Back on March 30, PSA Authentication and Grading Services, a company long considered the gold standard in the sports card collectibles grading field, shut down several of its services. The reason: It was overwhelmed with customer demand.
The result was a months-long backlog of card and memorabilia submissions from hobbyists and dealers, leaving the white-hot industry in a lurch. Cards are still trickling back to their owners, but turnaround times are currently lasting months.
In May 2020, the president and CEO of Collectors Universe (PSA's parent company), Joe Orlando, revealed to shareholders that the card backlog was more than one million cards. It grew since, prompting the shutdown.
For years, the desire to have experts grade sports memorabilia, especially cards, has dramatically increased. Graded cards bring in more money, and they come with the guarantee that the product being sold is authentic.
Companies such as PSA, Beckett and others receive cards and collectibles from dealers and hobbyists alike. Those items are put through a rigorous grading and authentication process before they're issued a numeric grade (most companies like PSA use a 1-10 system) before being shipped back to customers.
The correlation is simple: The higher the grade on cards, the more money they're worth on the secondary market.
For example, take the 1952 Topps Mickey Mantle, perhaps the most famous baseball card of the past century. A PSA 1 Mantle is expensive, running around $25,000 to $35,000. A PSA 9 Mantle — there are fewer than 10 known in existence — fetched a whopping $5.2 million at auction in January.
Condition matters. And PSA matters so much because the company became the industry’s leader in the late 1990s and kept its significant foothold until now.
“PSA-graded cards just bring in more money, period,” sports card analyst Chris Steuber told Yahoo Sports. “People seem to be willing to pay a little bit more for their service and even wait a little longer [to receive them] for the value-added aspect.”
Will that change with PSA temporarily halting all of its lower-priced services? That remains to be seen. The company says it expects to resume at least some of its grading services on July 1.
"It’s going to be a staggered release," PSA's vice president of customer experience Dave Steinberger told Yahoo Sports. "I would say it’s more likely than not that everything isn’t released on that date.”
Until then, a booming sports card market must sit and wait.
“It’s really put people like me in a tough spot,” said Rob Eisenstein of CardboardandCoins.com. “The demand is just absolutely through the roof. It’s really the worst possible time for them to be doing that.”
PSA became industry watchdog in 90s
Based out of Santa Ana, California, PSA started operations in 1991, right as the card business was peaking prior to a two-decade downturn in the industry.
Eisenstein, a collector for more than 25 years, says PSA first started to achieve its lofty status when a wave of counterfeit 1989 Upper Deck Ken Griffey Jr. rookie cards hit the streets and people were being bilked out of thousands of dollars.
“They sort of promoted themselves as the watchdogs of the industry,” Eisenstein said.
From there, dealers and avid collectors started using grading services more regularly, and PSA got a jump on the competition. Beckett is perhaps the next-most recognizable name in the industry, but its grading department didn’t begin until 1999.
Since then, every other grading service company has been chasing the leaders for whatever crumbs are left in the market. Prior to the shutdown, PSA was handling an annual inventory of more than 3 million card submissions.
“Beckett should be up there with PSA, in my opinion, but PSA has that brand name," Steuber said. "It’s like anything else in the world. Apple is the No. 1 for computers, whereas Microsoft is a distant second. It’s the same with grading. People go to whatever the top brand is because it’s about top billing.”
'We know that we are leaving lots of money on the table'
The timing of PSA ceasing some operations is terrible. Ever since the COVID-19 pandemic hit — almost a year to the day prior to PSA’s partial shutdown — the sports card market had reached levels never before seen by industry leaders.
Last spring there was a perfect storm of being quarantined for months, stimulus checks arriving and many former collectors, especially Gen Xers, seeking nostalgia in the form of a hobby they might have put aside after childhood. Beyond that, the sports collectibles business is now viewed similarly by some investors as an alternative form of investment.
“From what I’ve seen, the people getting involved in the market, they’re not doing it as a quick thing,” said Chris Ivy, director of sports auctions at Heritage Auctions. “There are a lot of people getting involved that are doing it as a fun alternative investment. They’re looking at this as a way to diversify assets and holdings. A lot of people feel like stocks and real estate and those things are maxed out. So this is just another hard asset that they can put their money into, similar to people buying art or wine or anything else."
As a result, prices have skyrocketed almost across the board over the past 14 months.
“It’s been a crazy year to say the least,” said Metropolis Comics CEO Steven Fishler, who also deals extensively in sports cards. “I’ve seen modern card prices I would not even have dreamt of. And there’s still a demand for them.”
Seeing the effects of the card market, many quarantined people had time to dig out their old treasures from the attic and send them to PSA to be graded. But PSA halted much of its new business because the market was just too hot.
“The decision to suspend services was not an easy one,” Steinberger said. “It wasn’t one we ever would have expected to need to make, even just a few months earlier. It’s extremely rare for a business to shut off a stream of revenue. We know that we are leaving lots of money on the table.
“But this was something that needed to be done — for the hobby, for our customers and for our employees. It was the right decision for us, even if that means costing us revenue and some of the market share.”
The strong demand was an indicator of a robust market that might still have legs. People still need their cards graded, right?
Steinberger joined PSA nine months ago after working the past few decades for other companies in the industry. And what gives him the belief that things will soon be on the upswing with operations again is that the company has enormously grown in that time.
When Steinberger arrived, there were fewer than 500 employees; it recently topped the 1,000 mark. In April, the company hired 82 new employees to various new roles. The biggest goal for PSA is putting a dent in its massive bottleneck of backlogged card submissions and eventually opening the doors back up for new submissions.
Even with the company having to briefly shut down operations for parts of last March and April because of California's "shelter-in-place" order during the early stages of the pandemic, 2020 was a huge year for PSA. Prior to going private, the company reported fourth-quarter revenue of $20.5 million and annual revenue of $78.9 million, year-over-year increases of $2 million and $7.3 million, respectively, compared to the fiscal year of 2019. The Q1 sales for fiscal year 2021 hit a stunning $30.8 million.
Beckett, SGC and other competitors are all private companies and don't publicly reveal annual revenue. But the business has seen rapid growth overall, with eBay reporting an annual increase in total cards sold of 4 million from 2019, a 147% increase over its 2019 figures.
In recent years, the card market has been estimated to be a nearly $6 billion industry, and some reports suggest those numbers might be too conservative.
What happens when PSA returns to full-scale grading?
Steuber and Eisenstein predict that PSA grading costs will go up.
Eisenstein said he noticed that some of the other, smaller card-grading services have bumped their prices during PSA’s shutdown, and he wouldn’t be shocked to see the big dogs follow suit upon return.
“I am sure when they come back, their prices are going to skyrocket,” he said.
Steinberger declined to offer details on what the cost changes might be.
The four lowest grading levels PSA shut down — at costs of $20, $50, $100 and $150 per card, which vary depending on the value and turnaround time — are already pricey for casual collectors. The "Super Express" and "Walk-Through" services that remained open during the shutdown are $300 and $600 per card at maximum declared values of $5,000 and $10,000, respectively.
Steinberger did say he expected the "Express" level service ($150 per card) to return prior to the "Economy" level ($50 per card).
Assuming this extravagant pricing sees a bump, could it price out the casual collectors right as the pandemic fear is beginning to subside in some places? Card prices already have seen major jumps — in some cases by a factor of tenfold — in the past year, and it’s hard to imagine the bubble won’t burst again on some level.
After Collectors Universe was bought out in February by entrepreneur and sports collector Nat Turner and New York Mets owner Steve Cohen, the company went private and has sunk a ton of resources into the PSA product. It recently acquired Genemint, which focused on imaging and card diagnostics, to help boost the accuracy of its grading. The entire operation is taking time getting up to speed.
“It’s hard to find graders,” Steinberger said. “It’s hard to train graders. Getting them up to speed on our standards and protocols. There likely will continue to be a backlog in grading post-July 1. But there are other areas where we’ve made some incredible progress.”
Smoother operations in recent weeks have the company believing it'll dig out from underneath the backlog by the end of May.
Another is customer service. “We’re now at 48-hour response time on all emails, along with handling 2x-to-3x the phone calls per day we previously [handled],” Steinberger said. (When Yahoo Sports called PSA’s number this week, there were 59 callers ahead of us in the queue.)
There is mostly optimism that the industry will eventually churn its way out of this awkward spot, with the beacon of July 1 suddenly not too far off in the distance. And perhaps PSA opening the door for competition among other grading companies to offer customers more options when there aren’t many.
That is, assuming companies such as Beckett and SGC don’t have to cease their operations to handle their own backlogs. They might not be as huge as what PSA is dealing with, but many in the industry say the other companies remain backed up as well.
“I personally think many dealers are understanding about the situation,” Fishler said. “We’re still expecting [PSA] to open back up July 1. So there’s a comfort in knowing things can return to normal eventually. They’re still sending out shipments; I just got a big one the other day. But until they open up operations fully again, we’re all just forced to wait.”
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