Was Hal Chase baseball’s Pete Rose of 100 years ago? No actually he was much worse.

When I started putting together my T206 card collection in the late 1990s, I knew quite a bit about baseball history but not a thorough amount about the dead-ball decades of early last century.  Yes, I had read books about Christy Mathewson, grew up in the Detroit area knowing all about Ty Cobb and had heard about the Black Sox scandal (and Joe Jackson) from my Dad starting when I was about 8 years old.  However, some of the other great players of the T206 era were just names I had seen in record books or occasionally in stories.

This brings me to Hal Chase.  When I first started collecting T206 cards, I knew Chase’s cards fetched a premium over common T206 cards and that Chase was one of the star players of the era.  Therefore, I just assumed he was in the Hall of Fame.   Indeed, there are lots of Hall of Famers in the T206 set that are not household names even to baseball fans (know of George Davis, anyone? (footnote 3)).  However, I was to learn several years later that Hal Chase was not in the Hall of Fame.  He was indeed one of the great players of the dead-ball era, but he had committed the one unforgivable sin of baseball players: Gambling on games in which he played.

Caption: This is a picture of one of Hal Chase's T206 cards from 1909 that I own (he had several different cards in the set).  Chase played for the New York Highlanders at the time and was a rising star in the American League.  Chase's cards still sell for a premium over more common players in the T206 set, despite his not being in the Hall of Fame.

Modern baseball fans know of the gambling issue in the case of Pete Rose.  Pete holds the record for most career hits by a MLB player and would surely have been a unanimous first-ballot selection if it had not been discovered that he gambled on baseball games as both a player and then later as the Manager of the Cincinnati Reds.

Pete Rose may never get into the Hall of Fame.  If there was ever an advertisement for how not to behave as a person in the spotlight, Pete Rose would be it.  He is despised by many Hall of Fame voters because:

(1)  He is blamed for contributing to the heart-attack death of MLB commissioner Bart Giamatti, who shortly before his death banned Rose for life from baseball in 1989 (footnote 1).

(2) He has never shown much remorse for his gambling or Giamatti’s death.  Indeed, he even claimed that he was wrongfully punished by Giamatti for gambling from 1989 until 2004 when he finally admitted to gambling on games in his biography (footnote 4).

(3) He shamelessly capitalizes on the awful situation he created to make money in any way he can.  He signs memorabilia in Cooperstown outside of the Hall of Fame on the days of ceremonies where he IS NOT inducted into the Hall of Fame.  He later inscribed on 30 baseballs that he is sorry that gambled on baseball to coincide with the publishing of his biography where he admits gambling on baseball (footnote 2).  He will have a new reality series on television next year about his marriage as a 69-year-old man to a Playboy centerfold .  This will be Rose’s third marriage (footnote 10).

Indeed, Pete seems to be his own worst enemy.  Commissioner Bud Selig toyed with the idea of reinstating Rose back in 2003-2004, but Pete could not keep from purposefully doing stupid things like releasing his biography where he admitted gambling on the exact date that newly elected Hall of Fame players were announced in 2004, thus stealing headlines on the sports pages.  Selig thought again.  It’s likely that Pete Rose will never get into the Hall of Fame during his lifetime.

Hal Chase was worse behaved...

Hal Chase’s behavior makes Pete Rose look brilliant.  Chase was born in California (1883, Birth name: Harold Homer Chase) and played collegiately at Santa Clara University (footnote 5). He was drafted by the New York Highlanders (e.g., Yankees) in 1905 and would play his initial Major League years for the Highlanders/Yankees from 1905 to 1913.  Chase was known for his amazing fielding ability and very good, but not outstanding, hitting.  He did win the NL Batting Crown with Cincinnati in 1916, and was a fast base runner being one of the better base stealers of his era (footnote 6).  However, it was his fielding that made Chase a great player.  Both Walter Johnson and Babe Ruth claimed that Chase was the best fielding 1^st baseman they had ever seen.  He has been named to many lists of the best baseball players even to play the game.

However, that’s where the superlatives about Hal Chase stop.

Chase was also one of the shadiest characters to ever play baseball, even in the shady dead-ball era.  “Price Hal”, as he was referred to by many people, was incredibly popular with his teammates, a generally good looking man, and known to be a master poker player and pool shark.  He was a king of the evening and night life.  Based in a city (e.g., New York) where wild times were plentiful, this enabled Chase to mix with all sorts of people, including gamblers.  To add to this universe of temptations, Chase always seemed to have a chip on his shoulder about the pay of Major League players, which was poor by today’s standards.  In 1907, Chase held out for higher salary from the Highlanders and also played in the California League despite threats the National Commission (the ruling body of baseball) to keep him from playing in the majors.  He was also one of the players to jump to the upstart rival Federal League in 1914 until it folded in 1915 (footnote 5).  This was likely due to the chance to get better pay in the Federal League or at least escape his building reputation for lackadaisical play.  This perceived inequity about pay made it easy for Chase to probably justify to himself trying to fix games for money.

Caption: Vertical leaps like the one pictured above show Chase's athletic ability at first base.  This photo can be found at: http://z.lee28.tripod.com/therest/halchase.html

Given his position at first base and his fielding prowess, Chase was in a special position to be able to affect the outcomes of games.  As stated on one web site profiling Chase: “It was especially easy for the talented Chase to help his team lose. A bad throw here, a misplayed grounder there. It was all in a days work (footnote 8)."  This observation seems very astute in that Chase also holds the record for most career errors by a first baseman, despite his legendary fielding prowess (footnotes 5,8).  Either Chase was charged for errors in getting to hit balls that others could not even try to field or he misplayed them purposefully.  While some of the former likely happened, Chase was too talented to lead the Major Leagues in fielding errors at first base in so many seasons given his tremendous fielding skill.

Chase was accused of throwing games for money as early as 1908 (footnote 7).   In 1910, Highlanders Manager Gene Stallings accused Chase of throwing games.  However, Chase was backed by Highlanders' upper management and ownership because of his star status, and Stallings was fired and replaced by Chase himself as field manager (footnote 7).  After one season of Chase’s management and a middling finish in the standings, Chase was replaced as manager and returned to being just a player.  In 1913, when future Hall of Famer and then Yankees (team name changed in 1913) manager Frank Chance accused Chase of throwing games, Yankees’ upper management listened and Chase was traded to the Chicago White Sox (footnote 7).  Chase’s erratic and lackadaisical play for the White Sox was so obvious to fans that “fans and players alike would shout out, "whats the odds" at him before ball games.” (footnote 8).  His throwing of games had become that obvious.

By the 1914 season, Chase had jumped to Buffalo of the Federal League to escape Chicago.  When the Federal League folded, Chase was signed by the Cincinnati Reds in 1916 and led the National League in batting (footnote 5).  However, in 1918, the scrupulously honest Christy Mathewson, who was managing the Reds, suspended Chase for the final two months of the season for throwing games (footnote 7).  Mathewson brought charges against Chase to the National League office, but Chase was acquitted due to lack of evidence (footnote 5).  Chase was given one last chance by John McGraw and the NY Giants as he was signed for the 1919 season.  However, National League President John Heydler told the Giants to fire Chase late in 1919 as substantial evidence surfaced, albeit late, to support Mathewson’s accusations that Chase helped fix games in 1918.  At this point, Chase could not work in the National League.  Hughie Jennings, then managing the Tigers, told all American League Clubs also not to hire Chase because of Chase’s past, and thus “Prince Hal” was out of the major leagues for good (footnote 5).

Chase spent the next decade bouncing around the unregulated “Bush Leagues” of the Southwestern United States and Mexico.  He was accused of throwing more games (footnote 5).  After a number of injuries, Chase retired to a life of drifting up and down the West Coast doing odd jobs.  He ended up being indigent and was forced to move in with his sister in his later years.  He died in a Colusa, California hospital at the age of 64 (footnote 9).

The above paragraphs are just a small outline of Hal Chase’s gambling issues.  Chase was also thought to have played some part in the Chicago Black Sox scandal to throw the World Series in 1919.  Chase would later admit to knowing about the fixed World Series before it a happened but claimed he was not part of it.  When asked why he did not come forward, his answer was simple" “I was no squealer.” (footnote 9).  Chase undoubtedly corrupted many of the players around him with his gambling schemes.  Many of his documented cases of fixing games involved other players.  Indeed, it was Chase’s widespread gambling influence on his peers that likely prompted Kyle Lobner in the online Baseball Almanac to say:

Many baseball historians see Chase as the primary source of corruption within his era, and a few name Chase as being responsible for the birth of the Commissioner's office, which was created to help curb corruption in baseball. Chase was definitely an excellent player: a quote from a June 1913 issue of The Sporting News sums it up nicely. "That he can play first base as it never was and perhaps never will be played is a well known truth," it says. "That he will is a different matter." (footnote 7)

There is some controversy over whether Chase was ever officially banned from Major League Baseball.  While many writers say that Chase was banned, others assert that there is no evidence of his actual banning.  However, it matters little, because it was very clear that after 1919 Hal Chase could not get a job in organized baseball and was seen as a pariah.  That being said, Chase’s talent and fan appeal were clear, and many, many newspapers reported his death in 1947.

Unlike Pete Rose, Hal Chase at least showed some remorse for his behavior in the twilight years of his life.  Several quotes stand out:

"You note that I am not in the Hall of Fame. Some of the old-timers said I was one of the greatest fielding first basemen of all time. When I die, movie magnates will make no picture like Pride of the Yankees, which honored that great player, Lou Gehrig. I guess that's the answer, isn't it? Gehrig had a good name; one of the best a man could have. I am an outcast, and I haven't a good name. I'm the loser, just like all gamblers are. I lived to make great plays. What did I gain? Nothing. Everything was lost because I raised hell after hours. I was a wise guy, a know-it-all, I guess." (footnote 5)

"Baseball was good to me.  I guess I made $150,000 in all - and legitimately - in Baseball.  But I muffed my big chance.  I guess I got a little too smart." (footnote 9)

So while Pete Rose may be the modern king of showing boorish behavior that laughs in the face of baseball, Hal Chase's crimes against the game make Pete Rose look saintly by comparison.

For More on Hal Chase....

For more reading on Hal Chase, I suggest Donald Dewey and Nicholas Acocella’s book titled The Black Prince of Baseball: Hal Chase and the Mythology of the Game. (2004, Sport Media Publishing).  While I did not read this book in preparing this post, it seems to be quoted frequently by people who have written about Hal Chase online.

Footnotes

1. http://www.nytimes.com/1991/07/08/opinion/put-rose-almost-in-the-hall-of-fame.html

2. http://sports.espn.go.com/mlb/columns/story?columnist=kreidler_mark&id=2593357

3. http://baseballhall.org/hof/davis-george

4. http://psychologyofsports.com/2004/01/10/experts-say-pete-rose-coming-up-short-on-remorse-contrition/

5. Much of the general knowledge about Hal Chase in this post comes from his Wikipedia page, which is quite thorough and largely consistent with other sources.  That page can be found here:  http://en.wikipedia.org/wiki/Hal_Chase

6. http://en.wikipedia.org/wiki/List_of_Major_League_Baseball_leaders_in_career_stolen_bases

7. http://www.baseball-almanac.com/articles/halchase.shtml

8. http://www.thedeadballera.com/BadBoneChase.html

9. Ottawa Evening Citizen, May 19, 1947, p. 21.  Article can be found here: http://news.google.com/newspapers?id=fB4vAAAAIBAJ&sjid=IdwFAAAAIBAJ&pg=3062,4392193&dq=clark-griffith+hal-chase&hl=en

10. http://insidetv.ew.com/2012/07/17/tlc-pete-rose/

Why are there so few legitimate card grading companies?

In my last post, I discussed why the sports card grading companies exist and why these companies are a product of the internet age.   The irony in this situation is that the card grading companies are relatively low-tech businesses that could physically exist without the internet or the technical advances of the last 50 years.

In terms of operations, they are labor intense as humans:

(1) Unpack your cards that have been mailed to the companies in 99 percent of the orders.

(2) Login your cards and segregate them from other orders in boxes or on trays.

(3) Review your cards at some point for authenticity and grade.  This work is largely straightforward for most modern cards.  It might require a little more expertise for older, rare or more expensive cards, which is why the companies charge more based on a card’s value (For example, grading discount specials are usually reserved for cards under a certain declared value such as $100).  Issues such as counterfeiting and restoration affect many more valuable cards, which therefore require closer inspection.

(4) Load your cards into holders, which are put into a pressing machine that seals the card in the holder.  These pressing machines are not multi-million dollar devises protected by patents or trade secrets.

(5) Pack your graded cards to ship back to you and check to make sure your order is complete and that all your cards are returned to you.

None of these basic activities is really high-tech or difficult to pull off.  The card-grading businesses have become more high-tech in the last 15 years with databases of graded cards (e.g., you need to have a database so that a card’s serial can be checked for authenticity) and the emergence of the set registries.  However, even the set registries, which would be the most difficult task to pull off, are not that high tech.  All card set registries are really just large database applications that can easily be developed by any thousands of small software firms, plus renting some storage space “in the cloud” for the data and any pictures people add to the registry.

This, again, raises the question of why are there so few legitimate card grading companies.? Indeed, three card grading companies (PSA, SGC and Beckett) do most of the mainstream card grading with PSA’s share of the market being well over 50 percent (and maybe closer to 80 percent) by just a casual examination of what is being sold on eBay.

Usually, for an industry or business sector to be dominated by a few firms, you need to have what economists call “entry barriers”.  Entry barriers are aspects of competition that confer advantage to existing firms in an industry at the expense of firms that want to enter that business.  If these advantages are great enough, the existing firms can earn high profits without new firms entering the industry and bringing more competition.  While potential new firms may see the profit that the firms in the industry are making, the managers of potential new firms choose not to enter the industry in question because it would cost too much to establish a competitive position because of the entry barriers.

Traditional entry barriers have been associated with large firm size, capital intensity and complex knowledge.  For example, two firms make all the large passenger jets in the world (Boeing & Airbus) because there are monstrous entry barriers into this industry.  Entering airline-making industry would cost likely hundreds of billions of $ dollars in plant and equipment to make sophisticated and large size jets and new competitors would also lack much of the knowledge that  Boeing and Airbus have gathered over the decades about how to produce such complicated products that require immense design and manufacturing knowledge.  So, even when Boeing and Airbus make a lot of money, no other companies enter the industry because investing the hundreds of billions of $ dollars needed to enter would be very risky (and largely a stupid move) without the knowledge of how to design and manufacturing large jets.  Indeed, the only future competitors that Boeing and Airbus will have will be firms whose governments (i.e., China & Brazil) subsidize the entry into the airline-making business by putting up the capital needed to overcome the entry barriers.  The free capital markets will not supply such capital because it would just be a large, bad investment with poor returns.  Governments are willing to do it for national defense or pride reasons.

Anyway, I have digressed from sports card grading.  The key point to take away is that none of the usual entry barriers exist in sports card grading industry.  It is not a capital intensive business.  It requires no special knowledge that is possessed by only a few people or protected by patents.  The machinery involved is not that complex.  The tech side of the business (set registry, web site, etc.) can be easily and cheaply outsourced.  There are few economies of scale that would give large firms a cost advantage.  Indeed, the investment required to start one of these businesses would likely be several hundred thousand dollars.  This would suggest many card grading companies could exist.

However, one entry barrier, that we usually associate with high-technology businesses makes this industry very much controlled by a few, if even one company (e.g., PSA).  That entry barrier is “network externalities” (as called by economists) or the “bandwagon effect” that exists in the sports card grading market.  Network externalities exist when there are competing “standards” in an industry and a particular standard gains more value for those who adopt it as that standard’s market penetration increases.  Think of this example:  When the telephone was first invented in the late 1870s, it had little value to the few people who owned telephones.  Why?  You could only call or talk to the handful of other people that owned telephones.  The real value of a telephone was only revealed only when lots of people started having telephones (i.e., market penetration went up) and you could call or talk to lots of people.  Thus, the value of the telephone for an individual user is proportionate to the number of other people that also have telephones.  In other words, the more people who joined the “network”, the greater its value is to individual users of that network.

We see this type of competition today all the time in tech businesses.  Think of the Apple’s iPhone versus phones run by Google’s Android system.  We have two competing standards of operating systems on these phones that are incompatible.  As more people adopt each one, each system gains more value to its users as software application developers develop more “apps”  for the expanded user base of either the iPhone or Android.  The bandwagon effect kills the smaller standards like Blackberry from RIM because nobody wants to write “apps” for their shrinking user base as the iPhone and Android expand.  Ultimately, the standards become an entry barrier as customers coalesce around a single or several standards and new standards cannot emerge because they cannot come close to providing the benefits of the existing standards to potential customers.

In the sports card grading business, network externalities exist because cards graded by each of the big three card grading companies are not compatible.  This creates the opportunity for bandwagon effects.  Think of this example: If you purchased some valuable sports cards at an estate sale and wanted to get them graded for reselling, which grading service would you choose?  In all likelihood, you would choose Professional Sports Authenticator (PSA).  Why?  Because PSA has the largest market share and thus the most collectors looking for those cards graded by a particular company on eBay.  Therefore, if you listed them on eBay, they would get the most views, all things equal, if they were graded by PSA.  In other words, there are many more PSA-centric collectors on eBay and thus demand is potentially higher for PSA-graded cards.

If you decided to keep the estate sale cards for a while after grading, it is still best to go with the market share leader in a bandwagon market.  This is because the money you invested in card grading largely goes to waste if the card grading company goes bankrupt and stops grading cards.  For example, there used to be four legitimate card grading companies when GAI (Global Authentication Incorporated) was in business out of San Diego.  GAI was started by former PSA employees and made a splash for a few years with pack grading and very consistent card grading.  Yet, by being late movers, they were fighting an uphill battle in establishing a market position against three other companies that had established standards.  GAI ended up going bankrupt in 2009. (footnote 1)  They were most likely forced into bankruptcy by the triple whammy of being a low-market-share standard, PSA entering pack grading as a competitor and the lousy economy after the financial crisis in 2008.  That being said, GAI graded cards are now “orphans” that buyers would likely crossover to other grading companies.  They would likely figure that crossover cost in what they bid in eBay auctions.  Also, the fact that GAI’s card grading business was sold to people that seem to be ripping off customers even makes owning a GAI graded card less valuable. (footnote 2)   Hence, not wanting to get orphaned is why people go with an existing standard like PSA when grading cards.

Caption:  Here's a Cal Ripken Fleer Rookie Card that I own and had graded by GAI five years ago.  Its value is now less because of GAI's bankruptcy and the troubles of its successor company.

Indeed, PSA was very smart in creating network externalities in this market as part of their business plan.  The winning firms in network externality markets tend to be early movers in an industry that establish a standard.  While I don’t know who started grading cards first, PSA was one of the early companies and they pushed very hard to get market share by advertising (developing the SMR magazine), creating alliances with auction houses and grading some of the premiere cards in the industry like the Gretzky-McNall T206 Honus Wagner card. (footnote 3)  This allowed PSA to have an early lead in building their standard.

Probably the greatest move PSA made to set their standard in stone was the development of the set registry idea.  The PSA set registry allows collectors to compete with each other on who has the best sets of various cards.  However, to compete in the PSA registry, all of your cards must be graded by PSA to count.  This was a brilliant idea on several fronts.  First, it created demand to grade cards that would not normally be graded because of their lower dollar value in order to work toward completing sets.  Second, it reinforces the exclusivity of their standard.  To play their set registry game, you must have PSA graded cards.  It’s little wonder SGC (Sportscard Guaranty Company) quickly followed PSA in establishing a set registry because it created greater value for their standard too.  This again hurt smaller players like the now defunct GAI.

Why not a PSA monopoly?

Four facts seem to keep PSA from having a monopoly on card grading.

Fact 1: While PSA seems to have a vast majority of market share in sports card grading, other standards can exist if a firm can get enough cards graded and just enough market share to make their standard viable.  An example from another industry is Mac computers versus PCs (Macs and PCs used to be incompatible before VMware, etc.).  While Apple almost died in the early-to-mid 1990s, the Mac survived because it had a big enough niche in the education markets and desk top publishing to survive as a second standard for PCs.  Therefore, a second standard can dominate a niche part of the marker.

This is exactly what has happened in the sports card grading market.  SGC is considered to be the best grading company in many collectors’ opinions on vintage cards, especially pre-World War II cards.  I am not exactly sure why this perception exists, but it is backed by the facts.  For example, I recently went to both PSA's and SGC's web sites and looked up the population reports of three different types of cards.  Population reports can show all cards graded by a particular company and the data below compares SGC to PSA in cards graded.

Type of Card               SGC Graded              PSA Graded        PSA-to-SGC Ratio

T206 (1909-11)              81,207                      144,373                        1.78

All 1950 year cards        11,377                        34,240                        3.01

All 2001 year cards           9764                       111,063                      11.37 (footnote 4)

As can be seen in the numbers, the PSA advantage in population of graded cards grows as we go from older to newer cards.  While PSA has a 1.78 ratio of graded cards in T206 cards, the ratio grows to a whopping 11-1 advantage in 2001 baseball cards.

Thus, seeming to have a focus on vintage cards has carved out a survivable niche for SGC.  It seems to be the second standard that exists in sports card grading.

Fact 2: The standards are not fully incompatible as sports card collectors can cross their cards between companies for a fee.  So once a card is graded by PSA, it does not have to remain a PSA-graded card forever and can be crossed over or re-graded by another card company.  Therefore, cards are not locked into a particular company.  That being said, crossing cards over is expensive for most collectors, so if PSA grades the most cards on their first grading attempt, they are likely to stay PSA graded.  Therefore, one cannot move costlessly between standards.

Fact 3: Some collectors do not care about which company grades their cards, especially collectors who do not build sets.  The set registry is the biggest lock-in to a particular company.  There are many collectors and sellers of cards that do not care about sets but rather only buy or sell stars, particular players, etc.  I suspect that this is where Beckett gets a lot of their business.  They have the weakest registry (It wasn’t even working the night I got the information above from PSA or SGC).

Fact 4: A weak standard can exist if its profitability is not that important to the company that owns it.  Again, I use Beckett as an example.  Beckett Grading is the smallest of the remaining three players, but they do not seem to care very much from their pricing and lack of specials to attract volume.  My best guess is because grading is subservient to other services at Beckett such as price guides and their online marketplace, they keep it in their product/service mix but do not try to grow it too much.

Caption:  Who the heck was FGA?  I received this card as part of buying out another person's small collection.  This card is probably worth more cracked out of its case.  However, it does save me having to use a toploader!

My own observation on the Big 3 Grading companies…

This has been a long post, but I thought that I would close by adding my personal observations on the grading companies.  I have used all three to grade cards before (and GAI before it went bust), so I have some experience with all of them.

SGC (Sportscard Guaranty)

I am a huge SGC fan and have three sets on their registry.  I like grading my vintage cards through SGC because their grading system is pretty mechanical and therefore very predictable.  PSA seems to give more credit to subjective eye-appeal, which I never seem to understand, and also seems to penalize poor centering more.  Since many vintage cards were cut by humans or less precise older machinery in factories, centering is more of a random issue in vintage cards.  SGC’s customer service is outstanding and you can get answers to almost anything with one telephone call.  Also, they once lost several cards that I sent in with a large order and they promptly replaced these cards with ones they purchased on the open market in the same grade.

On the downside, I get nervous about SGC being the lower market share standard.  I have a lot of money invested in SGC graded cards.  If they would go out of business, I would lose a lot of my investment value and would incur costs to crossover to PSA.

PSA (Professional Sports Authenticator)

I have been a PSA Collector’s Club member since 2000, and PSA is the king of grading.  There are many things to love about PSA.  They also have awesome customer service and their standard or brand is the best currency in grading (see all of the above discussion).  Any modern or autographed cards I get graded always go to PSA.

Certain things also bother me about PSA, however, including:

(a) The grading standards are extremely subjective, especially at high numbers between PSA 8 and PSA 10.  I have never submitted a card that has received a PSA 10, and it bugs me.  Moreover, I have purchased a number of PSA 10s on eBay and cannot tell the difference from the PSA 9’s that PSA always sends back to me when I send in cards to grade that I think are 10's.  I know there are others who share this same paranoia.

(b) As a middle class person who collects cards, it irks me that SMR Magazine and the whole mini-industry to whom PSA seems to want to cater is rich trial lawyers or investment bankers who detail in SMR how hard they have worked to develop a 1952 Topps set with an average PSA grade of 8.87.  I think collecting gets a little ridiculous when everything needs to be a PSA 10 to be awesome.  I want tort reform partially so any trial lawyers have to sell their PSA registry sets!

(c) PSA’s grading specials usually have these ridiculous turnaround times like 45 business days and minimum 25 card submissions.  This move is obviously to encourage you not to use their specials but rather have your cards graded at higher, regular prices.  Part of the problem here is that many modern cards do not have enough market value to justify being graded at PSA’s regular prices.

BGS, BVG, BCCG (Beckett)

Beckett has never seemed to fully know how to handle the age of the Internet.  While they do have one of the strongest names associated with collecting cards, the internet undermined their business model of selling price guide books and magazines.  It took them a long time to figure out the online subscription model that they now follow, and they committed a lot of errors along the way such as selling their whole sports card database on a CD-ROM for $34.95 (I still have that CD.  A great buy  - - - I never had to buy another Beckett product for about three years!)

Likewise, with grading, they seem to be always a day late and a dollar short.  For example, they have no set registry up at this time (9-3-2012) and their earlier registry was not as well designed or functional either PSA’s or SGC’s registries.  While I have been quite happy with the quality of their grading and holders when I submitted cards to their BGS or BVG services (BVG stands for Beckett Vintage Grading), I have not submitted cards to Beckett in several years because their pricing is higher when compared to what you can get with specials at SGC or PSA.

Also, their BCCG service has confused the marketplace.  While I like the idea of an inexpensive low-end service that lacks some of the bells and whistles of regular grading (such as inner sleeves and computerized databasing of cards), their choice of a 10 point scale, similar to PSA and SGC, but with different meaning is completely nonsensical and hurts Beckett’s overall grading brand.  For example, a BCCG 8 means a card is only Excellent or Better (similar to a PSA 5 or SGC 5), which can be used to scam novice buyers. (footnote 5).  Also, it seems that BCCG graders must spend about 3 seconds looking at each card because they will seem to slab about anything and give it some number.  My advice is “buyer beware” on anything graded by BCCG.

Overall, Beckett seem the most confused about their grading service of the Big 3 graders.  I suspect it is because grading plays a smaller role in their overall business model than PSA or SGC.  I think it’s in their portfolio because they feel they have to have it, and they are hedging their bets just to stay in the industry.

1.  http://www.sportscollectorsdaily.com/global-authentication-files-chapter-11/

2. For Better Business Bureau Complaints against http://iowa.bbb.org/article/card-grading-company-in-bettendorf-leaves-sports-fans-empty-handed-36474

3. http://www.honus-wagner.org/2008/02/honus-wagner-t206-price-and-owner.html .  There has been some controversy around the Gretzky-McNall T206 Honus Wagner card and whether it was altered by previous owners and its authenticity.  These issues are beyond this post’s focus.

4. These numbers were gathered on 8-20-2012 form both company’s web site.  The years chosen were not completely random as I collect T206 cards and 1950 Bowman cards.  Year 2001 was chosen because it is Albert Pujols and Ichiro Suzuki’s rookie card year.  Only baseball cards are included in the annual numbers.  For 1950, this would largely be the 1950 Bowman set.  It would include many sets from 2001.  Also, the numbers probably overstate the actual population of cards still-in-grade by each company because of crossover grading whereby one card is crossed over from one company to the other.

5. There is a nice eBay guide that talks about this problem.  It can be found here: http://reviews.ebay.com/The-BCCG-grading-problem-DON-apos-T-OVERPAY-FOR-CARDS?ugid=10000000175139486

Why Sports Card Grading Companies Exist

They are relatively low tech businesses, but they would not really exist at any level of influence in the sports card without the development of the internet.  That’s the irony of the sports card grading business.

Why do we need card grading companies like Professional Sports Authenticator (PSA), Sports Card Guaranty Company (SGC) or Beckett Card Grading (BGS or BVG)?  It’s because sports collectors care about the various conditions of their cards and need a way to determine those conditions, especially for transactions that are done somewhat impersonally over the internet.

It wasn’t always this way….

Before the advent of the Internet (yes, thank you Al Gore for inventing it 8-) ), building a nice sports card collection was much more difficult than today.  Attaining particular cards, especially vintage cards, required going to shows, being part of card trading clubs, having a network of friends who were collectors or dealing with the local sports card hobby store.  There were a few mail order houses where one could acquire old sets or cards, but most trading occurred face-to-face, and you were limited by the “local inventory” of stores and other collectors.  If you were real serious, you could go to regional or national shows where the inventory of cards was greater but doing that required more money and time than most collectors had.

Because you mostly dealt “face-to-face” on purchases (or trades) with dealers or collectors, you could easily examine a card before buying it.  Also, it did not matter that much if traders or buyers had different condition beliefs about what was EX shape versus NRMT shape for a card because that could all be worked out in the barter or pricing system in negotiations. Also, it was hard to get ripped off by counterfeit cards if you knew what you were doing and carried a loupe or magnifying glass with you.  Also, because people negotiated with each other, there seemed to be fewer grades than we have today.  Yes, a poor looking, creased, and beat up 1954 Topps Al Kaline rookie card was worth less than a card that was in decent shape.  However, there certainly wasn’t the major price premium you would find today associated with a Mint (e.g., PSA 9) 1954 Topps Al Kaline rookie card versus one that was EX-Mint (e.g., PSA 6).  A good looking card without creases and without bent corners was generally considered top quality whereby maybe there might be a smaller price differential for a card that was a little more pristine.

The Internet changed everything…..

And largely for the better of sports card collectors.  While card collecting was hurt in some ways by the Internet, such as the Internet's role in driving the local card stores out of business (more on this in a future posting), it opened up a nation (or even a world) of card inventory to the collector who would no longer have to rely on “local inventory” or traveling to shows to build their collections.  Indeed, eBay emerged by the late 1990s as the main way that most collectors purchased and sold sports cards.  It allowed middle-class people like me to build a 1954 Topps Baseball set (the first vintage set I built in the late 1990s) in a relatively short period of time.  It also shifted some power to the buyer on pricing.  For example, at a show if you wanted to buy a 1954 Topps Ernie Banks rookie card, you were limited to whichever dealer or trader had the '54 Banks card in inventory at the show.  This might be just one or two sellers at a small show.  With eBay, you suddenly had a number of 1954 Topps Ernie Banks’ cards on which to bid.  As a buyer, you could be more disciplined on holding-the-line on your maximum price because you knew that if you didn’t get the particular card you were bidding on some Sunday night that another would be available within hours or days.  At a show, it might be months before you got another shot at that ’54 Banks rookie card, so you would likely cave in a little on price.  While the Internet also brought more buyers into the market to bid up the price of that ’54 Bank’s rookie card, you at least knew that you could figure out what the right price was over a few days or weeks of bidding and eventually get the card if you had enough money.

However, the shift of buying, selling and trading of sports cards to the Internet and particularly to eBay took the face-to-face element out of the transaction.  This created ‘economic opportunity’ for the sports card grading industry.  It was (and is) hard to see the conditions of cards on the Internet beyond the pictures and descriptions on eBay.  You could no longer hold the card in your hand and inspect it.  While most of my experiences buying on eBay have been great, problems can occur because collectors’ ideas of what, for example, is an EX or NRMT card can and will often honestly differ.  These are honest mistakes.  Also, what economists call “information asymmetry” exists in the transaction on the Internet.  The buyer is limited to the knowledge that is given to him or her by the seller in the picture and description on eBay.  This can give unscrupulous sellers great advantage.  They can sell counterfeit cards as real.  They can sell beat up cards as higher grade cards.  They can also sell altered cards (like trimmed cards) as unaltered.  These unscrupulous actions would be much harder in the pre-Internet world of face-to-face transactions.

While eBay does a pretty good job of trying to stop unscrupulous sellers through having feedback posted and trying to ban such sellers, their system is far from fault proof.  If somebody takes your money and disappears, you are sort of stuck and out of luck (I will have a post in the future about how to avoid eBay scams and get your money back from bad sellers).  Often, even if you can identify the person who defrauded you, in many cases your only course of action would be to file a claim in small claims court in the jurisdiction where the person lives, which is a pain in the rear end and usually is much more expensive than the money you lost in the first place.  Trading with people outside of eBay via the Internet is even more risky, unless they are a major seller like a retail store or site that has built up a reputation.  Also, the more expensive the card, the greater the risk created for the buyer by information asymmetry.

However, the “information asymmetry” on eBay or the Internet largely disappears if:

(1)    There is a standard system for grading sports cards.

(2)    This system is administered by a third party outside the trading transactions.

(3)    It is hard to fake the system (i.e., in this case, crack open the graded card cases        and insert other cards or build fake card cases)

(4)    Buyers pay a premium for the information gained by the standardized system.

And, of course, this reduction of “information asymmetry” is why the card grading companies exist at the level they do today.  We can buy a card graded PSA 7 from a stranger over eBay and pretty much know what the card will look like when it arrives.  If it is PSA 7, we know it has no creases, pretty sharp corners and is not counterfeit.  The PSA 7 grade is a signal of the card's condition and is sort of a warranty of what the card will look like when it arrives.

Indeed, without the Internet, there would probably be only a very few wealthy people that would use the grading services in trying to determine who has the best T206 Honus Wagner card.  The rest of us would still be buying cards face-to-face and also have much smaller collections.  However, do not just take my arguments as evidence, let us look at some real numbers.  While it is not clear which company actually invented professional grading of cards, PSA service started in the mid-1990s.  Here are some numbers for the end of that decade:

Year               Cards Graded by PSA (in year)        eBay Net Sales

1998                       168,000                                 $  86,129,000   

1999                       899,000                                 $224,724,000

2000                       1,800,000                              $431,424,000 (footnote 1)

As can be seen from these numbers, PSA’s number of cards graded took off with eBay’s initial establishment and growth in the late 1990s.  This correlation is not a coincidence and reflected the changing nature of how collector’s acquired cards after the establishment of the internet and eBay.

In my next post (in the works), I will discuss why so few legitimate card grading companies exist.  At the time of this writing in 2012, collectors really only have three legitimate options in my opinion for getting their cards graded: PSA, SGC and Beckett (This assumes collectors may want to resell their cards at some point in time).

1 The number of cards graded by PSA comes from the Collectors Universe 10K from 2000, which can be found here: http://clct.client.shareholder.com/sec.cfm?DocType=Annual&Year=&FormatFilter= .  The eBay sales data can be found in their 2000 10K filing here: http://secfilings.nasdaq.com/filingFrameset.asp?FileName=0001095811-01-001836%2Etxt&FilePath=%5C2001%5C03%5C28%5C&CoName=EBAY+INC&FormType=10-K&RcvdDate=3%2F28%2F2001&pdf= .

How Sports Card Royalties Work

Just like any other commercial enterprise, the companies that manufacture sports cards cannot use the images of athletes without getting legal permission. When these companies use images they pay a licensing fee or a royalty in order to use the images of players and other copyrighted images such as team logos. These fees can come in the form of a flat payment, of say $5000, to an athlete or organization, but may also come in the form of a percentage of sales of the ‘officially licensed product’.

Licensing disputes have been very common in sports card manufacturing over its history with significant consequences for the industry. For example, the most valuable high-profile sports card, the T206 Honus Wagner card, is so scarce exactly because of a license denial. Back in 1909, the American Tobacco Company, which packaged baseball cards with cigarettes as a premium, sent all the players that were to appear in their baseball card series $10 for the rights to use their images on the cards. Assuming that no player would turn down that money, cards went into production. However, shortly after production began, Wagner returned his $10 through an intermediary and denied permission for more cards to be produced with his image. The lore associated with the story is that Wagner did not want to be associated with selling cigarettes, but his motives were never fully clear, and he did endorse chewing tobacco and cigars.

In any case, the American Tobacco Company had to pull the card early from printing runs, and it is estimated that a very few went into circulation. Given that cards were not collected and preserved well at the time, this situation led to the around twenty T206 Honus Wagner cards that are estimated to be in existence today. Also, because Wagner is estimated to be one of the top players to have ever played baseball, it is easy to see why some T206 Honus Wagner cards have changed hands for over $1 Million.(footnote 1)

In the modern era, licensing of sport cards can be quite complicated. For example, a fully licensed baseball card will pay royalties to Major League Baseball (MLB), The Major League Baseball Players Association (MLBPA) and to the individual player on the card. Other sports follow similar licensing agreements. Players often let their league’s organized labor group like the MLBPA negotiate their individual rights with sports card companies whereby the labor group keeps some money in a general pool that supports the group or subsidizes other causes. In baseball, it has long been that the MLBPA licenses rights to the player’s image (and autographs on cards) and gets those royalties. The league, MLB, then licenses any copyrighted logos, team names or other major league registered trademarks.

The exception to this general rule is Topps' dealings with baseball players.  Throughout its long history, Topps has signed individual major (and sometimes minor league) baseball players to long-term contracts of up to five years with annual one-year extensions.  This situation is a legacy leftover from Topps' battle with Bowman in the 1950s for player contracts whereby both companies tried to sign players to long term contracts with these contracts sometimes being exclusive.  It was such exclusive player contracts that allowed Topps to have a virtual monopoly in the 1960s and 1970s in baseball cards issued with gum.  Topps would rather prefer not to license with the MLBPA because it just adds another level of royalty payments.  The MLBPA, while not getting Topps to sign a license, has however been able to use the threat of the union getting players to not renew their contracts to get Topps to pay the players greater royalty levels.  Therefore, the MLBPA has been able to somewhat influence Topps. (footnote 8) 

This separation of licenses can lead to some cards that are licensed only by certain parties. For example, the card below, which is a 1990 Ken Griffey Jr. ‘Jumbo California Sunflower Seeds’ card has the Mariners logo air-brushed from Griffey’s hat. Because the card was only licensed by the Major League Baseball Players Association (MLBPA), it cannot show the Mariners’ logo without violating Major League Baseball’s trademark or copyright of that logo. The reason a card producer would want to go that route is because it is less expensive to produce the cards without having to pay the MLB a cut. Many cards can be found over with similar lack of lack of logos and other MLB owned symbols such as years and years of Post Cereal Cards.

 A player or former player can even sell his own image rights without the representation of his or her union or league. For example, Nolan Ryan licensed his image to Pacific Trading Cards in 1991 for a complete set based on his career (see card below). Note of the scan of the back that Pacific also received a license from Major League Baseball (MLB) as seen by the MLB logo on the back of the card and that Ryan’s hat in the picture has the Angels trademarked logo. Other players like the late Ted Williams licensed their own images for cards over the years, which is why Fleer was able to produce an entire Ted Williams set in 1959 despite Topps claiming to have sole right to produce baseball cards for the MLB from 1955 to the early 1980s (I will have a bigger post on this later).

 Here’s a Ted Williams card from his 1959 Fleer set:

The terms of licensing agreements are usually kept secret by the contracting parties. Since none of the involved companies or licensors (like the MLBPA) are publicly-traded companies, disclosure of terms is not something investors could pressure management to divulge. That being said, lawsuits occasionally happen that reveal the terms, which generally seem to be favorable to the licensors and players. For example, in March 2012, the National Football League Players Association (NFLPA) sued Upper Deck for non-payment of royalties (e.g., licensing fees) to both the NFLPA and over 200 NFL Players. (footnote 2) The suit reveals that Upper Deck had to pay minimum guaranteed royalties to the NFLPA plus a percentage of revenue generated by cards after the minimum royalties were met. The suit does not reveal the percentage royalties or at what level of sales they take effect. Also, various players received royalties for their autographs at different rates. Dallas QB Tony Romo autographed enough cards to be owed $180,000 by Upper Deck. Former Bronco QB Tim Tebow signed enough to be owed $84,000.(footnote 3)  Late payments to the NFLPA were also assessed an interest rate of 1.5% per month. Finally, Upper Deck also had to make payments to some NFLPA charities. (footnote 2) 

 This situation suggests that power in the sport card licensing arrangement lies with player’s associations (and players) first and then second with the leagues involved. This makes economic sense since these parties hold the ‘scarce resources’ in the sports card economic ecosystem. The scarce resources being access to player images and league team logos, uniforms, etc. Indeed, the leagues and the players associations are in monopoly positions where the only fact that holds them back from charging more is that they need sports cards to market their sport to the end consumer.

Recent Developments in Licensing

In closing, it might be worth a peek at some recent trends in licensing. First, in 2009, MLB decided to give sole copyright permission for baseball cards to Topps. (footnote 4)  I really do not understand the logic behind this decision from MLB because companies can still produce Player’s Association licensed cards, just minus the MLB logos and trademarks. I suspect that they either received great terms from Topps or that Michael Eisner, former Disney CEO now running Topps, knows how to sell his story very well. The stated reason is that the baseball card market with its many product lines, offerings per company and super-premium products was chasing away kids who were confused by the multitude of products. While this makes sense, I have not seen Topps be extremely responsive to the kids’ market since this exclusive license was granted. They seem to put much of their marketing muscle behind premium products that are really beyond kids’ collecting budgets. More to be seen down the road…

In trend two, Upper Deck seems to be basically flouting copyright law right and left, and is getting sued constantly. (footnote 5)  The company seems, in my opinion, to be quite litigious over its history, and I suspect that it is in financial trouble. (footnote 6)  Upper Deck’s only solid licensing agreement situation is with the NHL and NHLPA. They basically do not have licenses with major football or baseball institutions. They now produce rookie football cards of college players under license with the Collegiate Licensing Company, which represents NCAA schools. (footnote 7)  This allows them to get around paying the players themselves because when Robert Griffin III appears in a Baylor uniform on a card, Mr. Griffin gets no cut. College athletes sign away the rights to their images in college in order to play. Seems like a cheap route to get images of upcoming rookie players, but nothing seems too weird for Upper Deck right now.

¹ For more on the T206 Wagner card, see http://en.wikipedia.org/wiki/T206_Honus_Wagner .  The above history of the card draws extensively on that web site.

² A copy of the full lawsuit can be found here: http://www.sportscollectorsdaily.com/wp-content/uploads/2012/03/NFLPAvsUpperDeck.pdf .  It is an extremely long document, but it shows how much each player was even damaged.

³ http://www.cardboardconnection.com/nfl-tackles-upper-deck-another-lawsuit

⁴ http://www.nytimes.com/2009/08/06/sports/baseball/06cards.html?_r=2&scp=2&sq=upper%20deck&st=cse

⁵ For example, see: http://bats.blogs.nytimes.com/2010/03/03/upper-deck-settles-suit-but-will-distribute-cards/?scp=1&sq=upper%20deck%20lawsuit&st=cse

⁶ http://www.utsandiego.com/news/2010/may/06/upper-deck-cuts-119-workers-payroll/

⁷http://www.clc.com/clcweb/publishing.nsf/Content/Upper+Deck+2012+%E2%80%9CRookie%E2%80%9D+Football+Release+Debuts

8 http://en.wikipedia.org/wiki/Topps

About me....

I am starting this Blog to share my thoughts about the incredibly insane world of Sports Card collecting.  I collected cards as a kid in the 1970s, again in college in the 1980s, and finally began collecting again as an adult in about 2000 as a hobby to take my mind off work.

I am a Business School Professor at a major university, so I can hopefully shed some insights into the terrible economics of the sports card industry and why you will probably never get rich collecting cards.  I also buy and sell cards on eBay and have a number of vintage and modern sets.  I also help my sons collect football cards, so I am in tune with the offerings in the marketplace.  Ultimately, sports cards are also about people, society and the glorious or knuckle-headed events and actions that happen in the real world.  My goal is to point out some of these events and actions with an eye toward the economics, humor and history of it all.

Vince