Looks like meme stocks and crypto will be getting more competition for day trader eyeballs from a more classic rival: sports memorabilia.
It’s not news that the pandemic brought a surge in interest in sports collectibles. Billionaires were first to jump into the surge, fashioning deals to get in on the action, like bringing card grader Collectors Universe private and sports card publisher Topps public. Now the ability to buy and sell low-priced shares in million-dollar cards is opening up the chance to ride the trend to retail investors. Over the past three years, three companies—Collectable, Otis and Rally Rd.—have securitized memorabilia, allowing people to buy a fraction of ownership at an IPO. Increasingly, people are taking to nascent daily trading markets to trade them, too, and indications are that may be the biggest step to come.
“Think about the amount of volume traded last year on the Nasdaq. How many hundred billion dollars worth of IPOs were on the Nasdaq? On any given day the amount of shares that are secondary trades, not IPOs, dwarfed the entire year of IPOs,” says George Leimer, CEO of Rally, also known as Rally Rd. to avoid confusion with similarly named start-ups. “I think our marketplace will work very similarly, at scale…. the new trading system we rolled out in November has exploded.”
Fractionalization of memorabilia works similarly to stocks. Selling companies file an offering circular with the Securities and Exchange Commission, similar to a prospectus, detailing the offering price, details of the seller and an overview of the asset. For instance, in December, Otis filed to sell a sealed NBA Jam Sega Genesis game, dryly citing in its offering prospectus: “Among its many contributions were making phrases like, ‘Boomshakalaka!’ and ‘He’s on Fire!,’ now part of the cultural lexicon.” Shares of such items are offered similar to an IPO, with orders being booked for a group sale of shares at $5 or $10 a piece.
“It has brought more people into the business that could not have afforded it, so that’s first and foremost the most important effect is that there are more people buying sports cards or sports collectibles in some small manner,” collector and auctioneer Ken Goldin, of Goldin Auctions, which doesn’t do fractional sales, said on a phone call.
Despite the buzz as cards get offered at record prices and venture capitalists pour money into the sector, it has yet to really affect the overall auction market, Goldin adds. “The items that go for fractional shares is a select few. Combined the three major sellers may launch 10 items in a week. We’ll sell 3,000 items in a day…. It has not caused serious price disruption.”
But disruption could be coming. Secondary market trading—buying and sell shares post-IPO—is just getting off the ground. Collectable, which has amassed 70,000 users since its founding in late 2020, says one in five of its users are actively trading on a daily basis.
“You definitely have people trading in and around the existing holdings they bought on the initial offering, and we see people who are establishing holdings for the very first time in an asset” in the trading market, said Collectable CEO Ezra Levine, in a phone call. “We have witnessed a real increase in the stickiness of our platform, and in the amount of time people are checking on their portfolios and looking for new opportunities,” he said.
But just as securitization makes it easier to buy and sell interests in sports memorabilia in the way the equities market does for companies, it also brings something else: losses.
“This asset has been declining since the card IPO’d so it’s not really due to recent events (ankle injury/COVID),” lamented Reddit user mkarias on a Luka Doncic 2018 Panini offering from Collectable. “His stats may not be as good as the past two seasons but he was still producing good numbers. No reason this should be down 62% although the card was probably overpriced at the IPO which is no surprise.”
Others share tips for getting out of trading holes, such as Rally Rd. Redditer DocktorKar. “I decided to quit buying IPOs and just threw $100 in to buy the dips and up like $25 in a month doing that. Hopefully I can keep that strategy up and dig out of my IPO hole.”
Fractional memorabilia traders don’t yet have near the heft of meme traders or members of a crypto Hodl Gang—the dollar amounts chatted about are smaller and together the Reddit groups for Collectable, Otis and Rally have fewer than 600 members. But it’s probably just the tip of the iceberg. Rally’s Leimer says about half the platform’s 400,000 users have done some trading. “It’s going to be key to Rally’s growth,” he said, later adding, “Rally is a meta community, and each asset is like its own little community.”
If users are bothered by taking paper losses, it’s doesn’t seem to be showing. Collectable, the most transparent of the services with price data, lists about 100 items that are below IPO price, led by a Michael Porter 2018 Panini Prizm card that has surrendered 77% of its value, to trade at a recent $1.16. In many cases, hopes of a buyout offer—where a deep-pocketed collector comes in to buy the whole asset—keeps users going.
In the past 16 months, Collectable had users accept 20 buyouts, all above IPO price, with the low being a Frank Robinson 500th home run bat at 18% over IPO, and the high a Sandy Koufax 1955 Topps that sold for 177% above its initial offering. On Rally Rd., of 15 accepted buyout offers since June 1 last year, 11 had been trading below their IPO price, according to a list provided by that company.
“The people that are more sophisticated tend to come in and either buy up the shares or just make an outright IPO offer,” explained Goldin. “I think as time goes on, and as the trading platforms get better, as they have more people that are experienced, more active shares traded, and more people trading shares on a daily basis, that aftermarket trading will become a better process for everybody involved.”
Collectable’s Levine says he sees signs the fractional trading market is evolving. “We’re seeing fractional becoming a leading indicator in some ways, and not just a lagging indicator of [traditional] auctions,” he said, citing prices for Kobe Bryant sneakers on Collectable ahead of a later traditional auction of a similar pair. “I do fully expect, if it’s not already taking shape, for fractionals to become the leading indicators of demand.”
(This story has updated the number of buyouts in the 14th paragraph and corrected the fact that a Sandy Koufax card, not Patrick Mahomes, generated the highest return above IPO.)