Andrew Eckert, Head of Research and Analytics at Collectable
Sports memorabilia often invokes thoughts of home-run balls caught, an autograph from a favorite athlete, or a ticket from a big game.
While these associations definitely ring true, underpinning all of these recollections is a $5.4 billion industry that is seemingly becoming more popular by the day. With the growth and newfound excitement in the industry, many newcomers and hobbyists alike are wondering: Can sports memorabilia produce investment opportunities?
Obviously at Collectable, we believe the answer is a resounding YES! In fact, valuable, rare, and authentic sports memorabilia represents a burgeoning new alternative asset class accessible, through platforms like Collectable. Certainly, caveats do apply—not all assets will go up in value, it’s important to conduct your own research, and it’s not liquid like traditional stocks and bonds, among other risks. However, because of potential diversification opportunities, and inherent fun and excitement, we believe that this asset class represents a new frontier in alternative asset investing.
At the core of investing is financial returns—investors demand compensation for accepting the risk inherent to utilizing their capital.
Unfortunately, in the sports memorabilia world, there is currently no single definitive source for assessing historical price appreciation in the sector. Sure, there are plenty of high profile investments of individual items that have greatly appreciated over time—like the “Jumbo” T206 Honus Wagner that increased by nearly one million dollars in three years or Charlie Sheen’s investment in Babe Ruth’s 1927 World Series ring that paid off big—but there are also some notoriously bad investments—like the three million dollar Mark McGwire #70 home-run ball that is now likely only worth a fraction of the initial investment.
Fortunately, PWCC, a leading marketplace of trading cards, publishes Top 100, 500, and 2500 indices related to the popularity of the different “grades” for vintage sports cards. While cards do not represent the entire sports memorabilia market, they certainly represent an important component. While there are some intricacies related to how PWCC collects and aggregates data, particularly its comparison to S&P 500 returns, we still find it to be a helpful tool for assessing historical appreciation in the trading card market. Since January 1, 2008 through May 11, 2020, the Top 100 is up 264%, the Top 500 up 175%, and the Top 2,500 up 98%.
Another important vintage card indices provider in the space is Collector’s Equity. They compute their indices a bit differently than PWCC as they focus on a market-cap weighted aggregation method. While Collector’s Equity has a host of indices that drill down to look at individual sports and eras, their most popular index is the GCI 250. The GCI 250 index only started in March 1, 2018, but was up roughly 71% through June 30, 2020. As interest and excitement around investment in sports cards and sports memorabilia continues to grow, we expect to see further development of indices and analytical tools.
Another way to analyze the appreciation of sports memorabilia assets is to simply look at the trading history of assets that have already been brought to market. Rally Rd., a platform focused on fractionalizing all sorts of collectible assets, has fractionalized 17 sports memorabilia related assets—of which ten have begun trading after their 90-day lock-up window or have had the underlying assets sold for a profit. As of June 30, 2020, those ten assets are trading up 49% on average. While the results on Rally Rd. have been promising, the data is limited and may not be indicative of future performance.
While financial returns are an important component for forming an investment thesis, some investors also look to alternative assets for portfolio diversification. Just like investing in a variety of stocks is less risky than buying only one stock, investing in a variety of asset classes usually has a similar effect. An important metric to determine the impact that diversification will have on a portfolio is correlation—if two assets are uncorrelated, it has the potential to lower the risk of losses.
Given the challenges finding reliable data to assess historical financial returns, it is no surprise that we are left with the same problems when trying to compute correlations with various asset classes for sports memorabilia.
Given these challenges, we looked for another alternative asset class that may share similar characteristics. We felt that art collecting and investing fit the bill as participants in both art and sports memorabilia will often deploy capital in similar economic conditions and are likely to hold onto assets during times of economic recession.
Various studies (examples linked here and here) suggest that art has low correlations with other asset classes including equities. Another study on the art space titled Does it Pay to Invest in Art? A Selection-corrected Returns Perspective, published in Vol. 29, No. 4 of The Review of Financial Studies, found that “The correlation between art and the other assets are less than 0.3 for almost all art indices, and statistically no different from zero except for the correlation with real estate.” If comparable analysis were able to be performed, we believe that similar low correlations would exist for sports memorabilia. Joe Orlando, CEO of Collectors Universe, Inc., surmises that the resilience in memorabilia markets during times of economic uncertainty is tied to the deep sentimental bond that individuals feel with their collections.
While many would like to invest in alternative assets for diversification, unfortunately few are able because of rules regulating investment. For access to asset classes like private equity and hedge funds, an individual must generally be an accredited investor—an SEC designation reserved for those with ample capital and financial sophistication. Until recently, access to the most rare and valuable sports memorabilia had also only been available to wealthy collectors, primarily through auction houses. Fortunately, through Regulation A+, Collectable is democratizing the sports memorabilia category, with the goal of making investments in sports memorabilia accessible to all.
Some people enjoy the painstaking process of reading through 10-K’s on public companies, but we selfishly think investing should be a little more fun. That’s where sports memorabilia investing comes in! Whether it’s a belief in the trajectory of a certain team or player or analysis of historical sales of comparable assets, we feel that sports memorabilia investing has something to offer.
Increased interest in the industry during the COVID-19 pandemic has brought sports memorabilia to the forefront of mainstream conversation. According to Google Trends, searches for “sports cards” in the United States have increased considerably during 2020 and even reached a five-year high in the first week of July. It seems like collectors are not only searching, but purchasing and authenticating items at high levels as well. PSA/DNA, a leading authenticator and grader of sports card, recorded their busiest Q3 ever shipping 730,000 collectibles—a nearly 110,000 unit increase over their previous Q3 record. This increased interest has led to various sale price records being broken in in 2020—namely for a modern game used jersey, a modern baseball card, a modern basketball card, and game-used sneakers. While we lack a crystal ball and acknowledge the various risks inherent to the industry*, we anticipate that the newfound appreciation of sports memorabilia will increase access to coverage and interest in investment opportunities going forward.
*Prospective investors should note the speculative nature of investments in sports memorabilia. These assets are illiquid and loss of complete value is possible.
