The Investment Profile of the Modern Baseball Card

In my first column on baseball cards in February, we noted that the baseball card industry has fallen from $1.5 billion in 1992 down to its present level around $200 million, due to a combination of three things:

1. Declining values for cards on the secondary market due to vast oversupply.
2. Rising pack prices for the few new issues with non-zero values.
3. The 1994 baseball strike from which the industry has never fully recovered.

But we also established that, despite the widespread devaluation on the secondary market of baseball cards from the 1980s and early 1990s, the values of the key rookie cards (RCs) of baseball's biggest stars have, in fact, increased in value over the past 20 years -- and sometimes, considerably so -- once you factor professionally graded, Gem Mint condition cards graded by Beckett Grading Services (BGS) and Professional Sports Authenticator (PSA), a division of Collectors Universe (CLCT +0.00%).

While the latter fact is interesting in its own right, perhaps far more intriguing is what it says about the potential value of more recent baseball card issues.

Because, in the past 20 years, the investment profile of newer baseball card issues has improved dramatically, and for at least seven good reasons:

1. Graded cards and multiple expansion
2. Smaller print runs yielding upside leverage
3. Short-printed RCs, limited print serialized parallels, and autographed prospect and rookie cards
4. An enhanced baseball prospecting game
5. Enhanced liquidity due to the presence of eBay and graded cards, as well as the presence of new online trading sites like COMC.com
6. A half-generation of current untapped potential demand
7. Fantasy sports, sports betting, and untapped re-demand

Graded cards and multiple expansion
As with the older cards from the 1980s and early 1990s that were discussed last time, professionally graded cards of more recent issues in Gem Mint condition (BGS 9.5 or PSA 10) carry premiums over ungraded cards. Below is a table with current ungraded and graded BGS 9.5 values of some of the key Bowman Chrome RC or Prospect autographed cards from 2001-2011, along with their adjusted multiples (which, as we discussed in the previous article, represents the graded value premium over an ungraded value, adjusted for the cost of getting a card graded, which is assumed to be $10).

Key Bowman Chrome Prospect/RC Autos: 2001-2011

Source: Beckett.com, with permission

You'll notice that, while the BGS 9.5-to-ungraded BV multiples are much smaller for these issues compared to the multiples for the cards from 1982 to 1994, the multiples do appear to expand over time within this sample, as well. While the multiples for cards from 2007-2010 are generally in 1.2x to 1.5x range, the multiples for the cards from 2001-2006 are generally in the 1.5x to 2.3x range.

The 2010 Bowman Chrome Stephen Strasburg Auto RC appears to be an outlier with a 2.2x multiple, though one possible explanation may be that its ungraded value recently dropped, while the graded BGS 9.5 value hasn't and may be due for a drop. The 2003 Bowman Chrome Hanley Ramirez Auto RC may be a similar story.

Smaller print runs and upside leverage
Print runs have fallen dramatically over the past 20 years, when print runs were thought to be in the millions.

According to Dave Jamieson in Mint Condition: How Baseball Cards Became an American Obsession, there were over a million 1989 Upper Deck Ken Griffey Jr. RCs printed, and yet the card still carries an ungraded book value of $40 today, along with a graded BGS 9.5 Gem Mint book value of $300 (6.0x adj. multiple) and BGS 10 Pristine book value of $1,400 (28.0x adj. multiple). In comparison, the 1993 Stadium Club Murphy Derek Jeter RC was a relative short print -- according to Beckett.com, the card had a print run of 128,000, and has enough demand for the card to carry a $100 ungraded book value and graded BGS 9.5 value of $350 (3.2x adj. multiple).

But, in stark contrast, the key new issues feature far smaller print numbers: Unless my math is wrong, or Topps is lying about their odds on their wrappers, the print run on the 2012 Bowman Chrome Draft Baseball cards was less than 15,000, and closer to 11,000, excluding refractors (*see math at the end of the article).

Think about it: If over a million 1989 Upper Deck Ken Griffey Jr. RCs can have a book value of $40, and 128,000 1993 Stadium Club Murphy Derek Jeter RCs can carry an ungraded book value of $100, what does that say about the potential value of future stars in the 2012 Bowman Chrome Draft cards with total print numbers about one-tenth that of the 1993 Stadium Club Murphy set?

Short-printed RCs, limited print serialized parallels, and autographed prospect and rookie cards
Manufacturers nowadays have enhanced the value of the classic rookie card through a variety of methods, whether it be short-printed RCs, limited print serialized parallels, autographed prospect and rookie cards, or some combination of the above.

Year in and year out, the key rookie cards in hockey are the Young Guns cards in the regular Upper Deck sets. These cards are deliberately short printed, and included as inserts to the tune of about one in every four packs. And, because virtually every rookie in the Upper Deck set is in the Young Guns set, trying to obtain a certain key rookie card of a certain player by opening packs is an extraordinarily difficult (futile for most) task, leading to relatively extraordinary valuations for non-autographed base cards.

Upper Deck Hockey Young Guns: Key RCs 2005-2011

Source: Beckett.com, with permission

A more common approach is the use of limited print, serialized parallels, which both create a hierarchy of cards for any given player, and also carry premium valuations over the base cards. For example, the 2010 Bowman Chrome 18U USA Baseball Bryce Harper -- Harper's first Bowman Chrome card, which is generally any player's key non-autographed card -- carries an ungraded book value of $50; meanwhile, the refractor numbered to 777 carries a book value of $100, while the blue refractor #'d/150 is valued at $250, and the gold refractor #'d/50 books for $800, or a whopping 16x the value of the base card. Further up the hierarchy are orange refractors #'d/25, red refractors #'d/5, and a 1/1 SuperFractor -- each worth progressively more, and all too rare for Beckett to price.

And where a common card in the 2012 Bowman Chrome Draft Draft Picks set carries a book value of $0.60, a gold refractor #'d/50 of the same player carries a book value of $15. Consequently, every baseball prospect of some minimal merit to be included in these sets has a card worth collecting on some level.

But the real key card for most baseball players is his first Bowman Chrome autographed card, which is generally a Bowman Chrome Prospects auto, or Bowman Chrome Draft Picks auto. These cards themselves are relatively short-printed, with print runs generally in the 1,000-2,000 range. And, like the non-autos, these cards also have limited print, serialized parallels which generally warrant large premiums over the base cards.

The table below shows some of the key Bowman Chrome autos, along with the values of their respective blue refractors #'d/150 and gold refractors #'d/50. The gold refractor #'d/50 autos first appeared in 2002, while the blue #'d/150 refractor auto first appeared in 2005. Once again, the orange refractors #'d/25, red refractors #'d/5, and 1/1 SuperFractors are too rare for Beckett to price.

Key Bowman Chrome Prospect/RC Autos: Gold Refractors #'d/50 vs. Base

Note: Ungraded book values

Source: Beckett.com, with permission

Interestingly, as is the case with graded cards, the value of the gold refractors #'d/50 appear to benefit from multiple expansion over the base cards over time as well.

Click here to read part 2.

*Based on two Rookie Autograph Superfractors in the set -- Bryce Harper and Yu Darvish; and 1,251,400 packs of Hobby with two chrome cards per pack, and 75,816 packs of Jumbo with six chrome cards per pack, for a total of just under 3 million chrome cards before backing out autos, inserts, and printing plates. With 220 combined RCs and Draft Pick cards in the set, I get a print run around 13,000 including refractors, or closer to ~11,300 chrome base cards excluding refractors.