Collectibles Market Overview

Alvin Wei -

From trading cards to sneakers to NFTs, the collectibles market (estimated to be a $370 billion market worldwide[1])  has experienced strong growth and achieved stunning milestones over the course of 2020 to 2021. In 2020, eBay reported that over four million more trading cards were sold by U.S.-based accounts in 2020 vs. 2019, representing 142% YoY growth in U.S. sales. The demand has been overwhelming such that grading agency PSA has a backlog of over 1 million cards awaiting to be processed. Online marketplace StockX reported that the company had processed $1.8 billion of GMV in 2020, which grew ~80% YoY from around $1 billion of GMV in 2019. NFT sales in 2021 YTD totaled over $890 million, which is ~57x the sales over the same period in 2020!

Regarding records, new sales figures have topped one another within the span of months. Within sports cards, a LeBron James rookie card sold at auction in July 2020 for $1.8 million. In March 2021, a 1979 O-Pee-Chee Wayne Gretzky rookie card has sold for $3.75 million in a private sale brokered through Heritage Auctions, surpassing the $1.29 million sale of the same version of the Gretzky card in December 2020.

For sneakers, Sotheby’s sold a one-off pair of Nike Air Yeezy samples worn by Kanye West at the 2008 Grammys for $1.8 million to social investing platform Rares.

NFTs have made significant sales as well. In October 2020, digital artist Mike Winkelmann (Beeple) sold a pair of NFTs, each going for $66,666.66. In February 2021, one of the pair was resold for $6.6 million. In March 2021, Winkelmann made headlines once again selling an NFT art for $69.3 million at Christie's.

Funding

Investors have taken notice of the collectibles market, having made a number of investments over the past year. Notable funding rounds include:

  • OpenSea (NFT marketplace) raised $23 million in Series A funding led by Andreessen Horowitz in March 2021
  • Alt (online sports card marketplace) has raised $31 million in Series A funding led by Seven Seven Six in March 2021
  • StarStock (another online sports card marketplace) has raised $8 million in Series A funding led by Andreessen Horowitz in April 2021
  • StockX has raised $255 million in a late stage financing round ($60 million in primary and $195 million in secondary) led by Altimeter Capital in April 2021, four months after a $275 million Series E funding led by Tiger Global in December 2020
  • Whatnot (live streaming collectibles marketplace) raised $20 million in Series A funding led by Andreessen Horowitz in March 2021, followed by another $50 million in Series B funding led by YC Continuity in May 2021
  • Dapper Labs (NFT development platform behind NBA Top Shot and CryptoKitties) raised $305 million in Series C funding led by Coatue in March 2021 at a $2.6 billion valuation. The company is reportedly raising another round as of April at a $7.5 billion valuation
  • Rally (collectible asset investing platform) raised $30 million in Series B funding led by Accel and $50 million in debt from Upper90 Capital in May 2021
  • Loupe (live streaming sports card marketplace) raised $12 million in Series A funding led by Forerunner Ventures in June 2021

Market Landscape

The collectibles market spans from trading cards, sneakers, art, comic books, cars, toys, memorabilia and digital assets. A market mapping by category follows below:

Across each category, the collectibles market remains fragmented, yet there are signs trending towards consolidation in exchange for greater scale. For example, Stadium Goods was acquired by online luxury marketplace Farfetch for $250 million in December 2018. Another instance of consolidation is the merger between GOAT and Flight Club in February 2018, providing GOAT a greater supply of sneaker selection and an entry into bricks-and-mortar retail with Flight Club's three stores. Flight Club benefits with GOAT's e-commerce capabilities and online distribution.

Business Models

There are multiple business models being employed to monetize the collectibles market, from marketplaces to investing platforms.

Marketplaces

The marketplace model acts as a mediator and facilitates the sale of goods or services between buyers and sellers. Marketplaces typically monetizes by charging a commission for every transaction that takes place (i.e., when a customer makes a purchase). For example, Whatnot charges a selling fee that comprises of an 8% commission on the sold price of an item when it sells and 2.9% of the sold price + .30 cents to cover payment processing. Other players within the collectibles market that use a commission-based marketplace model include eBay, StockX, Dapper, StarStock, Alt, OpenSea, GOAT, Stadium Goods, and Rarible.  

The marketplaces differentiate from one another by management level. Unmanaged marketplaces such as eBay do not conduct quality checks, so there is a resulting caveat emptor dynamic where customers will have to do work to check the quality of an item (e.g., base purchases off of reviews). Managed marketplaces such as online marketplace StockX and auction house Sotheby's step in to verify items. For instance, StockX has sellers first ship their product for authentication before it is shipped to the buyer. In addition to authentication, companies such as Whatnot incorporate live streaming and social features (e.g., live chat) to enable real time engagement, building in an additional layer of trust between the buyer and seller.

Investing Platforms

Depending on condition and rarity, collectibles may be price prohibitive for enthusiasts to make a purchase. To permit a larger buyer universe to participate in the ownership of cultural assets, a number of companies have introduced an investing platform model, whereby collectible assets from sneakers to cars to a 1976 Apple I computer signed by Steve Wozniak are securitized, split into shares, and offered as equity investments to users. After an offering, users can trade their shares amongst each other in a secondary marketplace. Companies that utilize this model include Otis, Rally, Masterworks and Rares.

The monetization model varies by company, but they are typically fee-based, much like an asset management model. For example, Otis charges a 0% to 10% sourcing fee (included in the upfront purchase of shares in a new drop) on each investment they acquire and takes 10% of the profits when they sell an asset. Otis's broker-dealer also earns a 1% fee on invested capital. Masterworks charges a 1.5% annual fee (paid in the form of equity) and takes 20% of the profits of the artwork once it is liquidated. Rally monetizes by charging the original asset owner a listing fee of between 2% and 5% of the asset's value.

Summary

The collectibles market has demonstrated significant traction over the last two years through greater volume and record-breaking sales. As general interest has burgeoned, a number of companies have formed to enable consumer ownership of assets rooted in culture. I am excited to continue to observe this market grow and for what's yet to come. If you are building a company providing better access to cultural assets, I would love to hear from you and to continue supporting this transformation. Feel free to shoot me a note at awei@cobalt.la.

[1] "Playing Ball In The Multi-Billion Dollar Sports Collectible Market," https://www.forbes.com/sites/darrenheitner/2016/04/11/playing-ball-in-the-multi-billion-dollar-sports-collectible-market/?sh=2408dd8514e3