly “limited” to 10,000 copies per card.

For baseball card companies that had just hemorrhaged millions of collectors, this baseball card set acted as a beacon. This eureka moment and others like it bore out the third era of sports card collecting, one marked by under-production and over-variation.

The strategy swung in the opposite direction. In a pursuit to retain the interest of a severely diminished group of diehard collectors and thereby to stave off the death of the market, card companies pursued a strategy of fewer and fewer prints on greater and greater varieties of cards. And to keep the bills paid, each company had to generate more and more revenue per collector, taking the hobby decidedly up-market (having the adverse effect of pricing out prospective mid-market collectors, furthering the withering of the buyer base).

With this came more baseball card sets released per season. To illustrate, there are at least 15 different Bryce Harper cards from his rookie season whereas there is only 1 Willie Mays rookie card from the 1950s. In order to facilitate this at scale, card companies embraced certain gimmicks, like parallel cards, which are slight changes to an existing design in order to market it as a new card and not a copy of an existing one.

Whereas the previous era of over-production created a million copies of one rookie card (all kept in pristine condition) and accessible via $0.50 packs, the new era created 20 different versions of a rookie card, each with slight, gimmicky alterations to be considered different enough, each produced with 100 copies, accessible at $50.00 per pack. For collectors, an obvious question is: which one is the definitive rookie card?

But unfortunately, the slippery slope doesn’t end there. In the era of extreme variation and under-production, the natural end state is a 1/1, or “one of one”: a singular copy of a singular card. But will this be the only 1/1?

Today, cards limited to just one copy are fairly easy to find. And cheap, too. In fact, cards limited to 100 copies are considered common and only sell for a dollar or two, no matter who is on the front of the card. With dramatic increases in set variety, limited differentiation in artwork, decreases in copies per card, and increases in price points, the addressable base of buyers dried up even further. Another instance of Supply and Demand 101.

What created this dual-death spiral? It is deeper than just a misalignment of supply and demand. The death-spiral is a result of why supply and demand are misaligned to begin with, that is, it is a result of the foundational motivations driving supply chain participants. For licensors, artists, manufacturers, distributors, and retailers, more money only comes from more production.

To illustrate this phenomenon, if a collectible performs well in the aftermarket, say garnering high clearing prices on eBay, and value appreciates, say 1,000 times what it would cost to purchase a pack, the only way for supply chain participants to capitalize on this is to produce more similar items. This instinct has severe second-order consequences.

First, new production devalues previously-issued similar items, upsetting holders of the item that has recently appreciated in value (thereby halting and reversing its own appreciation). Second, new production puts collectors on an endless collecting treadmill. When there is no definitive version of a card, how does one know that he has obtained his Holy Grail?

And it is this one-two punch of market saturation and collector fatigue that puts producers and consumers at antagonistic positions with each other, with the end result being a generally unhealthy market, prone to collapse, because of a producer-induced withering of the buyer base.

To solve this problem and achieve “collapse resistance”, it is not enough for collectors to have a seat at the table. They must also sit on the same side of the table as producers. And they must be involved in decisions once the exclusive domain of producers: new production. In doing so, collectors can work collaboratively to ensure that if new items are released, they are accretive to the value of the overall market, including those items that came before.

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