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Perhaps no asset class has taken the fractional landscape and the broader alternative asset world by greater storm than collectible video games over the last two years. As demand builds, an ecosystem is rapidly sprouting to support one of the more newly popular hobbies on the block. Consider this. Wata Games, considered by many to be the leading grading service for collectible video games, was only founded in 2017. Video Game Authority has been around longer, spawned by Collectible Grading Authority in 2008, but lags Wata in U.S. share today. Contrast that to PSA, which has been in business since 1991. Heritage Auctions, the leading auction house for collectible video games, didn’t offer its first video game until January of 2019. This past weekend, it completed its first ever standalone video game signature auction.
While the partnership between the two, Heritage and Wata, certainly didn’t mint the hobby, it has given rise to a greater degree of high-end credibility, appeal, and demand for the asset class. Just two and a half years after that first graded video game sale by Heritage, we find ourselves in the midst of a video game collecting boom.
In that first January 2019 auction, the most expensive video game sold was a Classic Series Legend of Zelda, graded 9.4 with a B+ seal, for $3,360. In total, $8,301 worth of games were sold at that auction, with an average sales price of $332.04. Compare that to this auction, the standalone video game signature auction, where the top seller, Super Mario 64, went for a new record $1,560,000, becoming the first million dollar game in the process. The total sales from that 2019 auction were literally eclipsed in the first two lots of this one. In fact, the 124th most expensive game in the auction surpasses the total video game sales from January 2019. 7 games went for more than what the most expensive game of all time was back in 2020 – Super Mario Bros 3 at $156,000 in November of that year. Not to mention, suddenly, it's a spectator sport, must see TV: two highly popular Twitch streams, on which influencers were watching the auction stream live, had tens of thousands of viewers. Business is booming.
The asset class is growing exponentially, and that semblance of a gold rush creates risks. While the market has come a very long way in two years, there is considerable room for increased efficiency and decreased risk. For example, the historical track record is quite short and the data limited. The scope of venues for auction and sale has been narrow to date, with Heritage leading the charge, eBay playing a role as always, and ComicLink and ComicConnect building momentum in the sector. This is set to change, with Goldin entering the space and others likely eyeing it. Considering Heritage just started selling games in 2019, we have precious little historical sales data, and most of it corresponds with years that have been very friendly to collectibles.
Additionally, at present, Wata doesn’t provide population reports or a census. It’s possible for some games in certain grades, then, that the perception of scarcity is somewhat illusory. Until the market makes the challenging jump from obscurity to transparency, we’re left to wonder about the sustainability of rising values.
Wata has spoken on the subject at length – they receive no shortage of inquiries – and there is some rationale to the decision not to release population reports at present. The company hopes to reach a more critical mass of submissions before doing so, particularly because there’s selection bias at play. Collectors are much more likely to send in games for grading that they expect to have significant value. Therefore, the graded population of these games may trend higher in the short term than more common, less valuable games. In that regard, without qualifying the information or providing more context, the case could be made (and is made by Wata) that a pop report may do more harm than good.
Additional competition is on the way in the grading space. Certified Collectibles Group, which was recently acquired by Blackstone Tactical Opportunities, has announced that it will be launching a new video game grading service, and PSA is expected to enter the space in the near future (UPDATE: It was announced that Collectors Universe is acquiring Wata). Many will be watching to see how they approach the census issue, how different graders impact value, and to what degree new services gain acceptance in the diehard collecting community.
Most of what is known about a title’s scarcity comes from piecing together auction lot history/descriptions and word of mouth. This creates enormous informational asymmetries and steepens the learning curve for new entrants to the market. Seriously, just listen to a Clubhouse chat when a Heritage Video Game auction is taking place; you will be astounded by how much the longtime hobbyists know just from having been in the space over the past few years. And it’s not the kind of knowledge that you’ll find in lot descriptions. Unless you traffic in rooms like those, Facebook groups, and forums, it’s difficult to get up to speed. The market is making strides in certification via grading, in transparency via market data from Heritage and soon other auction houses, and it would seem the education and information piece is next. The right resources will go a long way to better inform the flood of money entering the space (we’ll continue to try to do our part from a fractional and auction perspective!).
On an Instagram Live with Otis Thursday night, Wata founder, Denis Kahn, suggested a framework for evaluating a potential addition to a collection and/or portfolio that will be familiar to collectors in most other arenas:
· Rarity – of the game
· Rarity – of the condition
· Relevance – to video games
· Relevance – to broader pop culture
These are fantastic criteria to begin assessing the prospects for a particular game, but as with other collectibles, there’s a high degree of nuance between the lines which can significantly alter value. This is especially true in video games, where the variants are numerous and often differ very slightly. What’s printed on the box? What shape is the seal of quality? Is there a code on the back? What are the screenshots? These are a mere few questions that can inform differences in value amounting to tens of thousands of dollars. Education, resources, and information are paramount.
All of that being said, video games are far and away the best performing asset class on fractional markets. As of the 4th of July, the average ROI for video game assets sat at 58%. The next closest category, books, has an average of 39%. The figure for video games is boosted considerably by a select few titles: Super Mario Bros on Rally (360%), Super Mario Bros on Otis (110%), and Super Mario Bros 3 on Otis (702%).
Still, those outsized results underscore the importance of acquiring the right versions of blue-chip assets at the right moment. That’s something that Otis and Rally have achieved quite presciently in many cases. Over time, as the market becomes more efficient and more well trafficked, video games will move down the spectrum of absolute returns and also risk. But as it stands today, they’re among the highest reward, highest risk assets available. Emphasis on risk.
When you consider the ingredients at play here: nostalgia, scarcity, art, history, and an increasingly robust supporting ecosystem, and you mix those ingredients with the demographic tailwinds set to fuel demand – namely an unprecedented transfer of wealth to a new generation of investors – it’s easy to see why video games have taken hold as a new venue for collecting and a new vehicle for capital appreciation. The growth, maturation, and shaping of that market requires close monitoring, though.
And with that, we move to the results from the Signature Auction.
We highlighted key lots from the auction with implications for fractional investors. While like-for-like direct comparisons are few and far between, as is often the case in a market as nuanced as video games, we took steps to analyze trends in different titles to better inform the outlook for fractional assets. We also analyze the historic trajectory of the market for the various titles on offer, to better illustrate the meteoric rise of the market more broadly.
Note: Sales figures include Buyer's Premium.
Legend of Zelda
Heritage (Wata 9.0 A, No Rev-A, Round SOQ): $870,000
Heritage (Wata 9.0 A, Oval SOQ): $55,200
Rally (Wata 9.4 B+, Rev-A, Round SOQ): $115,000
Before getting too far into it, you’ll notice a series of descriptors next to each game we discuss. If you’re new to the space or still acclimating, some of them will look like hieroglyphics. We’ll break down the differences as we go.
The copy of Legend of Zelda, the debut installment of a ground breaking franchise, sold by Heritage is among the most rare copies available. Why? It really comes down to the “No Rev-A” denoted above. You’ll note that both Heritage and Rally’s copies carry Round SOQs. SOQ stands for Seal of Quality and refers to the seal of approval Nintendo places on each game, not to be confused with how the packaging was sealed, which is altogether different. Nintendo changed from round seals of quality to oval seals of quality in March 1989, meaning any game with a round seal of quality was earlier production than one with an oval seal of quality. Earlier production, of course, typically translates to more scarcity and greater value, which bodes well for both the Heritage and Rally copies. The difference, however, is that pesky “Rev-A”. “Rev-A” which stands for “Revision A”, was added to boxes in 1988 and denoted a change in the cartridge construction from five screws to three screws. So, the absence of “Rev-A” on the game sold by Heritage indicates that it was produced before that early 1988 change, and is therefore amongst the very earliest productions (the only earlier version would be one in which “TM” appears after Nintendo Entertainment System, rather than ®). This is now the second most expensive video game sale of all time, though it was the record holder for two days after it blew away the previous $660k record on Friday afternoon. This underscores the importance of nuanced differences in variants, as well as the clearly coveted nature of “No Rev-A” copies.
So, the Heritage and Rally examples aren’t directly comparable, even though the Rally example does carry a higher grade. Also sold in this auction was a 9.0 graded copy with an Oval SOQ, indicating later production. This sale can give us a decent sense of how values are trending for the title. Let's look at recent sales of copies in higher grades that this sale bests. Starting in May 2020, a 9.4 graded oval SOQ sold for $33,700. In September of 2020, a 9.6 A+ (three notches higher!) sold for $50,400. In April of this year, a 9.2 B+ sold for $28,800. This sale surpasses all of those higher graded sales with relative ease. Finally, to provide greater context on the scale of this grail game's meteoric rise, this sale is a 188% improvement on a November 2019 sale of a copy in the same grade but with Round SOQ. The Zelda market has exploded. Blue chips.
Rally’s copy has not yet launched and is slated for a $115,000 market cap.
Nintendo World Championships Cartridge
Heritage (Wata 8.0): $180,000
Otis (Wata 8.5): $211,300
For many, this sale was among the most intriguing of the auction, owing mainly to the scarcity of both the cartridges and sales thereof. Otis provided terrific background on the asset last week, and they also hosted an Instagram live with WATA founder, Denis Khan, as they prepare to offer a higher graded copy. If you think about the Nintendo World Championships as a genesis of sorts for e-sports, now a mammoth business, you quickly understand how this checks the pop culture relevance box, in addition to the other three criteria previously detailed.
The belief is that grey NWC cartridges were awarded to 90 competition finalists, with additional copies also distributed to Nintendo employees for a total of 350-400 produces. Heritage notes that an estimated 100 remain in existence, and of course, the versions offered by both Heritage and Otis are among the best graded (there are two 9.0s as well). Khan noted WATA has graded approximately 30 cartridges. Most of them are in collectors’ hands, meaning that they’re not really coming up for sale frequently. Therefore, the supply that actually trades is incredibly limited. Khan asserts that the 8.5 grade for the Otis copy is essentially unheard of; the cartridge appears unused, which is an incredible rarity.
The copy sold by Heritage was traded for a Tom Brady 2000 Playoff Contenders Rookie Card in PSA 10 condition, which sold for $556k not too long ago. Obviously, it seems that was not a winning swap. Nonetheless, given the absolute dearth of high graded copies, the sale should still bode well for the Otis valuation.
There are no other records of sales of cartridges in condition this good. In fact, Heritage has sold only two graded copies previously: a 5.0 in November 2020 for $52,800 and a 5.5 in May 2019 for $26,400. You’ll notice that over that year and a half, the 5.0 doubled the value of its better graded counterpart.
Contra
Heritage (Wata 9.8 A+, Rev-A, Round SOQ): $150,000
Heritage (Wata 9.2 A+, Rev-A, Round SOQ): Withdrawn
Otis (Wata 9.2 A+, Rev-A, Round SOQ): $33,357.60
Unfortunately, we lost a like-for-like comparison when a 9.2 A+ version of the same variant as the copy from Otis was withdrawn from the auction. To draw trends from the 9.8 sale, the most recent comp we can point to was a 9.6 A++ sold in November 2019 for $14,400. It’s likely safe to estimate that we’re up in the realm of 5-7x since then. The Otis copy was launched this March at an IPO market cap of $32,800 and has traded up just 2% since.
Mike Tyson’s Punch-Out!!
Heritage (Wata 8.0 A, Rev-A, Round SOQ): $84,000
Heritage (Wata 9.2 A+, Rev-A, Oval SOQ): $78,000
Rally (Wata 9.4 A+, Rev-A, Round SOQ): $50,000
Otis (Wata 9.4 A+, No Rev-A, Round SOQ): $136,800
Unfortunately, no higher graded Punch-Outs with Round SOQs were offered in this Heritage auction. Still, the results are a very positive indicator for the fractional copies. An 8.0 of the same variant as Rally’s 9.4 sold for $84,000 with BP. That’s $34,000 in excess of a much higher graded copy. Not to mention, a lower graded 9.2 Oval SOQ copy (which is later production and therefore less valuable) sold for $78,000, a $28,000 premium to Rally’s copy, which is superior in every regard. The Oval SOQ result more than doubles a May 2020 $33,600 result for an inferior A sealed copy. In fact, the result here is a 132% improvement. We see a one increment difference in seal grade contribute to a 5-15% difference in value.
Rally’s copy launched in December for $90,000 and is down 44% to $50,000 since, trading down 17% last week.
The copy from Otis has not yet launched, but is of the even earlier “No Rev-A” variant. It’s set to be offered for $136,800, which after these results may warrant adjustment if they’re so inclined. Given its “No Rev-A” status, that copy promises to be a dearly coveted asset (see the record Zelda sale) in a different stratosphere than those discussed above.
Super Mario Bros 3
Heritage (Wata 9.4 A, Right Bros, Rev-A, Oval SOQ R): $16,800
Rally (Wata 9.4 A+, Right Bros, Rev-A, Oval SOQ R): $25,000
Otis (Wata 9.6 A, Right Bros, Rev-A, Oval SOQ R): $40,050
Left Bros or Right Bros? A question worth more than $100k. See, versions of SMB 3 where the “Bros” in Super Mario Bros appears on the left side of the front of the box are of the earliest productions and are therefore more valuable than those with “Bros” on the right. That’s how a “Left Bros” copy of SMB 3 was previously the most expensive video game sale ever at $156k in November 2020, before the hangtab Super Mario Bros for NES came along.
Each of the fractionally offered SMB 3s is a “Right Bros” variant. In this auction, we got a comp with a slightly inferior seal, but the same grade as Rally’s copy. Relative to other results in the auction, it was somewhat soft, though it still blows away figures from even 8 months ago. A 9.4 A most recently traded in May for $18,000, a bit higher than the hammer here, but still a 367% improvement on a $3,600 sale way back in December 2019. Rally’s copy just recently funded and has yet to begin trading, and it does have a superior seal grade to the copy sold here. The most recent Heritage sale of a 9.4 A+ was $21,600 in April.
The copy from Otis debuted in August of 2020, before the record sale, at a mere $5,000 (!). As of 7/11, it's up 600% since (!!!), which is actually down from a 900% peak. By any standard, that’s a stellar return in a year’s time…..right bros?
I’ll see myself out.
Game Boy Pokémon Red
Heritage (Wata 9.4 A++ Sandshrew, Pixelated E): $132,000
Rally (Wata 9.2, A++, Rattata, Pixelated E): $40,000
Otis (Wata 9.6, A++, Rattata, Pixelated E): $60,000
The Game Boy Pokémon games provide us further lessons in the nuances of the video game space, as the copy offered by Heritage is not comparable to those on Rally and Otis for reasons extending beyond the grades. Why? Sandshrew. The screenshot included on the back of the game box will either depict the character Sandshrew or Rattata. Whether Sandshrew was earlier production or concurrently produced with the Rattata version is the subject of debate, but Sandshrew was not used in later productions of the game and is therefore a rarer version. Sandshrew versions are typically accepted as “First Production”, while Rattatas can vary. The Sandshrew sale in this auction blows away a $72,000 sale of a copy in the same grade just a few short months ago in April. For those keeping score at home, that’s an 83% improvement in three months.
Both Otis and Rally do offer earlier productions of the game, evidenced by the pixelated “E” rating on the front of the box; this became a solid “E” in later productions. The drop for the Otis copy is coming on July 20th, while the Rally version is fully funded but yet to begin trading.
Game Boy Pokémon Blue
Heritage (Wata 9.2 A+, Rattata, Pixelated E): $14,400
Rally (Wata 9.4 A++, Rattata, Pixelated E): $16,800
Otis (Wata 9.4 A, Rattata, Pixelated E): $14,000
As Pokémon Blue is the sister game to Pokémon Red (the two games were linkable to catch ‘em all), it comes as little surprise that the Rattata/Sandshrew variant discrepancy comes into play here as well. In this case again, both fractional versions are Rattata screenshot versions with pixelated "E", and there was one of those on offer with Heritage, albeit at a lower grade. Notably, the result for that version is a 33% improvement over a $10,800 April 2021 sale and represents a 300% improvement over a $3,600 March 2020 sale of the same grade. Rally’s version was offered in January 2021 at a $24,000 market cap and has since traded down 30% in its first trading window to $16,800. On the flip side, the copy from Otis, with an inferior seal, launched at $10,000 in late December but has traded up 40% to sit slightly below Rally’s copy. Still, the result for the 9.2 here would seem to bode well for both.
Pokémon Blues actually have one additional variant, where the text intended for the Red version is actually printed on the Blue version’s box. This variant also has the Sandshrew screenshot and was of course corrected in short order. One such copy in a 9.4 A++ sold for $96,000. A Red Text variant would stand out as the grail Pokémon Blue variant. For reference, a 9.4 A++ Sandshrew variant (with the correct Blue text) sold for $26,400.
Game Boy Pokémon Yellow
Heritage (Wata 9.2 A+, Pixelated E): $7,200
Rally (Wata 9.6, A++, Pixelated E): $55,000
Otis (Wata 9.8, A+, Pixelated E): $68,767.70
There’s not as much to glean from this result for a 9.2 A+ graded game with the pixelated “E”. In Game Boy games, grades 9.2 and below are vastly more common than their higher rated counterparts, as Game Boy games are considered difficult grades. For example, a “Solid E” variant of this game, meaning later production, in 9.6 A++ condition sold for $12,000, as grade trumps variant in this particular case. Note that both fractional copies are very high graded versions of the early production variant.
This asset trades Monday, July 12th on Rally.
Super Mario Land
Heritage (Wata 9.0, A+, Green screenshots): $84,000
Heritage: (Wata 9.4, A , Yellow screenshots): $13,200
Otis (Wata 9.4, A+, Yellow Screenshots): $14,773.50
This is the highest graded version of a Green Screenshot Super Mario Land variant that Heritage has sold to date. The previous high was an 8.5 A+, which sold for $26,400 in January. The Green Screenshot variant is the first production variant, and Heritage suggests that the number of sealed versions could be counted on one hand.
The later production Yellow Screenshots variant was launched by Otis in April for $14,700. It’s trading at roughly that level, but it has traded as high as $16k. A 9.4 A+ Yellow Screenshot variant last sold in April for $21,600, but like the copy on Otis, that was a variant with a four line warranty on the box, rather than the sale by Heritage in a 9.4 A which was a three line warranty (believed to be later).
The Legend of Zelda: Ocarina of Time
Heritage (Wata 9.8, A++, Standard Edition): $228,000
Heritage (Wata 9.4 A+, Collector’s Edition): $22,800
Rally (Wata 9.6 A+, Collector's Edition): $23,500
The Ocarina of Time is a particularly interesting asset, and not just because of the amount of time nineties kids spent playing it. There are two key versions of this game – a standard edition and a collector’s edition – and there is debate as to which is more sought after. The Collector’s Edition required pre-order, while the standard edition was available in stores. It bears noting that historical sales of the Collector’s Edition are vastly more frequent with Heritage than of the standard edition, particularly in higher grades. There may be some selection bias at hand here. The sheer existence of a Collector’s Edition may have provided more motivation for preservation than its counterpart, and therefore more motivation for grading as well. The Standard Edition sale here would have easily been a world record just a year ago.
Fortunately, both versions were on offer in this auction, though in different grades. A like version of the Collector’s Edition last sold in November 2020 for $9,001.20. This sale easily leapfrogs that (it’s a 153%improvement in 8 months), and additionally surpasses the January sale of a 9.4 with a superior A++ seal for a mere $16,800. The Rally version launched in February at $23,500 and did not move in its most recent trading window at the end of May. It’s clear that the market has shown further strength since that February debut, and the sale of a 9.4 A+ for almost as much as the valuation of Rally’s 9.6 A+ bodes well.
Grand Theft Auto
Heritage (Wata 8.0 A Sealed): $4,800
Rally (Wata 9.8, A+ Sealed): $9,922
Grand Theft Auto is the only Playstation game in the fractional bunch, standing out for its launch of the Take Two cash cow franchise. Collector interest in the title hasn’t taken off to the same extent as some beloved N64 titles from a similar era. Sealed copies don’t appear all that frequently at auction, and the highest sale of the game was a 9.8 A+ copy for $13,200 last November – this appears to be the copy bought by Rally. That game was offered for $15,750 in January and has since traded down to just under $10k. A 9.6 A+ version of Grand Theft Auto sold for $10,100 on eBay in June. That’s a premium to the valuation of the superior copy on Rally, which is just 1 of 2 9.8s per their application.
At offering, it stood out as an exceedingly high risk, high reward offering, given the dearth of other high end sales not only for the game itself (the previous Heritage high was $5,760 for a 9.6), but also the relative nascence of higher-end Playstation collecting. If they were to begin to catch the momentum of their Nintendo counterparts, however, it’s easy to see how one of the highest graded copies of a legendary game that inspired a historic franchise would be of immense value. It comes back to the relevance not just to video games but to pop culture, and Grand Theft Auto certainly crosses that divide, even if the original game was not as popular as those that followed.
It bears noting that many high graded Playstation 2 GTA sequels have begun to fair well at auction, though only two have breached the $10k mark (both GTA San Andreas). Additionally, this weekend, a 9.4 A+ copy of Grand Theft Auto II for Playstation sold for $16,800, another indication that collector interest in the titles is building quickly. That was the first sealed copy of the sequel offered by Heritage, with that title's mixed reviews contributing to rarity.
The 8.0 GTA sold at this auction clears the December sale of an 8.0 for $1,860 by 158%, so there is considerable positive momentum since Rally bought their copy at the end of 2020 and offered it in early 2021.
Other Notable Sales
Super Mario 64 (Wata 9.8, A++): $1,560,000
Super Mario World (Wata 9.4, A+): $360,000
Super Mario Bros (Wata 9.0, A, No Rev-A, Round SOQ): $228,000
Final Fantasy (Wata 9.8 A+, Oval SOQ R): $204,000
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