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

[BobC]

Originally Posted by Lorewalker

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.

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.

[Lorewalker]

Originally Posted by BobC

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 Gennamint 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.

[BobC]

Originally Posted by Lorewalker

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.

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.

[Lorewalker]

Originally Posted by BobC

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.

[Rich Klein]

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

[parkplace33]

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?

[BobC]

Originally Posted by Rich Klein

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, an investor 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

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.

[Lorewalker]

Originally Posted by BobC

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