I learned a few things in the July bidding demonstration with the Eddie Mathews jersey and in talking to collectors/dealers at the National this week. Shill bidding and in house bidding is a problem when it leads to false read of the market value of an item. That was my position going in and it remains my position today. Market value is only what someone is willing to pay for an item. This holds true with any commodity, and in a free market economy, this is determined by the buyer. The buyer will factor in many things to determine the value they place on any item. For items of Sports Memorabilia, these factors may include:
1. Comparative pricing data
2. Rarity or scarcity
4. Surety or authenticity of the product
5. Priority of the acquisition as part of a collecting theme or strategy
6. Potential resale or long term value
These are all things that MEARS has worked to assist collectors in identifying for themselves in some form our fashion and things we remain committed to.
As far as feedback from the Eddie Mathews’ jersey “In House” bidding demonstration, surprisingly, the only strongly opinionated feedback I got from those directly involved, either pro or con, was from the under bidder to MEARS on the jersey. The gist of his rather passionate response was that what he was willing to pay for something that he wanted was a decision best left to him and him alone. He was an experienced collector and knew what he was after and what he was willing to pay. In his mind that should have been the end to it.
In many ways, it is hard for me to argue with him. I was left the think about the huge difference in what the consigner paid for the jersey and what the final legitimate bid for this particular jersey was. In retrospect, while MEARS did manipulate the bidding process, in the end, what he was or was not willing to pay was his decision and that should have established the market price for that jersey at the time it was offered. Related to this was a question from Jeff Scott on the MEARS Board about why I listed the price realized at $15,307 and opposed to the $13,915 that was the last legitimate bid. I explained that my choice was based on the fact that had this not been a demonstration and MEARS either got stuck with the high bid, or had bid the jerseys up to some point below an undisclosed reserve, MEARS could have then featured this high price as the price realized. It is this second point about a value being assigned to an unsold item that I found most collectors/dealers felt strongest about.
Collector’s despised the posted price realized for an item that did not sell because they are forced to consider this when looking for comparative pricing data. Dealers are also impacted by these ghost sales since it effects what they are asked to buy at. When they buy based on false market reads, it decreases the likelihood their subsequent sale will be in line with the profit margin they are looking for.
While they all agreed that they would have hated to have paid more for an item than they needed to, many reluctantly agreed that even a price reached by “In House” bidding was a market price, albeit maybe for only one individual because someone actually paid it. They also seemed to share the opinion that this price should be seen in the context that no one was willing to go higher. Since many of the collectors I also talked to are dealers or occasional sellers, they also made the point that if a comparable item is offered shortly after the sale, this price should be lower since the high bidder is no longer in the mix.
This means that the price most people or the real market price is something a bit below a single period example of something when other factors such as condition are a wash. Also worth considering what happens when one person or very small segment of the hobby bids in an overly competitive nature. This too can distort the market value. Take for example a collector who just feels he has to have something and submits a very high bid in order to convince others to stay away. Would anyone have even come close to challenging them? Maybe or maybe not, but in this case the individual collector has possibly inflated the market price similar items.
I then started discussing the idea of posting prices realized for unsold lots without identifying them as such. Almost to a person, the collectors/dealers I talked with felt this was a bigger problem than the internal bidding mechanisms that drove the price to what it was. In their minds, it is these posted prices realized for unsold items that represents the true distortion of market value. A price that is high, but not reached as a function of a reserve, presents a benchmark that drives subsequent pricings beyond any real market value. In a nut shell, the message I took away is collectors don’t mind paying what they are willing to pay as long as their understanding of the market is not tainted by data from a ghost sale that never happened.
The question many of you may be asking at this time might be what’s the value or logic behind granting a consigner an unreasonable reserve, bidding up to it, not selling the item, and then posting this ghost sale price for record? Depending on the auction house and the consignment agreement, the consigner may be charged a portion of the reserve if the item does not sell. An unreasonable reserve for a high dollar item may be asked for if the consigner is testing the market for his item. In other words, he is paying to have his item showcased. In this scenario, the auction house is essentially paid to advertise the item. It may also be sold privately after the auction closes at a price below the posted price realized. The auction house is also likely to collect a seller’s fee as part of brokering this post auction sale.
What the public sees is in this “ghost price realized” may be what the buyer/new owner is counting on as this gives him the ability to point it at some point in the future when he decides to sell. The auction house can also point to the fictitious figure as a way to attract future consignments. The message from the auction house is “give us your consignments because look at what we got for someone else.”
Still not convinced that the “ghost price realized” may be the bigger problem, let’s look at this in a bit more detail as it continues to relate back to getting consignments. Whether you realized this or not, all bidders are not the same in the eyes of an auction house. Some bidders are just that… just bidders. Others are also steady consigners with vast holdings of their own. The collector making a purchase may actually pay for his recently acquired item by putting up future consignments to cover the sale. The collector continues to provide product until the balance is settled. We could now be dealing with a series of transactions driven by a ghost sale that continues to ripple and reverberate throughout the market.
Over the past years, MEARS has been seen by many our industry peers as being too difficult to work with and not willing to look for any form of accommodation. I don’t regret for a moment any position we have stated or practice we have established, but it has left some with the out that no large scale industry reform is possible without looking for common ground. Something as basic as allowing employees to bid in auctions because they too are collectors has been an espoused sticking point.
With that being said, how many auction houses would agree to a fundamental operating environment along these lines staring in 2011:
1. The auction house may establish reserves on items and bid up to that reserve, but these lots will be limited to no more than 10% of the total offerings for any one auction. No bids may be placed by the auction house or its employees on these lots once the reserve has been reached.
2. For any lot that is bid on, but does not result in an actual transfer of ownership/sale, no pricing information will be associated with this lot after the auction.
3. Auction house employees and family members may bid on items at auction, provided that these bids are limited to no more than 3 lots per auction. These lots may not be ones they have consigned, consigned by the auction house, or on lots on which a reserve has been placed.
4. Agree to have these conditions verified by an outside/independent audit conducted by a licensed accounting/auditing firm.
Any auction house could, on its own accord, make their own operating procedures more restrictive such as not permitting family members or employees to bid under any circumstances. The only requirement would be that if this becomes their stated public policy, this also becomes the standard they will be held accountable to for auditing purposes.
This common ground could then serve as the basis for a National Association of Sports Memorabilia Auctioneers (NASMA). Results of audits, (NOT TO INCLUDE BIDDER/CONSIGNER LISTS) would be exchanged between members at the end of each year.
Chair of the NASMA would rotate among members on an annual basis. NASMA would agree to meet twice year to address common problems and issues and provide an annual report to the industry on activities and initiatives. Membership in the NASMA would be:
1. Extended with no central contributions of funds by members. Organizations would be expected to bear all of the costs associated with their own participation. This includes paying for an annual audit.
2. Determined on an annual basis. This means if you are not a member at the start of a calendar year (2011), your next opportunity to apply will be for the start of the next calendar year (2012).
MEARS is willing to serve as the Chair for 2011, take responsibility to draft a charter for all to consider, comment on and approve, and make our facility available for meetings and coordination for the 2011 effort. For 2011, a small but positive second step might be for the NASMA to establish a commonly recognized and used vocabulary or Terms of Reference (TOR). These TOR might include definitions and guidance for the use of words like (Please know this is not an exhaustive list, but an illustrative example):
-Team Index Bat
For 2012, the NASMA could focus on standards for authentication. This is not the same as establishing commonly accepted grading metrics. Standards of Authentication (SOAs) would refer to those actions or minimum guidelines that must be adhered to with respect to performing due diligence. These standards would be the same for either an auction house doing their own work or those retained in their employ to perform that function. SOAs could involve requirements that:
1. Sources and references consulted are cited.
2. Process steps and methods are documented.
3. Work is attributable by name.
While there may not be a requirement to document any or all of this in a lot description, it would have to be made available if asked for by a prospective bidder and certainly provided to anyone taking possession of the item post auction.
For 2013, the NASMA could work to provide the hobby/industry with market pricing information based on the data that has been verified through an independent audit process.
These efforts, or others could be accomplished sooner, but this will depend on how serious folks are about effecting real and positive change.
I am sure there will be some who will say this goes too far or doesn’t go far enough. I have heard those comments for years and as a result, we have found ourselves going no where. I have gone back over comments and concerns voiced by dealers, collectors, and auction house personnel and what I am putting forth is an honest attempt at finding common ground on which to build. In order to bring this to life for the start of 2011, backward planning would be essential. For example:
1 January 2011: NASMA is chartered and membership/ member requirements have been set for 2011.
20 December 2010: Membership is announced and members may begin promoting this organization and their membership/relationship.
6 December 2010: Signed copies of the charter due to MEARS for 2011.
22 November 2010: Final draft copies of charter provided for signature.
12-14 November: Charter comment resolution working group at MEARS (Required only if there are critical issues from the draft that have not been resolved through staffing).
1 November 2010: Comments from second draft due back to charter coordinator.
18 October 2010: Second draft provided for comment.
27 September 2010: Comments from first draft due back to charter coordinator.
13 September 2010: First draft provided for comment.
Since the first time I attempted to create structure for some form of national association back in 2004, I have spent a great deal of time and energy listening to debate and complaint. I have contacted individuals, produced and distributed drafts that nobody was willing to comment on in any formal capacity. For this effort, if you are an auction house executive and are interested in receiving and commenting on the draft charter, please contact me by 10 September with the e-mail address you wish the draft sent to. Once the first draft goes out on 13 September, those recipients will be the only ones I will accept comments from by the 27th of September. Allowing folks to come in half way through the process makes staffing and coordinating the charter an unwieldy endeavor. Please know individuals and their organizations can “self-select out” at any time during the staffing process for any reason. If you are a dealer who makes use of E-Bay as your auction venue, please know you are not seen as a candidate for membership based on the auditing requirements.
In my mind, I remain convinced we have rare and short window of opportunity as an industry to begin to make some positive and much needed change at an enterprise level. If we wait until this is forced upon us, I feel the collecting community will view any or all of those efforts are purely reactionary and they will dismiss them as such.
As always, collect what you enjoy and enjoy what you collect.
MEARS Auth, LLC
For questions or comments on this article, please feel free to contact me at DaveGrob1@aol.com.