CLCT - Collectors Universe

[Gregmal]

Yea thanks for the link. Interesting. I could have told you some of those names. PWCC is also notorious for shill bidding and many other sketchy things. But they've also gotten so big, and because of the shill bidding, do put up auction results that are significantly higher than if you listed something yourself, and because of that they've kind of become the only game in town for these type of cards.

 

I dont really think this will have any effect of CLCT though. Would be interested to see if they have any sort of liability insurance.

[Foreign Tuffett]

Yea thanks for the link. Interesting. I could have told you some of those names. PWCC is also notorious for shill bidding and many other sketchy things. But they've also gotten so big, and because of the shill bidding, do put up auction results that are significantly higher than if you listed something yourself, and because of that they've kind of become the only game in town for these type of cards.

 

I dont really think this will have any effect of CLCT though. Would be interested to see if they have any sort of liability insurance.

 

From the most recent 10-K: "We have no insurance coverage for claims made under these warranties, and therefore we maintain reserves for such warranty claims based on historical experience."

 

I agree with you that the warranty claims aren't likely to be a huge $ value, but the brand is somewhat tarnished.

[Gregmal]

Yea thanks for the link. Interesting. I could have told you some of those names. PWCC is also notorious for shill bidding and many other sketchy things. But they've also gotten so big, and because of the shill bidding, do put up auction results that are significantly higher than if you listed something yourself, and because of that they've kind of become the only game in town for these type of cards.

 

I dont really think this will have any effect of CLCT though. Would be interested to see if they have any sort of liability insurance.

 

From the most recent 10-K: "We have no insurance coverage for claims made under these warranties, and therefore we maintain reserves for such warranty claims based on historical experience."

 

I agree with you that the warranty claims aren't likely to be a huge $ value, but the brand is somewhat tarnished.

 

Yes and no, at least I think. Beckett used to be 1A with PSA being 1B. Beckett's grading became suspect for many reasons, but largely that they gave better grades to better customers. Outside of these 2, there is nothing to go by. So either all these vintage cards will take a huge hit, as there will be no credible grading authority, or the market will largely shrug and it will continue to be business as usual. I think it will be the later. We've seen a lot of this stuff over the years with memorabilia. Even recently with the newer issue stuff, people altering the game used memorabilia, it kind of makes noise, and then goes away.

[Cigarbutt]

It seems to me that this is likely to be short-term noise and, possibly, a long-term positive as this is the kind of issue that drives the demand for the underlying to-be-graded products.

Here's a video of questionable value that discusses the issue and that gives a glimpse into the collectors' "community".

[Cigarbutt]

I had concerns about management transition and, to some extent, the longer-term outlook of the business and it looks like I was wrong.

 

-The new CEO seems to be doing a good job on the vision and strategy front and the Old Guard is not missed.

-There appears to be an enduring and evolving core of customers that will keep more than adequate pricing power, given a capital-lite model.

 

https://www.fool.com/earnings/call-transcripts/2020/02/04/collectors-universe-inc-clct-q2-2020-earnings-call.aspx

-I continue to have mixed feelings about the Chinese venture (not because of the short-term noise due to the virus).

-The CFO describes interesting technology features related to grading and notes the increasing interest in more modern cards such as the Pokemon cards.

-No question on the call which is interpreted as a positive.

 

From the valuation standpoint, one could use an EBITDA or free cash flow multiple or could simply use a PE of 15-20 as an equivalent, with the trailing annual EPS at 1.40.

 

Disclosure: Along the way, I somehow lost track of my sports cards collection but will point out to the next generation that the Pokemon cards collection should be treasured for the long term.

[Foreign Tuffett]

A hedge fund has bought up 5% of the company and is seeking board seats

 

https://finance.yahoo.com/news/alta-fox-nominate-slate-six-202500211.html

 

 

[Cigarbutt]

^These undertakings always bring mixed feelings.

It smells like somebody looking for a short term profit (looking for visibility etc).

My take: If it ain't broke, don't fix it.

i didn't know Harvard were awarding BAs in "Government". You learn something every day.

[fishwithwings]

^These undertakings always bring mixed feelings.

It smells like somebody looking for a short term profit (looking for visibility etc).

My take: If it ain't broke, don't fix it.

i didn't know Harvard were awarding BAs in "Government". You learn something every day.

 

Great timing!  Almost time to close the books for Q2.

[Foreign Tuffett]

I agree with the two posts above that are skeptical about the activist involvement. I have followed this name for several years, feel like I have a decent understanding of the biz, and just completed my second round trip in the stock.

 

Activist claim: Operating margins have declined over time

My thought: He's not wrong, but the likely culprit of the decline is the lower gross margin in the trading card grading segment versus the coin grading segment. In 2019 the card grading segment charged an average price of $9.36 per unit, but the comparable number for the coin grading segment was north of $17.

 

The trading card segment has grown much faster than the coin grading segment, so it stands to reason that margins for the overall company have come down.

 

Activist claim: The board doesn't own much stock, is full of senior citizens, and is long tenured

My thought: Again, he isn't wrong, but is completely ignoring the bigger picture. This is a company that just had a huge board shake up less than two years ago (September 2018), with President David Hall and his board allies leaving the company. This saved the company something like $800K per year pre-tax.

 

Also, while the board is long tenured, management largely isn't. Joe Orlando was appointed CEO less than three years ago. Steve Sloan replaced Orlando as the head of the card grading division. Brett Charville took the reigns at PCGS at the beginning of 2019.

 

Activist claim: "slow turnaround times and a record backlog at PSA"

My thought: Yet again, while he isn't wrong he ignores the larger picture. Due to COVID-19 CLCT's facility was closed for nearly a full month. At the same time, everyone being stuck at home + stimulus checks + enhanced unemployment payments resulted in an orgy of speculative activity in the trading card market. So yeah, no duh that the backlog has exploded recently. PSA has rapidly expanded its headcount since being allowed to reopen, but this isn't something it can solve overnight.

 

Activist claim: "CLCT has a more than capable leader in Joe Orlando"

My thought: This one I agree with. So why is the activist trying to throw Orlando off the board ("While we are nominating a full slate of directors, we reserve the right to remove a nominee(s) from our slate at a later date to leave room for Joe Orlando.")!?

 

I know this won't happen, but I would be very interested to hear the activist's response to my thoughts. I would also be interested in knowing how long he has had a position in the stock. The Q1 call featured zero questions...

 

 

* Edited to fix a typo

 

 

[fishwithwings]

Does anyone know why revenue for the coin division declined from 2017 to 2018?

*edited to fix some grammar issues.

[Cigarbutt]

Does anyone know why revenue for the coin division declined from 2017 to 2018?

*edited to fix some grammar issues.

As you likely know and can find in their various disclosures, there are a variety of factors (seasonality, gold price etc) that can make the coin results 'volatile'. Within this noise, one has to come up to a conclusion about long term endurance. i think there is.

Concerning the 2017 to 2018 period, many factors are at play and some of those factors may be cancelling each other. However, it seems that the 'modern' coin market was going through a soft patch. For evidence, see page 10 ("Numismatic Products") of the following report:

https://www.usmint.gov/wordpress/wp-content/uploads/2020/01/2019-Annual-Report.pdf

 

As for the influence of gold price on the collectors' world, here's an excerpt from Numismatic News (2018): "With gold and silver bullion values trending mostly downward in 2018, you wouldn’t expect a great deal of exciting news from the world of numismatic auctions. After all, activity in the bullion market tends to affect enthusiasm for coin sales overall. Of course, if collectors were completely rational, they would buy when prices of bullion-related items are decreasing and sell when prices are rising. This almost never happens, however, as people are attracted by rising prices and depressed by falling ones. This seems to be true even when the items of interest are little affected by bullion prices. After all, what difference to the value of an 1894-S dime does the price of the silver in it make?"

 

Disclosure: i'm still contaminated with the unpopular premise that present price will have an effect on future returns and usually have value-based and pre-determined sell points.

[DooDiligence]

Does anyone know why revenue for the coin division declined from 2017 to 2018?

*edited to fix some grammar issues.

As you likely know and can find in their various disclosures, there are a variety of factors (seasonality, gold price etc) that can make the coin results 'volatile'. Within this noise, one has to come up to a conclusion about long term endurance. i think there is.

Concerning the 2017 to 2018 period, many factors are at play and some of those factors may be cancelling each other. However, it seems that the 'modern' coin market was going through a soft patch. For evidence, see page 10 ("Numismatic Products") of the following report:

https://www.usmint.gov/wordpress/wp-content/uploads/2020/01/2019-Annual-Report.pdf

 

As for the influence of gold price on the collectors' world, here's an excerpt from Numismatic News (2018): "With gold and silver bullion values trending mostly downward in 2018, you wouldn’t expect a great deal of exciting news from the world of numismatic auctions. After all, activity in the bullion market tends to affect enthusiasm for coin sales overall. Of course, if collectors were completely rational, they would buy when prices of bullion-related items are decreasing and sell when prices are rising. This almost never happens, however, as people are attracted by rising prices and depressed by falling ones. This seems to be true even when the items of interest are little affected by bullion prices. After all, what difference to the value of an 1894-S dime does the price of the silver in it make?"

 

Disclosure: i'm still contaminated with the unpopular premise that present price will have an effect on future returns and usually have value-based and pre-determined sell points.

 

I was a casual buyer of mostly AU St. Gaudens $20's & Proof Gold & Silver Eagles throughout the period when gold languished sub $500. Probably a once in a lifetime opportunity. I've sold all but a few MS60+ pieces that are kept for sentimental reasons.

 

edit: Also CC Morgan dollars.

 

I'd start buying again if I thought gold was super cheap.

[Cigarbutt]

This has reached levels that make me don't care about rumors concerning increasing inclusion tax rates in Canada.

But will keep following. Interesting recent stuff for the present and future.

https://www.axios.com/sports-trading-card-value-boom-stock-market-e0295003-6265-4947-b250-d87f4e94d211.html

https://money.yahoo.com/video/trading-cards-especially-sports-see-161925083.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNhLw&guce_referrer_sig=AQAAAMuCVAZ5NiLhU_jq5OMiB-gtQhJd_0Grdq-jDHoccZKqK60OuDuR9MgYavDmGDPjNs70-lGDwhAPHLnPuickKJnMR3tvp3vd7kY1aFu12ActtxZAtLzMR1D8UeJ0UuyHUh9N-1GbzEgIM3vZbadcSxQcixiieqabgjiAQ5p8ZqAC

Even if i can't see how at this point, it seems that their long term moat is, somehow, threatened by the digital and/or blockchain-like option.

[Gregmal]

It is bizarre but I noticed this with some of the vintage I follow. As a lazy example, the Gretzky OPC/Topps RC, and its subsequent PSA grades saw price increases between 70-200% right around May/June. That Trout that made news was pure insanity IMO. The first real "modern" card to jump out like that...shortly after a Lebron RC sold for 1.8M or so. The POP reports PSA produces are certainly helpful in terms of gauging scarcity, but its odd seeing modern cards with 18 different version and 17 different parallels(such as the Trout) garner these prices. Give me a '52 Mantle any day...Like the stock market I guess, you can have bubbles and value at the same time, just hidden in different pockets. 

[Gregmal]

https://nypost.com/2020/10/24/the-baseball-card-market-is-thriving-thanks-to-covid-19/

 

PSA has a virtual monopoly here and is integral to the vintage sports card market.

[Foreign Tuffett]

https://nypost.com/2020/10/24/the-baseball-card-market-is-thriving-thanks-to-covid-19/

 

PSA has a virtual monopoly here and is integral to the vintage sports card market.

 

Definitely not a monopoly, more like a duopoly w/ Beckett.

[Gregmal]

Beckett has fallen off substantially over the past 10-20 years. IIRC, they ended up getting caught up in a bit of a pay for grades scandal and then ended up selling to a new owner. The brand is still relevant, but no serious collector or investor will use them for grading anything vintage or seek out a card graded by Beckett over PSA. A Beckett grade is 20-30% less valuable than a PSA, if not more. The Beckett brand is more like KSA...both not in the same league as PSA. PSA has a remarkable moat.

 

Just an example from one set I follow. Same grade on same card, sold around same time. PSA sells for nearly double.

 

https://www.ebay.com/itm/1979-80-Topps-Wayne-Gretzky-Rookie-Beckett-8-COMPLETE-set-BONUS-/303665897928?hash=item46b3e5e1c8%3Ag%3A8cEAAOSw-uVfIMx9&nma=true&si=DxHys7%252BZQwXD9MxOXIrK3becCTI%253D&orig_cvip=true&nordt=true&rt=nc&_trksid=p2047675.l2557

 

https://www.ebay.com/itm/06132080-1979-Topps-18-Wayne-Gretzky-RC-Rookie-PSA-8-NM-MT-HOF-Hall-of-Famer-/154053561547?hash=item23de4ecccb%3Ag%3Aq5IAAOSwp91fP0N8&nma=true&si=DxHys7%252BZQwXD9MxOXIrK3becCTI%253D&orig_cvip=true&nordt=true&rt=nc&_trksid=p2047675.l2557

 

 

[Foreign Tuffett]

Beckett has fallen off substantially over the past 10-20 years. IIRC, they ended up getting caught up in a bit of a pay for grades scandal and then ended up selling to a new owner. The brand is still relevant, but no serious collector or investor will use them for grading anything vintage or seek out a card graded by Beckett over PSA. A Beckett grade is 20-30% less valuable than a PSA, if not more. The Beckett brand is more like KSA...both not in the same league as PSA. PSA has a remarkable moat.

 

Just an example from one set I follow. Same grade on same card, sold around same time. PSA sells for nearly double.

 

https://www.ebay.com/itm/1979-80-Topps-Wayne-Gretzky-Rookie-Beckett-8-COMPLETE-set-BONUS-/303665897928?hash=item46b3e5e1c8%3Ag%3A8cEAAOSw-uVfIMx9&nma=true&si=DxHys7%252BZQwXD9MxOXIrK3becCTI%253D&orig_cvip=true&nordt=true&rt=nc&_trksid=p2047675.l2557

 

https://www.ebay.com/itm/06132080-1979-Topps-18-Wayne-Gretzky-RC-Rookie-PSA-8-NM-MT-HOF-Hall-of-Famer-/154053561547?hash=item23de4ecccb%3Ag%3Aq5IAAOSwp91fP0N8&nma=true&si=DxHys7%252BZQwXD9MxOXIrK3becCTI%253D&orig_cvip=true&nordt=true&rt=nc&_trksid=p2047675.l2557

 

This gives a good indication of relative size:

 

"As of early April, PSA employed 25 full-time raw card graders and few in training, while Beckett has about 15 seniors graders and three to four junior-level graders who are being trained to move up the company’s pipeline."

 

https://sportscollectorsdigest.com/collecting-101/history-of-grading-cards-psa-bgs-sgc-dominating

 

There are actually many competitors out there, but most of them are small.

 

https://community.ebay.com/t5/Member-To-Member-Support/Has-anyone-ever-heard-of-a-sports-card-grading-firm-called-CGS/qaq-p/29626745

[wisowis]

Being acquired at $75.25 per share

 

https://www.streetinsider.com/dr/news.php?id=17660832

[Foreign Tuffett]

Being acquired at $75.25 per share

 

https://www.streetinsider.com/dr/news.php?id=17660832

 

Ah, nothing like acquiring a company when both of its cyclical end markets are hot, hot, hot.

 

Trading cards in particular are in the midst of their biggest boom since the early 1990s. I very clearly remember my father, Foreign Tuffett Sr, driving me around to the local trading card shops when I was a little fella. Alas, only a few short years later they had all gone out of business as the b...b....b....bubble...b....b....b....burst.