A few months ago, I wrote a piece about how a potential economic downturn could impact the hobby and what companies and collectors alike should do to prepare. Fast forward and it still seems we are in a bit of an interesting place today with the hobby specifically and the economy overall. We are seeing record-breaking prices for cards ($12.6m for a ‘52 Mantle for one) and M&A continuing in the space (eBay snatched up TCGplayer for nearly $300m), while stocks recently had their worst day in over two years, inflation is still riding hot, and several Fortune 500 CEOs expect a recession to hit hard and soon.
So it seems like some months have passed and we are still in an awkward position of the hobby humming along, while the broader economy is waving caution flags.
I thought it would be interesting to ask key stakeholders across different pockets of the industry who are living and breathing the hobby every day to share their thoughts on these topics.
Do you believe the hobby is positioned to withstand an economic recession?
Chris Ivy (Director of Sports Auctions, Heritage Auctions): The hobby certainly would not go entirely unaffected by an economic recession, but I’m confident that most sectors of the hobby will fare better than most other asset classes. The sports collectibles market has seen historic growth on the demand side over the past several years, and it would seem impossible to imagine that it could ever recede even to where it had been at the start of the pandemic.
While some percentage of speculators and investors will certainly fall out of the market should there be a significant economic downturn, we’re still going to be looking at a very favorable supply/demand dynamic to fuel strong prices for the truly rare and important material. I suspect that modern-era cards and collectibles would suffer more of a downturn than vintage, and I believe that lower price point material would see a larger percentage drop than higher price point collectibles, similar to the ‘beach front real estate’ phenomenon we saw after the 2008 recession.
Jesse Craig (Director of Business Development, PWCC Marketplace): Trading cards have proven themselves to be a viable tangible asset class both in long-term projections and through volatile economic periods. They also show signs of acting as a non-correlated asset that command consideration among those seeking resilient alternative investments.
Lou Brown (Owner, Legends Sports & Games): I think that the hobby is on fairly solid ground and could withstand a downturn in the economy. In terms of the day-to-day sales / traffic we see, I think people will continue to come in. Sales might experience a bit of a drop, but I do not expect anything significant. In my opinion, there is far too much money invested into the space for it to not continue to grow.
In the face of a potential recession, are you seeing any cracks of strength in the hobby?
Warren Laufer (Junior Partner, Mint 10): Even when the macro outlook is ambiguous, we are confident in high end cards as a store of value. Since we couple cards with venture investing in our portfolio, we are looking for long-term stable growth in the cards and high growth in the venture investment.
Ezra Levine (CEO, Collectable): It is important to slice and dice the hobby into different parts. At the high-end where Collectable plays, where there is scarcity, low population, vintage assets, we are seeing remarkable stability. In a supply-constrained environment where you are selling to high-net-worth individuals, you do not feel market gyrations as much. Additionally, you are seeing record participation at shows across the country, including record attendance at this summer’s National. Overall it feels very healthy even given the macro landscape.
Chris Ivy: Given that Heritage set over forty new world record results in the recently closed Summer Platinum night auction, we can’t say that we’ve seen any cracks forming in the sports collectibles marketplace as of yet. However, no investment is recession-proof, and I do believe that we very well may see some corrections in the sports collectibles market should the overall economy enter a significant economic downturn. With that said, I believe that the vintage sports collectibles will fare considerably better than many other sectors of the economy should that occur.
Jesse Craig: For those seeking assets with a track record of low volatility, “vintage” offerings will be of interest. At PWCC we commonly suggest clients consider cards from 1986 and earlier as vintage. The PWCC 500 – and its sibling indices the PWCC 100 and PWCC 2500 – all track assets from before the year 2000. These assets are historically more stable in sports as there are no longer any active players who have cards before 2000. Further, these cards have had ample time to be traded on public platforms and establish robust sales data to help establish long-term valuations. While there is never a guarantee of future performance, our data shows vintage cards have historically performed well against many market conditions.
How are you approaching a potential economic slowdown?
Ezra Levine: A recession is a really great time to be building a great product for the long-term, building trust with your community, and positioning yourself for a long secular bull run for sports collectibles that we are expecting to see. Also, people are not paying as much attention to lending in today’s hobby. There is a lot of liquidity coming in due to lending that will support the market moving forward.
Chris Ivy: Heritage Auctions, like any business, is always looking to be in the best possible position should economic circumstances change, but there will always be a need for our services as collectors need good options for liquidity in any market conditions. Many clients have been taking advantage of the record prices in this bull market over the last several years, and on the flip side of the coin, there will be other collectors that may need to liquidate portions of their collections in an economic downturn in order to use that cash for other obligations. We are glad to work with all collectors, no matter their reason for selling, as we are aligned with their goals, which is to present their collectibles to the largest pool of qualified bidders and maximize their value at auction.
Warren Laufer: So far, especially with a rotation into super high end cards and vintage cards, we have been able to stay in front of the curve. On the venture side, the macro environment has presented challenges to all of our portfolio companies, but by forcing them to be frugal, flexible, and creative, it has already produced some standout winners.
Mint Condition’s Take:
These perspectives are informative and insightful to hear, whether you are running a company in the space, a collector, or otherwise. There are a few themes I picked up on from these conversations that I wanted to summarize below, as well as some other thoughts of mine:
1) The high-end and vintage parts of the hobby are and will continue to be resilient: It is clear that the upper end and vintage subsectors of the industry are being viewed as stronger and better performing as compared to modern, more speculative collectibles, especially in the face of a potential recession. It is amazing to see the change of events since 2020, when the likes of young, risky players (Zion Williamson, Ja Morant, and Jasson Dominguez just to name a few) were only going up and setting records. Money isn’t flowing just as freely as it was back then, which is why we have seen a shift in consumer preferences. This mirrors what we are seeing in the stock market — traders have moved away from high-growth, tech companies in favor of the legacy, value-focused companies that are less “sexy” (in some respects parallel to vintage cards).
Whether it’s in cards or stocks, when people get worried about the future, moving money into more stable and slightly lower growth assets continues to occur. We are seeing that trend pervade in sports collectibles. How long does it occur? It could continue through a recession and modern, riskier cards could continue to decline in price, creating a potentially attractive buying opportunity for those that time it right.
2) Trading cards have proven themselves as a viable asset, and a recession will only strengthen that belief: This is a critical sentiment for everyone across the hobby. In a recession, speculative assets have the ability to crash and destroy people’s net worth. Across the hobby, the belief is that if the overall economy takes a hit, trading cards will not collapse alongside it. Unlike crypto, for example, we won’t see a massive dumping of cards that wipes out millions of dollars from the market if the broader economy declines significantly. Trading cards are proving themselves as a viable asset class in good times and bad.
While a recession is not what any consumer is hoping for, it has the ability to differentiate between strong and weak assets — which are resilient, can go through a tough time, and come out of it on the other side better than before vs. which will see continued weakness? The sentiment is strong around cards proving their stability in the months to come.
3) What about the lower end of the hobby? I think it is important to consider the lower end of the hobby and whether the above perspectives can be applied to the hobby as a whole or just the higher end. It is clear that the upper end of the industry is showcasing its strength like never before — the fact that Heritage Auctions saw such spending in a recent auction is proof to that. But what about the little guy, the kid or family that buys a few packs here and there or goes to card shows to check out the $1 bins? I am encouraged that Lou Brown, owner of a shop in Michigan, is seeing continued strength in foot traffic. However, it is clear that across the economy, the little guy is being hit by high inflation, where the cost of everything, including groceries and gas, is proving expensive and cards, as a discretionary item, are presumably being cut from spending budgets.
I would surmise that while the total dollars being transacted in the hobby today is continuing to increase, it is being driven by high end cards and a small number of high-net-worth people, whereas the lower end of the hobby is shrinking and a number of consumers are temporarily exiting the hobby. My hope is that companies across the hobby don’t forget the little guy, as what usually happens as more and more money flows into an industry. The little guy was the lifeblood of the hobby when those investors and speculators weren’t sniffing the industry, and they will continue to be loyal even if they are being priced out. Let’s hope this economic turbulence blows over and everyone can get back to participating in the hobby as they so choose.