How the collision of baseball cards with NFTs, SPACs changes the game

On a recent family ski trip in California, my kids and I entered an old baseball card shop in the city of Sonora, a former gold-mining town in the foothills of the Sierra Nevada.

As a former rabid card collector, I started to shine when I saw the sign for BJ’s Cards and Collectibles on the main drag of town. With the baseball season almost starting, I bought a pack of 2021 Topps cards for each of my 5 and 8 year old sons.

Before calling, the owner, Bill Wiley, apologized that each package cost $ 5.50. That’s over 100% gain from pre-pandemic levels. During the lockdowns, he said, the popularity of sports cards had skyrocketed, and small dealers like BJs had to pay a high dollar to distributors to get inventory. It didn’t matter whether you were talking about loose packs or the rarest collectibles.

“This is the busiest since I can remember,” Wiley, who opened the store with his son in 1992, said in a phone interview this week. “I was closed for nine weeks and when I reopened there was a huge demand for sports cards.”

Those $ 5.50 packs that I bought my kids in February would now cost $ 7, according to Wiley, who said he pays $ 148 for a box of 24 packs to make $ 20 a profit. At the other end of the market, a 1952 Topps Mickey Mantle rookie card sold for a record $ 5.2 million in January. A month later came the most expensive basketball card transaction in history – a rookie trading card from Dallas Mavericks starguard Luka Doncic was bought for $ 4.6 million. And in April, a newcomer Tom Brady card was bought at auction for $ 2.25 million, a record for football.

Wiley, 68, said buyers today are very different from the industry’s heyday of the 1990s, when collectors came in and spent hours looking through boxes of random cards.

“Many of these people are new to the hobby and consider it a form of maybe a little bit of gambling,” he said.

The unforeseen resurgence of the sports card industry that merchants like Wiley are experiencing clashes with two other thriving trends that have caught the attention of investors: non-replaceable tokens (NFTs) and specialty acquisition companies (SPACs).

On Tuesday, Topps said it will be made public through a SPAC, meaning it will be taken over by a publicly traded blank check company. In the announcement, the 83-year-old sports card and chewing gum company praised both the popularity of physical collectibles and their expansion into NFTs, or digital items that live on blockchain technology.

Former Disney CEO Michael Eisner, who bought Topps 14 years ago, told CNBC’s “Squawk Box” that the digital business, especially apps, is growing rapidly and that blockchain will be a big part of the future. However, he said physical cards still drive much of today’s business.

“Cardboard cards are still hugely popular – we appeal to children,” said Eisner. “The digital maps are very popular – we appeal to teens and young adults. And with blockchain we think we will appeal to everyone.”

Topps sales in 2020 were up 23% to $ 567 million, and the company expects sales growth of 22% this year, followed by growth of 12% in 2022. Until next year, physical goods and confectionery (Bazooka Gum and Ring Pops) nearly 90% of sales. In addition to its flagship baseball cards, the company sells tickets for the European UEFA Champions League, the National Hockey League, World Wrestling Entertainment and Star Wars.

Eisner said the company settled the SPAC transaction based on the existing company’s trajectory, and the blockchain explosion came after we made this decision.

With explosion, he refers to products such as NBA Top Shot, made by competition partner Dapper Labs. Consumers pay up to hundreds of thousands of dollars for a video highlight of a LeBron James dunk or a blocked recording of Zion Williamson. The clips are purchased as NFTs, which have unique codes on blockchain that confirm their authenticity.

For card dealers like Ron Gustafson, owner of MVP Sports Cards & Collectibles in Sebastian, Florida, the timing of Topps’ plan to hit the public market is fascinating. From his 1,000-square-foot store in a strip mall near the coast, Gustafson has witnessed firsthand the remarkable revival of a business that has moved more towards traditional retailing over the decades.

Gustafson, who has three daughters, opened his shop in 2017 as a passion project and an afterthought for the tax office that he has owned since 2008. He said that when the pandemic hit, things went very slow initially because of the closures and concerns about the economy. The resurgence began around the time the NBA rebooted the season in the Orlando bubble in July, he said.

“That really helped to get sports fans back,” said Gustafson. The card market just skyrocketed. Maybe people were at home and more people had more time to spare. ‘

Even with the store’s occupancy limits and appointment viewing, Gustafson said he recently recouped his initial $ 250,000 he put into the business and is now seeing a profit. While Topps controls most of the baseball card market, the more popular products right now are soccer cards, and the most expensive is basketball, he said. Panini America owns the licenses for those competitions.

Gustafson said his most interesting appointment of the year was on a Saturday in March, after he got a call from someone asking if his store had boxes of Panini’s Prizm football tickets, which he sells for $ 1,500. Gustafson said he did, and the man told him he would be there in half an hour.

When he arrived, the man asked Gustafson if he happened to have rookie tickets for Alex Bregman, an infielder for the Houston Astros. Gustafson said no and asked why he was looking.

“He said, ‘Because I’m Alex Bregman,'” Gustafson said. “Sure enough, he took the last three Prizm boxes off the shelf and let us take a picture.”

Bregman was in Florida for Spring Training. The Astros play about 90 miles south of Sebastian, in West Palm Beach, but had a game that day against the New York Mets in the nearby town of Port St. Lucie. Gustafson said he originally planned to attend the game that day and that he would let his store manager run the store.

“If I had gone to the game, I would have missed Alex Bregman,” said Gustafson. Instead, he met Bregman and made a $ 4,500 sale.

Gustafson said he is still not sure where the digital market is headed. Panini has a blockchain product with online map auctions, although it has “niche popularity,” he said. The physical card with a handwritten signature is still what excites collectors, he said, and so is buying and owning boxes of packages that increase in value as rookies of that year turn into stars.

Still, there are plenty of ways blockchain can make even the traditional card market more efficient and reliable, Gustafson said. For example, there is no right way to price old and rare cards. Sellers still tend to check eBay to see the latest transaction price. Others send cards in the mail and pay to have them reviewed by special authenticators. Those processes are tedious and imperfect.

“People are warming up to the digital side of things because of what digital currency is doing from an investment standpoint,” said Gustafson, adding that he has invested a little bit in cryptocurrencies, bitcoin and ethereum. “Collectors want something physical in return.”

WATCH: The rise of NFTs and why people collect moments and resources differently