HOUSE OF CARDS DRIVEN BY GREED, THE SPORTS- TRADING-CARD INDUSTRY ALL BUT COLLAPSED. CAN IT REBUILD ITSELF?

July 28, 1996

We arrived too late to ask George Pierce what he thought about
the sports-trading-card crash. The name of his once-thriving
business, Triple Play Sports Shop, in Overland Park, Kans., had
already been removed from the storefront's marquee. All that was
visible inside the abandoned store was a patched carpet and some
debris.

So we moved on. Five miles away, at Kansas City's Ward Parkway
Shopping Center, we found Allen Martin, the owner of Jay's
Sportscards and Collectibles, sitting on a stool behind his
counter, watching a basketball game on TV. No, he said, it
wasn't a bad time to talk. There wasn't much chance that we
would be interrupted--certainly not by the endless stream of
boys in Kansas City Chiefs caps and Chicago Bulls jackets who
were hustling past the store on their way to the 22-screen
multiplex. "Card shops are dropping like flies," Martin said.
"There used to be 20 in the city. Now there are six or seven."

Judging from the few boxes of trading cards on Martin's shelves,
the remaining shops were barely hanging on. In one of those
paradoxes that make capitalism so intriguing, Martin had so few
cards because, he said, the trading-card industry was flooded
with them. From the beginning of the 1995 baseball season
through the '95-96 basketball season, there were 23 sports-card
lines (a line typically contains different sports cards for each
brand) distributed by the Topps Company, 22 by Fleer, 22 by
Pinnacle, 15 by Upper Deck, seven by Donruss, seven by Pacific,
four by Collectors Edge, three by Classic and two by Playoff--an
avalanche of pretty pieces of cardboard bearing stamped foil,
computer-generated art, gilt edges, holographic effects, and
glossy finishes that would put an old-world furniture maker to
shame.

"There's so much out there, that people don't know what to
collect," the 28-year-old Martin said. "So they don't." And
since Martin couldn't afford to pay the manufacturers as much as
$1,600 a case for cards of unpredictable appeal, he was reduced
to buying a box at a time from a wholesaler across town--36
packs (12 cards per) of Leaf Baseball '96, say, for $56.

This wasn't what Martin had in mind last year when he took over
Jay's Sportscard store after its previous owner was evicted for
not paying rent. Martin had worked part-time at Jay's for a few
months. He could smell a 1963 Sandy Koufax in a shoebox full of
Topps commons, and he had always wanted a store of his own. Now
he had not only the store but also a perplexed look. He wondered
why a hobby shop like Jay's had to pay the card companies cash
before delivery, while Venture and K-Mart could discount to the
bone and return their unsold cards for full credit. He wondered
why recent mergers and acquisitions by card companies seemed to
have produced more, not fewer, card lines. And he questioned his
rationality in clinging to a business that, he admitted,
exploited the naivete of card hounds like him. "I believe a card
store is for kids," he said. "The kid who wants a dollar pack
and buys it with a dollar he saved means more to me than a guy
who buys a $200 box." Reflecting on those words, Martin sighed
and added, "I guess that's why I'm not making squat."

It's known in the business world as a shakeout: First you have a
boom, which occurred in the trading-card business in the late
1980s and early '90s, when dozens of manufacturers sprouted and
hobby shops spread like pollen. Then you have a bust, which
leads to mergers, buyouts and failures among manufacturers, and
extinction for shop owners. The bust in sports-trading cards has
seen industry-wide yearly sales plummet from about $1.2 billion
in '91 to some $700 million in '95.

Lee Toner, a trading-card broker and the owner of Americana
Collectors, a wholesale and retail collectible business in
Independence, Mo., believes crash is not too strong a word to
describe what has happened in the industry. Traffic to Americana
Collectors, in a strip mall off busy Noland Road, has slackened
to a small mix of classic-card fans and teenagers addicted to
"cardboard crack"--slang for a collectible-card
sword-and-sorcery game called Magic: The Gathering. Several
sports-card fanatics persist in their pursuit of "inserts" or
"chase cards"--premium cards of exotic design that manufacturers
distribute, at a ratio that varies from one card to every two
boxes to one card to every case, to stimulate interest. Toner
calls inserts "the mini-Lotto" and laments that they have not
been enough to sustain the card industry in hard times.

"In the K.C. metro area there might be 20 stores left, down from
40 two or three years ago," Toner said in May. "I've lost two or
three accounts in the last 30 days."

To the little guys, Toner is a big guy, a regional broker who
buys unsold stock from retailers and speculators and then sells
cards and other collectibles (such as coins and stamps) via
hobby publications and the Internet. To survive these days in
the card business, according to Toner, you need to be realistic.
"This was new yesterday," he said, pointing to a 10-card pack of
1996 Upper Deck baseball cards, which sold for $1.99. "This is
new today," he continued, tapping a 12-card pack of 1996 Leaf
baseball cards at $2.50. "There's almost no dollar packs
anymore." And no shelf life either. Less than a week after Upper
Deck's Silver Collection of football cards appeared on his
counter, Toner was prepared to declare it a loser. "People are
already bailing out on it," he said, meaning that dealers were
discounting the line to cut their losses. "You hold it two or
three months, it's worth half or less. It creates a selling
frenzy."

And what of the speculators, those buyers with calculators for
hearts who bought cases of cards in the late 1980s and put them
away, unopened, hoping to make a killer profit in the '90s?
Toner said he used to hear from them regularly. The
conversations went like this:

Speculator: "I've got 10 cases of '90 Donruss."

Toner: "Fifty dollars."

Speculator (distraught): "Well, I'll be by with the cards."

"They cost the guy $200 a case," Toner said. "But, hey, some
speculators bought wisely. A two-case combo of 1990 Leaf sells
now for $3,500 to $4,000." But not, it goes without saying, to
children.

Concern for the sports-card industry is not confined to
shopkeepers in the Midwest. Two months ago, in a spacious
boardroom in a New York City office building, Jay Langdon,
president of Topps, tried to explain the speculative frenzy that
led to the crash. "In the '80s I think everyone got caught up in
the Wall Street mentality," Langdon, 48, said. "There was this
notion that sports cards were scarce and that there was an
active secondary market, so some people got carried away."

Langdon's remark about the Wall Street mentality was ironic,
floating as it did across a cherry-wood conference table
surrounded by 16 big, black-leather chairs. Two years ago Topps
left its headquarters in a seedy Brooklyn warehouse and moved
into three modern floors at One Whitehall Street in lower
Manhattan, a slap shot away from the New York Stock Exchange.
Topps's stock, traded on Nasdaq since 1987, has been equally
mobile: It peaked at $20.25 a share in '92, fell last year to a
low of $4.25, and at the end of trading last week was going for
$5.13. Other card companies trading on Wall Street are Marvel
Entertainment (the parent company of Fleer and Skybox) and
Scoreboard.

"In the late '80s and early '90s, when everybody wanted to play
these stocks, we were recommending them," said Terence McEvoy, a
sports-card-industry research analyst at the investment firm of
Janney Montgomery Scott, Inc. "Topps, Scoreboard and Marvel all
were hot stories. Now I tell investors to sit on the sidelines
and watch." McEvoy, like the hobby-store owners, blames the
industry's problems on overproduction. "Greed by the leagues was
a problem, too. They've issued too many licenses to companies to
print cards featuring players [with their team's logo] from
their league."

During the 1950s, '60s and '70s, the card business was low-key
and ruled by Topps, which held a virtual monopoly on baseball
cards. But in 1980, when a federal court ruled in an antitrust
case that the Major League Baseball Players Association had to
issue more licenses to produce cards, Donruss and Fleer jumped
in. (An appeals court overturned the ruling in 1981, but the
Players Association had already begun selling more licenses.)
The quality of the cards quickly rose--Upper Deck set new
standards for photography and finish with its '89 baseball
line--and the secondary market exploded, boosted by baby
boomers' nostalgia for the Elmer Valos and Art Ditmars of yore.

The children of the baby boomers, loving baseball less than
their dads, went for basketball and football cards and, more
recently, no cards at all. The card category, which one
retailing analyst recently dismissed as "postpeak," suddenly
can't find shelf space in grocery stores.

"The demand appeared insatiable, but it wasn't," said David
Leibowitz, managing director of Burnham Securities. "With the
channel of distribution backed up and with too much inventory,
it was hard to sustain prices, let alone have them continue to
rise." The value of baseball cards declined the most, thanks, in
part, to the players' strike of 1994-95. Not only were baseball
players suddenly invisible, but fans also perceived them to be
spoiled and greedy. "With all that," says Leibowitz, "there
wasn't a hell of a lot of incentive to buy cards."

Basketball cards are the fastest growing sector in the market.
That's a bitter pill for Topps's Langdon, who still lives in
Brooklyn and is old enough to resent Walter O'Malley for having
run off to Los Angeles with the Dodgers. But Langdon understands
why fans turned their backs on baseball and baseball cards.
"Hero worship," he said, "is an essential reason why people have
always collected cards. We're hopeful that we've reached the
bottom of this drop."

There is some evidence that the rebound has already begun.
Card-shop owners report that all baseball lines got a boost from
Topps's Mickey Mantle Commemorative sets, which sold out quickly
this spring and are popping up in collectors' magazines at $135
for the 19-card reprint edition and $125 for the nine-card
Stadium Club set. And baseball's image got a needed boost last
season from Cal Ripken Jr.'s consecutive-games record. Says
Maryland dealer Joe Bosley, "That got people back into the
swing, so to speak."

Most important, card manufacturers have reduced their print
runs, stabilizing prices somewhat. Last year Topps produced its
lowest number of baseball cards since 1965, when it began
keeping records. And Pinnacle's CEO, Jerry Meyer, promised
retailers, "We'll produce less than the demand. Count on it."

Says Leibowitz, "The worst is over.

Barring some negative event, the companies could start putting
some impressive numbers on the board."

The consolidation of manufacturers is also expected to help.
Last year Pinnacle, a producer of baseball and hockey cards,
bought Action Packed, the top NASCAR racing brand; Marvel, which
bought Fleer in 1992, bought Skybox, taking a dominant position
in basketball cards. This year the Finnish conglomerate
Huhtimaki Oy that owned Leaf North America and its Donruss unit
sold Donruss to Pinnacle.

Another survivor of the storm is the secondary market, with its
infrastructure of card shows, magazines and Internet sites. This
market may not operate rationally, but rare cards of stars still
give collectors a focus for their energies. As Bosley wisely
says, "We shouldn't think of the cards in terms of investments.
We should think of them as collectibles."

That may sound naive, but to a true collector, having is more
important than holding. Patrick Quinn, a Chicago-area collector
who has about 100,000 baseball cards from the 1940s, says he
pays no attention to the value of his portfolio. "That's not
being a collector," says Quinn. "That's being a worried person."

Seen from that perspective, the shakeout is almost welcome. As
for those youngsters Martin worries about--the kids with a buck
or two of newspaper-route money in their pockets--Topps recently
introduced a drugstore line of baseball cards reminiscent of its
1950s issues: five no-nonsense cards plus a chunk of
sweet-smelling Bazooka gum for 50 cents. Slogan: "The fun is
back."

Let's hope so.

COLOR PHOTO: BRAD GUICE/CHUCK SOLOMON/ARRANGEMENT BY WORKS NY[Photograph of baseball cards stacked in shape of stadium superimposed on photo of baseball field] TWO COLOR PHOTOS: COURTESY OF THE TOPPS CO. In 1957 a big star like Mantle would appear on only two Topps cards: alone and with his teammate Yogi Berra. [Mickey Mantle baseball card; Mickey Mantle and Yogi Berra baseball card] EIGHT COLOR PHOTOS: COURTESY OF THE TOPPS CO. Topps contributed to the 1995 card glut by distributing 21 featuring Ken Griffey Jr., including these eight. [Eight Ken Griffey Jr. baseball cards] COLOR PHOTO: HORSE STAR CARDS Straying far from the diamond--to the turf and even the ice--didn't take the chill off the card market. [Card featuring horse Cigar] COLOR PHOTO: COURTESY OF UPPER DECK [See caption above--Wayne Gretzky card] COLOR PHOTO: THE TOPPS CO. [See caption above--Nancy Kerrigan card]

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