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Consolidation has become the norm in the already incestuous collectibles industry. By now, we're accustomed to watching the category's titans plug gaps in their offerings with complementary acquisitions. That's par for the course. What we've seen less of, though, are acquisitions with significant competitive overlap between target and acquirer. That changed in a significant way last week when Collectors Holdings Inc., the parent company of card-grading market leader PSA, announced its acquisition of SGC Grading.
Suddenly, Hobby Twitter became wealthy with newly gathered expertise in competition law. "Monopoly!" was no longer a board game featuring a monocled man and a thimble, but instead the outcry of the frustrated collector. Like loyal fans who watched in disgust as their favorite under-the-radar band sold out and went mainstream, many with an affinity for SGC bemoaned what the new state of play might portend. In fairness, it seems that the collecting community rarely supports anything change-related in the Hobby.
From the Collectors (capital C) point of view, you could make the case for any number of rationales in support of the acquisition. First and foremost, SGC is a rising competitor in card grading. Though the company has been around since 1998, it won the affection of a growing number of collectors in recent years, particularly at the height of the grading surge during and after the pandemic. While incumbent leaders slogged through backlogs and raised prices according to the fickle laws of supply and demand, SGC seemed to offer a friendly alternative. Shorter lead times, lower prices, and according to some, better customer service.
Data from Gemrate suggests SGC only tallied a little less than a tenth of PSA's total volume of graded cards in 2023. For the moment, the company remained small in scale compared to the industry leader, and PSA's market share was not under immediate, existential threat. But that doesn't mean there was no threat.
In 2023, Gemrate data shows SGC increased total card grading volume by close to 30%, including 24% growth in sports and an explosion in TCG from a very small base. By comparison, PSA's total volume was up 20%, but that growth was driven entirely by TCG; Sports & Misc was down about 2%. There is evidence of growing SGC appeal in card values as well as card volumes. Data from CardLadder indicates that high-graded SGC cards have outperformed their PSA counterparts in pivotal ultra-modern sports categories over the last two years.
SGC wasn't going to surpass PSA in share tomorrow. Or the next day. Or the day after. But, it boasted one of the industry's strongest collector approval ratings, rapid growth across categories, and the three most expensive sports cards of all time, each nestled snugly in tuxedo slabs. By acquiring SGC now, Collectors turns a looming threat into a resource, bolstering its own competitive position with grading talent and introducing potential benefits of infrastructure and scale to SGC.
However, it would be fair to argue that SGC posed the greatest threat to PSA and Collectors not on its own, but rather as a weapon wielded by a larger competitor. The acquisition could have instead served as a pre-emptive strike against a potential Fanatics entrance into the authentication and grading space. If Fanatics is indeed looking to enter the category - given the grader-sized hole in its current arsenal of collectibles products and services - what target was better than SGC? And if the company is looking elsewhere (at Beckett, for example), then Collectors' competitive position is all the stronger to ward off whatever threat it poses. If Fanatics isn't looking to enter the space, which is entirely possible, then Collectors' position remains formidable.
Of course, collectors (lowercase c) don't have to like any of those justifications. They preferred their plucky underdog the way it was. While the party line is that SGC will continue to operate as an independent brand, collectors rare fearing and suspecting the worst (as they tend to do), certain that the plucky competitiveness will fade aboard the Death Star of a larger collectibles empire. Will those collector-friendly traits slowly diminish under the corporate thumb? Will SGC be positioned as a discount brand, weakening the value of SGC-graded cards on the secondary market?
For Collectors, the move is another that makes some in the collecting community uneasy following the acquisition of Goldin a few years back. If collectors were uncomfortable about the closeness of a grading company and an auction house, you can imagine they'll be similarly displeased about the closeness of a grading titan and a smaller competitor. Goldin, however, is heavily rumored (emphasis on rumor) to be on the auction block itself, and an SGC-in-Goldin-out maneuver would represent a refocused emphasis on the true picks and shovels of the collecting universe.
Without wading haphazardly into the complexities of competition law like a golfer into the long alligator-filled grass in search of his ball, it does seem likely that myriad parties will fume at the consummation of this deal. And unless Collectors want the ranks of the fuming to grow, the company would be wise to heed one directive: keep your mitts off the tuxedo slab. Some collectors just fancy the black-tie look.
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