Showing posts with label Historical Stuff. Show all posts
Showing posts with label Historical Stuff. Show all posts

Monday, February 9, 2015

What happened to GAI Grading? And how a bad grading idea sunk their successor Global Authentic.

Introduction

In a past post, I wrote about how GAI grading (Global Authentication Incorporated) went bankrupt in 2008-2009 as the sports card grading market went from four mainstream competitors to three (e.g., PSA, SGC & Beckett).  That description was not fully adequate as the bankruptcy process in the United States is very complex.  While GAI did file for bankruptcy in December of 2008 (footnote 1), its bankruptcy petition was later dismissed by the courts when the company failed to notify all creditors about an upcoming creditors meeting and also failed to file a number of required legal documents. (footnote 2).

How GAI actually disappeared was through a "split up" after their bankruptcy petition was denied.  Mike Baker, who was head of the card grading division at GAI and a former grader at PSA, purchased the rights to grade cards under a slightly altered brand name, Global Authority, along with the pressing machines, supplies and other items needed to physically grade both cards and unopened packs of cards.  Global Authority was relocated from Southern California to Bettendorf, Iowa (footnote 3).  One can assume that rent was less expensive in that location.  The rest of the company’s assets, what little were left, remained in California in the form of Global Authentics, which was mainly an autograph grading company.

It is not clear how much creditors received for their outstanding debts, which totaled between $1 and $10 million (footnote 1).  Mike Baker, the new part-owner of Global Authority, was listed on the bankruptcy petition as the second of the unsecured creditors, so I suspect that his purchase of the card grading assets satisfied his claim and created cash for some other creditors.

Why did the original GAI fail as a business?

Without inside knowledge, it is hard to specify the exact reasons the original GAI failed as a company in California (more on its Iowa step-child later).  GAI was started in 2001 or 2002 by Steve Rocchi, who was its President and Chief Executive Officer.  He had been either pushed out or voluntarily left Professional Sports Authenticator (PSA) in 2001 after having founded PSA and had served as its President for over a decade.   However, PSA was part of a larger firm, Collectors Universe, so he was not head of the entire company.  Rocchi was the first employee of PCGS, the predecessor of Collectors Universe (parent of PSA) and served as its Operations Manager from 1988 to 1991 (footnote 4).  There was a clear brewha between Collector’s Universe and Rochi (for example, he is listed as a key employee on the prospectus filed for Collectors Universe to go public in 1999, but is missing from the 2000 Collectors Universe annual report), and he left to form GAI as a competitor.

From my recollection of the industry, GAI received good market acceptance upon starting operations.  Their grading standards were very similar to PSA’s standards, using a similar ten point scale for card grading.  All graded cards were also serial numbered and slabbed in tamper-resistant cases.  A card buyer could also check the certification number of any card sold on eBay.  Where GAI made their biggest splash was in introducing pack grading.  As the first unopened card pack grader, they were able to capture the market initially for grading packs.  In some senses, that made GAI an innovator in the market.

GAI falling into filing a bankruptcy petition, likely had to do with three events.  Again, I have no inside information of the company.

1. As the smallest of the four major grading companies, they were at a distinct disadvantage.  As I have discussed in other posts, the card grading market provides significant advantages to the firms that have the highest market share or have high market share within a card niche. (see: http://junkwaxandobservations.blogspot.com/2012/09/why-are-there-so-few-legitimate-card.html).  Other than in graded unopened packs, GAI was the smallest player in the industry.  This meant that GAI had less set builders trying to compile sets of GAI-graded cards and your cards were more marketable on eBay with the PSA or Beckett brand name.  The one market that they dominated for a while, pack grading, did not have set builders (e.g., you cannot build a set of graded packs).  Thus, no “pack registry” competition could exist among collectors to lock them into GAI pack grading.  Thus, any lock-in advantage from being the first-mover in pack grading did not exist.

Indeed, I think the only reason that GAI Grading even got off the ground is because many of their personnel were former PSA people.  That gave the company instant credibility, along with early cards being graded by GAI seeming to have high standards.  With low standards, they would have just become another one of the low-end grading companies whose graded cards are always more suspect.

Caption: This photo shows two labels or "flips" from graded cards.  The top label is the old GAI grading company that was based in California.  The bottom flip represents the subsequent Global Authority company based in Iowa.  While both companies are out of business, collectors have more faith in grades assigned by the older company (e.g., top label)

Also, in the early years of the 2000s, the card grading business was booming as many vintage cards still had not been graded and some junk era cards were still worth grading at that time.  This boom in grading may have masked the underlying weakness of GAI’s market position until the later part of the decade.

2.  In 2006, PSA introduced pack grading.  This service introduction must have cut dramatically into GAI’s unopened pack grading business where they had been the only show.  Without a registry to keep customers locked into grading their unopened packs through GAI, it made sense for many customers to switch to the biggest and most well known grading firm.  My guess is that PSA cut heavily into GAI’s volume with this service offering.  It also probably capped the price that GAI could offer for pack grading.

3. The 2008 financial and real estate market collapse shrank the demand for grading.  For example, PSA’s number of cards graded annually declined about 12 percent in the year between June 2008 and June 2009 (source: Collectors Universe 2009 Annual Report).  Because sports card grading and collecting are not necessities but rather luxuries in the economy, they decline when economic times get tough and people have less money.  The grading firms that were smaller than PSA likely suffered even worse percentage declines in sales or cards graded during the crisis.

The combination of these three events likely clobbered GAI grading.  They must have been walking a thin line of staying in business before the financial crisis since they filed for bankruptcy in December 2008, and the bellwether of the crisis, Lehman Brothers Bankruptcy, occurred only several months earlier in September 2008.  This hypothesis is supported by the fact that almost a year earlier GAI was evicted from their office space in Southern California and was also cited for operating without a business license (footnote 5).   

My guess is that money was always tight at GAI.  The large decline of revenue caused by the financial crisis was likely the last straw as it would have been likely that they could not have covered their fixed costs of rent and utilities.  The fact that GAI employees were some of the creditors listed in the Chapter 11 filing indicates that they could not make payroll at the end.

The Disaster in Iowa

After moving to Iowa and re-starting as Global Authority, the company never really got off the ground and then basically committed suicide with a major strategic blunder.  The company’s CEO was Demian Werner and GAI’s Mike Baker was director of grading and authentication.  Werner was likely the source of capital to the firm as Baker had to purchase the card grading assets from GAI (this is pure speculation by me, however).  From the little information that I can find publicly about Werner, he is based in Bettendorf, Iowa, was active is selling sports collectibles and now runs a small security firm based in Bettendorf, Iowa (footnote 6).

Global Authority originally started by attending shows and grading cards under the Global Authority brand name.  They even started a Facebook page that still exists as of this writing on February 9, 2015 (https://www.facebook.com/globalauth).  In May of 2010, Global Authority announced the idea that would become their undoing:  Free Grading (footnote 7).

Why was free grading a terrible blunder?  Here’s how it worked.  A customer could submit cards to Global Authority.  They would be graded for free.  The customer would then choose the cards to encase and pay the grading/encapsulation fee only for those cards.  This seemed like an offer to good to be true.  As one blogger wrote:

FREE CARD GRADING.  Did that get your attention?  In a time when the economy is soft and people’s discretionary (collecting) income is less than it used to be, GAI is the first only only card grading service to offer this value.  Collectors can choose to have there cards returned to them graded or pay to have them encased.  From the very beginning, card entry, tracking and easy of use of GAI’s service is some of the smoothest and best that I have used.  You can watch and control your submissions through the whole process.  The advantage of having you enter your cards into GAI’s live system is a quicker turn around time.  Instead of having to wait for them to receive your cards and have them enter them, you are already one step ahead with having entered your cards yourself.  Once your cards are graded, you can choose to have any or all of them encapsulated, returned or placed on consignment with GAI.  With regular e-mail updates of when they receive your cards, grading is finished, encapsulation is finished and when they send out your cards, you are never left out of the loop and wondering what or when the next step is.  The card holders themselves are stack-able and the thicker memorabilia card only required a slightly thicker holder.  What I really like about GAI’s holders is the card information and grade on the top spine.  This saves time and makes for easy identification of your graded cards when stored vertically.  The value and ease of use of GAI’s on-line submission make their service one that collectors and dealers both will enjoy.  I strongly recommend GAI grading service for collectors who like to have more control in the grading process and to see if their card is worth encapsulation after the free grading. (pasted from http://www.going9baseball.com/2011/07/07/bike-spoles-and-show-boxes-global-authority-inc-grading-service-review/ on February 9, 2015)

It was too good to be true.  Think of the economics of this grading strategy.  How many modern sports cards exist in the world that are only worth something more than pocket change if graded a GEM-MINT 10?  Tens of millions is the answer.  Think of the 1990 Fleer Michael Jordan (and like cards) that one cannot sell on eBay for fifty cents ungraded but will sell for $25.00 if graded GEM MINT 10.  Hence, this grading strategy attracted a tidal wave of junk era submissions to Global Authority where the vast majority of cards would not turn into revenue but still had to be examined.  It’s very likely that customers might submit 100 cards with only the 3 that graded GEM MINT 10 being converted to actual revenue.  Global Authority would still have to look at the other 97 cards and also ship them back to their original owners.

Given this situation, Global Authority literally drowned in submissions.  As a small operation, it was largely swamped by a tsunami of cards that would likely not lead to revenue.  This title wave of cards also creates costs.  You have to have a system of keeping orders separate, and legitimate graders pay for insurance to cover the cards that are in their possession for grading.  The costs of managing this tsunami of cards were extremely high for such a small amount of revenue.

The results can be seen by running a Google search on the words “Global Authority” and “Better Business Bureau” (use quotes around the words).  Global Authority soon fell months behind on processing orders and eventually the whole system collapsed with no cards being graded.  Some orders were lost.

You will see Global Authority roasted on chat boards all over the sports card collecting world for ripping off customers.  Customers sued them, contacted the Iowa Attorney General and complaints exist even to this day.  As of 2014, the company was no longer grading cards and was trying to return submissions to their owners.  All presence of their web site has been pulled off the internet, so one can safely assume they are out of business.

What does the story of free grading tell us?  First, customers are not always right in every aspect.  Customers would love companies to give their products or services away for free.  Customers are always right when it comes to promised service and quality within a desired price range, but that is quite different.  Second, a business has to think through the economics of pricing very carefully.  It’s clear that neither Baker nor Werner put enough thinking into the free grading concept before launching it.  Maybe Global Authority was desperate for volume at the time of the pricing idea, but volume can sometimes drown a business, especially when it is unprofitable volume.

End Note

Saturday, March 1, 2014

Dead Men Don’t Wear Plaid, But Phil Esposito did Wear Plaid in his early 1970’s Hockey Cards

Occasionally, some sports cards are memorable because of their oddball nature or when something just seems out of place.  Ask any person who was an avid hockey card collector in the early 1970s like me if there was anything strange about Phil Esposito’s cards.  They will say: “the plaid pants”.  It’s funny, but a lot of my friends who collected remember the ridiculous plaid pants that were visible for three years of Esposito’s cards in 1970-71, 1971-72 and 1972-73.

Caption: Above is Phil Esposito's 1970-71 Topps card.  That must have been a sweet leisure suit he was wearing before the photo shoot.

It all started with the 1970 hockey set for which Topps, and their affiliated O-Pee-Chee Canadian partner, decided to get new photos of virtually all players for the 1970 card hockey issue.  The photos were likely done in a studio or conference room because the players’ silhouettes appear in front of the solid backgrounds that in the 1970-71 set also had what seem to be added ‘spotlights’ around the player’s body.   The studio nature of these shots can also be testified to by the fact that most players, other than goalies, are not wearing shoulder pads under their jerseys with a few exceptions.  Most goalies did seem to bring all their equipment with Ken Dryden notably wearing his mask unlike the other goalies in these cards (maybe his shot wasn’t a studio shot).

Caption: Above is Phil Esposito's 1972-73 Topps card.  This was the last year that his plaid pants were visible.

Apparently, when some of Boston Bruins showed up, it must have been a totally half-baked affair (or maybe the players were half-baked).  Either somebody forgot black hockey pants for part of the shoot or Esposito refused to wear them.  It was more likely the former case, because Ken Hodge was shot in his street pants also with that photo only appearing in the 1971-72 set with different, closer-up shots of Hodge used in the other years where his pants did not show.  Maybe Hodge refused to wear them too.  Who knows?

However, this biggest piece of evidence of systematic disarray at the photo shoot theory is that at least five different Bruins appear in the 1970-71 set in wearing Fred Stanfield’s hockey gloves.  The Bruins team put their player’s numbers on their gloves, and Fred Stanfield’s #17 gloves are worn in the photos of Stanfield, Ken Hodge, Phil Esposito, Wayne Cashman, Garnet Bailey and Ed Westfall.  All other Bruins players, like Bobby Orr, are photographed wearing their own gloves if the numbers are visible on the cards.

Caption: Above is Ken Hodge's 1971-72 Topps card.  Ken also joined the no-hockey-pants brigade for one year.  Note that he is also wearing Fred Stanfield's #17 gloves like Phil Esposito.

The fact that Esposito was a great player and future Hall of Famer made the plaid pants all the more noticeable.  When you were a kid in the 1970s, Espo’s card was one of the ones you read, looked over and maybe taped on your wall.  Those plaid pants were just weird.

By the way, if you do not remember, Dead Men Don’t Wear Plaid was a swing-and-a-miss old detective movie spoof comedy that was a collaboration between Carl Reiner and Steve Martin in 1982.

 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.

Sunday, September 16, 2012

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 1st 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





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