Preface
As
with other postings, I again want to emphasize that sports cards are a lousy
investment. Buy sports cards for any
other reason than to make money. Buy
them because you love sports, admire a certain player, love to make sets or any
other reason than to make money.
The
Hot Rookie or Young Player
Rookie
cards are the currency of sports card collecting in the modern era. After the market for sports cards shifted
from being a market for children to a collectables market at the beginning of
the junk wax era in the mid-1980s, the only cards that have high value are
rookie cards of famous players. The best
evidence of this fact is to open an issue of the Sports Market Report or go to
PSA’s web site at look at the value of cards from recent years (go to: http://www.psacard.com/SMRPriceGuide/
). Only Rookie Cards in High Grade (PSA
9 or 10) are very valuable.
Why
are rookie cards worth more? To somebody
not in the sports card hobby, this is actually a legitimate question. The answer is that having a rookie card means
that you have a card of a player before they became famous at professional
sports. It’s usually a player’s first
chronological card, so there is no ‘sports card history’ of that player. In other words, you have a card of that
player from when he or she was just some ‘Joe Schmo’ and not on the cover of
GQ. Also, a player’s rookie year is
likely to be the year where the least number of cards are printed of the
player. Any player that is a star in
their rookie year has increased number of cards printed of him or her in
subsequent years because of increased popularity.
For example, Panini Prestige printed a complete seven card special insert
series of Tim Tebow cards in their 2012 Prestige series just largely because he’s
Tim Tebow. Supply expands to meet
demand.
Caption: The Hot Rookie card: 2011 Topps Chrome Colin Kaepernick Black Refractor auto /25. This card sold on 1-20-2013 on eBay for $1500.00 in an auction that garnered 31 bids. Kaepernick has started 1/2 the season and has led his 49ers team to the Super Bowl in his 2nd year in the NFL.
As
a matter of fact, not even all rookie cards of great players are valuable. Because Panini, Topps and Upper Deck have so
many brands (Prestige, Chrome, Finest, Score, UD, Rookies & Stars, etc.,
etc.), there are literally dozens to hundreds of different rookie cards of
various players. Again, this is an
example of how supply has expanded to meet demand and thus the average price of
a rookie card for any player goes down.
Indeed, players that emerge during their rookie season can even have
more cards printed of them in late-season card series, which is again an
example of supply expanding to meet demand.
The
one exception to this supply expands to meet demand rule is autographed rookie
cards. There is a reason that all the valuable
hot rookie cards are now only autographed cards. Autographed cards are limited to the number
of cards that a player can or is willing to autograph for the various card
companies. While a player can obviously
sign thousands of cards (or the little autograph stickers that are put on cards),
the player cannot sign nearly as fast as printing presses churn out new non-autographed
cards. Also, players get tired of
signing cards; machines do not get tired of printing them. As a result, autographed cards become the
scarce rookie card commodity. Again,
look at SMR or PSA’s web site at the value of great young players' cards from recent
years across all sports. The only rookie
cards that have very high value are the autographed cards.
Buying Rookie Cards of Hot Players
This
brings to the front the question of how does the collector acquire valuable
rookie cards? There are two basic
ways. First, the collector can buy new
packs and boxes of a card company’s new issues in hopes of snagging one of the
randomly inserted autographed rookie cards.
Premium card brands tend to have more rookie autographed cards inserted,
which is why the collector pays more-dollars-per-pack for the premium cards. The card companies also aggressively
advertise the “hit-rate” per box of autographs with brands like Bowman Chrome
and Bowman Draft Prospects topping the baseball rookie card brands because of
aggressive signing of young prospects to autograph contracts.
The
problem with buying packs and boxes, however, is that the collector has to
roll the dice with Lady Luck on getting hot rookie autographs. Your chances of getting a hot rookie autograph
are much less than getting a card autographed by some “good player” who is not
a rookie and thus has 15,000 autographs floating around on existing cards.
Second,
and more commonly, the collector can go on eBay (or some other site like
Beckett’s Marketplace) and buy a hot rookie autograph card from somebody who
was lucky enough to get one in their packs or boxes. This seems easy enough. You pay the market rate for the hot rookie’s
card, it gets shipped to you, you get to own it, and you capture its future
appreciation in value as the player in question wins Super Bowls, scores hat
tricks, hit home runs or whatever he or she does. If it was so easy……
It’s
not. When you buy a hot rookie on eBay,
you enter a market where the value of the hot rookie card is tremendously
over-inflated as an investment due to non-rational thinking. Markets and emotions do not mix very well,
and the sports card market is one that is jet-fueled by emotion and
speculation. For example, most sports
card collectors love sports and have emotional attachments to particular teams
and particular players. I personally
think this is a good attribute of collectors and sports cards, but it is a bad
recipe for investing. For example, what
makes us search for the highest yield in Certificates of Deposit (for those of
us with savings) is that we have no emotional attachment to the financial institution
that takes our money as long as they are FDIC insured. This attribute is what makes the market for
Certificates of Deposit so competitive and efficient with relatively low-profits for banks. We rationally search and take the highest interest rate. No emotion, no mistakes, pretty rational.
Here’s
why the market for hot rookies is irrational:
1.
It suffers from hype. ESPN and the
culture of 24 hour media attention raise the profile of young rookie players
who are doing well. They get a
disproportional amount of media time.
Also, marketers, looking for the next young star to lock into their
advertising plans, tend to make younger stars the focus on their
advertising. For example, how many times
have you seen Robert Griffin III on television advertisements this year?
2.
It suffers from distorted supply. For
example, let’s say that Robert Griffin III (RG3) does go on to become a Pro
Football Hall of Fame Player and is enshrined in Canton, Ohio. In this case, RG3 would end up signing about
100,000+ more football cards over the rest of his career as supply would rise
to meet demand. This would have a severe
effect on the price for autographed RG3 cards.
While there would still be the same number of autographed RG3 rookie
cards in existence as today, some of the demand for those cards would be
siphoned off by people that just want an autographed RG3 card, just not necessarily a rookie card. Those people in 2012 have to chase the smaller number of RG3 rookie
cards on the market. In the future, they
can chase the any of the 100,000+ cards signed in the future.
3.
It suffers from biased expectations of the future. Psychology shows that there is a human
tendency to extrapolate today’s norms into being the future’s norms and to
underestimate the chances of bad events happening. So, for example, because football players
like Colin Kaepernick, Andrew Luck and Robert Griffen III had great years this
year as rookies (or a 2nd year player in the case of Kaepernick),
the estimates of their future accomplishments by many of the buyers on the
market assume continued high performance into the long term future. This is not likely the case. Without examining the merits of any of the
three players, history suggests that injuries, loss of skills, regression to mean
performance, off-the-field events or poor coaching will keep them out of the
Hall of Fame. While I am not a betting
person, the odds are probably 1-3 that not one of them ever makes it to the
Hall of Fame. While they have shown they
are great players for a short period of time (i.e., one season), Hall of Fame
credentials are built over a decade of strong performance. In the short-term 24 hour media world that we
live in, nobody is thinking ahead a decade.
Because of these three market anomalies and collectors' emotional attachments to players and teams, the market for hot rookies itself is way too hot or super-inflated. Prices rocket upward to the point that even if the player go on to make the Hall of Fame, the card probably does not gain too much in value in the future or even drops. Given the odds of not making the Hall of Fame in any sport, buying hot rookies is an investment huge negative expected value.
Some Evidence
If
you do not believe the thesis of this post, let’s look at some data. I went over to the shelf and pulled out SMR
magazine from February 2007 (5 years ago).
On page 92, the valuable PSA graded rookies from 2006 football card
issues are listed (similar to how 2012 football card issues would be listed in February 2013 SMR
today).
The players whose cards were
valuable were:
Jay
Cutler
Matt
Leinert
Reggie
Bush
Vince
Young
DeAngelo
Williams
AJ
Hawk
Their
autograph cards in PSA 9 condition were listed as being worth anywhere from
$140 to $345. (footnote 1)
Here
are some comparisons from eBay today:
2006
Donruss Elite Reggie Bush #204 Auto /100
Last
sold on eBay in BGS 9 grade for $25 including shipping on 11-12-2012
SMR
in February 2007 was $275.00 in PSA 9.
2006
Donruss Elite Matt Leinart #192 Auto /100
Last
sold on eBay ungraded for $13 including shipping on 11-21-2012
SMR
in February 2007 was $140 in PSA 9.
2006
Donruss Elite Vince Young #221 Auto /100
Last
sold on eBay ungraded for $11 including shipping on 1-22-2013
SMR
in February 2007 was $150 in PSA 9. (footnote 2)
While
one could argue that 2006 was a particularly bad year for rookie cards of football players, it is an example of how hot rookie cards depreciate in value over time on average.
Players who are hot and the next Joe Namath usually are not. (footnote
3)
Occasionally there is the breakthrough player like Tom Brady, who was drafted in
the fifth round and whose cards continue to have high value over time. However, if you are a veteran collector, by
the time you realized that Tom Brady was a great player his rookie cards had
already taken off in price. And for
every Tom Brady, there are 25 Matt Leinarts.
What
to do?
As
I said before, collect great rookie cards for any reason other than trying to make money. Buy a Colin Kaepernick rookie card because
you love the 49ers and you want a piece of history related to their run to the
Super Bowl in 2012-13. Buy a Tim Tebow
rookie card because you are a Florida Gator fan or like what Tebow stands for
in his religious beliefs. Buy an RG3
card because you like his pencil mustache and he won the Heisman Trophy. Just don’t buy their cards to make money.
Also,
if you build sets like me, you might want to focus on building sets where there
are autographed inserts of rookies. If
you hit a hot rookie auto in a pack or box by chance, it can often finance building
the entire base set plus some inserts if you sell it.
If you are not going to hold a hot rookie card for a long time, one can always try arbitraging the market. That would entail buying a rookie when the price is low and quickly reselling if and when the price goes high. Again, I do not think this is a good way to make money. You either need to have insight into NFL talent that other people do not have or you are just playing roulette with your money. It's better to buy a good low-risk mutual fund.
If you are not going to hold a hot rookie card for a long time, one can always try arbitraging the market. That would entail buying a rookie when the price is low and quickly reselling if and when the price goes high. Again, I do not think this is a good way to make money. You either need to have insight into NFL talent that other people do not have or you are just playing roulette with your money. It's better to buy a good low-risk mutual fund.
End Note
Like all other posts, please feel free to make comments. I review all comments before they are posted in order to reduce spam and keep things on topic. Also, it may take me a few days to review comments.
Footnotes
1. PSA 10 cards of these 2006 rookies were worth much more, but these should not be considered due to
the almost impossible-to-understand nature in which PSA 10s are handed out by
PSA.
2.
Data was taken by looking at all the completed auctions for 2006 Donruss Elite
cards on 1-31-2013. Donruss Elite was
chosen because it was a medium-to-high end brand with autographs only being
numbered to 100 on the cards. It was one
of three brands listed in the February 2007 SMR where cards had reported values.
3.
It should be noted that Cutler’s autographed rookie cards still hold some value
as reported in SMR.
