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Will owning physical sports cards go away amidst the rise of fractional ownership and digital collectibles?
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Executive Summary
My hypothesis: Digital collectibles and fractional ownership will surpass physical collectible ownership in the next five years by total value.
Interest in collectibles like sport cards skyrocketed early on in the pandemic as people started digging up old treasures in their house. Why is this important? This has ignited a re-birth in the nation’s interest in collecting, and what/how people collect.
The next evolution in collectibles is fractional ownership. Why is this important? The barrier to alternative investments has always been access to the right people and having wealth to pay for the object. Not any more.
The next revolution is digital collectibles. Why is this important? More than ever, content is being created in a digital only form which captures America’s collective attention. These are assets in and of themselves that define where we spend our time and focus, not any different than how people focus on sports.
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Intro
If you never collected a sports card, Pokemon, or Beanie Baby in your life, well, you don’t need to read any further, because “you just won’t get it” (as I told my dad when I was 8 years old). The palpable passion that people have for their collectibles is something you will never understand until you’ve found something so meaningful, yet so elusive, you’ll never forget where you were when you acquired that card, stuffed animal, or historical relic.
Collecting things has been a part of human civilization since the dawn of time, and some say it’s even part of our first habits after birth in search of safety. From kids to adults, interests in idols or nostalgia tend to drive our “keepsake collections”. While grumpy old men tend to scoff at kids hoarding stuffed animals, many collect classic cars, or pictures of their sports idols growing up. As a kid, sports cards in the early 90s were all the rage. I remember constantly reordering my cards in my card book, even on car rides, where my dad always told me to turn off the dome light (as dads are always worried cops will pull them over for having their dome light on).
For people who collect, the value of their collections are not monetary but emotional. Their collections help them ease insecurity and anxiety about losing a part of themselves and to keep the past to continue to exist in the present. Some collect for the thrill of the hunt. For these collectors, collecting is a quest, a lifelong pursuit which can never be completed. Collecting may provide psychological security by filling a part of the self one feels is missing or is void of meaning. More recently, I’ve noticed that people are more likely to collect things if they are either (i) scarce and/or (ii) become a cultural fad.
Though there are two things that have always been true about collectibles throughout history: (i) they were tangible items, and (ii) someone wholly owned them. But as the world turns more and more digital, it’s inevitable that collectibles will also be digital in nature. Technology has also enabled ways for people to gain access to rare collectibles by purchasing a portion of it, just like they would a stock.
Body
#1 - Interest in collectibles like sport cards skyrocketed early on in the pandemic as people started digging up old treasures in their house.
While many were stuck inside across the US in 2020 due to Covid lockdowns and restrictions, many started going through the things in their house that had been sitting untouched for years. In those piles of “stuff” can be some hidden gems. With ecommerce growing 44% year over year in 2020, along with the increased digitization of records of collectibles, it was somewhat easy for someone to find how much their collectible could be worth, and easily sell it (eBay, etc.). I know I personally went through a bunch of cards, and even tried to get some graded by the PSA, which would allow me to potentially sell them 5-10x more than, if they were in mint condition.
This time to sit inside and reflect on ‘simpler’ times I found to be comforting for me, as the world was in chaos as it dealt with a ‘once in every century or so’ pandemic. Going through the cards brought back memories that hadn’t surfaced in decades. From remembering how I acquired a certain card, to how a not so rare activity in the 90s was to get together and trade our cards with friends. Out of this research of my old cards, while I didn’t find any million dollar treasures, I did join some online communities (Twitter, Reddit) that focused on sports cards from the 80s and 90s. Others created huge Youtube followings that showed them reviewing their cards, or opening new packs.
Why do I mention all of this? The timing of this boom couldn’t have happened at a better time. Some were able to create new hobbies to make a side income, while others were able to find friends in a time that creating friends was limited due to Covid. But this isn’t a fad that is going to die. In fact, the Covid acceleration of interest and commerce of collectibles has set the stage for two changes to how we collect and what we collect.
#2 - The next evolution in collectibles is fractional ownership
Every month when you or I invest in the stock market via our 401ks, we likely purchase a fraction of a share in a stock or mutual fund. This concept of fractional shares have been commonplace for some time in the markets. But it wasn’t until the last couple of years, stock brokers like Robinhood who have gamified investing, have brought this concept of fractional shares to the masses. The same masses who are more likely to own collectibles.
For collectibles, it was rare for someone, even with insane wealth, to own ‘a fraction of a collectible’. Understanding that for many wealthy folks: art, cars, wine, etc; are things that they want display in their house. Other than a status symbol, why is it important for someone to wholly own a collectible? In a practical sense, that means you’ll likely need to spend even more money to (i) secure the collectible, (ii) maintain and clean it, and (iii) ensure you have space to store it. Money aside, for many this is another set of burdens that likely deter folks from likely purchasing or investing in some of their favorite collectible items as a place to store and grow their wealth (not to mention scratch that “nostalgia itch”).
Enter Rally Road. They curate and store in their museum all sorts of collectibles to which you can purchase a ‘share’ in. This takes care of a few of the problems I mentioned, which simply increase the access to rare collectibles:
Capital - No need to have $100’s of thousands of dollars to purchase the items
Channels - No need to have access to the right people to find and purchase that item
Storage, Security, Maintenance - No need to buy a safe or security system to protect your asset
Above is a picture of their app and some of the items they are making available for their users to invest in. They focus on a wide array of collectibles from sports cards and memorabilia, to historical pieces (like the Declaration of Independence), to video games, to cars, to rare accessories, to wine (and more). The beauty of the app and the reasons I’m super bullish on Rally are three-fold:
They try to diversify what they offer customers.
When determining what to offer users, they have experts who can get access to these items prior to auction so you can have access to them.
Visibility into the liquidity of the item for more ‘real time’ look at your alternative investment portfolio.
In my mind, the three things that would take the Rally experience to the next level are around community. (1) Enable an experience to easily show your friends what you own and drum up interest. Rally does have a museum where they house all of the items that they have successfully bid on and purchased. Taking this physical world display and turning it a digital experience is the next big play drive interest in what Rally is, and as an owner, what I’d love to see. (2) Along with referral codes to incentivize friends to join the platform. (3) Allow people to input their entire portfolio of collectibles into the app and track it, not just the shares they own of something on Rally. Per an interview with co-founder Rob Petrozzo, it sounds like some of this is in the works.
#3 - The next revolution is digital collectibles
We’ve been talking about tangible collectibles throughout this article, but in the previous section, I dropped a hint of how even trends like fractional ownership needs some sort of digital-first experience to display or share the collectibles you own. If you take a step back for a moment, the digitization of the world has been on a steady increase since the internet, but was greatly accelerated during the pandemic. More than ever, people are creating things that will likely only live in a digital format. In a previous article I wrote, the sheer number of people making a living as ‘creators’ online, soared in the pandemic, with an estimated 50 million people now being a creator (ie creating content that is unpaid or paid).
Enter the term “NFTs”, short for non-fungible tokens. I’m going to skip all of the technical wizardry, but think of it as someone who creates a piece of work (ie art), there is only ever one authentic version. Copies can be made and sold elsewhere, but the market knows the original and all of the papers/documentation/channels in which to find/buy/sell the original version. In 2021, NFTs have boomed, and I frankly don’t see how digital content (and therefore collectibles) is ANY different than tangible collectibles. Yes, copies/fakes can be made, yes, there is still likely a security/storage concern for both tangible and digital goods.
Between the (i) sheer volume of digital content being created and the virality of it, (ii) ability to own the original of that work, and (iii) the securitization of those assets; all of this is why I believe that digital collectibles are just getting started. In fact, I wouldn’t be surprised if by 2022, e-gaming dips its toes into NFTs, as e-gamers create highly watched and unique content. Enabling Twitch to “mint” an original version for someone to purchase makes all too much sense. If I’m wrong, well, the old man yelling at the cloud wins again, but not for long.
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