The Other Side of Supply

For those who follow sports, you probably saw the recent story on ESPN.com about a "1 of 1" LeBron James trading card (and Drake's pursuit of the card...).

This inspired me to drag out one of my recent pieces that touches on the topic of trading cards coupled with the macro-economic story of supply / demand.

The supply story (pick your favorite buzz word: “supply chain”, “chip shortage”, etc.) has been well covered across headlines in recent months, and we’ve seen it manifest in various pockets of the economy.

For example, consumers feel it in the automotive space – for the first time, as far as I can remember, car dealers seem to have the upper hand, in some cases charging $5,000+ mark-ups to MSRP and quoting multi-week delivery timelines.?Likewise, this has driven up secondary market pricing for used cars.

Businesses are feeling it in their manufacturing chains and deliveries.?Those who have followed my recent work in the equipment space are well aware that new construction equipment, and in turn used equipment, is in short supply thereby driving up prices for construction machinery.

But what happens when we have the opposite occur? How often does this come up to the point where we feel it in our daily lives?

I recently encountered a situation that many children of the 80’s can relate to.?When digging through the old boxes in my childhood home, I discovered my once precious collection of thousands of sports trading cards.?“Hold on to those, they will be worth something one day” was the common refrain I heard as a child.?Fast forward to present day, I was curious as to the potential gold mine I was suddenly sitting on.

I was brought back to my youth when flipping through the pages of the card albums and seeing the Ken Griffey Jr. rookie card, or the one of Shaq hammering down one of his massive dunks, and the unforgettable ones of Jordan soaring through the air.?As a point of pride, I should also point out how neatly I managed to organize everything – all categorized by sport and player, safely tucked into their plastic sleeves, no bent corners or faded colors.

Of course, those who sense where this story is going will know that I was promptly told the worth – or lack thereof – of this extensive collection.?The store clerk who met with me at the card shop in Burbank, CA told me the short and sweet of it: “these all look like 80’s and 90’s trading cards – I have so many of these.?Feel free to leave them here and we’ll donate them somewhere”.

Truth be told, I was never expecting to receive a cash windfall on the back of these cards, but at the same time I will say how surprised I was to find out the utter lack of value stored in them.

So, I did a bit of investigation (mostly around baseball cards). Here’s a brief background from what I was able to dig up.

• Baseball cards date back to the mid-1800’s when baseball and photography were both gaining in popularity.?Companies used the cards as a way to advertise their businesses, with an image of a baseball player / club on one side and an advertisement on the other side.
• In the early 1900’s, candy and tobacco companies began issuing cards as a mechanism for increasing sales of their products. The most famous (and expensive) card is the Honus Wagner, which came from a set produced by the American Tobacco Company (ATC). Also, the production by confectionary companies is perhaps the origin story to why card packs used to come with a stick of gum, for those who remember that!
• After a lull in production after WW I, a new wave of production began in the 1930’s, followed by another lull following WW II.
• Between 1950 and 1980 is when we saw the first major commercialization of the baseball card industry. Topps and Bowman became the two leading producers of baseball cards, and Topps eventually acquired Bowman, becoming the unrivaled leader in the space until 1959 when Fleer (a gum company) entered the scene. The Mickey Mantle rookie card – one produced by Topps and one produced by Bowman – are some of the most highly sought-after cards in the post WW II era, due to the scarcity of the cards.
• Card collecting as a hobby grew in the 1980s, bringing new manufacturers to the landscape, namely Score and Upper Deck.

So how many cards were produced over the years?

I did a bit of digging (medium-grade Sherlock Holmes’ing on Google), and I was unable to turn up any reliable information, but here’s what I was able to find.

First, some of the research suggests that the manufacturers (Topps, Fleet, Upper Deck, etc.) did not and still do not release production numbers.

Depending on who you want to believe, some estimates even reach the billions (!) in terms of production numbers at the peak of production in the 1980’s.?Another source, which may be a bit more realistic, suggests the following (summarized, when aggregating leading producers):

• 1970’s: ~500,000 cards produced annually
• 1980’s: ~3,000,000 cards produced annually
• 1990’s: ~4,500,000 cards produced annually

Whatever the true numbers are, it’s safe to say that there seems to be a large uptick in the volume of cards in the 80’s and 90’s relative to prior decades, which aligns with the growing interest in the hobby during that time combined with the new entrants to the market.

The bottom line: oversupply can serve the masses but sever values!?More interestingly, this highlights a few key takeaways around supply dynamics.

First, I think it’s safe to say that oversupply will be to the determent of value (i.e., 1980’s / 1990’s baseball cards).?

Second, I think it’s safe to say we have all seen what constrained supply can do to short term pricing – think: supply chain issues and the current environment of pricing power that has been passed to retailers / manufacturers of goods.

Importantly, though, there is nuance that distinguishes supply-driven pricing dynamics between supply shortages (i.e., undesired shortfall, similar to what we see in today’s market for goods) versus supply scarcity (finite materials or shortage by design).?The scarcity story, as it relates to price and value, becomes particularly interesting when considering assets such as original art, numbered trading cards (“1 of x”, see recent ESPN article), or even cryptocurrencies that have an upper bound to the individual units, such as Bitcoin.

Extras:

Earlier I mentioned a few different cards that come with a lot of intrigue.?For those interested, here’s what the internet suggests they may be worth:

Honus Wagner (T206), produced by the American Tobacco Company: $3.75 - $6.6 MM

Micky Mantle rookie card, produced by Topps: upwards of $10 MM

Ken Griffey Jr. rookie card, produced by Topps: a few hundred up to a few thousand