The Collectibles Market: From Hobby to Investible Asset Class

As we uncovered in Luxury Art & Timepieces, there are growing markets for niche alternative investments that look beyond conventional alts, such as private funds or ETFs, to newer segments that are attracting uncorrelated returns. Over the past decade, we’ve seen some of these more unique alts segments transition from in-person auctions for hobbyists and enthusiasts to multibillion-dollar marketplaces. Similar to that of luxury art & timepieces, is a different set of collectibles, including Sports & Trading Cards and Rare Wine & Spirits, that deserve an insight of their own.

Sports & Trading Cards and Rare Wine & Spirits share one similar characteristic: they were once niche collectors’ items that have significantly benefitted from the proliferation of technology. Whether it be platforms that foster fractional ownership, secondary marketplaces, or even digital auction houses for primary ownership, participation in these segments is reaching the global consumer more rapidly than ever before, and the frictionless manner of transacting is allowing these markets to grow quite extensively.

Sports & Trading Cards first made their way back into the limelight during the pandemic, where a zero-interest environment, coupled with a wave of stimulus checks provided collectors a chance to relive their nostalgic passion and opened the doors for institutional and retail investors to participate. The card market, similar to other niche collectibles, is one that continues to grow in demand; however, has a waning supply, which presents a valuable opportunity. In recent years, prices for cards in immaculate condition, featuring all-time greats, have jumped dramatically in value. Just a little over a year ago, the card market witnessed a record-breaking $12.6 million purchase of a 1952 Topps card featuring baseball legend Mickey Mantle - the highest price ever paid for a piece of sports memorabilia.¹

However, it is important to note that this transaction does not live in a vacuum. Looking at the long-term performance of sports cards, if one were to benchmark the performance of the PWCC 500, an index that tracks the market value of the top 500 sports cards sold at auction, long-term investment returns have been outstanding. From January 2008 to August 2022, the PWCC 500 outperformed the S&P 500 by nearly 680 percentage points.²

Now, this type of activity has brought about many exciting types of venture-backed technology platforms to blossom. A Platform like Collectors, which is valued at $4.3 billion³, has integrated across the services spectrum of cards, from professional card grading services, card storage, insurance, and comprehensive data through PSA to digital marketplaces and auctions through its platform Goldin. Additionally, platforms like Collectable and Rally are promoting liquidity for this asset class through fractional ownership. These platforms offer individual investors the ability to invest in and trade equity in rare cards (and other rare collectible assets). Through fractional ownership, cards undergo a securitization process with the SEC, and an IPO process commences whereby total value is derived by shares issued and an initial price. Then, investors can hold the card until a liquidity event, such as the card being sold to a big collector, or sell shares via an exchange.

Finally, it is worth highlighting card breaking platform, Whatnot, a $3.7 billion platform⁴ that through technological ingenuity, bridged the gap to a multi-platform process between eBay (Auction House) and YouTube (Live Streaming), into a consolidated platform. Card breaking is a relatively new phenomenon, predominately caused by the dramatic price increase on the supply side, where individuals, rather than purchasing a ludicrously expensive pack or box of cards, which can range from a few hundred to a few thousand, can enter an auction for the chance at receiving a specific allocation of a randomly selected team in a card break. Whereas platforms like Collectable and Rally predominately provide investors the ability to invest in all-time greats, a platform like Whatnot provides the investment community a way to bet on the next generation of talent.

Next on the collectibles list is Rare Wine & Spirits. Looking at the Global Alcohol market size, if measured against the largest countries' GDP, the segment would place just in front of Mexico in 14th place at $1.6 trillion.5, 6 Within this multi-trillion-dollar segment, there are a variety of consumer types, from casual drinkers to enthusiasts and collectors. For the latter, they make up a cohort of investors chasing the multi-billion-dollar Rare Wine & Spirits segment. The investment thesis for this segment is relatively straightforward and driven by three factors that continue to support price appreciation – scarcity, age, and brand.

While there is liquor that is mass-produced and readily available in supply, wineries and distilleries oftentimes produce investment-grade products in limited quantity- this can range anywhere from a few hundred to a few thousand bottles of a specific vintage. As bottles age, they oftentimes improve quality, hence the saying, “It aged like fine wine.” However, as bottles age, consumption may increase and, in turn, reduce the available supply of something that may have already been limited in production. Finally, and most importantly to the investment thesis here, like other collectors’ items, is the brand. Brand equity creates inherent value in a product. World-renowned brands such as Screaming Eagle, Domaine de la Romanée-Conti, and Macallan, among countless others, have fetched hundreds of thousands and even millions of dollars at auction.

The beauty of the investment case for Rare Wine & Spirits, as history has shown, is that there will always be a buyer, regardless of market conditions. It is an ultra-luxury asset that exhibits low correlation and lower volatility to traditional assets such as equities and fixed income. Using the Rare Wine index as a proxy, as evidenced by the financial crisis in 2008, where the S&P 500 dropped 38%, the Liv-Ex 1000 Index, which represents the price movement of 1,000 of the most sought-after fine wines on the world's most active and liquid marketplace fell less than 1%.⁷ Beyond protection, the asset class has even exhibited the ability to outperformance that of traditional assets. For the eight years ended December 31st, 2022, both Wine and Whiskey, as measured by the Liv-ex 1000 index and Rare Whiskey Icon 1000 Index, outperformed the S&P 500, Gold, and Corporate bonds.⁸

Similar to that of the Sports & Trading Card ecosystem are the technology platforms paving the way for broader access to this asset class. Private equity-backed technology platforms have spawned in recent years seeking to democratize this asset class and allow investors to capitalize on the catalysts propelling this Rare Wine & Spirits market.

The first platform worth highlighting is Vint, a platform that securitizes collections of both Wine and Whiskey, allowing investors to buy shares and participate in the upside when a collection is sold. This is similar to a masterworks model of securitizing art and selling shares to investors. The next platform worth highlighting is VinoVest, a portfolio-building company that curates bespoke portfolios of investment-grade liquor on behalf of its clientele. Through this platform, an individual owns 100% of the assets in their portfolios, and VinoVest takes care of key pain points such as insurance and storage. Additionally, an investor can buy or sell bottles whenever they’d like, and even take delivery of product.

Like all investments, there are different risk and liquidity profiles associated with the collectible’s universe. And while some may elect to invest directly in the assets themselves, which may require a bit of luck and a lot of due diligence/expertise. Others may elect to seek exposure to the technology platforms facilitating further growth of these industries. Often times to do this, one will have to find a way to invest directly in the technology platform itself, which in and of itself contains its own unique sets of risks and challenges. Or, one can pursue a different avenue to partner with an asset manager, namely a private equity or venture capital fund that specializes in consumer technology. These funds develop strategies around technology platforms supporting high-growth consumer segments, such as the collectibles market. If you’re interested in learning more about the funds supporting this interesting segment, please feel free to reach out to one of the Crystal Capital IR team members.

Sources:

1. TheKoreaTimes, July 2023 "Tired of Traditional Investments?"
2. PWCC Marketplace, Aug 2022. "PWCC VINTAGE MARKET INDICES"
3. Front Office Sports, April 2022. "Collectors Valuation"
4. TechCrunch, July 2022. "Whatnot Valuation"
5. Statista, 2023. "Alcohol Market"
6. Worldometers, 2023. "GDP by Country"
7. Vint, 2023
8. VinoVest, 2023