An Industry’s $4.4 Million Dollar Mistake by Dave Grob

An Industry’s $4.4 Million Dollar Mistake by Dave Grob

When I first saw that the 1920 Babe Ruth New York Yankees road jersey that I had researched and offered an opinion on sold for $4.4M, I was more than a bit surprised. My initial reaction was that a sale of this magnitude with respect to price was a very good thing for the hobby/industry. As more time has passed, I am not so sure about this being a positive thing for those that collect or invest in major league baseball uniforms. My reason for this change of heart is that I don’t think the market for vintage baseball uniforms is fully grasped by industry and hobby personnel beyond the notion of short term profits.

One might think that a $4.4M price tag on the Ruth jersey increases the value or worth of all other uniforms since it provides a metric or mark on the wall that all others can be measured against. The problem with this logic is that it assumes:

  1. There are a large number of buyers for this type of product in this price range.

 

  1. That these buyers have collecting interests and goals that include all other types of uniforms at a level equal to that of this Ruth uniform.

 

  1. That these buyers will pay premium prices for additional uniforms of player uniforms that already reside in their collections.

 

  1. That these high prices will attract new “big money” into the hobby/industry in such numbers as to continue to fuel this surge in pricing.

 

It’s my opinion that auction houses, dealers and “brokers” are killing their seed corn (top level buyers and their influence in growing the industry) buy encouraging exorbitant asking prices based off the sale of the Ruth uniform.   They do this in a few ways, but all for a common reason.

 

Competition for quality authentic vintage uniforms is at an all time high. Within the industry segment of major league uniforms, there are now credible and objective evaluation protocols, methods, and procedures that have removed millions of dollars of fake or problematic product from the once thought available supply.   This has been probably the most significant factor in pricing since this has decreased supply, increased demand, and provided a heighted sense of security on the part of buyers. Auction houses are now forced to either offer incredible reserves or estimates to potential consigners in order to garner their business as opposed to seeing it go to a competitor. This is important to understand for two reasons:

  1. Auction houses, dealers, and brokers work off a percentage of the final sale and continue to do so no matter how many times they sell a particular item.

 

  1. High end collectors often pay for new purchases with the promised consignment or liquidation of previously held items.

 

Thus the auction house that can land or lock up (even temporarily) a choice consignment is looking to also lock up future consignments to cover a pending purchase. This allows them to have and offer something for that next level down, but still “high end collector”, who in turn may finance this second generation purchase with consignments of their own. This concept up “moving up into product” has a healthy ripple effect throughout the industry.

However when I am consulted by collectors about possible buys at some of the current asking prices, I am more and more convinced that auction houses, dealers, and brokers are eating or starving their own seed corn (the high end buyer) in hopes of a quick sale at a huge markup in pricing in order to garner their cut. This is a very short sighted approach since they can and do make money on every time they can sell the same item.

The problem is that the current asking prices or expectations auction houses are creating on the part of consigners in order to win “the product war” is stifling buying at the highest end.

Market analysis within the sports memorabilia industry is virtually non-existent beyond attempts to capture and convey “prices realized.” This form of data mining is not market analysis since it is predicated on the assumptions that:

  1. This was a legitimate sale (item actually sold).

 

  1. All items offered were legitimate offerings of what they were represented to be.

 

  1. Shill biding was not a factor in the price realized.

 

  1. The price realized was not the result of only two collectors going head to head for a single item.

 

This last item is particularly important to understand as it reinforces the importance of how thin the market is at the high end and the fact that if a comparable item were to show up, the next “price realized” should be expected to be lower and not higher since the previous winning bidder will not likely be in the bidding mix.

 

In addition, “prices realized” as market analysis fails to also consider assessments of the current nature of actual buyers or potential buyers for items with respect to known supply of product. Consider if you will a 1938 Lou Gehrig New York Yankees home jersey that sold for $402K in 2007 that now has an asking price of over $2.5M based largely on the “price realized effect” of the Ruth jersey. At first glance getting a jersey of this magnitude at less than 60% of the Ruth price might seem like a bargain. However, in order to sell this uniform at this price, you have to have a buyer at this price.   Is this a reasonable market appraisal ($2.5M+) when you consider the number of actual buyers for a uniform like this against the data on who they are and if they already have a Gehrig in their collection? Also what does this situation look like if you are using the metric that there are probably a dozen legitimate Gehrig’s out there in varying degrees of condition? Could the hobby/industry absorbed the sale of 3-4 of these items at this price range if multiple holders all wanted to sell their Gehrig’s at the same time or in close proximity to each other? I don’t think so, at least not right now based on my rejection of these assumptions:

 

  1. There are a large number of buyers for this type of product in this price range.

 

  1. That these buyers have collecting interests and goals that include all other types of uniforms at a level equal to that of this Ruth uniform.

 

  1. That these buyers will pay premium prices for additional uniforms of player uniforms that already reside in their collections.

 

  1. That these high prices will attract new “big money” into the hobby/industry in such numbers as to continue to fuel this surge in pricing.

 

So far, my commentary has largely been negative, but I do feel there is great potential for these uniforms as sound long term buys and investments, but this will likely require a concerted effort on the part of auction houses, dealers, brokers, and collectors themselves. The focus should not be on the quick short term sale, but actions to attract and grow the next generation of high end collectors. This long term viability strategy should:

  1. Encourage pricing at the high end to keep top tier buyers buying and financing these purchases with a sale or liquidation to lower tier buyers. This also requires realistic pricing on these “second generation” sales.

 

  1. Emphasize realistic expectations on the part of high end buyers liquidating memorabilia to make continued purchases. You can’t complain about $2.5M Gehrig on one hand, and at the same time want $1.7 for a uniform you paid a fraction of this a few years ago as well.

 

  1. Support or sponsor marketing and education efforts targeted at collectors who are currently in their early to mid 30s who are likely to be resourced to buy uniforms in the $40K-$70K range. The focus here is to begin to build the next generation buyer base for six and seven figure uniforms so that it coincides with the point in time when this next generation top tier collector hits the height of their spending of disposable income so it synchs with a point in time when current collections might be liquidated. These marketing and education efforts should NOT be focused on a “prices realized” approach any more than the flawed marketing strategy was for baseball cards in the 1980s and 1990s that encouraged individuals to buy current product based on the faulty logic that these modern cards would appreciate at rates consistent with a 1952 Topps Mickey Mantle Rookie card.

Tenants of this marketing and education effort should highlight:

 

– A focus on uniforms produced before the large scale commercialization of uniforms as collectables.

– Possible themes and concepts to build collections around and why.

– What constitutes a credible and objective evaluation of the uniform in question and why.

– An understanding of actual market density by player/team as well as the market for potential buyers of these items, now and over time.

– The rejection of the numeric grading uniforms like they were baseball cards since they are vastly different artifacts. The shift should be to view uniforms more along the lines of vintage automobiles, items that were produced to be used and never intended to be collectables.

– Creation and maintenance of “non-commercial” societies and associations. These are NOT “buyer’s clubs”, but forums for the sharing of information among like minded collectors. More of a “show and tell” than a “buy and sell” focus.

-Encouraging current top tier and advanced specialized collectors to engage in efforts to display and showcase uniforms in areas outside of dealer or auction booths at trade shows.

-Improving the image and branding of the sports memorabilia market, marketplace, and marketers in light of current investigations and subsequent prosecutions of many of the individuals involved in building the current holdings of these “first generation” top tier collections.

I harbor no illusions that everyone or possibly anyone who reads this will like or agree with what I have said. All I ask is that you read it in an objective manner through the filter of understanding and thinking about the long term viability of the collecting and investing in major league baseball uniforms from a macro level industry standpoint.

 

 

Dave Grob

davegrob1@aol.com

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