Ready to Invest? Areas for Angel and Venture Capital Investment in the Sports Card Industry
As mentioned in previous posts, I have spent time as both a collector and an investor in the sports card space. As a collector, my 1400+ card modern collection is here, e-commerce site here, and my Insta handle is @midlifecrisiscards. I’m a fan of the early 90s Skybox cards, the more recent Panini Status cards, and recently focused on picking up Lebron James high-school SPX and Upper Deck cards and some Michael Jordan North Carolina cards.
As an investor, I have made two angel investments in the space so far, and one of them recently publicly launched, called Loupe. It is a live streaming platform that enables breakers and beyond a 10x better experience than what currently exists in the market. The other investment is still private and should launch MVP in the next 100 days or so. Since I began writing here on Medium about the space, ESPN, BI, and others have covered it extensively.
Putting aside my passion for the hobby, I love the sports card industry from a business perspective because it’s ripe for evolution. I have highlighted the digital transformation opportunities and the market map in previous posts. I talked about them on the Bench Clear Media podcast.
While I called this a $1B+ opportunity in an earlier post, it’s a minimum market of $8B+. As I have met with more and more companies and have further peeled back the onion, the space is more extensive than I had expected. The card manufacturers alone are doing roughly $1.25B+, and the secondary market is 4–8x that number. Add in distribution, licensing, marketplaces, storage, breakers, and beyond… you can easily see your way to a large and investable market.
In a recent podcast with Ty of Breaker Culture, I talked about why I believe the sports card market saw such recent momentum. I boiled some of my thoughts down into the graphic below. There is no single reason why the sports card market exploded, particularly basketball, but there are a handful of influences that drove the market to recent highs when added together. We have seen the high, and we are now in a bit of a depressed market, but many folks like myself are making quiet purchases ahead of the upcoming basketball season.
In this post, I’d like to focus on areas that I believe are ripe for investment within the sports card sector.
Some may wonder why I would be making this public; I learned earlier in my career to test my hypotheses out loud, and by making these thoughts public, I hope to attract the startups and companies in these hot sectors to message me. Using this framework, I have made lots of investments and relationships over my career, and it’s been more beneficial than not.
Before you can dive into investment areas, you should learn how the sector works. Here is a graphic showing how sports cards go from manufacturers (e.g. Panini, Upper Deck, Topps, Leaf, etc) to you, the collector. It’s super simple, but it boils down nicely. Players and teams are licensed from the leagues and players associations, cards are manufactured (I learned that there is a huge card manufacturing region in Texas), go to national and regional distributors who then work either hobby shops or large accounts like Walmart to stock the cards. Then we, the customers, get to purchase the cards. The diagram makes it easy to understand.
Once the customer has the card… an entire world opens up for them. The cards may get sent into grading services such as PSA, BGS, and SGC, increasing their market value. The owner may then choose to put the card up for sale on a marketplace such as eBay, StockX, Comc, Starstock, Mercari, MySlabs, SlabsandSigs. Or the owner may try selling the card directly on Twitter, Facebook, Instagram, or any myriad of sources. And there are a ton of other things that a card owner may do with their cards. I list a lot of these out here.
As an early-stage investor, here are some areas that are ripe for investment. I believe this entire category is starved of institutional capital that could build technology platforms that tremendously improve customer experience. Necessity has breaded creativity, and that’s held true for the category but imagine some solid capital investment, real product management, platforms built, and breakthrough user experience will go a long way in #thehobby. Yes, please.
Grading & Assessments: There are three prominent card grading companies in the sector today: PSA, Beckett, and SGC. PSA is the only publicly traded company in the space, and its public financials show record numbers for card grading. Rumor has it that they have 1–3M cards in the backlog and have been hiring like crazy for sports card appraisers. I am a fan of all of these companies as they help add value to the ecosystem by creating a sense of trust around a card’s quality. These companies are grading cards the same way they did back 30 years ago… a process driven by humans. The human process takes a ton of time (wait times are incredibly long right now), prone to mistakes, and, therefore, plenty of conspiracy theories. In a digital first world, I would imagine that you can build some pretty solid scanning technologies that can assess a card without having to send in, do it in under 30 seconds, and build a record of a card that will ultimately change hands a few times in its life. In theory, can open up an entire market of trusted and assessed raw card sales. I know of a couple of companies going hard at this space and would love to meet others.
Business Models: per card fee (current market conditions), subscription, or potentially SaaS by providing technology to marketplaces, sports card shops, etc and allowing them to facilitate the grading.
The hard part: how do you build a brand that competes with the incumbents? Grading is all about trust and safety and usually those brands are built over time.
Collection Management Software: This is probably one of the largest areas that I see an opportunity for innovation. If you collect cards, you likely have more than a few hundred cards. Understanding what you have, their market value and the ability to quickly list these cards on a sales platform is purely a dream these days. Some tools like Card Ladder and Market Movers help you understand the value of a card, but there is no easy end to end software that allows a collector to manage his or her collection. I recently polled my sports card Instagram following, and the most frequent answer to what people use to manage their collection is “Excel” or “Google Sheets.” I fall into the Google Sheets camp, but I built my own system that uses the eBay API to find the market value of each of my cards. I believe there is an opportunity to build a true collection management platform that not only helps understand market value but helps you catalog your cards, make proactive recommendations, helps you understand how and what to bring to card shows, which to sell online, etc. There is so much white space to innovate here.
Business models: SaaS most likely. This actually is a really good Software as a Service business.
The hard part: How do you onboard collections in the hundreds and thousands of cards easily? How do amass such a broad and deep collection of training data to help your software recognize cards?
Trusted Marketplaces: There are no less than a half dozen sports card marketplaces today: eBay, Starstock, Comc, Mercari, StockX, MySlabs, Slabs and Sigs, and others popping up. I have bought well over $50,000 on cards in these marketplaces and was very surprised over the lack of trust and uniformity. Additionally, on Facebook Groups, Discord Servers for cards, Instagram sales, the number of dollars changing hands without escrow, or any trust-based system frankly scares me. To get a sense of this, check out this video on the Underworld of Sports Cards. Because these issues exist, there is a real opportunity to build a well-lit marketplace or platform that builds trust, verification, and safety into the entire card sector. I do not know anything more than you, but I imagine eBay could extend their crackdown on sneakers into the sports card space.
Business models: The typical marketplace models of % fee per transaction. For sellers, there are proven marketplaces models of charging for basic and enhanced listings.
The hard part: Marketplaces are tricky to achieve supply and demand at scale. Additionally, how do you build in the trust factors that would make your marketplace special?
Alternative Cards: Something is amazing about holding a piece of cardboard in your hands and admiring its beauty. I have been doing this for basketball, baseball, football, and hockey cards. I see other opportunities for sports cards: going after the eSports world would be low hanging fruit. I imagine you can broaden that to include streamers (e.g. Mr. Beast) and beyond. I see lots of excitement in the card community around games like Pokemon and MTG; but historical entertainment cards like Teenage Mutant Ninja Turtles have picked up a bit too. While many of these are not “sports” cards, they are collectible cards that could have quite a bit of following.
Business models: You could go direct and sell the individual cards, packs, and wax by the case, or can stand up a competing manufacturer and produce these cards for others.
The hard part: Licensing good and aspirational talent, initial distribution at scale.
Card Funds: An area that has been gaining some traction and attention are the sports card funds. This is where you can invest $250,000+ into a fund that has been setup to buy sports cards and wax that is supposed to appreciate such as Michael Jordan and Lebron James rookie cards. An example of this type of fund is the Attic Investments, LLC Wax Fund. There are other nonpublic funds being marketed right now and I am not at liberty to include them here but if you are interested, feel free to reach out and I can point you in the right direction. I do think that this is an investible area and there could be some technology built that would enable a more effective Chief Investment Officer for these funds.
Business models: All the funds that I have seen so far are on the 2/20 model or similar. 2% management fee and 20% of the carry. Some funds may command more of a premium. This is typical in the “fund” world so it should not be hard introducing this model.
The hard part: A true belief in $250,000 minimum investment into rare or not so rare sports cards. Educating the investor market is not easy outside of the investors who also collect already.
So those are some investable areas that get me excited. I hope they get you excited as well. If you are going to study the space further, you should start by looking at the below updated market map and seeing how all of the companies play together. keep in mind that this market map is purely directional and does not include every single company in each category. As you dive in, you hopefully will become even more fascinated with #thehobby.
I am always open to chatting with entrepreneurs and companies innovating in the sports card industry. If you are someone who is or knows someone who may be, please do not hesitate to reach out. I can be found on Instagram @midlifecrisiscards or Twitter @dherman76. Thank you for your time.
