Turmoil at PSA

[vamz]

Some of you may have noticed that the share price of Collectors Universe (CLCT), the owner of PSA went up 11% today. This was not random.

A fund manager has recently been acquiring significant stock in CLCT and now has a 5.4% ownership stake in the company.

The fund manager (Connor Haley from Alta Fox Capital) yesterday published this letter:

https://static1.squarespace.com/stat...holders_vF.pdf


In this letter he details why he believes that PSA has left significant shareholder value on the table and focussed on their lack of innovation and the lack of shareholder alignment as key reasons for why CLCT has seemingly not benefited from the card hobby boom in recent times.

From what I can gather the following has occurred:

-Alta Fox capital wanted exposure to the hobby boom and saw CLCT as the best opportunity to invest

-Alta Fox approached the Board of CLCT with suggestions on how CLCT to improve their business and subsequently attain more value for shareholders. It seems that the CLCT Board essentially ignored these suggestions, which is particularly unusual given his significant share holdings.

-Alta Fox has now moved to spill the Board and introduce a new Board. Interestingly, one potential Board member they have nominated is the hobby's own Nat Turner


It seems that one of the key ways that Alta Fox believe CLCT could improve things is via digital innovation. This could potentially 1) improve accuracy and consistency of grading, 2) save costs to the company which could be passed on to customers and 3) improve speed of turn around time. They have highlighted that CLCT remains a legacy company and has failed on the innovation front and is not a customer-centric company at all.

If Alta Fox is successful in achieving this Board spill, this could have enormous ramifications for the hobby, much of which I believe will be positive. Having someone like Nat on the Board can only be a good thing. He has exited multiple tech startups previously and as we all know is an avid collector. I can't think of anyone more suited to improving CLCT from an innovation and customer service point of view.

The question I have for the forum is, what are 3 key things you think PSA do poorly that could be improved upon?

[signed79]

Originally Posted by vamz

The question I have for the forum is, what are 3 key things you think PSA do poorly that could be improved upon?

Wow..

[CoachBruno]

1) they either struggle to identify trimmed/altered cards or willingly ignore some instances.




Wayyyyyy below this:

2) true objectivity in their evaluations is a joke, even on aspects that should be 100% objective like centering. Digitizing that process seems like it should be fairly easy to implement. Harder to escape subjectivity in evaluations of corners, edges, and surface.

3) pop protecting: Some cards are clearly graded on a curve either against other cards in the same set (1989 UD) or as the pop reports mature. This is not objective, nor is it fair.


As a staunch proponent of digitizing the strike zone in MLB, I’ll also say that bringing technology into the grading game (and minimizing subjectivity) would be welcome. It is currently too much of a crapshoot with all of the TPG. I defy anyone who would say that it is not.

It should be the mission statement of any/all TPG’s to turn the old adage “buy the card not the grade” into an anachronism. The grade should be as objective and accurate an assessment of the card’s condition as possible.

There are many more ways that grading could be improved and I would love to see this thread become a cheat sheet for the reformation of the TPG space.

Originally Posted by vamz

Some of you may have noticed that the share price of Collectors Universe (CLCT), the owner of PSA went up 11% today. This was not random.

A fund manager has recently been acquiring significant stock in CLCT and now has a 5.4% ownership stake in the company.

The fund manager (Connor Haley from Alta Fox Capital) yesterday published this letter:

https://static1.squarespace.com/stat...holders_vF.pdf


In this letter he details why he believes that PSA has left significant shareholder value on the table and focussed on their lack of innovation and the lack of shareholder alignment as key reasons for why CLCT has seemingly not benefited from the card hobby boom in recent times.

From what I can gather the following has occurred:

-Alta Fox capital wanted exposure to the hobby boom and saw CLCT as the best opportunity to invest

-Alta Fox approached the Board of CLCT with suggestions on how CLCT to improve their business and subsequently attain more value for shareholders. It seems that the CLCT Board essentially ignored these suggestions, which is particularly unusual given their significant share holdings.

-Alta Fox has now moved to spill the Board and introduce a new Board. Interestingly, one potential Board member they have nominated is the hobby's own Nat Turner


It seems that one of the key ways that Alta Fox believe CLCT could improve things is via digital innovation. This could potentially 1) improve accuracy and consistency of grading, 2) save costs to the company which could be passed on to customers and 3) improve speed of turn around time. They have highlighted that CLCT remains a legacy company and has failed on the innovation front and is not a customer-centric company at all.

If Alta Fox is successful in achieving this Board spill, this could have enormous ramifications for the hobby, much of which I believe will be positive. Having someone like Nat on the Board can only be a good thing. He has exited multiple tech startups previously and as we all know is an avid collector. I can't think of anyone more suited to improving CLCT from an innovation and customer service point of view.

The question I have for the forum is, what are 3 key things you think PSA do poorly that could be improved upon?

[eldustino]

Originally Posted by vamz

It seems that one of the key ways that Alta Fox believe CLCT could improve things is via digital innovation. This could potentially 1) improve accuracy and consistency of grading, 2) save costs to the company which could be passed on to customers and 3) improve speed of turn around time. They have highlighted that CLCT remains a legacy company and has failed on the innovation front and is not a customer-centric company at all.

Fantastic post friend. Been watching the stock from the sidelines and did not see the news driving the jump. Wish I had anything of value to share but I do believe this is a company that benefits from "perceived scarcity" similar to the line out the door at the club. People who pay more get to get in and out quicker. But the operation could CLEARLY be optimized to maximise revenue/profit without significantly impacting demand.

With all the PSA craded acunas/sotos/NBA cards coming to market, though, I am worried the the premium paid for PSA graded cards does have a limit and so they also have to make sure they don't let too much volume through. They need to keep a "governor" on the supply too, to avoid there being too many new graded cards on the market at once. At some point, collectors' demand will not keep up.

Fun topic to follow. I'm on both sides of the fence. But I do think that "3-4 weeks" for them to even acknowledge that they have my package, worth thousands of $, is pretty frustrating.

[rcmb3220]

I think improving grading accuracy and consistency would be bad for their bottom line.

[vamz]

Originally Posted by rcmb3220

I think improving grading accuracy and consistency would be bad for their bottom line.

how so?

[mfw13]

Originally Posted by vamz

how so?

Would reduce resubs....

[mfw13]

Originally Posted by vamz

The question I have for the forum is, what are 3 key things you think PSA do poorly that could be improved upon?

Talk about a loaded question....

1) Be more open about the qualifications and training of their graders
2) Less censorship of people who are critical of them on their boards
3) Allocate more time to grade each card....right now it's like a conveyor belt system....45 seconds per card....graders eyes have to be bugging out after an hour or two....

[rcmb3220]

Originally Posted by vamz

how so?

Because the card doctors and high volume submitters May revolt and go to Beckett.

[vamz]

Originally Posted by rcmb3220

Because the card doctors and high volume submitters May revolt and go to Beckett.

Perhaps. My view though is that if PSA raise the standard then BGS would be forced to follow suit. This is why I think this is a very very good thing for the hobby as a whole, not just CLCT shareholders per se. This is a BIG opportunity for the whole grading thing to be improved on many fronts.

[dmanrico]

Wow. Did not hear about this. Thanks for sharing OP! I too am excited about this development and hope that it leads to some exciting new innovation and growth for the hobby.

I’m not sure you’ll get a lot of objective posts answering your direct question as many on the BO board really just want grading to go away entirely.

[tmoore_25]

I think this is extremely good for PSA. The grader haters aren't going to like this very much. I just finished reading the article published and here are some of the takeaways I got out of it.

1. You want to know why nobody cares about the company on the conference calls or why there hasn’t been significant change to the company in order to improve its current standing? The current board members do not care about the direction and profitability of the company nor do they believe in the company. They’re there so that they can say they are board members of a publicly traded company. If they performed this way with any other mainstream company they would have been removed long ago.
- “while we had amicable discussions with Chief Executive Officer, Joseph J. Orlando, we felt that the rest of the Board was largely uninterested in listening to our suggestions and informed us that CLCT would no longer communicate with Alta Fox going forward. We were disappointed by such a dismissive response to a large shareholder, which heightened our concern that the Board is not acting in the best interests of shareholders. As a result, Alta Fox has been forced to escalate the matter to ensure proper governance and to maximize value for all shareholders.”

2. Want to know if the company is headed in the right direction? Look no further than insider purchases and sales of the company stock.
- “There have been zero insider open market purchases in the last 5 years (see exhibit 1), but considerable open market sales. Their individual and collective CLCT equity ownership is miniscule.”
PSA own board members don’t even think highly enough about the company to actually own any stock. The old farts are there only to collect a check.

3. The things that they say they are doing in order to alleviate the backlog is common speak but never actually amounts to anything.
- “While CLCT has recently announced hiring initiatives and operational improvements, years of similar announcements leave us doubtful that these efforts will quickly solve their capacity problem. Improving grading turnaround times and delivering new and innovative services for customers is a top priority for Alta Fox and our slate of highly-qualified director nominees.”
- “Our nominees would work tirelessly with management to fix the bottlenecks in the core grading business, introduce valuable new digital services, and bring increased transparency to both investors and customers”
It’s good that they see the biggest problem is turnaround times. I am also interested in what digital services means. I wonder if it might be something like SGC’s seller ready images?

4. I think they may start to look at some sort of PSA selling platform or storage (Vault) to expand their services.
- “unique marketplaces, inventory storage, and pricing analytics for collectibles”

5. The most interesting thing to me is the lack of even one hint of any FBI investigation into PSA’s grading practices or any mention of grading practices (preferential treatment, pop control). For a company to invest that much into them and attempt to replace the board and take the company private instead of public, they have got to know about any investigations into the company. The fact that nothing is mentioned is a sign that they are not concerned at all for the outcome of that investigation. If I’m not mistaken, two of the potential board members they proposed are collectors and I would think they have some knowledge of what customers main concerns are. Unless they don’t frequent the boards…….

[vamz]

Originally Posted by dmanrico

I’m not sure you’ll get a lot of objective posts answering your direct question as many on the BO board really just want grading to go away entirely.

And that's fine. I appreciate not everyone is interested in grading etc.

I just think this is a very unique opportunity for the hobby as a whole to potentially drive some change in the grading process and I hope those that have constructive feedback take the opportunity to provide it.

[eldustino]

Originally Posted by tmoore_25

I think this is extremely good for PSA. The grader haters aren't going to like this very much. I just finished reading the article published and here are some of the takeaways I got out of it.

1. You want to know why nobody cares about the company on the conference calls or why there hasn’t been significant change to the company in order to improve its current standing? The current board members do not care about the direction and profitability of the company nor do they believe in the company. They’re there so that they can say they are board members of a publicly traded company. If they performed this way with any other mainstream company they would have been removed long ago.
- “while we had amicable discussions with Chief Executive Officer, Joseph J. Orlando, we felt that the rest of the Board was largely uninterested in listening to our suggestions and informed us that CLCT would no longer communicate with Alta Fox going forward. We were disappointed by such a dismissive response to a large shareholder, which heightened our concern that the Board is not acting in the best interests of shareholders. As a result, Alta Fox has been forced to escalate the matter to ensure proper governance and to maximize value for all shareholders.”

2. Want to know if the company is headed in the right direction? Look no further than insider purchases and sales of the company stock.
- “There have been zero insider open market purchases in the last 5 years (see exhibit 1), but considerable open market sales. Their individual and collective CLCT equity ownership is miniscule.”
PSA own board members don’t even think highly enough about the company to actually own any stock. The old farts are there only to collect a check.

3. The things that they say they are doing in order to alleviate the backlog is common speak but never actually amounts to anything.
- “While CLCT has recently announced hiring initiatives and operational improvements, years of similar announcements leave us doubtful that these efforts will quickly solve their capacity problem. Improving grading turnaround times and delivering new and innovative services for customers is a top priority for Alta Fox and our slate of highly-qualified director nominees.”
- “Our nominees would work tirelessly with management to fix the bottlenecks in the core grading business, introduce valuable new digital services, and bring increased transparency to both investors and customers”
It’s good that they see the biggest problem is turnaround times. I am also interested in what digital services means. I wonder if it might be something like SGC’s seller ready images?

4. I think they may start to look at some sort of PSA selling platform or storage (Vault) to expand their services.
- “unique marketplaces, inventory storage, and pricing analytics for collectibles”

5. The most interesting thing to me is the lack of even one hint of any FBI investigation into PSA’s grading practices or any mention of grading practices (preferential treatment, pop control). For a company to invest that much into them and attempt to replace the board and take the company private instead of public, they have got to know about any investigations into the company. The fact that nothing is mentioned is a sign that they are not concerned at all for the outcome of that investigation. If I’m not mistaken, two of the potential board members they proposed are collectors and I would think they have some knowledge of what customers main concerns are. Unless they don’t frequent the boards…….

Thanks for this - you are right, few on this board care about the business of PSA and the shareholders. The letter is well worth a read and I think Alta Fox has identified a real opportunity for itself. I maintain that part of PSA's value to customers (as backwards as this comes off) is it's slow turnaround and arcane practices (remember when we had to label each card for some reason?). What I mean is, if they satisfied demand 50% quicker, then the PSA premium for many cards would not be as high, which would then negatively impact the demand for PSA's services. I digress; from a shareholder point of view this is good news and from a customer point of view, this is generally good news but the PSA premium will come down, if throughput goes up. I'm mainly at the modern end of the spectrum so I don't have the same perspective as high-end customers, admittedly. But I've also been a CFO of a public company and from that angle, this is fascinating and will be fun to follow.

[tmoore_25]

To answer your question more directly...

1. Turnover times for submissions is the number one thing killing them. They have got to improve that.

2. Grade cards objectively based on the card only. Pop control should not be of a concern when grading. Vintage card curator has pretty much proven that with his videos on Jeter SP, Murray RC, Henderson RC, and others.

3. Digital images will go a long way.

[base set]

I think that if they moved to some sort of robot/AI/digital grading being a part of the process, they would get a ton of re-subs as people might want a card that had gone through more of a standardized objective process rather than a subjective one. Just a hunch, not how I ‘hobby’.

[tmoore_25]

Originally Posted by eldustino

Thanks for this - you are right, few on this board care about the business of PSA and the shareholders. The letter is well worth a read and I think Alta Fox has identified a real opportunity for itself. I maintain that part of PSA's value to customers (as backwards as this comes off) is it's slow turnaround and arcane practices (remember when we had to label each card for some reason?). What I mean is, if they satisfied demand 50% quicker, then the PSA premium for many cards would not be as high, which would then negatively impact the demand for PSA's services. I digress; from a shareholder point of view this is good news and from a customer point of view, this is generally good news but the PSA premium will come down, if throughput goes up. I'm mainly at the modern end of the spectrum so I don't have the same perspective as high-end customers, admittedly. But I've also been a CFO of a public company and from that angle, this is fascinating and will be fun to follow.

I don't know if I agree totally with all of what you mentioned. I don't think faster turnaround times will have as big of an impact on prices overall. The value of all the graded cards in total may decrease but the value of rare, high grade cards will always be there. I do think it will reduce the amount of regular, base, low end RC's being submitted though. The rare, numbered, and vintage cards are not going to change. Higher grades of rare cards will still be in demand whether it takes 6 days or 6 months to grade. It's slow turnaround times is what turns some people off of grading and they either choose another company to go with or simply choose not to participate.

[vamz]

I have spoken to someone that sends bulk submissions to PSA.

He says that the submission process is a huge pain in the ass.

[eldustino]

Originally Posted by tmoore_25

I don't know if I agree totally with all of what you mentioned. I don't think faster turnaround times will have as big of an impact on prices overall. The value of all the graded cards in total may decrease but the value of rare, high grade cards will always be there. I do think it will reduce the amount of regular, base, low end RC's being submitted though. The rare, numbered, and vintage cards are not going to change. Higher grades of rare cards will still be in demand whether it takes 6 days or 6 months to grade. It's slow turnaround times is what turns some people off of grading and they either choose another company to go with or simply choose not to participate.

I do agree with you; that's why I mentioned that as a customer, I'm mostly modern (2013-current). It's interesting calculus though I imagine; if everyone could get their cards graded in a week, would the psa premium on 2018 update topps card come down? My hypothesis is yes. What I don't have any insight into, is how much of CLCT business is 2017-current "fad" card grading (sorry acuna/soto) vs. vintage that have steady, and inevitably declining, demand. My guess is that more growth is in the former, but it's just a guess. I'll say again, I agree with your response.

[MoreToppsPlease]

CLCT stock price increasing will only spur Topps to start its own grading company to grade its own cards even faster.

Having a grading company be worth more than the main manufacturer is a substantial market imbalance.

[aggies1960]

I still don't know why an AI machine learning grading system has not been made yet. It should be a race between BGS and PSA. Human grading should be a thing of the past. They need to just aquire a company that already does something similar. These grading companies need to get with the times.

[vamz]

Originally Posted by aggies1960

I still don't know why an AI machine learning grading system has not been made yet. It should be a race between BGS and PSA. Human grading should be a thing of the past. They need to just aquire a company that already does something similar. These grading companies need to get with the times.

Agree. No brainer, if the tech exists.

[aggies1960]

Originally Posted by vamz

Agree. No brainer, if the tech exists.

I have seen similar concepts already for clothing to get precise measurements from a person's cell phone. You would still need a human the input the baseline for each set but after that then it's on its own. Still thinking about how surface would be done though. I may have a Computer Science degree but not in this type of work lol. Would love to be on the team that designs it. If a new company was to come out with a digital grading system before PSA or BGS does, I could see them taking a decent percentage of the market. Human error will always be a thing.

[vamz]

Originally Posted by aggies1960

I have seen similar concepts already for clothing to get precise measurements from a person's cell phone. You would still need a human the input the baseline for each set but after that then it's on its own. Still thinking about how surface would be done though. I may have a Computer Science degree but not in this type of work lol. Would love to be on the team that designs it. If a new company was to come out with a digital grading system before PSA or BGS does, I could see them taking a decent percentage of the market. Human error will always be a thing.

Yeh, i think a human still should be involved but adding in a tech layer would improve accuracy, variability and also speed up the process.

[aggies1960]

Maybe COMC could get into the grading game. It would be nice to send it off to be graded then instantly have it listed online.