One of the primary methods used to gain long-term value from baseball cards is to identify prospects early on before they become stars. That is, much the same way an investor and/or speculator might look to identify the next Google before it becomes Google or the next Amazon.com before it becomes Amazon.com, baseball card prospectors are constantly on the lookout for the next Bryce Harper or Mike Trout.
That said, the release of 2013 Bowman this week marked the first big release of the 2013 baseball card season, introducing the first Bowman Chrome prospect autos of the top two picks of the 2012 MLB First-Year Player Draft: Minnesota Twins OF Byron Buxton, the No. 2 pick in the draft and the virtually undisputed top prospect from the draft; and Houston Astros SS Carlos Correa, the No. 1 pick in the draft.
The base autos (that is, non-refractor, non-numbered autograph cards) of both of these players are off to a hot start, with Buxton autos going in the $130-$170 range (and one $200 sale) in the first couple of days of trading on eBay, while Correa base autos have traded in the $100-$130 range. However, unless the cards turn out to be short-printed, both players are being wildly overvalued.
Ungraded pricing of $130-$170 for Buxton, for example, implies a graded BGS 9.5/10 (graded BGS 9.5 Gem Mint with a 10 Auto) value probably in the $200-$250 range. By way of comparison, the 2006 Bowman Chrome Justin Upton prospect auto graded BGS 9.5/10 can be had in the $150-$200 range, while the 2008 Bowman Chrome Draft Mike Stanton (now Giancarlo Stanton) auto graded BGS 9.5/10 is selling in the $200-$250 range. The 2005 Bowman Chrome Matt Kemp auto carries an ungraded Beckett book value of $150, but a graded BGS 9.5/10 book value of $300 (there are zero eBay sales of BGS 9.5/10 examples of this card in the last three months, though they were going for around $250 a pop late last year).
And the only players with comparable Bowman Chrome autographed prospect cards worth more right now are Mike Trout and Bryce Harper, with current graded BGS 9.5/10 street values in the $500-$600 range.
Problem is, all of these guys are established stars in the major leagues. And while Byron Buxton is off to an absurdly hot start on the actual playing field in 2013, with a .368/.485/.682 (batting average/on base percentage/slugging percentage) line with five home runs and 30 runs scored through 135 plate appearances in 29 games, it's important to realize that he's doing this for the Cedar Rapids Kernals of the low Class A Midwest League, and is at least a year -- and more likely two or three years -- from being a regular in the big leagues.
So we know that Byron Buxton is probably not worth $130-$170. The next question, then, is how much is he worth?
Let's start by talking about what I call the Expected Value Comp Approach to prospect valuation.
The Expected Value Comp Approach (EV Comp)
In real estate appraisal, the most widely used valuation method is the sales comparison approach. Anybody who has ever bought a home has used comparable sales -- comps -- using recent sales of other homes in the same neighborhood or like homes with similar features in different neighborhoods in order to determine the value of a home before making an offer. This typically involves the use of the price-per-square-foot metric, while making adjustments for things like the number of bedrooms or the presence of a pool or other amenities.
For baseball cards, we can also use the comp approach to compare the values of the cards of current prospects to the values of similar cards of comparable -- but more established -- major league players. And then, by estimating the probability of certain outcomes (i.e., the probability of reaching certain levels of potential), we can develop estimates of expected value for a given prospect card.
Let's say, for example, that we estimate that a player we'll call Prospect A has three potential outcomes in a simplified scenario:
A 10% chance of being a generational talent -- equivalent of Los Angeles Angels OF Mike Trout -- with a potential value of $500;
A 40% chance of being a superstar -- or the equivalent of Los Angeles Dodgers OF Matt Kemp -- with a potential value of $150; and
A 50% chance of being a bust or other common player, with a potential ungraded book value of $10.
Now to determine the expected value of Prospect A, all we need to do is multiply the potential value of each of the three potential outcomes by the probability of each potential outcome in order to get the expected value of each outcome and then add up the expected values in order to get a total expected value.
And in this scenario, a 10% probability of being the equivalent of Mike Trout is worth $500 x 10% = $50, while a 40% probability of reaching the equivalent value of Matt Kemp is worth $150 x 40% = $60, and 50% chance of winding up a bust or other common player is worth $10 x 50% = $5. Add it all up, and the total expected value of the player in this simplified scenario is $50 + $60 + $5 = $115.
Bust or Other Common
Total Expected Value
Now let's try this exercise on Byron Buxton's 2013 Bowman Chrome prospects auto, using both ungraded and graded book values and then reconciling to street values.
Byron Buxton, OF, Minnesota Twins
Key Card: 2013 Bowman Chrome Prospects Autographs
Ungraded Street Prices: $130-$170
Read any baseball prospect guide, and you'll find that Buxton projects as a potential five-tool talent (he can potentially hit for average, hit for power, run the bases, play defense, and has a gun for an arm). As such, for the purposes of this exercise, I selected four comp players representing four potential value outcomes -- Mike Trout, Matt Kemp, Atlanta Braves OF Jason Heyward, and Kansas City Royals OF Alex Gordon -- plus a fifth outcome representing a bust or other common.
On the top tier, Mike Trout is nearly the epitome of a five tool player, with a .326/.399/.564 line with 129 runs scored, 30 home runs, and 49 stolen bases to go with Gold Glove-caliber defense in his 2012 rookie year (in which he won the AL Rookie of the Year award, and probably should have won both the AL MVP award and Gold Glove as well) -- the only tool that most observers don't grade as a plus is his arm. Trout is widely considered to be a generational talent, with some using the words "second coming of Mickey Mantle." Trout's 2009 Bowman Chrome Draft auto carries an ungraded book value of $500 and a graded BGS 9.5 book value of $600.
While most prospect guides don't have Buxton pegged as a generational talent -- probably the better comp for Buxton's ceiling is Pittsburgh Pirates OF Andrew McCutchen -- for the purpose of this exercise, we'll give Buxton a 5% chance of reaching Mike Trout's level.
On the next level in the "Superstar" category, we'll give Buxton a 30% of reaching Matt Kemp's level as a five tool talent (again, Andrew McCutchen is probably the better comp and would probably slot in or near this area, except he doesn't have a comparable Bowman Chrome prospect auto), with an ungraded book value of $150 and a graded BGS 9.5 book value of $300.
In the "Star" category, we'll assign a 30% probability of reaching Jason Heyward's level, with an ungraded book value of $100 and an estimated graded BGS 9.5/10 book value of $125 (Beckett.com lists both as $100, but recently upgraded in the ungraded value; estimated graded value is based on 1.2 times adjusted multiples for other top 2008 and 2009 Bowman Chrome prospect autos, namely Mike Stanton, Buster Posey, and Mike Trout). The caveat to the Jason Heyward comp is that Heyward himself is only 23 years old, and may have considerable upside left himself, despite a disappointing 2012 campaign and a horrid start to 2013.
In the "Semistar" category, we'll give Buxton a 10% probability of being the equivalent of Alex Gordon, a player putting up star-type numbers, but may be underappreciated because he plays in a small market.
And then finally, we'll give Buxton a 25% chance of being a bust, with an estimated ungraded value of $10 and graded BGS 9.5/10 value of $20 (essentially ungraded value plus $10, or the assumed cost of getting a card graded).
Byron Buxton: 2013 Bowman Chrome Prospect Auto Expected Value (Example)
Ungraded Expected BV
BGS 9.5 Expected BV
2009 Bowman Chrome Draft Mike Trout Auto
2005 Bowman Chrome Matt Kemp Auto
2008 Bowman Chrome Jason Heyward Auto
2006 Bowman Chrome Alex Gordon Auto
Bust or Other Common
Total Expected Value
*Source: Ungraded and graded BVs where available from Beckett.com
**"Bust" scenario values and Jason Heyward graded value are estimated
Using these probabilities and potential outcome values, the 5% chance of being Mike Trout is worth $25 in ungraded book value and $30 in graded BGS 9.5 book value, while the 30% of being Matt Kemp is worth $45 in ungraded book value and $90 in graded BGS 9.5 book value. The 30% chance of being Jason Heyward is worth $30 in ungraded book value and $37.50 in graded BGS 9.5 book value, while the 10% chance of being Alex Gordon is worth $3 in ungraded value and $5 in graded value, and the 25% bust scenario is worth $2.50 in ungraded value and $5 in graded value.
Adding it all up, and the 2013 Bowman Chrome Byron Buxton auto has an expected ungraded book value of $105.50 and an expected BGS 9.5/10 graded value of $167.50 in this scenario.
Mitigating factors and other considerations
There are a lot of mitigating factors and other factors to consider.
For starters, this is just one estimate: Playing around with the numbers can have a dramatic impact on results. For example, let's say instead we think Buxton has zero chance of reaching Mike Trout's level as a projected generational talent. Taking Trout's 5% and giving it to Matt Kemp would cause a drop in ungraded value from $105.50 to $88, while causing graded BGS 9.5/10 value to drop from $167.50 to $152.50. Moving that five percent into the "Bust" category instead would cause expected ungraded book value to drop to $81, and expected graded BGS 9.5/10 value to drop to $138.50.
The numbers can be played with a lot of different ways, and the art of projecting values can be quite subjective. But anyone who has any experience doing appraisals or financial forecasting can tell you that the actual practice of projecting values can be a lot more subjective than you'd think it is or would like it to be.
Another factor is the impact of multiple expansion between ungraded and graded values. In a previous article, we noted that the graded BGS 9.5 Gem Mint Bowman Chrome autos of the top players from 2007-2010 generally carried an adjusted multiple of 1.2 to 1.5 times ungraded book values, while Bowman Chrome autos of the top players from 2001-2006 generally carried adjusted multiples in the 1.5 to 2.3 times range -- significantly larger premiums (see The Investment Profile of the Modern Baseball Card).
Such multiple expansion may be a natural product of time (i.e., older cards naturally carry larger premiums over time), or more likely a combination of time and the card removal effect. That is, over time, the best examples of a given card get graded by Beckett Grading Services or Professional Sports Authenticator (PSA), a division of Collectors Universe , and are thus removed from the pool of ungraded cards; as a consequence, the value of ungraded cards declines in relation to the value of graded cards (or the value of graded cards rises in relation to ungraded cards), resulting in multiple expansion.
Regardless of the cause, what this means is that the ungraded value of the 2005 Bowman Chrome Matt Kemp auto is less reliable as a comp for ungraded values of more recent issues. As such, our best bet is to rely more on graded BGS 9.5 values and then work backwards to ungraded values, using the multiples of more recent issues.
A third factor deals with the difference between street values and Beckett book values. For starters, the term "book value" is a bit of a misnomer, as Beckett pricing is not actually meant to be an appraisal of value, but rather a reflection of the price of recent market trades (investors will note the difference between "market price" and "intrinsic value"). That said, Beckett book values are meant to reflect the "Hi" end of the reasonable market price range, excluding outliers. By default, most trades occur at a discount to book value, often significantly so in the case of ungraded cards, whether due to relative condition, or merely the uncertainty of condition that comes with dealing in ungraded cards, particularly over the Internet.
As a result, the difference between street pricing and Beckett book values need to be reconciled when projecting the ungraded value of new issues.
A fourth factor is the potential differences in print run sizes. Some hobbyist estimates peg the print run of the 2013 Bowman chrome prospect autos at an average of up to 2,200 copies for the base autos for each given player, or approaching 3,000 including the refractors (see this thread on the Blowout Cards Forums). In contrast, I estimate from the stated odds that the print run for the 2012 Bowman Chrome Draft prospect (Draft Pick) autos was about 1,000 for the base autos -- or potentially less than half that for the 2013 Bowman Chrome prospect base autos -- and around 1,700 to 1,800 total autos on average for each player.
Though it's probably true that the 2012 Bowman Chrome Draft may be an outlier itself on the low end of print runs, if the high estimates are true regarding the 2013 Bowman Chrome prospect autos, then it's possible that the base autos (the print runs of the serialized, numbered refractors are consistent with previous years) may be devalued relative to comparable cards from previous years.
Putting it all together
Personally, I'm inclined to discount the Mike Trout scenario, and am more inclined to project a graded BGS 9.5/10 book value for the 2013 Bowman Chrome Byron Buxton auto of about $150. Using a 1.2 times adjusted multiple, this implies an ungraded book value of about $120, which in turn implies a street value more in the $80 to $100 range, with room for further devaluation should the high end of the print run fears prove accurate.
Note that I am talking about trying to project actual valuation -- what the card is actually worth -- and am not attempting to project what the Beckett.com pricing will be when it comes out in a couple of weeks.
That said, you get the picture that the practice of valuation can be pretty messy regardless of the business. Baseball cards are no exception.
For more of Jeff's coverage on baseball cards, check out:
Fool contributor Jeff Hwang is a gaming industry consultant, and the best-selling author of Pot-Limit Omaha Poker: The Big Play Strategy, and the three-volume Advanced Pot-Limit Omaha series. Jeff's next book, The Modern Baseball Card Investor, is due out later this year. Jeff owns shares of eBay. You can follow him on Twitter @RivalSchoolX.
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