Bull Case Bear Case: The Week of February 14th (Pro Edition)
February 15, 2022
Dylan Dittrich, Bradley Calleja
Welcome to the latest edition of Bull Case Bear Case, with a full slate of offering analysis for our Pro subscribers. As always, the goal is to give investors a clear, balanced view of both sides of the coin. Prepare to tackle the week with confidence!
“Ruth Bows Out” Type I Photograph
2/15 @ 2:30PM ET
All time iconic photograph. This is one of the very most celebrated pieces of sports photography in existence, and this example is Type I. That means that the photograph was developed from the original negative within two years of the picture being taken. The subject matter is the great mythological sports figure, Babe Ruth, soaking in a celebration of his career at Yankee Stadium in 1948, all while showing the effects of his ultimately fatal bout with throat cancer. His deteriorating condition is evident in the photo, and yet, he still looms larger than life in front of tens of thousands of adoring admirers. The photograph became the first sports photograph to win the Pulitzer Prize in 1949. That puts this photo, and the photographer, Nat Fein, in the company of some of the most iconic, jarring, and historic photos ever taken.
Underappreciated asset class on the rise. To date, sports photography has been somewhat more niche than other categories of memorabilia and of course cards, with only the most fervent collectors pursuing their grails. However, there are a number of reasons a bullish investor might expect the card community in particular to more actively participate in the photography market. Just as with cards, PSA offers authentication and encapsulation of these assets, creating a familiar currency. Additionally, the designation of the “Type” of photo by PSA confers additional rarity. Key “Type 1” photos of vintage sports icons and moments are considerably more rare than produced card populations. In this instance, there have not likely been many more than 10 Type I examples of this photo authenticated by PSA. There are thousands of graded 1933 Goudey Ruth cards, for example. The thesis here is similar to one that has driven the ticket market to new highs. In SCP’s recent auction, they sold $445k worth of photographs, with twelve lots crossing into five figure territory. There is an additional catalyst on the way for the space, as Heritage will sell at least eight photographs with five figure estimates, including one particularly relevant example (more on that in a moment).
Recent, supportive data. Just a week ago, SCP Auctions sold a Type I example of this very photograph for $62,256. Now, that example was special in that it's believed to be the exact photograph used for the photo’s first appearance in print - in the evening edition of the New York Herald Tribune. That detail is not 100% confirmed, but notes on the back of the photograph, as well as provenance from the Estate of Nat Fein suggest that it is indeed the case. That, of course, conveys an additional degree of rarity and desirability to that example, but nonetheless, it will provide a bullish investor with confidence in the strength of demand for the photo and the valuation here, with this copy signed by Fein himself. The same photo sold at Heritage in February 2018 for $43,200. That’s a 44% increase in four years, or 9.5% annualized. Later this month at Heritage, a large 14 x 9.5 example of this photograph (most are 8 x 10, including Collectable’s), featuring a similar inscription and signature, will be sold. The guided value is $50,000+. It last sold at Heritage in 2016 for $13,145, so it's possible wesee a much larger annual growth rate. This will tell us much about the strength of the market, and in that regard, presents risk, but also opportunity for reinforced confidence.
Significant appreciation from last sale. This exact photograph sold at SCP Auctions in April of 2021 for $25,686. The valuation established with the consignor is $44,000. Assuming the consignor was the winning bidder in that auction, in a little under a year, they’ve realized a 71% gain on 72.4% of that investment, with upside remaining on the 27.6% retained. While recent data points are encouraging, a bearish investor will feel that the consignor has already enjoyed the bulk of short term upside. Notably, that auction result just narrowly exceeded the $25,000+ estimate.
Supply uncertain. The last time this photograph came to auction, SCP Auctions noted: “According to photography expert and PSA/DNA photo authenticator Henry Yee, this is one of only two known "true" TYPE I originals that he has seen in nearly 25 years of experience with vintage photography.” Now, the use of the word “true” hints to other concerns around reproduction and authenticity, but in our research, we identified 9 different Type I examples that have come to auction. In 2017, Robert Edward Auctions even revealed that four new examples had been found during a home cleaning. Before that point, it was believed that PSA had authenticated only five examples. Supply is certainly low, but not so much that collectors only have the chance to buy one one every few years. In fact, since 2010, there have been twelve sales, including seven in the last five years. The Type I designation for photographs may also not resonate with a broader population of collectors and investors, just as NFTs may not resonate due to the hotly-contested “right click and save” argument. Those with whom the designation does not resonate would not see supply as limited at all.
Spotty results & growth. While the first New York Herald Tribune print copy and Fein’s personal copy (larger in size) have drawn strong results on numerous occasions, seven of the past 12 sales of this photograph have been for less than $30,000. Several of those came in the early-to-mid 2010s, so time certainly plays a role, but if you were to apply a 10% annualized growth rate to each of those seven sales (being slightly generous with the growth figure from above), none of them clear the $49,500 valuation here. The closest result is $45,500, which corresponds to a $15.6k sale at SCP Auctions way back in 2010. That photo actually sold again in 2013, for $17.8k, which was just 4.5% annual growth. That result, grown 10% annually, comes to just $38.8k. The upcoming Heritage result, though, may change thinking on assumed growth rate. Still, a bearish investor may not think the incremental interest in the photograph space will be enough to boost growth rates sufficiently to justify the valuation and an investment here.
NBA 50 Greatest Lithograph
2/17 @ 2:30 PM ET
Unique assembly of greatness. There have been over 90 pieces of sports memorabilia offered by fractional investing platforms, but this marks the first ever lithograph IPO. On October 29, 1996, NBA Commissioner David Stern announced the 50 greatest players in NBA history. The list was compiled by a panel of media, former players and coaches, and front office executives. The list included names like Michael Jordan, Kareem Abdul-Jabbar, Shaquille O’Neal, and Larry Bird. The document here includes signatures from 49 of the 50 basketball icons and the only one missing is Pete Maravich, who passed away before the lithographs were created. When these lithographs were distributed, the players highlighted had combined for 107 NBA Championships, 49 league MVPs, 447 All Star games, 36 scoring titles, and nearly 1 million points.
Limited print. There are only 250 of these NBA ‘Greatest 50’ lithographs in existence and this example is one of only 50 produced specifically for the players. Dave Bing was a seven-time All Star and won league MVP in 1976. He finished his career with over 18,300 points and was voted to the NBA 50 Greatest list. Collectable’s IPO is Bing’s lithograph which is confirmed with a “Bing 1/1” notation in the lower left corner. It is incredibly difficult to find such a significant array of signatures, but this is more than just a canvas of profile images and John Hancock’s. This lithograph is a limited-edition piece of NBA history, created and curated by the league itself. Lithographs on their own are incredibly rare and typically, are not too valuable either, even if they contain a few signatures of legendary sports stars. This offering is not a typical lithograph though and instead is arguably the most famous and recognized example in the sector.
Can a lithograph be an asset? In the last three years there have only been six public sales of player-edition NBA Greatest 50 Lithographs. Not only is secondary market data extremely limited, this marks the first fractional lithograph IPO. Although sports memorabilia has outperformed sports cards on Collectable over the last six months, the sector has lagged overall and trails cardboard by about 1% on average. The majority of memorabilia currently trading on Collectable is game worn and game used, so how will investors respond to an offering that has never been viewed as an asset before? It is not that new asset classes have not emerged over the last year; from photographs to tickets there are plenty of examples of new sports-related investments on the market today. The difference is that this lithograph is completely on its own. There have been less than 10 sales of relevant comps in the last five years and the majority of lithographs are not worth five figures, let alone six figures. There is no question that the NBA 50 Greatest Player Edition is on a different level compared to most examples. The question is whether or not the fractional market will be receptive to a lithograph as an asset.
Top sales come from top names. The last six lithograph sales have struck prices between $37,200 - $102,000 and there is a significant disparity in values depending on who the lithograph belonged to. For example, the only two sales that have ever exceeded $51,000 were examples once owned by Kareem Abdul-Jabbar and Bill Russell. The other four sales have all come from the collections of lesser-known stars and only one hammer price surpassed $50,000. The Russell sale is the largest to date and struck a price of $85,000 (before BP) less than two months ago. In 2019, there were four different sales for player edition lithographs between August and December. The Kareem lithograph sold for $90,880 while the other three sold for less than $51,000 each. While it is great that lithographs from names like Kareem and Russell strike near-six figure prices, there has not been any evidence to date that a lithograph from a lesser known legend such as Dave Bing would also reach a similar valuation. The best bullish case for this example from Bing would be the 2016 sale for a Jerry Lucas 1/1 lithograph which sold for $78,870. That sale has not been replicated since though and the closest comps to Bing’s copy have all settled near or under $50,000 over the last three years.
Gone with the Wind
2/15 @ 12:00 PM ET
Premier literary relevance. There are few novels that have made and sustained as significant a cultural splash as Gone with the Wind, particularly here in the United States. The novel, by a former journalist Margaret Mitchell, was an instant success; it was first published in May of 1936, and by December, a million copies had been sold. Today, that tally is well over 30 million copies, and a 2014 poll by the Harris Poll found that it was the second favorite book of American adults, behind only The Bible. It maintained that status, initially claimed in 2008, and ranked ahead of Harry Potter, The Lord of the Rings, and To Kill a Mockingbird. The film adaptation, released in 1939, won ten Academy Awards and is considered one of the greatest Hollywood films of all time. Simply put, the novel was a pop cultural phenomenon that has largely retained potency for close to a century to follow.
Rare, for multiple reasons. The asset here is a first edition, first print copy of the novel. There were 10,000 such copies printed, and they are identified by the copyright page, which reads “Published May, 1936”. The second printing, of 25,000 copies, came a month later in June. Recall that we noted one million copies sold by December. This is among the very first 10,000. It additionally features an inscription from Mitchell to a woman ailing of Tuberculosis, and there is a warm, accompanying letter wherein Mitchell sympathizes with the woman’s plight. Signed - particularly inscribed - copies confer an additional degree of rarity; Mitchell became so famous so quickly with the success of the book, that by December of 1936, she no longer entertained the prospect of signing autographs. There are a handful of examples that have surfaced at auction - presentation copies, inscriptions, autographs - but to date, no more than ten with pen placed to pages of the book itself (there are also copies with accompanying letters/signatures).
Momentum in uninscribed copies. In September at Christie’s, a first edition first print in strong condition sold for $10,000, healthily exceeding the high estimate of $8,000. A copy in slightly lesser condition followed that up in December at Heritage, drawing $9,375. As the Christie’s estimate range of $5,000 - $8,000 would suggest, these results were in excess of the more typical mid-to-high single digit levels for this book in recent years. The difference in valuation between the inscribed offering here and those results is not particularly unusual relative to other similar situations we’ve seen. It should be noted, though, that at that same December Heritage auction, another inscribed copy sold for $18,750. That copy featured a superior dust jacket, but the inscription (“For William L. Hyde”) was without the richness of story exhibited here.
Muted appreciation. This exact book sold at Heritage in October of 2008 for $17,925. Rally bought it in June of 2021 for $21,250. That’s annualized appreciation of 1.4% annually over the course of a bit less than 13 years. If you inflation adjusted that October 2008 result to June 2021, it would be just under $22.5k. So the real return was actually negative. It’s fair to note that the October 2008 result stands out as somewhat of a high outlier for the period, with values only now recovering to that level after spending much of the decade to follow much lower. The $25,000 offering valuation is a 17.7% increase on the June result. That’s only 0.8% less than the appreciation for the entirety of the near 13 year period between sales.
Controversial subject matter. The novel is set in the Civil War and slavery era American South. It has been oft-criticized for a derogatory portrayal of African Americans, which is reliant upon negative stereotypes, while also drawing criticism for a romantic portrayal of plantation values and the antebellum south. Backlash was particularly prevalent in the summer of 2020, and HBO Max even temporarily removed the film adaptation from its platform. John Ridley, the screenwriter of 12 Years a Slave, said the following in a Los Angeles Times op-ed: “[Gone With the Wind] is a film that, when it is not ignoring the horrors of slavery, pauses only to perpetuate some of the most painful stereotypes of people of color. It is a film that, as part of the narrative of the Lost Cause, romanticizes the Confederacy in a way that continues to give legitimacy to the notion that the secessionist movement was something more, or better, or more noble than what it was—a bloody insurrection to maintain the ‘right’ to own, sell and buy human beings.” Mounting criticism does introduce the possibility of reduced long term demand for the offering going forward.
Recent secondary market performance challenged. From October 1st, 2021 onwards, six books have begun trading on Rally’s secondary market. The average ROI of those six books as of 2/11 is -25.63%. Just one is positive (Walden - a mere 0.49%). This being the case, in tandem with the offering value’s premium to the June auction sale, a bearish investor may feel it prudent to wait for a better entry point.
Macallan 40 Year Old Whisky
2/16 @ 12:00 PM ET
Blue-chip producer. Macallan dominates the collectible whisky market on both a price and volume basis. According to Rare Whisky 101, Macallan whiskies make up 39.5% of the total collectible whisky market which exceeds producers like Bowmore and Ardbeg that make up 8.6% and 4.1% respectively. The attention and recognition Macallan receives on secondary markets provides increased liquidity compared to other high-end producers. Whether it’s Mickey Mantle, Michael Jordan, Wayne Gretzky, or Tom Brady, investors have consistently shown favorability towards a select class of blue-chip athletes. The same can be said with wine or luxury, where producers like Romanee-Conti or watchmakers like Rolex have established moats around their brands which provide investors with a sense of stability to match long-term appreciation.
Favorable supply and demand. Anyone who has completed an Economics 101 course can provide an explanation for why limited supply can result increased demand. While other assets such as sports cards capitalize on this with numbered cards or one-of-one offerings, Macallan provides this with miniscule production runs. There were only 500 total bottles of 2016 40-Year produced and a mere 70 were sent to the United States. While supply is naturally limited, demand is simultaneously reaching peak levels. The increase in demand has been driven primarily by new developing markets, specifically in Asia, where new consumers and collectors are causing prices to soar. After a 2021 whisky auction, Sotheby’s reported that nearly 80% of buyers were from Asia while 60% of buyers were under the age of 40, demonstrating further stability in the asset class as the market continues to attract young money.
Rising rare whisky returns. Since its release in 2016, prices for bottles of this 40 Year Macallan have increased by nearly 200%. The release timed well with a bull run within the rare whisky market during the latter half of 2016, and performance has continued to consistently climb. The release date of this single malt scotch is also important when analyzing returns, since it is one of the last Macallan editions that went public before a boom in whisky values. Investors often view this as an aid to further appreciation since a higher percentage of more recent vintages are being saved and stored as investments compared to mid-2010s vintages. Rare Whisky 101 tracks two different indices that are relevant to this offering: The Macallan 18 and the Macallan 25. The Macallan 18 gained 15.4% in the last year while the Macallan 25 climbed 16.9%. Both indices are up more than 400% since their inception in 2012 and rare whisky has become an established asset class with returns that now rival fine wine.
Market cap outpaces prior sales. According to the filing, Rally purchased this offering for $35,402 and will be offering it at a $30,000 market cap. That IPO price will be the highest a bottle of this 40 Year scotch has been valued at, as recent sales have closed in the $20,000-$25,000 range. The most recent sale, which occurred on December 5th at Scotch Whisky Auctions, was for $25,142 and marked the highest sale price to date for a bottle. With only 500 bottles produced, sales data is somewhat limited overall but after a breakout stretch between 2019-2020, Macallan 40 Year returned modest gains in 2021. The sector is currently displaying consistent levels of appreciation but with average sale prices sitting ~20% below the IPO market cap, it could take a few significant sales before comps match the fractional valuation.
Unproven secondary market. While this marks Rally’s third whisky IPO, no liquor offering has traded for more than a week on the platform’s secondary market. This is actually the first week that any whisky has traded on Rally as the Karuizawa ‘Aqua of Life’ opened for orders on February 14th. In its first trading session, the Karuizawa fell -20% and now carries a market cap that is well below recent comps. Wine has delivered positive performance on Rally, with a 7.13% average return but with no track record, it is unclear whether whisky will provide fractional investors with similar returns.
Lack of liquidity. Wine might have a track record of performance, but unlike many of the asset classes on Rally, the liquid sector has no track record of buyout offers. To date, there have been 31 accepted buyout offers on Rally, from comic books and cars to sports cards and memorabilia, but there has not been a single offer yet for wine or whisky. That on its own might not necessarily be a bad thing as investments like wine and spirits are typically longer holds that sell in timeframes similar to art. The lack of buyouts combined with limited secondary market performance could scare away investors, at least until some liquidity is realized for the asset class.
2/17 @ 12:00 PM ET
Strong team with deep NFT experience. Doodles’ ability to gain traction early on and quickly was derived in large part by the strength and experience of the team on the project. Among the founders are Evan Keast, an NFT consultant to Dapper Labs and CryptoKitties, as well as Jordan Castro, who led the CryptoKitties team at Dapper Labs. Their focus on community has been paramount, with a community DAO voting on project steps and decisions relating to the DoodleBank. What’s the DoodleBank? A community treasury with over $5 million USD, per NFT Evening. That Bank can fund the next value-adds for the product, including a push into entertainment and live events. Finally, the arrival of Space Doodles may serve as a positive catalyst. Unlike other derivative projects, Space Doodles will not increase the supply of Doodles, but rather, will allow Doodle holders to wrap their Doodle into a Space Doodle and unwrap it at their leisure. This is a relatively new pursuit and may serve as a trend-setting moment of sorts in the space.
Key influencer support. NFT projects often gain traction somewhat organically, but the addition of the right collectors can build momentum and send a project to new heights. Here, those pieces have begun to fall into place. Key NFT collectors Pranksy, Gary Vee, and Steve Aoki have made high conviction purchase of multiple Doodles, with the latter notably showing off his new purchase at one of his shows. Celebrities have begun to trickle in - Von Miller bought one last week amidst preparations for the Super Bowl (film study can wait, it’s crypto time!). As has been demonstrated by BAYC, the introduction of key purchasers heightens both the status and exclusivity appeal of the project, and that effect has a tendency to snowball.
Stability in ETH-denominated values despite crypto meltdown. In the face of a challenging crypto environment in January, Doodles continued to gain momentum and march higher, at least in ETH terms. Over the last 30 days, the price floor is up 22%. Despite a January that saw the value of ETH decline 27%, the average Doodle sales price in that month in USD terms was actually up 117% per CryptoSlam. That momentum has continued into February, as the average sales price is up another 18%. Additionally interesting: the ratio of NFTs listed for sale versus total supply for Doodles is just 10.55%. That’s lower than CryptoPunks, Bored Apes, Mutant Apes, and CloneX, indicating that there may be a strong base of owners with longer term intentions, which would reduce potential selling pressures near term.
Look at this thing. It would not be particularly difficult for an NFT cynic to prepare a bear case for this asset. While the crypto-community hails the “inclusive pastel illustrations”, a bear would argue that the art is not more impressive than most other PFP projects, of which there are thousands. Though the artist, “Burnt Toast” (Scott Martin) has a remarkably impressive resume as an illustrator, at the outset of the project, he was neither an acclaimed artist nor an NFT-OG, having just minted his first in March of 2021. Additionally, like many PFP projects, there is much discussion about utility on the roadmap, including how best to leverage the IP, but any outcomes here are uncertain. Will every popular NFT PFP project become a huge commercial success in multiple channels? Will the IP be that valuable and in demand, despite the fact that less than 10,000 people actually own the Doodles (granted over 220k follow on Twitter)? Absent success on that front, is the “influencers own it” argument sufficient to cement this project as an icon of the early years of the NFT movement? Per OpenSea, Pranksy owns over thirty two thousand NFTs - not all of those projects will make it. Gary Vee owns over four thousand NFTs (just two are Doodles)- he is known to say he likes to "taste" projects. Steve Aoki owns close to 900 NFTs across a number of projects quickly approaching triple digits. Not all of them will make it. A bear will argue that, while having influencer traction is certainly better than not, it’s no guarantee of success. A bear would also point out that one of the founders goes by “Poopie”, and that you simply cannot make this stuff up.
Floor Doodle. Each time that this Doodle has sold, the sales price has been essentially right in line with the floor price for the project. It sold January 8th for 9.49 ETH ($29,237) - the floor that day oscillated from 9.3 ETH to 10.7 ETH per NFT Price Floor. Agreement was reached with the consignor here on January 12th at a valuation of $39,000 - the floor that day ranged between $38.8k and $39.3k. This indicates that there’s no incremental level of desirability relative to the rest of the population, and as such, examples such as these may be more susceptible to volatility, and upside relative to the population may be limited.
Bought when ETH was 15% higher. The USD valuation of this Doodle was established on January 12th. At that time, ETH was valued at about $3.4k. Fast forward to today, and the value is approximately $2.9k USD. In ETH terms, that means at purchase, the Doodle was valued at close to 11.5 ETH. At today’s ETH value and an offering valuation of $44,000, that’s about 15 ETH. That’s up 30% in ETH terms, which does outpace the growth in the floor since, as the floor currently sits below 14, down 7% in the last week and nearly 16% over the last two weeks. That downward movement bears watching, as the positive momentum may be stalling out. Just seven of the top 50 all time sales have come in the last 30 days.
Note: the consignor will retain 25% equity in this offering.
1992 Tiger Woods PGA Debut Full Ticket (PSA 6)
2/18: 12:00 PM ET
Pre-hype means scarcity. Unlike his 1996 professional debut, Tiger’s first appearance at a PGA event came before his hype train was fully boarded and left the station. As a result, the population is quite small. In fact, there are only two stubs from the event, indicating those in attendance didn't suspect anything special was happening. There are 20 full tickets to the event. Compare that to some of Tiger’s most sought after cards, which were printed after his stardom had been realized the 2001 SP Authentic /900 and the Gold /100. The /900 has a population of 292 BGS 9.5s, 48 PSA 10s, and 8 BGS 10s. The /100 has a population of 45 BGS 9.5s, 19 PSA 10s, and 3 BGS 10s. Additionally, Rally’s ticket is graded a 6, which is the highest grade for this ticket, with just two other examples at the same level.
Robust demand for Tiger memorabilia. Despite his on-again-off-again appearances in competition due to injury in recent years, Tiger remains as relevant as ever to collectors. At their summer 2021 auction, Golden Age Auctions sold $515k worth of Tiger lots, up 191% from the summer 2020, providing an important reminder that there are deep pockets in golf. Outside of his SP Authentic “rookie cards” there’s a relatively limited number of options for high end collectors and investors to pursue in the expression of a bullish Tiger thesis (more on one other option in a moment). Additionally, those cards were printed well after Tiger debuted, so true “rookie” collectibles are even harder to come by. While there is no shortage of Tiger memorabilia, the memorabilia market is generally more volatile and does not offer the same benefits of standardization and liquidity as cards, which the ticket market is growing to resemble.
Supportive data points. In November, an Authentic-graded example of this ticket sold at Heritage for $51,600. Back in May of 2020, another example (albeit in slightly worse condition) sold there for $1,440. A staggering increase in value indicative of the focus on securing blue-chip ticket assets. Now, just five of the 20 graded full tickets from the event have numbered grades, and that Heritage ticket displayed very well, with only corner wear particular note. I