Thursday, April 8, 2010

She May Not Be Singing Yet . . . But She's Warming Up

Yesterday's late breaking news relating to Upper Deck being unable to come to terms with NFL Properties, consequently shutting them out of the NFL trading card market for 2010-11, leaves many collectors scratching their heads in confusion and one mainstream media reporter, in particular, (Liz Mullen of the Sports Business Journal) eating crow. The loss of the license could be the death blow for the company that revolutionized the way trading cards were produced and marketed.

A long string of recent legal troubles appears to be karma playing itself out as the company has been the focus of numerous shady, unethical, and even illegal business practices over the last several years. Don't get me wrong. I love Upper Deck trading cards. Not the company, but the cards. Their ability to produce high-end collectibles is second to none.

However, that is the crux of the problem. A victim of their own success, along the way Upper Deck forgot what was important about The Hobby, namely producing affordable cards that can be enjoyed as a family activity. Instead their self-serving need to one-up-themselves every year or at times with every product, caused a ripple effect within the industry that is only now beginning to find equilibrium again.

After the on-card autograph, and game used memorabilia, and ultra high-end product, Upper Deck failed to find that "next big thing" and instead relied on the deep pockets of 30 somethings with disposable income, aging baby-boomers looking to reconnect with their youth, and the sports fan and casual gambler to drive sales and revenue.

Having failed to successfully distinguish separate product lines for kids and adults, the line became so blurred that what resulted was the complete devaluing of base cards. For decades, base cards were the product and the thriving vintage market proves that point. I first knew The Hobby I loved was in trouble when attending a National about 7 years ago and finding hundreds, if not thousands of left behind and disposed of base cards in the food court. Why? They were purchased for the express purpose of the wrapper redemption program and nothing more. A sad commentary on the disposabilty and lack of value in base cards created in part by a company that created "the chase", and the "hit" mentality.

A few years ago, Donruss lost their MLB license and many predicted that event would result in the demise of the company. Today, the company (now Panini) holds exclusive licenses for the NBA and NFL, and pending the future of Upper Deck a possible third license with the NHL that it currently shares with them. Who would have thought the company could be transformed the way it has, poised for international growth and stronger than ever?

Can this happen for Upper Deck? No, or I highly doubt it, and here is why.

1) NHL trading cards account for a dismal percentage of the overall sports trading card market.

2) Collegiate trading cards (UD's other main, existing license) have a very short shelf life and do not carry over value to the secondary market once licensed products hit the street and collectors are starting to awake to this fact.

3) Upper Deck has seemingly gone out of their way to bite the hand that has fed them and put them on the map 21 years ago- Major League Baseball Properties. Other leagues have taken notice.

4) Capital. Topps is a multi-million dollar company with a board of directors and despite the company losing $100M last year has been repositioned as the king of baseball cards with a long-term exclusive trifecta with USA Baseball, Minor League Baseball (MiLB), and Major League Baseball. A company could survive on that alone. Add in the fact, that just on the trading card side, they have exclusives with the WWE, the UFC (MMA, a sport with rapidly growing popularity) and entertainment licenses like Garbage Pail Kids, Wacky Packages, and Star Wars to name a few and you have a trading card company that has a tremendous amount of resources. Let alone the fact that trading cards is only one focus of their company and they operate a highly successful gum and candy division to draw from as well.

One can only imagine Michael Eisner (Mr. Disney) dancing a jig yesterday, lighting cigars with $100 bills, or more likely, UD Ken Griffey Jr. rookie cards.

How smart do the executives at Panini Global look right now?

Are the former owners and original founders of Fleer rolling over in their graves seeing the demise of their legendary brand? For sure.

I want to believe that Upper Deck can persevere and that their CEO and founder, Richard McWilliams, has a humble, light-bulb moment and can make the amends necessary to re-stake Upper Deck's place in the sports collectibles market. My heart goes out to the people that have been affected by these changes resulting in job loss, particularly in a market where making a parallel job change are extremely difficult. There will assuredly be more layoffs to come as Upper Deck tightens its corporate belt and tries to find a way to weather this storm. Honestly I give the company the chance of being in business at the end of 2011, 50/50 odds, at best.
What are your thoughts?


dogfacedgremlin said...

Sad. That's all I can say. Since I am an 85% hockey collector the writing is on the wall now that Panini has a share of the pot. I just can't understand how a company so big and so successful could be so stupid in their practices. Sad.

Jeremy said...

Very well written and I agree with nearly everything you wrote. I think there is also an argument to be made that success can breed lack of creativity and lack of creativity destroys entrepreneurial skills. My hope is that UD is sold to Panini because there are UD brands in hockey that I enjoy collecting.

It makes me wonder if Panini will implode in another five to ten years.

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