Sports Cards Are a Growing and Legitimate Investment Option
There’s a chance you’ve seen a headline or two about sports cards. Specifically about cards sold at auction for ridiculous amounts. Earlier this month a Michael Jordan card sold for $1.4 million, and in August of last year a LeBron James rookie card sold for $1.8 million. eBay, the primary marketplace for sports cards, recently shared sports card sales grew by 142% on their site in 2020.
All of this is to say that sports cards have become a legitimate investment option. Sure, we saw the excitement of Robinhood, r/WallStreetBets, and Gamestop earlier this year. But in predictable fashion, it was a one-off perfect storm event where the casual investor maybe made a few bucks, but most likely sold at a loss.
What it primarily did is expose the ease at which the stock market can be manipulated. Nobody should be confused as to think this was a rare occurrence in which organized buying manipulated stock prices. Ordinarily, it just happens in private where a select few benefit.
While the stock market holds a certain prestigious status in society, sports cards have outperformed it over the past few decades. Plus, investing in LeBron is more fun than investing in Best Buy.
Before we get started, it’s important I point out one of the most important aspects of the sports card collecting and investing business. Rookie cards hold a premium over the market and should be the primary, if not sole, target of investors. A player is only a rookie for one year, the best athletes have ten plus years of other cards that hold a fraction of the value of their rookie cards.
Now, how does one get involved in sports card investing? First, you need to know where to go, and eBay is still the largest marketplace for cards. Second, you need to identify and develop a strategy.
Flipping Sports Cards
The more energy-intensive and short-term focused investing option is that of flipping. It involves timing the buying and selling of a certain athlete or sport for a quick profit, oftentimes holding a card for less than a year.
A few examples include buying basketball cards a few weeks after the season ends, and attention moves elsewhere, then selling those same cards as the upcoming season approaches and the hype builds. This is a cyclical process that occurs for each sport during the off-season.
For athletes, it can be done in a few different ways. The deeper a player and their team go in the playoffs the more their card prices rise. When a player enters the Hall of Fame their prices rise. Sadly, as was recently shown with Hank Aaron, when an all-time great dies their card prices rise. Attention drives prices.
Flipping sports cards is about timing. It’s about focusing on top athletes and buying their cards when attention is elsewhere. Then selling those cards when attention is on them. It’s the equivalent of day traders, and some sites have even popped up where you can buy and sell cards without having them in hand, making transactions quicker.
The more prudent among us will be drawn to the predictability of long-term investing. But don’t be fooled, there’s still room for risk and excitement through holding cards for more than a few years. However, the true gems and moneymakers are cards you can hold with confidence for decades.
There’s an extra emphasis with this strategy on buying high-end cards of truly great players. These are players like Jordan, LeBron, Tom Brady, Lionel Messi, and Mike Trout. Those who stand out in their sport, are in the Hall of Fame or soon will be, and will always be remembered. Of course, this often means you need a sizable bankroll to participate as many of these cards are in the thousands, tens of thousands, and even millions.
There’s another way to take part in long-term card investing, and that’s through buying sealed product. Buying the boxes and cases that cards come in, but never opening them. It’s keeping them sealed in the manufacturer’s cellophane and selling them (still unopened) at a later date.
This is simple supply and demand economics with the price rising as fewer and fewer unopened cases remain in the market. However, the smart investor makes sure to consider two key factors with sealed products.
Buying a high-end card brand, and of a year that has a good number of quality rookies. Remember, the most valuable cards are rookie cards because each player only has one rookie year. The rookie class of the sealed product you buy is the primary price driver.
For those who want to invest long-term, but with some risk, this can be done by investing in high-quality young players. Players that have been in their respective professional league for multiple years and proven themselves, yet still have the risk of getting injured, never winning a championship, and coming up just short of being an all-time great. The entry price on these players is of course going to be lower than those of the all-time greats.
Lottery Tickets and Prospecting
The riskiest way to get involved with sports card investing is through buying lots of cards of unproven players. These are players who typically have played less than three years professionally, and have not established themselves as top-tier athletes. Think of them like penny stocks. Unfortunately, they aren’t as cheap as penny stocks.
This involves having intimate knowledge of a sport and specific athletes you think have the tools to make a giant leap forward sometime in the near future. This is for those of us who watch games every night, have an understanding of the strengths and weaknesses of players, and want to take a risk that someone is undervalued and due for an explosion.
Even with extensive knowledge of sports and specific athletes, it’s still easy to miss on prospects simply because there’s so much out of your control. Are they doing everything right in the offseason, does the coach believe in them, does the team draft or sign someone at the same position in the offseason?
I’m all for excitement and making bets. But for any serious investor, lottery tickets and prospecting should only be a small portion of your investment portfolio no matter how much you know about sports. Again, simple investing advice applicable no matter the asset.
Understanding card grading is simple, yet critical for anyone interested in this space. Card grading is when someone sends their physical card to an outside company, who verifies the authenticity of the card, and then gives it a number grade out of ten based on its physical condition. Not a grade on the monetary value, but on how good of shape that specific card is in.
Card graders look at the corners and edges of a card to see if there’s any chipping, whether the card is properly centered, and if there are any surface problems like indents or print marks. It’s important to note that not every card in a newly opened pack grades as a perfect 10 or is deemed to be in mint condition. Printing errors and off-centered prints are an unfortunate reality.
There are two ways to get involved in card grading as an investor. Buying raw (ungraded) cards and sending them to a company like PSA or BGS to get graded. Or, buying already graded cards off sites like eBay or MySlabs.
It’s important to note that cards with a 10 grade hold a premium on the market, they’re the highest quality available. Cards graded as a 9 are still high quality and in demand. But recent cards graded as an 8 typically hold a similar value to a raw (ungraded) card. Below an 8 for a recently printed card is bad and should be avoided.
The further you go back in time the more lenient you, and other investors, can be with a card grade. A quick eBay search shows that a Mickey Mantle card, graded as a PSA 4, sold for almost $500. This means the card is of below-average quality, but since it was printed in 1958 and is of an all-time great player, still holds a relatively high value.
Advice for New Investors
This section could easily be the longest but can be summed up with a simple phrase. Do the research. Research card prices, research card brands, and research players. Just like every other quality investment option, you need to research and spend money wisely.
Broad advice can be given in that investing in already proven players with eight or more years of experience at a very high level are relatively safe. Players that the average sports fan recognizes as an elite talent. They’ve had success and are extremely talented. Their cards will increase in value barring any off-field incidents.
However, those cards already demand a premium. Because remember, we aren’t buying just any of their cards, we are buying their rookie cards because the supply is limited and the demand is high.
This leads to another piece of advice, know your budget. How much can you comfortably afford to spend on an investment that you plan on holding for a year to a few decades? This of course depends on if you’re going to be flipping cards or investing long-term.
As someone who’s been involved in buying cards for over a year now, I can say I wish I had spent my early money on a few high-end cards of elite players instead of buying multiple cards of good players. If beginning with a small budget, you always have the option of buying and holding one high-end card for eight months. Then selling it to buy two high-end cards, which you then hold for another eight months.
You’ll be spending a lot of time researching. You may as well make an early investment in someone like Tiger Woods, and while holding that card do the research into card brands, parallels, and prices.
Above all else, my advice is to get involved. Sports card investing has boomed over the last year, and in general, has outperformed the S&P 500. Not only is it more fun than investing in the stock market, it appears to be safer and more lucrative.