Wednesday, March 3, 2010

Decade in Review: Return of the Speculator

I originally had planned to discuss the state of the collecting market at length as part of my Decade in Review series later in the year (past topics include Conquering Hollywood and The Big Event), but considering some of the high profile sales that have taken place over the last couple weeks, now seemed like a good time to talk about how the stratification of the collecting market is once again posing a danger to the hobby.

That may seem like a strange sentiment considering the immediate impact of those sales. which began on February 22, when the blogosphere went gaga over the sale of a copy of Action Comics #1 for a cool $1 million dollars. The sale event managed to even grab the attention of the usually uninterested mainstream media, which gave the auction house behind the deal an unfortunate platform to hype his business and the comic collecting market.

"When you look at what happened to real estate, the stock market and in banking, people are terrified. They're making no money in the banks, they're not sure about real estate, and the stock market is like playing roulette," Vincent Zurzolo from ComicConnect told CNN. "With comic books, they feel a lot more confident."

Zurzolo's statements seemed to be backed up by the much less hyped sale on February 26 of a copy of Detective Comics #27 for $1,075,000 to another unnamed collector -- or is it investor? While that sale was a little more complex -- the actual sale price was $900,000, with the other $175,000 being an auction fee -- the amount was still multiple times that of any other non-Action #1 ever sold.

But while non-collectors and auctioneers around the world were greeting the news as a sign that the comic hobby is thriving and vibrant -- in addition to claiming that the sale of Action #1 "is the single most important event in comic book history," Zurzolo also posited that it put comic collecting on the same level as fine art -- long time comic readers and fans were shaking their heads, because we've seen this before. And the last time it happened, the entire industry almost collapsed.

That, veterans of the speculator wars may recall, was in the mid-90's. Much like baseball cards during the same period, comic collecting as a hobby took off like a rocket in the late 1980's and early 90's, with sales figures increasing seemingly exponentially. Marvel's much-hyped launch of a new X-Men book in 1991, powered by hot artist Jim Lee, sold over 7 million copies, just one of a number of books to crack the million mark, a figure that previously hadn't been reached since the industry's Golden Age heyday during World War II. Business was booming.

But there was a major difference between the 40's and the 90's: people in the Golden Age were actually reading and enjoying the comics they bought. In the 90's, though, the sales were being artificially inflated by speculators who, hoping to capitalize on rising back issue prices (themselves artificially inflated by Wizard, which notoriously published a "price guide" designed to push specific back issues that the publishers were trying to sell on the secondary market). Assuming that demand would continue to rise and that first issues and character debuts would in future years become hot commodities, speculators began buy dozens of copies of every hyped release. And with magazines like Wizard pushing everyone onward, regular readers (including myself) got in on the act as well. Soon everyone was buying baskets of comics and socking them away for the presumed payday.

So what happened? Well, the companies began turning out specials editions, collector item first issues and gimmick foil crossover events as fast as the presses could run, trying to strike while the iron was hot. People were buying anything regardless of quality, after all, so rather than focus on craft the big publishers began chasing the latest trends and pumping out as much "kewl" product as possible. One problem though: the people actually reading these comics began leaving, first slowly and then in droves, as the quality of the comics declined and the characters and series they followed were prostituted out to the speculator market. Combined with some shady behind the scenes deals (Marvel's attempt to monopolize the national distribution system, for instance, and their disastrous merger with ToyBiz) and the entire industry almost collapsed -- and has never really come close to recovering (consider that December saw only one title reach 100,000 copies, and that just barely -- a far cry indeed from Jim Lee's X-Men #1).

Now, you may be wondering what this history lesson has to do with anything, but for long time collectors, statements like Zurzolo's that encourage people to view comics as an investment commodity rather than as entertainment to be enjoyed or an artform to be appreciated are enough to set off alarm bells. And that, in turn, is fueled in part by the real threat to the collecting market and the rason these books sold for so much in the first place, namely the new hyper-critical grading system and the rise of CGC.

For those not familiar with it, CGC -- the Certified Guarantee Company -- is a comic grading service that purports to supply neutral, third party review by expert graders to provide the industry with a standard grading system that ensures fair trade when, for instance, you buy comics sight unseen from eBay. And, indeed, on the surface this does seem to work as it should in some segments of the secondary market, such as with Golden Age comics, where the supply is limited and grades are usually low as most books have seen decades of use.

[Note: As an aside, and probably deserving its own topic, it should be mentioned here that the CGC itself has been accused by many people of being little more than the next generation Wizard price guide scam, as the service has frequently been accused of providing false high grades to inflate prices for the seller and, of course, the CGC is hyped incessantly in the pages of Wizard itself in an attempt to push the service and CGC graded back issues -- something made more problematic by the fact that the service is too expensive for most individual collectors to use, meaning dealers who can send in bulk orders have a near monopoly on the service and thus the supply of CGC graded back issues.]

Where things really start breaking down, though, is the use of CGC for newer comics. Beginning in the 1960's, during the Silver Age, comic collecting as we now know it came into being, meaning there are many more copies of each back issue available. And considering the massive drop off in readership caused in part by the last wave of speculators (Uncanny X-Men, for instance, sold just 68k copies in December compared to over 400,000 monthly two decades ago), that in turn means that there are actually more copies of many comics than there are actual collectors who want them. Considering that all collectibles (and business in general) are based on the concept of supply versus demand, this would seem to cause a drop in back issue prices.

However, the opposite has occurred, especially in the realm of CGC graded comics and the reason is simple: many speculators are no longer buying the comic, they are buying the CGC grade. In order to ensure that their grade is accurate and uncompromised, the CGC seals every comic they grade in an airtight case; if the seal is broken, the grade is no longer valid, as they can no longer guarantee that some damage hasn't occurred to the comic. This, of course, has the additional affect of also ensuring that nobody can actually read the comic without invalidating the CGC grading, meaning that most CGC graded comics are not collected as a comic to be read, but rather as a static object. The CGC part is more important than the comic part. The most glaring example of this? For newer comics, a CGC certified comic will often sell for multiple times the amount of the exact same comic in the exact same condition that doesn't have the CGC label. In other words, having that mark adds a massive premium unrelated to the actual comic itself. Indeed, the CGC slab is so important, I have personally seen people giving a premium to CGC copies based on the condition of the CGC case itself!

So if you aren't going to read the story but instead can only look at the cover and the protective case, the appearance of the comic -- reflected by the grade -- is really the only important thing. It's just an object, a poster or a paperweight. Further, since supply is greater than demand, many collectors have multiple copies of each back issue to pick from, meaning that even among high grade comics, the tiniest imperfection can mean all the difference. After all, if you have the choice between a comic graded 9.6 and one graded 9.8, well, why not pick the better copy?

The final result of this? Massive inflation of comics with the highest grades. It wasn't long ago, after all, that the highest selling copy of Action Comics #1 was only $317,000. Thanks to the fact that Zurzolo's copy was an 8.0, one of the highest unrestored CGC copies in existence, though, it sold for a massive premium. Again: nobody is ever going to actually read this comic. What matters isn't the content, but the pedigree.

That, though, almost makes sense considering the historic importance of Action Comics #1 and Detective Comics #27. What doesn't make sense is how speculators have taken this new collecting trend -- the need for the highest number -- and applied it to new comics. Dealers, who, as I've mentioned have a near monopoly on the service, will often go through their brand new comics when they receive a shipment, cherry pick the best copies in the batch and send them off to be CGC graded. When they return with a 9.8 or a 10.0 grade -- what you would expect a brand new, unread comic off the press to receive -- they inflate the price to 50 or 100 times cover value and sell it as a high-grade commodity.

And speculators are buying them up. Collectors and readers, of course, can buy a comic off the shelf in nearly the same grade for cover price; but speculators push the marketplace, which is why a CGC 9.9 copy of New Mutants #87 -- which lists for a reasonable $40 for a non-CGC 9.4 -- recently sold for $2900 on eBay. Now, keep in mind that for a non-expert, the difference between a 9.4 and a 9.9 is probably undetectable to begin with. And then ask yourself this: does anybody really care about Cable enough to actually pay $2900 for his first appearance?

The one upside to this phenomenon -- or, at least, it's not a downside -- is that, unlike the speculation boom in the 90's, this latest boondoggle doesn't actually affect the publishing industry itself but rather only has its teeth sunk into the secondary market. But for collectors, the comic book world has become an increasingly bizarre place to be; as investors and speculators search for the highest grade comics for their sealed vaults, they have managed to actually shift how comics are graded, so that a comic that would have been graded as a Near Mint twenty years ago might only qualify as a Very Fine today. The tiniest imperfection can mean the difference between a 9.0 and a 9.8 and, in turn, lower or raise the value on the market by a factor of ten -- or a hundred. And even more: if you do end up with a comic in high grade, with a high value, now you have to worry about the possibility of destroying the value simply by reading it. Even a stress mark at a staple caused by opening the cover could be enough to drop the value in half. All seeming to defy the most basic of logic, because as demand falls further and further and fewer and fewer collectors stay in the hobby, prices for the highest grade comics -- now reduced to simple objects or investments -- skyrocket wildly out of control.

One thing is certain: as sure as the speculator market crashed in the 1990's, it will crash again. Ironically, it may be the same vehicle that has pushed this inflation that will eventually cause it's deflation as well: eBay. That's because the online sales service has already revolutionized collecting. No longer do collectors have to schlep all over the country, going to comic shops and conventions trying to find that one back issue they need, only to discover the price has been jacked up by the dealer who controls local supply. Instead, comic fans can go to eBay and often find multiple copies of whatever back issue they need, which in turn leads to lower prices. Anything you need can be found there, after all, something that most price guides have yet to realize; ironically, while the high end CGC copies are going through the roof, regular, solid non-CGC copies are often selling for just a fraction of the listed price guide value.

In the end, then, this should be a warning to anyone out there who believes Zurzolo's claim that the comic back issue market is safer than stocks or bonds or other traditional investments. As long as there are comics and as long as there's a Superman, Action #1 will have value. But these days, the entire secondary market is little more than a house of cards being propped up by speculators and shady businessmen like the folks at Wizard, trying to promote this back issue Ponzi scheme for their own short-term financial gain. Real fans and real collectors will buy the comics they love, because they love them. Any other reason for spending money on back issues is a sure recipe for financial disaster.

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A well meaning article, but glaringly missing mention of the economics of supply and demand. There are estimated to be less than 100 copies of Action #1 still in existence because people didn't "collect" them in 1938. There are millions of copies of Spawn #1, which despite the great art, was never a good investment pick, neither in the 1990s, nor now. Apples and oranges.

I always appreciate comments, so thanks for taking the time to weigh in. However, I am going to take issue with you in a couple places. I'm not sure why you state that there is a "glaringly missing mention of the economics of supply and demand," as I discuss supply and demand at several points in the article. More to the point, though, my comparison here isn't between Action #1 (which, as I said in the article, I believe is probably worth the amount paid) and Spawn, but between Action #1 and the amazing prices being paid for CGC copies of things like New Mutants #87. To use your supply and demand examples, I'll bet there are more copies of this comic in existence than there are collectors who want it. The fact that these are apples and oranges is not a point missed on me, but rather is the focus of the entire article.

I gather your main complaint here is that you believe Action #1 is a good investment. However, that is not at odds with what I have stated in this article. Action #1, especially in such nice condition, probably is a good investment for the reasons I stated in the article, namely its cultural importance and the limited supply. But the fact that this specific comic is a good investment does not mean that comics in general are a good investment, which is what Zurzolo and others are implying. I believe that while the CGC should be a useful tool, it is in effect creating an artificial market for comics that have very little value to actual collectors. Sales on new comics continue to decline, and as collectors leave the hobby, not only is there less demand for back issues but there is also greater supply because they are selling off their collections.

I'm no economist, but that hardly seems like a healthy environment for investors.

Excellent post!

In the 90s I had begun to drift away from comics as adult commitments caught up with me in my thirties. One new comic day I was in a local shop and the fanboys were fighting over some long forgotten first issue. I managed to grab one off the shelf and asked the assembled mass "Is this any good?"

The universal shock over the idea that one would actually READ a comic caused me to put it back on the shelf and walk away. Away not only from the comic and the shop, but from comics all together. I haven't spent a nickel on a new comic since. Of course the nearest comic shop these days is 40 miles away!

Just as in the 90s, the rampant speculator market will kill off a large percentage of COMIC READERS! And without comic readers, the demand for collectible comics dies off. And this time around, there just aren't many comic readers left. With the many pressures facing the industry (electronic distribution, etc.) this just may be the end of our beloved funny books.


Very nice article. It almost makes you wonder if these investors WANT the comics industry destroyed, just so there won't be any more comics made, thus making their "investment" more valuable.

An aside to your arguement that investors are destroying the hobby of collecting comics, let me mention the high cover price of comics is doing as much, if not more, damage in that regard.