Rapid growth no longer in the cards Trading industry woes blamed on glutted market

February 10, 1993|By Jon Morgan | Jon Morgan,Staff Writer

Say it ain't so, Joe.

And Babe. And Cal and Reggie and Bo. And all you other athletic idols upon whose images the dazzling trading card industry was launched and, it appears, is now foundering.

After leaping seemingly overnight from a sleepy business based on playground trades into a $2 billion, computerized commodities market, the trading card industry is retrenching after seeing its speculative bubble burst.

Card shops are closing, manufacturers are deluged with returned orders, prices are dropping and companies that only a few years ago scrambled to get into the business are now jumping out.

Over the past six months, Dallas-based Pro Set filed to reorganize under Chapter 11 of the bankruptcy code, and rivals Upper Deck Co. and SkyBox shook up their management with top-level firings. Other niche players have dropped out entirely.

And the stock of industry-leading Topps Co. Inc. has been scraping bottom since it announced late last month that fourth-quarter orders were "significantly lower" than expected and would result in a loss for the period.

"We see this development as a market contraction rather than a seasonal fluctuation," Topps Chairman Arthur T. Shorin said in a statement released by the company.

Actual profit figures will be reported after the quarter ends Feb. 25, and analysts predict the New York-based company will be profitable for the year. But Wall Street was clearly taken aback by the news.

Topps stock has lost 40 percent of its value in the days since its announcement, hitting a low of $6.50. That followed a similar droptriggered by disappointing third-quarter results, and revelations that a number of company insiders, including its president and a director, had sold huge chunks of their stock over the summer. It closed yesterday at $7, down 25 cents.

A year ago Topps was trading at 19 1/2 .

Competitor Marvel Entertainment Group Inc., owner of Fleer Corp., was also dragged down by Topps' troubles, dropping $5 since Topps' fourth-quarter announcement. Marvel closed yesterday at $22.875, up 62.5 cents.

The industry had been overheated by speculation, and a healthy shakeout is under way, said Margaret Witfield, an analyst with Legg Mason in Baltimore who follows Topps. The firm had downgraded Topps stock in December.

"I continue to believe there will always be a market for sports cards because of the underlying popularity of sports. But I don't think there will be the rapid appreciation there has been," Ms. Witfield said.

She said consumer interest appears to be shifting at least temporarily away from sports cards and to cards of comic book heroes, something that benefits Marvel, which also publishes comic books.

Some estimates put the card industry at $2 billion in sales this year, including resales of vintage cards, up from $250 million just five years ago. The number of brands has grown to 40, up from just eight in 1988 and essentially one, Topps, 10 years before that.

Sales leapt at a breathtaking 300 percent during some years in the mid-to-late 1980s and early 1990s, spawning a whole support network of buyer guides, magazines, card shows and retailers.

Upper Deck, which shook up the industry in 1989 when it debuted with counterfeit-proof hologram cards, predicts sales will expand at 10 percent to 15 percent annually for the next few years. That's solid growth, but not what some collectors had come to expect, according to company spokesman Camron Bussard.

"I think you'll see a shakeout. But the main players will survive. . . . We think this is a great opportunity for everyone to catch their breath andlook at what the customer really needs," Mr. Bussard said.

Mr. Bussard said the industry suffers from too many manufacturers crowding the market. But others blame the manufacturers, specifically Upper Deck, for overproducing. This ruins the image of scarcity upon which card collecting is built.

"Every time you turn around, there is a new card coming out," said Sheila Ruth, owner of J & S Baseball Card Outlet in Essex. She has seen two nearby competitors close down over the past four months.

She blames the economy and the proliferation of new card sets.

"There is quite a lot of product being produced, and that is keeping prices on the low side," said Scott Kelnhofer, editor of Sports Cards Magazine of Iola, Wis.

He attributes the industry's troubles to growing pains.

"You look at the end of the 1970s, and the organized hobby did not exist," Mr. Kelnhofer said. There was essentially one manufacturer, Topps, and only a handful of sports depicted in cards.

Today, cards are manufactured for sports from indoor soccer to auto racing, as well Teenage Mutant Ninja Turtles and Playboy centerfolds.

"You are talking about an industry that is still in its infancy stage. It's like anything else, when the going gets good, it gets too good too fast," Mr. Kelnhofer said.

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