When sports cards started creeping up, I saw a lot of excitement. The pandemic was supposed to wipe out everything we loved about sports cards, especially with millions of Americans out of work, and millions more left with a half job that wasnt going to cover much of anything. Instead of tanking the market, sports cards exploded, with so many people longing for the fix of happiness that ripping a pack can provide.

As the card market slowly approached unprecedented levels, a second narrative follwed suit almost at the exact same time. There is no way this tidal wave of value and investing could be a long term thing – this was a bubble, and as sure as the sun rises in the East, it would eventually burst.

I have to believe that many of the louder voices of this counter narrative were made up of a few different groups of people. The ones that had been priced out of their hobby that had brought them so much happiness over the years, combined with frustrated FOMOers, and finally those that had lived through the early to mid 90s. The frames of reference were true, its rare that a giant boom of interest was at all sustainable, especially at prices that only a fraction of a percent of people could afford to participate.

If the prevailing opinion that cards will eventually come back down, especially with Americans eventually having access to all those things that brought them joy and places to spend money prior to the pandemic, how will it look?

Is It a Bubble?

As it turns out, the pandemic did not start the upward trajectory in card investing and money, but rather augmented and accelerated an existing trend – at least in specific parts of the hobby.

Vintage and important cards from important players were already increasing in value, just not at the pace they did after the shutdowns started. Iconic and important cards from the most essential players in the hobby were also increasing.

Given that already existing trend, sports cards seemed primed for a nice few years of growth, mirroring the existing growth that had already taken place. What none of could plan, was that the pandemic would drive a spark in interest, driven higher by celebrity involvement and investor attention.

Bubbles exist because of artificially inflated prices that reflect a short term supply famine and a giant demand increase. If either of those aspects of the economics change, the bubble bursts. As we saw many times before, when demand greatly outweighs supply, the people in charge of the supply do what they can to increase their stock. If they can capitalize on the demand in time, the prices normalize.

With trading cards, there is a never ending supply of new modern cards. Its literally licensed at a level that Panini, Topps and UD can print as needed, as long as they have the means to do so. We have already seen Panini introduce multiple new formats across the calendar for every sport they own, and Topps doing similar with what they own. The supply of cards is going to change in 2021, and likely in a drastic way for 2022.

The last time this type of demand increase happened, 1987 Donruss and the junk wax era gripped the industry and almost drove it out of existence. The demand of the current era is supplemented by a similar starving collector base, but augmented by contrived scarcity. Unlike the era of junk wax, serially numbered cards and finite autograph resources make unlimited production relatively difficult. As we have seen, it hasnt stopped things from getting out of control, but its far from impossible to see resources drying up to continue down the path of the junk wax era in the same fashion.

Grading and the Long Term Success of the Bubble

Lets continue onto the part of the bubble that I feel is the one with the most vulnerability, and that is graded cards. Right now, the most important aspect of this explosion is the way hyper mint graded examples have driven exceptional market performance. Its two fold, demand for a limited number of high grade cards, and the limited number of those cards to begin with. Both of those aspects are vital to the success of trading cards as a long term investment play and how the grading business impacts the overall durability of this bubble.

To start, the grading impact on things isnt going away. If anything its going to get more important. As much as that makes me upset and disappointed, its a reality no one can run from. Certain high grade cards that populate the champagne room of this hobby may forever be unattainable for the majority of the hobby because of this state of affairs.

Although the million dollar sales may eventually slow down when things get back to normal in our regular life, the trajectory of value is not going to be stunted. There is too much toothpaste out of the tube to stuff it back in – especially with how many athletes and celebrities are catching on. News coverage of the top sales perpetuates one of the conflicts of interest I mentioned in the previous post, but it also spurs a blitz of new considerations. “If that card is worth 1.8 million, what is this more desirable card going to go for? Lets find out!”

These mega cards really share one specific trait that will forever make them the icons of the hobby – there arent many of them. True rarity, not contrived rarity drives a lot of that value, even if that rarity is in the subjective grade, rather than the rarity of the card. When we travel across the spectrum to the more every day examples, that’s where the true measure of this bubble really lies. Can the cards with no real rarity in a high grade continue to demand the kind of dollars that they do right now?

I think the answer lies in one very specific stat – the number of cards currently existing in the PSA backlog. We can guess that there are millions of cards currently waiting to be graded. Outside of the ridiculous price increases trying to dam the river, there are so many cards that are going to come onto the market in the next year, that the more common ones could see a flood.

That begs a question of whether or not the hobby can withstand the enormous supply injection and if the demand is truly as explosive as we all think. Its possible that it can, but we are foolish to expect that more supply will do anything but drive prices down.

What Breaks First?

People seem to be expecting a rapid downfall if/when this bubble does burst. I dont think I agree that it will happen the way people expect. I think it will be much more of a gradual process, and the new bottom will still be well above the old one.

The first indicator will be wax. If Panini and Topps continue to churn out cards that are indistinguishable from other cards released, the grading queue shortens, and people start seeing a clearer picture of how many cards exist in the hobby’s new universe, I think the first thing to start going back will be new wax from sets that were generally throwaways in the past. Right now boxes of product like Donruss and Score are 10x what they should be. I just cant see a future where those boxes remain desirable enough to sustain a price like that. At the end of the baseball season last year, wax prices seemed to settle hard. The desirable sets remained in an hyper inflated price state, but the rest really went back to something resembling normal. This could be the first indicator when things start to normalize.

The second indicator will be the value assigned to new cards of unimportant players and unimportant sets. Like wax falling off, the insane quantity of cards will eventually generate a supply that cannot sustain the type of demand that was initially there. The legacy sets like Topps Chrome and Panini Prizm will continue to drive the market, but paying $9000 for a second year card of an unimportant player in an unimportant set is going to be another hole in the wall.

The last indicator will be the lowered value of common cards in high grades with growing pop reports. We have already seen that enormously common cards, that were born during this new era have never existed outside of a sleeve from the moment they were pulled from a pack. This is different from cards that were released earlier and without much fanfare. The spectrum of grades that should span results of 7-10, will eventually be much more likely to span 9-10. It creates an artificial scarcity, which will change.

How Long is it Going to Take?

The saying is always buy low and sell high. The problem is knowing when a card or set will reach the peak of its value. Right now, people are holding because they feel that they still have room above.

There are other factors as well, stemming from environmental due to the eradication of Covid, and governmental stemming from the stimulus packages. As long as those things remain in play, the peak is still off in the distance. When those things change, that’s when we will start to see the decline come into focus – if it ever does.

I dont think there is a guarantee it will ever get back to where it was. In fact, I would say its likely not going to get there. But to think that this boom is infinite in its timeframe is short sighted. There are too many headwinds that should or will change.

We always used to wonder what the next big thing was going to be, thanks to years of stale products and lack of innovation. Right now, that stalemate could be a harbinger of trouble, especially with things like NBA Top Shot and other innovative collecting approaches taking hold.

If this boom lasts beyond the 2-3 years, there is going to be a number of questions that will need to be answered, most of which stem from basic things. We are talking product delivery, product configuration, grading, and community. The more things stay the same, the less of a peak the end will have.

Right now, group breakers and many shops are living their best life, with many of the products selling like they never have in the past. At the same time, rising cost and lack of access to affordable wax may limit the participation of many people who used to be the driving force behind many of the cards we chased on eBay.

This leads to more discussion of direct to consumer sales, changes in the way eBay manages their sports card related listings, and how products are configured to ensure group breakers never struggle to fill breaks.

In looking at this from how I would approach things, the key to long term success hinges on technology. Too many parts of the hobby function on outdated approaches, which is why Top Shot and digital collectibles have become the darling of many talk tracks in the hobby. The more Topps and Panini can innovate around creative uses of technology to connect, inspire, and track the progress of their consumers, the more likely this boom will continue to grow.

Like most people, I never expected this to happen the way it has. I never saw sports cards as the key to Pandemic era happiness until it was. Being a part of this hobby for so many years, Im excited we are finally getting our time in the spotlight. As they say, for most, there is only 15 minutes of fame – and we are all curious if we are on minute 3 or minute 14 here.