In the midst of the coronavirus pandemic, manager Darren Harrison noticed that business was booming at Bill’s Sports Collectibles, the venerable Denver marketplace for memorabilia. But in the suddenly hot market for sports trading cards, he also noticed something else: young customers seeking the cards of players whose names they stumbled to pronounce.
“They’re buying cards for investment,” he says, “and don’t even know who they’re buying.”
From an office a few miles away, a young Denver entrepreneur recently played a key role in triggering an explosion in the market for what, in many ways, is the digital equivalent of those classic cardboard cards.
Peter Jennings, a Denver entrepreneur who built his business profile in daily fantasy sports and sports betting, pooled his money with colleagues and in January spent $35,000 for a digital highlight of a dunk by NBA star Ja Morant — then a record transaction, but just a few months later barely an eyebrow-raiser.
While the pandemic delivered a blow to commerce across the country, one niche of the economy soars: collectibles. Whether a sports figure captured on a cardboard rectangle, or whimsical digital art, the common denominators driving their market are as old as human nature — desire, possession, competition. This time, the boom has been powered by a combination of influences, from the pandemic and generational attitudes toward the digital world to the growing influence of phenomena like cryptocurrency and the blockchain.
And Coloradans have made their mark on a growing collectibles industry that now attracts more than just nostalgic Baby Boomers and millennial speculators.
Both traditional sports memorabilia and a newer medium dubbed NFTs — for non-fungible tokens — have seen an exponential surge in interest and investment in recent months. Their boom times may have happened regardless, but experts concur that conditions created by the coronavirus shutdown provided fertile ground for expansion.
“The sports card and memorabilia market has enjoyed a boom like we’ve never seen before,” says Brian Drent, whose Mile High Card Company has grown into a leading marketplace since its start in 1996. “Over the time period of the pandemic, we didn’t know what to expect. I wouldn’t have predicted what has happened by any stretch. And it has gone far beyond what I truthfully thought was possible.”
Why did it happen?
Drent points to the onset of the pandemic as a time when existing enthusiasts began to rediscover their collections. Factor in the televised release of “The Last Dance,” the 10-part documentary on Michael Jordan and the Chicago Bulls, and he sees a market reinvigorated by sports programming that had gone dark when sports leagues shut down.
But the biggest shift Drent saw that changed the market was the arrival of something that had long driven markets for high-value collectibles like rare coins and fine art: institutional money.
“We had never been able to bridge that gap,” he says. “And we were always a cottage industry, a kind of mom-and-pop collectibles field versus coins, fine art and certain antiquities. Now you’re seeing the institutional money as well as fractional ownership and hedge funds created by sports collectibles.”
For traditional collectibles like trading cards, advances in grading and authentication solidified confidence in the market, which in turn attracted professional investors and “really exploded the prices,” Drent says.
His marketplace did $25 million in sales last year, its best year ever financially — though there have been years in the past when he actually sold more items.
With NFTs, some collectors have gravitated to crypto art, including popular collections like CryptoKitties. The same blockchain technology also supports the artifact that has created the loudest buzz in the sports collectible world — NBA Top Shots, the video/digital equivalent of traditional trading cards. The blockchain, in this case, is a decentralized database that stores information and permanently, and immutably, records both the video itself plus all subsequent transactions.
Creation of a limited number of these certified “moments” on the court is what, in theory, establishes their value. That said, even as the market for NBA Top Shots has blown up, skepticism remains for the same reasons that many people question the value and viability of cryptocurrency, or would rather place their trust in a mint-condition 1952 Mickey Mantle baseball card than a digital creation.
“Part of the fun is to buy something nobody wants and later on, everybody wants it and you have it,” says Marshall Fogel, the 80-year-old Denver collector who actually does own a ‘52 Mantle trading card that’s worth millions. “A collector wants something somebody else has.”
NFTs explode on the sports scene
In early January, Jennings and colleague Jonathan Bales, co-founders of FantasyLabs, began buying into NBA Top Shot with some friends, figuring it would be interesting to invest capital in the market for the brief, limited edition video clips.
“It was just kind of the perfect intersection of a lot of things that we’re really into, so it made sense for us,” Jennings says. “I think we’ll continue to get more and more digitized; I’m a huge fan of crypto and blockchain technology; and I love sports. And I’ve actually collected baseball cards and was into collectibles as a kid. I haven’t gone deep into traditional cards again recently, but I’ve seen a lot of my friends get into it.”
But the digital space is the new darling of collectors and investors alike.
NBA Top Shot emerged from a deal between the pro basketball league and Dapper Labs, a blockchain company, in 2019. Basically, the NBA provides video clips of highlights, and then Dapper Labs determines how many to sell and numbers them — and like fine art reproductions, No.1 carries inherent value. But player highlights also tend to have value when the number attached to the limited edition highlight matches the player’s jersey number — like No. 23 of a Michael Jordan highlight, for instance.
Much like traditional sports trading cards, the company compiles them into digital “packs” and puts them up for sale, with the price depending on criteria like the status of the players, the quality of the highlights and how many of each highlight has been created.
Also like the cardboard packs, digital packs are seeded with elation and disappointment. Buyers could get several common, widely available highlights. Or they could find relatively rare highlights of a star player. But currently, most packs are sold out, which means collectors can preorder a base set pack of three “moments” for $9 or head to the secondary marketplace.
And that’s where Jennings and his friends made a splash. Their purchase of the Ja Morant dunk marked a record purchase that stood only for a few days, as another group bought a LeBron James dunk for $47,500. Since then, six-figure sales have emerged, such as the $208,000 sale of a James dunk.
Just a couple weeks ago, Jennings says, he was offered a quarter-million dollars for a LeBron James dunk that he bought for $25,000 — No. 8 in the series, a number regarded as a tribute to the late Los Angeles Lakers star Kobe Bryant. He turned down the offer. All told, Jennings has an NBA Top Shot collection of several dozen highlights.
Mostly, he says, he takes a buy-and-hold approach.
“I figured this is a new medium and I thought about the opportunity to have asymmetric returns where, especially early on, there was a great chance they’ll fail and turn into a zero,” he says. “But if they take off, there could be really big returns. And that’s the way I’m looking at a lot of this stuff right now. I’m trying to be careful, now that it’s basically kind of blown up.”
So what gives NFTs value? If anyone can copy digital images from the internet, how can they possibly be worth much of anything? Non-fungible tokens are basically certificates of authenticity for digital things, verification that the digital item is the original — and an NFT stored on a blockchain can’t be altered, though its value can vary. That’s where scarcity, and a belief in the market, come into play.
As long as someone believes in their value, and is willing to pay, the digital images will be worth whatever the market will bear. And right now, the market is more bull than bear.
“I think that there’s a lot of reasons to be optimistic,” Jennings says. “I think in general that sports content has gotten more and more valuable because it’s one of the few things that you have that you can watch in real time. So I’ve been bullish on sports and sports content, especially with (legalized) gambling and everything else going on. And highlights are the best form of sports content — specifically in the NBA.”
The licensing of Top Shots through the NBA reinforces the authenticity of the moments, and the 24/7/365 marketplace is attractive to collectors, he adds. Plus, on all sales recorded to the blockchain, a cut goes to both Dapper Labs and the league — and by extension, to the players. In many cases, digital artists who create original fine art works also receive a percentage of all future transactions involving their NFTs.
Digital art can give the artist a cut
A few years ago, Peter Kell, 30-year-old Denver-based cryptocurrency trader, wound up attending the world’s first live auction for digital art in New York City and, while new to the idea, found himself intrigued by the concept. He also heard about how digital artists had been short changed since the dawn of the internet by the simple fact that anyone who could right-click a mouse could copy their work.
“So that’s how it’s been forever,” Kell says. “I liked the idea they introduced about how using the blockchain, they can change all that. And essentially, it’s just this idea that it’s not just the picture anymore. They figured out how to put something behind the picture online so that in a screenshot, you don’t actually get what’s behind the picture. What’s behind the picture is proof that it’s the original version of the picture.”
What’s “behind” the original digital picture is the token part of an NFT, the untouchable element that ensures its authenticity, compared to copying and pasting a digital file. In tangible art terms, he’s talking about the difference between an original Picasso and a knock-off.
“Now all of a sudden, these digital art pieces can prove to be rare,” Kell says, “which is what’s valuable with art, right? A Picasso is valuable because Picasso made it, but if Picasso made it and then made a million more of them, it wouldn’t be. So now you can have that same concept online.”
Bottom line: Kell wanted in on digital art. Right then, right there. He asked how he should choose, and was told to look for something rare — the fewer there are, the more valuable. He found a one-of-one piece called Homer Pepe, a morph of cartoon characters Homer Simpson and Pepe the Frog. He paid $39,000.
In late February, he sold Homer Pepe in a cryptocurrency transaction equaling $320,000. Announcing the sale on his Instagram account, Kell said: “They laughed when I bought Homer Pepe for $39K. But when I sold it for 205 ETH (Ethereum cryptocurrency)…sad to see my HomerPepe story come to an end. But this is an absolutely insane event in the NFT world. I’ve definitely learned the value of Digital Art. More proof that NFTs are the real deal and will be a big part of how art is sold in the future.”
Kell says he still has a few other pieces in his collection.
“But I’m just chillin’ right now,” he says. “I think the market is definitely a little blown up overnight. So, I’m kind of just focusing on cryptocurrency itself.”
What does it all mean for the creative side of the digital world? Denver’s Museum of Contemporary Art is offering an hour-long virtual discussion later this month about NFTs and their potential impact on the art world.
Jennings also has diversified into digital art. In fact, his Twitter avatar is an image from CryptoPunks, a collection of 10,000 unique computer-generated characters stored on the Ethereum blockchain and credited as inspiring the crypto art movement. He bought the image for 90 Ethereum, the cryptocurrency equivalent of almost $180,000 today.
The average transaction involving CryptoPunks over the last year is more than $32,000, while the total value of all sales for that period tops $258 million, according to the CryptoPunks web site. Two images recently sold for $7.5 million each.
Jennings also has digital art by other artists, which he may not be able to hang on his wall, but can display virtually. But of all his purchases, he feels like his investment in CryptoPunks may be his most rock-solid venture in a mercurial market. Among the top 20 NFT collectible sales to date, all but two are CryptoPunks characters.
“Even when all this other stuff goes down to zero — and we’ll see pain across the board at some point — I still think those are a really good long-term hold,” he says. “Those are like the Honus Wagners of NFTs.”
Bonafide or bubble?
The T206 Honus Wagner baseball card, depicting the Pittsburgh Pirates star who played in the early 20th century, ranked as the most expensive in the world for many years. It was supplanted by the sale of a rookie card depicting Los Angeles Angels star Mike Trout and then, last November, by the sale of a ‘52 mint-condition Mickey Mantle for $5.2 million.
A single, one-night auction in January netted $30 million, including two Michael Jordan rookie cards that brought $738,000 each. A subsequent auction added another $3 million to the total. Just like the relatively small-potatoes buyers at Bill’s Sports Collectibles in Denver, the big spenders used the opportunity to explore a different, exciting class of assets — just on an entirely different scale. Celebrities and even athletes themselves have embraced the phenomenon.
“You don’t know exactly what to pay for items right now,” says Drent, the Mile High Card Company owner, noting that dynamic can be beneficial to an auction house like his own. “As sellers, they don’t even know what to ask, because the market is in such constant movement, people are always leery that they’re going to sell themselves short.”
Drent, 52, suggests that more people would rather have a game-used Mickey Mantle jersey, or a ’52 Topps Mickey Mantle card or a T206 Honus Wagner, than a Van Gogh. And, he adds, even the 35-and-under crowd more closely relates to rare sports cards — or their latest iteration in NFTs — than tangible antiquities like gold coins.
“And so they view that more as an asset, in the same realm that somebody uses crypto,” Drent says. “And for the people that can’t understand crypto, you’re never going to be able to understand the NFT.”
And yet, he doesn’t sell the newer digital products short. NBA Top Shot sales to date approached $500 million this week, based on tracker CryptoSlam! Those thirtysomething buyers Drent talks about view NFTs — or trading cards, or a pair of Air Jordans — as the same tangible asset that earlier generations regarded a Liberty Head quarter or a Van Gogh.
“It’s the same thing, just to a new generation,” he says. “It’s something that they find value in. And so I don’t think it’s any flash in the pan for those reasons. That’s why the sports card market is exploding.”
As a dealer in traditional sports memorabilia, he doesn’t feel like NFTs are something he’ll have to deal with — at least not yet — but he acknowledges that he wants to be cognizant of the digital space and understand the phenomenon.
“We’ll look into it,” Drent says. “Probably sooner rather than later.”
The boom in traditional sports memorabilia has in some ways contributed to the idea that the NFT mania may actually have substantive underpinnings. Additionally, the recent rise in cryptocurrency prices has created a pool of wealth among people already comfortable with the digital and blockchain worlds. And those people are clamoring to become early adopters and cash in on an investment they believe they grasp while others remain dismissive.
Critics can point to several cryptocurrency failures, and even fraud, with the argument that NFTs may well turn out to be a bubble that imitates those token debacles. Jennings, while bullish on NFTs, acknowledges that there’s a generational divide between those who have embraced them and those who have shied away.
And yes, he notes, we’re currently in a “hype cycle” that looks familiar. Yet, in the midst of a pandemic, the U.S. government’s response to inject billions into a flagging economy not only shored up distressed people and businesses, but also created opportunity for investment.
“I know there’s a lot of people who are hit by really hard times, but there’s definitely a portion of the population that has a lot of liquidity — and especially with interest rates where they are,” Jennings says. “I think people are more comfortable looking into things that have risk and reward. I think everyone’s kind of an investor now.”
When he and his buddies bought the Ja Morant dunk on the secondary market for NBA Top Shot, and then watched the market go bonkers, Jennings allows that he wishes that maybe he’d invested a little bit more.
“But we moved really quickly in January,” he says. “So this was exciting. Of course, everyone called us really stupid, thought it was insane. And yeah, it easily could still be zero and it isn’t sustainable in a lot of ways, but we like that kind of risk, and there’s a lot of reasons to be excited about the future.”
Developers also are working on NFTs for other sports and even popular music-oriented themes. But for Harrison over at Bill’s Sports Collectibles, the demand hasn’t abated, even if the driving force behind it is filling out an investment portfolio more than love of the game.
“We’re finding a lot of new customers that are into it more for the financial side, looking at it like the stock market,” he says. “It all puts money in our pockets, so we can’t complain. But guys come in and can’t even say the players’ names right.
“I’m the quintessential get-off-my-lawn guy,” he adds. “I’m only 53, but I’ve been working at this store since high school, off and on, doing it 35 years, and I’ve seen things come and go. I don’t know if this will come and go as well.”