Hobby searches for answers as PSA grading services halts card submissions

TWO WEEKS AGO, Bradley Crenshaw plopped down behind home plate to watch his daughter's high school softball game. The sky was blue, no clouds in sight, and the temperature in Dallas that day had hit 70 degrees. He needed this deep breath at the end of another long work day.

Crenshaw has a hectic job as the owner of Dallas Card Investors, a company that serves as a valuable middleman between collectors and the big card-grading services. Most of his clients are large collectors and dealers, though he does have some moms, dads and kids all asking if his company thinks it's worth paying $100-plus per card to have an official grader put their cards under the microscope. Crenshaw advises his clients yea or nay on whether it's worth jumping to the next level in the grading process, then either sends the cards back to the submitter or forwards to a big grader. Because he can bundle large lots, he often gets a better rate for customers who decide to go for a final grade.

Crenshaw's company has a 96% accuracy rate on predicting what Professional Sports Authenticator (PSA) would grade a card. It's a little like if you had a new food or drug product and could hire an expert who could almost guarantee what the FDA is going to say about it.

The memorabilia business is in the middle of a gold rush right now, with an official grade from the industry's preeminent grader, PSA Authentication and Grading Services, acting as the cost of admission in the big leagues of card collecting. There are headlines almost every day for the past six months with another record-breaking card sale, and most often involve a card graded by PSA.

Crenshaw had just begun to settle in alongside his wife when his daughter, the team's leadoff hitter and center fielder, came to the plate in the third inning.

Just then, his phone buzzed. He took a quick look and couldn't believe it was a real text. The calendar said it was March 30, so perhaps this was some sort of pre-April Fool's Day prank?

One of his biggest clients was saying that PSA had suspended the bulk of its services because the company was overwhelmed. Reports were saying that just a few weeks after raising rates per card, the company had mounds of cards to look at and not enough employees to do the job. Up to 10 million cards, the prized possessions of tens of thousands of collectors, were sitting in PSA regional offices across the country, ungraded. In the collecting world, it was the equivalent of the Postal Service announcing on Dec. 15 that demand was too high and the company couldn't deal with all of its recent holiday package dropoffs.

The softball game went on, but Crenshaw's mind was elsewhere. The texts and emails poured in, 50 by the end of the game, panicked clients and colleagues wondering how the industry could proceed with PSA sitting out for months.

"My face went down to my phone. I'm texting and emailing, trying to figure out a solution," Crenshaw said. "If my daughter came up to bat, I would watch. Or if the ball was hit her way, my wife would hit me to let me know the ball was going to her in center field."

Over the next 24 hours, Crenshaw says he received 200-300 total messages. What was going to happen now? How would their cards get graded? Would they get their cards back? Refunds?

The truth? Crenshaw had no freaking idea.

FOUNDED IN 1991, PSA had grown to averaging more than 3 million graded cards per year and was the unquestioned gold standard for the majority of collectors. Having a card encased with a PSA grade, on the company's 1-10 scale, is often an incredible multiplier for the value of an individual card. An ungraded card with a market value of, say, $25,000 in mint condition can get a 10 from PSA and vault as much as 10 times. It's the hobby's ultimate thumbs-up -- or down.

But the card boom had made the current growth unsustainable. PSA was receiving 500,000 cards every five days, which was more than the company took in every three months before the COVID-19 pandemic started. The number of packages received per month rose from under 18,000 this past November to nearly 30,000 in February, and it eventually caused the system to buckle. In its statement, PSA said the company had grown from 421 employees in January 2020 to 783 this March, still not nearly enough for the surge that has happened over the past 12 months. PSA did not respond to an ESPN request for comment.

"Given our growing backlog, it would be disingenuous for us to continue to accept submissions for cards that we will be unable to process in the foreseeable future," PSA president Steve Sloan said in the letter. "It's an unpleasant conclusion, especially after the March 1 price increase, but it is necessary to properly serve the customers who have already submitted to PSA."

That decision to suspend some of its services will not just impact PSA, but a majority of the ecosystem that has formed within the sports card hobby also will feel the ripple effect in the short term.

"At least 75% of the cards we sell are graded by PSA," said Rick Probstein, whose auction house has sold more than $120 million of cards on eBay over the past two years. "It's like Coca-Cola telling people to go drink Pepsi for a few months."

At Crenshaw's company, if his graders believe a card falls below a 9 or 10, the client can determine if they would still like to get the card graded. Since value is partially determined by condition, it could end up costing someone more to submit the card if it comes back graded lower than a 9. Crenshaw charges $5 to review each card and receives a discounted price through the grading services, thus saving his clients from unnecessary submission and processing fees.

"As far as submissions we take in on a monthly basis, it's thousands," Crenshaw said. "We average between $45,000 and $50,000 a month just in grading fees. That's total to all of the companies. A lot of our stuff, up until the shut-off, we had shifted and done about 95% of our business with PSA."

With the temporary suspension, Crenshaw and his clients now have a choice to make: Either they wait until PSA opens back up because they value that grade more than the others, or they choose a different service.

"My hot take is that ... it's a good thing?" says Gary Vaynerchuk, CEO of VaynerMedia and sports card mogul. "I thought, 'It'll be good for them to catch up,' followed by, 'I wonder what SGC (Sportscard Guaranty Corporation) and Beckett and the new players are going to do.' It's a huge opportunity for them."

It's not all bad for Crenshaw's company and clients, as they are also part of the backlog currently held up at PSA. Crenshaw estimates he has hundreds of thousands of cards waiting to be graded.

The bright side to PSA's suspension is that the thousands of cards sitting in bins at the company's facility might actually be graded sooner than had the company not shut down. By stopping the inflow, PSA will be able to focus on the backlog and return the cards to its customers with shiny new grades. The collectors who plan on adding the cards to their current set and keeping them for themselves have only experienced annoyance having to wait longer than usual to get a card graded.

Not everyone will have that luxury, however, because not everyone in the hobby is collecting. Because sales have gone through the roof, there are plenty of people earning an income through flipping cards.

Shawn Henry is one of Crenshaw's clients and is a collector as well as a seller. He collected as a child, but only recently got back into the hobby after attending a wedding about a year and a half ago. A friend at the wedding had shown him a picture of his Prizm Luka Doncic rookie card on his phone and told him his find was now worth thousands more than he bought it for.

After that conversation, Henry found a retail box of 2018-2019 Prizm basketball cards for $2,000 and happened to pull a Doncic card of his own. He flipped it for $8,800 and was hooked.

Henry figures he has 180 of his own cards that have been sitting at PSA waiting for a grade, some for more than a year, that have cost approximately $11,000 in grading fees alone. With a skyrocketing market in full swing right now, Henry has no idea how much money he'll miss out on by his cards sitting in collector purgatory.

"It's frustrating because the markets are always swinging and you have to time them right. So when PSA is off, you're losing money," Henry said. "It's unfortunate because they're a business and they're holding up other peoples' business and staggering the market. If their timeline was up to date, the market would be so much healthier than it is right now, and that's hard to believe."

Henry estimates he has well over $1 million in total value for the cards he has waiting at PSA. He wouldn't have sold all of those cards right away and would have kept some for his collection. But because the market fluctuates, he figures he has lost $100,000 from his cards being held at PSA. Most of that comes from basketball cards, Zion Williamson and Ja Morant cards in particular. Henry notes that Morant cards were initially hot but have since cooled, and he wouldn't be able to sell the cards for nearly as much as he would have had he gotten them back sooner.

Having a graded card instead of the raw version gives those resellers an opportunity to make a profit. Waiting until PSA reopens probably is not an option for those looking to keep their income steadily flowing, as this is all a cash game.

Not every card is worth enough to have that type of disparity in price, but the difference can be dramatic. Take, for example, the 1986 Fleer Michael Jordan rookie, one of the most popular cards in the hobby at the moment. A raw, ungraded version of that card recently sold on eBay for $2,000, where a 9-graded mint version sold on the same day for $52,600. Even on the lower end, if someone is reselling cards, the difference between ungraded and graded could be making a profit or netting a loss.

"I mean, everything depends on [grading]," Probstein said. "The difference between a 9 and a 10 could be a million dollars. It's also a powerful position, too. It's the lifeblood. Everything we do is based off it."

MANY INSIDERS raised a surprising point when discussing the PSA shutdown: Perhaps it could be a good thing long term to not have one grading service be so powerful. Despite the immediate negative impact for the first part of 2021, some believe it's actually important for the hobby not to be so reliant on just PSA.

Jesse Craig, director of business development for PWCC auctions, said it was a smart decision because of the sheer volume PSA has taken in. PWCC is an online marketplace and auction house that regularly features some of the hobby's high-end cards. The company sold 15 cards for a little under $1 million in one of its recent auctions alone and has a Class III bank vault to securely store cards and collectibles for their clients.

Craig doesn't believe PSA would have been able to get caught up without making drastic changes to scale or suspending submissions. Now collectors are forced to explore other options for grading services.

"It can turn into one of two things, where people are just waiting to send to PSA until they're back up and running, or they decide to use Beckett or SGC," Craig said. "But that could bog down those two grading companies and it could really open the door for a couple new grading companies like CSG (Certified Sports Guaranty)."

Beckett and SGC, PSA's two biggest competitors, are already experiencing a backlog of their own. Not to the level PSA is, but enough for the companies to increase pricing in hopes of lowering the volume that's coming in.

Even so, Beckett president Jeromy Murray is open about what would be another shocking development: He fears his company will have to shut down to catch up, too. It used to offer a money-back guarantee on submissions if they took too long; five years ago the demand got so high that stopped.

"I would love to stay away from [a shutdown]. Ideally, we would love to be caught up with this backlog, but the demand is so high," Murray says. "Our standard service right now has ballooned to six to nine months. So, could it happen to us? Oh yeah, absolutely. We want to avoid that if at all possible."

But as Craig said, this increase in demand is opening the door for new companies and new methods. CSG is under the umbrella of the Certified Collectibles Group, which has been grading comic books and currency since 1987. The company saw an opportunity in the sports card market and created the CSG branch in February. Because the company was so highly respected in the comic industry, CSG immediately had sports card submissions for grading from existing comic clients.

Max Spiegel, president of Certified Collectibles Group, said the company didn't know PSA was planning to suspend its services when it launched CSG, but it has been at the ready for the potential impact.

"I don't see a scenario where our competitor can shut off submissions to a large category of cards and for that not to benefit us," Spiegel said. "It's hard to quantify that benefit, and maybe we're not seeing it immediately because it hasn't trickled down to us yet, but it definitely won't hurt. It can only help us."

Crenshaw has already opened a new business account with CSG and just submitted his first bulk submission to the company because of the opportunity to get cards back in a timely manner.

CSG is well aware that it needs to be careful not to follow in the footsteps of its competitors and create a backlog of its own. It needs to balance that notion with the fact it also needs to persuade new customers to trust it with their grading and that cards graded by CSG can hold similar value to a PSA-graded card. "In order for CSG to get on the map, they're going to need to get some big cards at auction," Henry said. "They're going to need to get big money with their name on it. Their name needs to be seen in these auctions, keep their timelines to what they say they're going to be, and if they can do that, and PSA doesn't open up, they could see a lot of success."

Part of the issue is that card graders aren't just falling out of the sky or lining up in droves at the doorstep of these companies to help with the volume issue. It can be a grueling job; sitting at a desk, staring at sports cards you don't own for over eight hours a day can be a grind.

Not only is it a challenge to find and train graders, it can sometimes be difficult to retain them as well. Graders get such an up close, intimate look at the hobby that they have knowledge that can be used to make more money than what the card-grading services can offer. If they were to start a pre-grading service similar to what Crenshaw has, or even sell cards on their own, they could stand to make more than what they would as a card grader for PSA or any other service.

The conversation has also fueled speculation about a more radical solution to the grading problem: Maybe the robots can save the day? There have been long-running conversations in the business about how AI grading could one day be more objective and cheaper than humans evaluating cards. It's hard to get around the math of grading 100,000-plus cards per day with humans alone.

"Are we ready for artificial intelligence grading?" Probstein asks. "That's a whole other can of worms. How do you take eye appeal out of the equation? That's a very big bungee jump. I don't know if the industry is ready for that."