The Sports Card Industry Is Having A Tech Revolution - PSA Forbes Article
 

Anyone else see this article? Interesting read

https://www.forbes.com/sites/brettkn...DbgHJWdrb1D3h4

I really like the way this new blood is running the company, lots of great things are coming. Quite frankly I’m glad the days of $12 service are over.

That was a much better read than I expected.

A few things that stand out to me in that article are:

"...pushing its valuation to $4.3 billion. That represents a five-fold increase from the roughly $850 million acquisition price last February..."

Wondering where they base that valuation? Is that valuation based off of the 300 million in gross revenue? CU at the time of acquisition estimated 35 million for Q2 revenue and had over 30 million in Q1. Annualized it would be reasonable to project 150 mil in gross revenue. So did the board screw shareholders and approve a sale well below the value of the company? They had 13 million cards to be graded at the time of purchase. That is a huge Receivable.

The group may have paid 853 mil for the co but they also spent money after the acquisition buying other companies and expanding operations so the 5 fold-increase while an accurate statement does not paint the whole picture. Additionally there are operating costs that have increased substantially. I just wonder if they are as profitable at this time as they were prior to being taken private.

"...PSA now has more than 100 graders, up from 44 at the time of the acquisition and the 14 the division had for many years."

In order to get those 13 million cards graded it had to be done but how do you find 56 more qualified people to grade cards? How do you remain consistent with an operation that large? Not sure that you can. Card grading might not be neurosurgery but in just over a year they located 56 qualified graders?


"A 2019 scandal exposed corrupt collectors selling altered cards through the marketplace PWCC, many of which carried grades from PSA."

2019 scandal exposed corrupt collectors selling altered cards? Maybe it is semantics but the bulk of the dudes selling altered cards through PWCC, through their own ebay accounts, etc are not collectors but dealers. Dealers who PSA promoted or promotes and at the very least allowed to submit the bad material.

I noted those but also these:

On a single day in late March, the company received 660,000 cards. “We literally broke the USPS in Southern California,” Turner says. “They called us and said they couldn’t manifest the boxes. I think we rented school buses with security guards and drove to USPS to pick them up.”

Turner says he hopes to return to the normal submission process in the next few months, but all involved concede that the days of $12 service fees for low-end cards are over.

Then there’s the competition. SGC has taken advantage of PSA’s higher prices, particularly on the lower end, and smaller grading services like CSG and HGA are hoping to capitalize as well. New entrants are joining them. A year ago, Dallas Card Investors happily functioned as a bulk submitter, essentially working as a middleman between collectors and PSA. Now, says owner Bradley Crenshaw, it’s pivoting its business to become a grader itself.

CSG and HGA were temporary band aids while PSA stopped taking submissions. PSA will continue to dominate only by a wider margin over their competitors.

Chase,

Regarding your first point on valuation, most companies are usually valued at some agreed upon multiple of EBITDA, and EBITDA is generally based on GAAP. They had just purchased Collectors Universe only a little over a year ago, and obviously established a price, most likely using CU's EBITDA just prior to the sale, with maybe some possible adjustments for projections. In making that statement as to the current value, they probably took their most recent actual (or maybe even projected) EBITDA from the company's operations and multiplied that by the same multiple used for their actual purchase of the company. Based on that, they are likely talking about multiple times increases in net Earnings Before Income Taxes, Depreciation, and Amortization. Would make sense with the surge in submissions, accompanied by the huge price increases, they have experienced during the pandemic.

Also, don't forget the recent Genamint acquisition as well. Don't know if they added that into this valuation as part of the overall company, or if they are keeping that separate.

To put it simply though, they are likely making a boatload of even more money right now than they were when it was still a public company.

Hi Bob,

Not sure what the value is of Genamint but they have acquired multiple businesses like WATA and Golding Auctions to name two, that would add to gross revenue. Genamint, if it is being used, simply assists in speeding up daily operations, which presumably saves payroll and would increase net income and gross income. There is some value to having Genamint but not sure what that would be or how you would determine that.

They did raise fees and while people are still submitting I just do not think that would amount to THAT much of an increase in the value of the company. Subs had to be down once they suspended lower tier services. Turning 8 million of the 13 million of the backlog which existed at the time of acquisition into revenue certainly helps but that presumably was built into the valuation at the time CU was acquired.

From my vantage point (you would know much more about this than I would) and with of course much less financial disclosure as a private co it is hard to swallow the company is really worth 5x what it was.

Could you envision them taking the co public again today and getting a 4 bil valuation? I just don't see that they have done enough to justify that value. I am sure I am wrong though.

So the snow ball of corruption continues under a different name. I feel honestly that PSA hired guys from the hobby that knew what subs they were dealing with. PSA may have not know their intentions upon hiring but there should have been flags raised when pre 70's cards are minting non stop. They gave their friends the best grades for kickbacks. I do not believe for one second that graders are unaware of whose cards they have. Pretty much says that in the article. How does one stay organized like that without identifying subs? I have the same sub # from the beginning so a friend could easily find my name or # and pull the sub for special care grading. I also watched a blatantly altered card be handed to PSA at a show, pre 18', and come back with a numerical grade. I said something and the lady turned her back on me and walked away. Proof enough they knew what was happening. More than happy to tell the feds who the card belonged to and what I witnessed but we all know they don't really care except to recoup funds for the rich who can afford to lawyer up without going broke.

Just honestly seems silly we all squawk about wanting a new grading service but the beast continues to get fed. All these guys here saying they are only collectors so grading is strictly for protection but won't buy a new service because of devaluation. So what is it then? Asinine thinking the plastic is worth that much more than the card but this hobby is all about how much plastic you have. So where is the value? Is it the actual card or the plastic holder? If you value the holder then remove the cards for someone who actually collects and keep that valuable plastic you stupidly paid for. I get grief all the time at shows for selling raw. I just tell them to spend their own money if they want a piece of plastic and an opinion so bad. I have graded 3 cards since 2012 and the rest reside raw or purchased for near the same amount as a raw example. I love this hobby but its very hypocritical. You alter cards and your no good/shunned, but those same guys that judge are the same that buy from frauds in the hobby and feed the beast.

I have lost more than I will ever recoup trying to set up a process to grade accurately and fairly each time. I came up with so many ideas and watched as my ideas were blatantly ripped off with not a thank you ever said. I hope I live long enough to buy all them out so I can fire and close the whole thing down. Make them worthless and establish a new era of card grading that actually has integrity and morals. An accurate registry and as transparent as clear glass. Special thin holders that are not breakable, UV proof, fire retardant, and are sealed specially to forever protect the card inside. You can smash it with a hammer both on the flat and along the sides and you are not able to break it open. Cards must be specially removed. Messed up part is I would have bent over backwards to help one company had they not stole. I wonder how much market share they would have now had they did the right thing and just approached me to work with them. It would have cost way less than they spent trying to figure it out. Best part was the egg in their face when it backfired like a quadrajunk carb on a 305.

I wouldn't be so quick to just summarily dismiss CSG as a small, filling in the gap, card grading company. The overall company they are part of is well known worldwide I understand for their other grading services. So, this new venture of theirs into card grading is no fly-by-night operation. Plus, as I understand it, they are going to compete with PSA in that they have a registry set up, unlike SGC, Beckett, or any of the other small, fringe grading services out there. Plus, don't forget their rather slick move in partnering with Ebay to offer their new authentication service. I can easily see CSG using that affiliation as a possible springboard to generate more business in the future. For now, all they need do is maintain and provide a consistent, accurate, timely, and reasonably priced authentication and grading service that competes with the other TPGs, especially against PSA as to timeliness and prica, and over time more and more people in the hobby will become more familiar and trusting of them. In the long run, it will behoove PSA to get their pricing and turnaround times down closer to where their competition is.

interesting read and new blood is always good

Hey Chase,

Yes, since the company has gone private, their financial info isn't out there for all to see anymore, so I am doing a bit of guessing. And I forget about some of those other small company acquisitions as well. And again, we don't know if they are even including them as part of this valuation, or keeping them separate.

Still, I think the major part of that valuation jump is due to their revenue increasing. You mention the backlog they have, but we don't know exactly when they are actually recognizing the revenue from it for accounting purposes. With the huge delay now in turnaround times, I suspect they may not be so quick to record their fee income as soon as they log in cards to grade, or at least they may not want to. If they record the income from cards they received, but then don't actually do any work on them till almost a year later in some cases, you may have recognized taxable revenue in one tax period, but then any tax deductible expenses related to the work they'll eventually be doing on those backlogged cards maybe isn't getting incurred and expensed until a later tax period. They never operated with such a backlog before, and most companies, especially publicly traded ones, generally like to recognize income ASAP. And assuming that is the case, companies aren't supposed to be able to just suddenly change their income recognition criteria, especially in regard to income taxes, because something like the pandemic came along. The IRS likes, and generally insists upon, consistency. So, they may be stuck recognizing revenue they can't now fully deduct all the expenses against that they'll end up eventually incurring to finish grading them right now. Hopefully this makes sense to everyone.

And as for taking this company public again, hell yeah I can see them doing it, or at least selling it off to someone else at some point. And I suspect it was probably part of their plan and intentions from the start. Regardless of how much they like cards, these new owners are businessmen and investors first!

The one thing I'll bet they may not have planned on is CSG entering the card grading business. Trust me, PSA is well aware of them, and likely more concerned about them than you might ever imagine. Though nowhere near as drastic as the resulting impact, CSG could eventually throw a monkey wrench into PSA/Collector's plans, along the lines of what Fanatics did to Topps IPO dreams. Will be interesting to see how this plays out in the future.

Thanks Bob. Appreciate the reply. The article said that Goldin made up 20% of the 300 mil gross revenue so that is significant. I assume Goldin is a part of their valuation since it is included in gross revenue. I assume they recognize revenue once a sub is completed since that is the time at which they charge the submitter. Those backlogged submissions though would have had to have been part of the valuation they paid to buy CU so they are a wash, no? Additionally most of those 13 million cards were bulk...less than $12 per card. I think they added 50% or more to their workforce to process those 8 million cards. That has to be a hefty cost.

And as for CSG, I agree. As we have discussed I think in the coming months we will see CSG do more and more with eBay and they will be enormous competition for PSA. CSG's parent co authenticates 8 different collectibles. PSA might have Goldin but CSG will have eBay.

CSG will be around for quite a while
 

I saw the discussion on CSG and wanted to point this fact out to everyone.

Please note that in addition to Blackstone, the group who purchased CSG, among the investors is one Michael Rubin, owner of Fanatics, the company which will be producing the licensed baseball, basketball and football cards by about 2025

There is some serious $$ behind CSG now

https://www.sportscollectorsdaily.co...lackstone-csg/

Rich

Anyone have this info?

How many cards has psa graded since inception?

I heard psa has graded 6 times the amount SGC and Beckett have graded combined. True?

Thanks Rich, didn't even realize there was a Fanatics connection as well. I've said several times on the forum now that I think CSG is going to be a lot bigger player in card grading than many expect. And now they are connected with both Topps (through Fanatics) and Ebay. You watch, I wouldn't be shocked if down the road CSG starts grading Topps cards right from the factory, maybe being sold by/through Fanatics. They've already got an inside track on raw cards sold on Ebay. If they play it smart, they could up end jumping in front of all the other TPGs and not just authentic cards on Ebay, but offer to grade and encapsulate them as well. Would end up stealing potential customers from all the other TPGs that buyers may have thought about sending their raw cards to for grading otherwise. And I think PSA fully realizes they have a potential up-and-coming serious competitor on their hands.

Things like that Marx company bankruptcy aren't helping them either. Still waiting to hear exactly what PSA is going to do with those Marx submitted cards they're holding, and if they are going to grade them for free now, or not. Have heard/seen conflicting stories. Even though that Marx situation isn't directly their fault, PSA is still going to be viewed by many as indirectly responsible for at least some of this whole Marx situation. They don't need any bad publicity with someone like CSG looking to catch up to them. Will be interesting to see what, if any, new ideas, plans, or measures PSA might initiate in the coming months/years in an attempt to fend off and counter what CSG is doing.

Bob,

That was sort of my thought when eBay started with the Authenticity Guarantee. For consumer protection as well as a revenue generator, the day could come where cards over a certain price will have to be graded in order to be listed. eBay could make a sweet deal to sellers to get their cards slabbed for less money and less time than their competitors are able to do.

I did not know, or maybe I forget, that Fanatatics and Blackstone were involved with CSG as well as eBay. That is serious money. I am all in favor of competition. PSA has never really had any and you can see what that has lead to.

Chase

Security guarding school buses full of card submissions...

It does sound like they are using camaras, chips, technology to provide a safe and secure haven for cards awaiting grading.

Raise prices to curb demand... hmmm, doing that would increase profits. Announcing and following through with a delay in grading and card return would have curbed demand, but that may have resulted in a decline in profits.

Reading that article had me thinking about (illegal) drug suppliers, drug traffickers, and the users (the addicted). And I see a few similarities in meth, cocaine, and plastic card slabs. It seems an addiction. But I guess collecting ball cards (ungraded) is an addiction too, in a way.

It was an interesting article. Matters were open to the public when the company was public; going private allows them reveal what they choose.

An interesting article. It's all about the money.

I'm with you Chase, this will be interesting.

How about graded cards in packs and unopened boxes ?

With Fanatics taking over Topps, I'd mentioned before about the possibility of them selling slabbed cards direct from the factory, and calling them "Uncirculated". Forget about gambling on getting Gem Mint 10 grades from other TPGs. It would also possibly add more exposure and could help build more approval and acceptance (and perceived value) in the hobby community for CSG, assuming CSG would be used for such purposes due to the investment/ownership connection between Fanatics, Topps, and CSG that now exists.

And anything building up CSG's rep and perceived value, works to diminish those in other TPGs. Just what they want.

Upper Deck did that years ago.

Not just Upper Deck, in the 2000-01 period Topps and Donruss/Leaf/Playoff both did that and I'm not sure about Fleer. It was actually not a bad idea and value added to the unopened boxes

Rich

This article has not only the hallmark of irrational exuberance but also the "Forbes jinx". Tell tale signs the end could be nigh

Not sure about that. Check out this other article:

https://www.sportscollectorsdaily.co...-single-month/


PSA kept the postal service busy in March.

For the first time in history, the company says it graded and shipped over one million trading cards in a single month as it continues to work through a submission backlog that measured around 13 million cards around this time last year.

The total was up 25% from February when PSA reported grading and shipping 802,694 trading cards in a month containing three fewer days.

In the first three months of this year, PSA says it has graded and shipped 2,783,269 cards, a 7.8% increase year-over-year from the same three months in 2021

Nobody is sure what will happen, however, they are all speculators:

that prices wont come down
anything you buy (grade) will go up
cards are liquid assets

"This time its different, after a meteoric rise, we wont see a pop of the bubble" is the predominant theory.


All hallmarks of a euphoric market.

First he innovators, then the imitators then come the fools. -WEB

All these indicators makes it incredibly hard for me not to sell into strength.

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I would normally agree with you for selling into the strength but I’ve been dead wrong the past three years. I think that the amount of new high dollar buyers has changed the whole game. Sure mid grade and low grade is coming down and will more but high end 8’s and up or pre war 6’s and up....it’s to the moon.

Exactly, this time its different! Trees grow to the sky. We should value clips of guys doing a slam dunk on how many clicks they get.


I keep working my signed set, and just hope the euphoria lasts, or starts again when I sell!

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And Collectors Edge.

Signature rookies came close, having a set where the autograph cards came in a sealed hard case. But no grading

If anything this may also be a sign of a bubble. With so much more slabbed content on the market prices will probably continue to give. Honestly depends on what market segment we are talking about.

It would be nice to use even more AI in grading.
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