As a 10 year old kid, Josh Luber loved nothing more than trading cards and sneakers. Decades later, Josh has made a career out of these passions, first as the founder of StockX and now as chief vision officer at the recently launched Fanatics Collectibles. I sat down with Josh to learn more about the massive impact that Fanatics has already made in trading cards, his views on pricing and distribution, and the plans he has in the years ahead.
Dave Knox: What was the bridge from your time at StockX to your newest venture with Fanatics Collectibles?
Josh Luber: As StockX became the leading resale market for sneakers and streetwear and other high demand products, we were always looking for what other products might make sense to put on the site. We launched in February of 2016 but by the end of 2018, we were really in growth mode and I started to see what was happening in the trading card world. Not coincidentally, I also then rediscovered my own trading card collection sitting in my parents’ basement, where it had been since 1995 when I graduated high school. And through the combination of those two, I really started getting back into cards personally myself, and then starting to see the opportunity there for the business. It was very clear at that time what was going to happen in trading cards. Growth is because of people. The growth in sneaker from 2012 – 2015 was about all these people coming back into the sneaker industry. For trading cards, it’s the same thing for my generation, who now are older and have more disposable income or have kids that might be into trading cards.
And so I was getting deep into cards and then in the summer of 2019, I replaced myself as CEO at StockX. We had just done our unicorn round, which valued the company at over a billion dollars, and it was very clear that we were moving towards an IPO and scale. The idea for StockX had always been that there are certain products that sit at the intersection of consumer goods and financial assets, where they have these unique qualities that are driven by supply and demand and market conditions. It was about how you change commerce and how you change retail. But as I started spending more time in trading cards, I came to the realization that trading cards are actually a more perfect product for that idea than sneakers ever were.
As those pieces came together, I spent a lot of time trying to figure out who to work with and was fortunate to meet Michael Rubin and to work with him in order to move from the secondary market in sneakers, into the primary market for trading cards. We have the opportunity to expand on that vision in terms of the new ways that people can buy and sell those products. We have the opportunity to get more control over an industry and change the way that people buy and sell it.
Knox: Diving into that, last fall you wrote a piece called Trading Cards are Cool Again. What inspired you to publicly share these thoughts?
Luber: First of all, I like writing and I think in another life, I might’ve been a writer. But the trading card industry is so extraordinary because we had this massive growth in the industry in the ’80s and’90s, it crashed at the end of the ’90s, and then for the last 20 years, it shrunk down to this tiny little industry. A lot of people thought it went away but it didn’t and as the growth started happening in 2018 and the money started coming in, the whole industry was so fragile. And so we had this massive explosion in prices towards the end of 2020 and then this massive crash in the beginning of 2021. And the post was really an answer to an email that someone had emailed me, saying “hey, why do you think the market crashed so hard?” And I started writing the email and it became a little too long of an email and the person said, “you should post this on your Instagram, I think people would be interested in what you think of it.” And then we started cleaning it up and then we started writing it and then all of sudden, it was 53 pages, single space, with charts and footnotes. But it was really trying to answer the question of, what happened to the market? Why did it crash? And what does that mean for the future of the market in terms of growth, the management by the trading card companies?
And very interestingly from a timing standpoint, I started writing that before anyone knew that I was working with Michael and starting Fanatics Collectibles and trying to acquire the trading card licenses, because that was a thing we were doing quietly for many months. And as I was writing the paper, that became public knowledge, it became clear that I was going to be one of the leaders of this industry moving forward. So then the point of view of that really started to sharpen a little bit and to be clear that hey, look, this isn’t an announcement of intention from a business but it really is trying to take a smart, academic view of the market. But I think a lot of people read it that way just because of the timing and everything else. But it’s a blast to be able to spend real quality time writing interesting, intellectual analyses of a market that is so nascent and so early, that we’re going to look back in 20 years, in the way that you look back at the internet in the 1990s. Hopefully that becomes a guiding post for a lot of people in terms of how we can grow this industry smartly.
Knox: As you look at growing this industry with Fanatics Collectibles, how are you deciding what should be a company competitive advantage versus what should be an industry building initiative?
Luber: That’s a critical part of all of this. The trading card industry, like many, is a connected ecosystem of different parts. And the people that stay in the hobby for a long time, the people that make careers and build businesses in the hobby, are those that participate in a lot of parts of that. You will research cards, you will make a purchase decision, you will open up a pack of cards. You will maybe get a good card, decide if you want to keep it or if you want to sell it or if you want to have it graded. You build a collection of cards, you need to track its value, you need to have it insured, you need to store it. Then you decide that you want to sell it, maybe you want to sell it at an auction. There’s a very clear journey and it’s very interconnected from the consumer side.
But the infrastructure of the industry and the businesses that existed there have been very fragmented, and it’s a function of the fact that five years ago, the industry was still a tiny industry that very few people even knew existed. Which is a long way of saying that because we are now the primary manufacturers of cards in the industry, or at least we will be shortly, the obligation is ours to set that framework. It doesn’t mean that we do all of those pieces, it doesn’t mean that we become a grading company or we become a vaulting company, but there needs to be a change in the way this industry uses technology to make it easy for the consumers to do the things that they want to do. To make it easy or easy to come into the industry and that they stay in the industry. And so a lot of what we do right now is talk about these two dueling growth parties, which is growing the primary market sensibly, but also adding technology and marketing to an industry that allows us to work with people and everybody to grow that. So it’s a massive question, it’s a massive piece of work but it really is our obligation to set the framework for how people work together.
Knox: The trading card industry is filled with a range of different entrepreneurial companies ranging from hobby shops to breakers to venture-backed marketplaces. As an entrepreneur yourself, how do you balance supporting fellow entrepreneurs while also tackling the fragmentation that is holding back the industry?
Luber: When industries are trying to grow, become more efficient, and easier for consumers, fragmentation can be a really bad thing. But there are parts of the industry where it’s a good thing. For example, in marketplaces right now, eBay is the leader for marketplace for the trading card industry. There have been at least a half a dozen that have started that have real credibility and traction like PWC
The flip side, hobby shops are literally the definition of fragmentation. We want a hobby shop on every corner of every street, in every city, in every state . They are on the front lines for more customers that want to learn about the hobby, for more kids to come in with their parents or with their friends. Same thing with breakers, breakers for different channels, for different people, at different price points, at different times, and with different content. So fragmentation there is also really good. If the focus for everybody is growth, what parts do you get efficiencies by bringing things together? And what parts do you reach scale by doing it separately?
Knox: One example of efficiency in the industry was the blind Dutch auction that you used for the introduction of zerocool’s Veefriends release. What was the inspiration behind that?
Luber: I’m biased but this is the right way to sell any high demand product. Any product that you would ask the question, what is this worth? Any product that is truly driven by supply and demand. Historically brands created an artificial retail price and then relied on distribution “strategies” like raffles, people camping outside of stores or allowing people to buy online and then people are using bots. All of this is just very inefficient and frankly, in a lot of cases, just lunacy and completely illogical, to rely on mass chaos as a distribution strategy.
You have to ask the question, what is the right way to price consumer goods that are coming into a retail market, that gives everyone a fair chance to get it? We spent a lot of time trying to figure it out. We studied markets and we talked to economists. The answer is a blind Dutch auction, which is a pricing mechanism that has been used in finance for decades, and it allows the market to set the price.
The blind part is that you allow everybody at the same time to bid on the products. You tell everybody what products are available and exactly how many are available. If there are 10 widgets available for sale, you give everyone three days and they can place a bid for what they’re willing to pay for the product. You don’t have to try to beat someone else’s bid, there’s no time clock that you have to beat, everyone has the same fair chance. At the end of the auction period, if there’s 10 widgets, then the top 10 bids win. And that is a very clear, logical, fair system.
But the way that the products get priced is that the lowest of the winning bids, so in that case, the 10th highest bid, becomes what’s called the clearing price, and everybody pays the clearing price, even the person that was the highest bid. So if those 10 bids come in and they’re $1,000, $900, $700, $600 and the 10th highest bid is $ 400 then everybody pays $400, even the person that bid $1,000. That’s the Dutch auction part of the experience and that does three things. One, it makes sure that everybody who is buying this product, all at the exact same time, are paying the same price. And that is a logical, fair system. Second, no one could argue that this isn’t a fair market price. That’s the high level goal, you’re trying to figure out what is the right market price for this. And everybody in this case was willing to pay at least $ 400, so you can assume that that’s a fair market price. And then finally, because of the nature of the Dutch auction, almost everyone actually pays less than what they bid. Everybody is happy that they get to pay less and so it’s really a win, win, win for everybody as creating a fair system.
And then if it is done right, then what happens is, once the auction closes, the secondary market opens up and the winners can go sell it wherever they want. And what almost always happens is, the price then goes up. Because if you take the 10 winning bids as a sample set of the population at large, well, some people are wiling to pay way more than what that clearing price was. So there’s some headspace for people to still make money on that, but it will usually be much less than if it had been an arbitrary retail price that would have been really low.
Veefriends was a trading card set based on Gary Vaynerchuk’s NFT project. There was no comp to be able to price NFT cards since this has never existed before. And we knew we were also making them very limited with only 1000 boxes. We knew that there was going to be high demand for this but how do you price that? We let the market set the price and sure enough, the clearing price ended up coming in at $ 2,150. And then immediately, once it ended, boxes were selling on eBay for $6,000. And now, a week later, boxes have sold for $16,000 on eBay, and that makes sense since there were bids over $16,000 in the blind Dutch auction even those people paid $2,150. This is the economics and the theory of it coming to life and really is the most important part of this release.
Knox: How do you take these theories of economics for highly sought-after products and apply it the distribution world with retail and hobby shops?
Luber: When we launched StockX, it was really about access and creating the fairest way to distribute products that everybody wants. The same thing holds true with cards.
The questions around distribution and D2C – whether it’s hobby shops or distributors – starts with the idea of “how do you do this fairly that you’re not creating perverse incentives to sleep outside of Target or to pay off the guy who works at a hobby shop because he’s got an allocation?” And does that mean that allocations to hobby shop distributors go away? No, it just means that maybe there’s a different way to choose how they get it or maybe to choose what they pay for it. You could imagine a blind Dutch auction being used not just like we did with Veefriends where instead of us coming up with an arbitrary price, we allow them to buy using a blind Dutch auction. They are the only ones that can participate, it’s not open to the public.
It’s an allocation method where ultimately it is about creating fairness in the system. If that is your driving motivation, then you work through the things in terms of product changing from one channel to another. At the end of the day, all those channels have to continue to exist, we still have to have hobby shops and distributors and D2C and breakers and all of that, because those are all vital parts of the industry, even just for functional reasons. The product actually has to physically move from one place to another. It’s about eliminating those old- time arbitrage opportunities and instead creating transparency, efficiency and fairness.
Knox: When you wrote the white paper, you very specifically called it Trading Cards are Cool Again. And with zerocool, you are focused on culture. Why do you think cards are about more than just sports?
Luber: I love this topic more than anything. The paper’s title was Trading Cards are Cool but that was a declarative statement that’s not true yet. The way that we grow this industry is if trading cards become truly part of culture and ingrained into all parts of culture in the same way that sneakers did over the last decade. Sneakers were once a very underground side thing that nobody thought much of. Today, Nike and Yeezy and the Jordan Brand, they made sneakers truly part of culture, and they did so by engaging the most important people in culture, other than athletes. They already had athletes as part of Nike and Adidas. They leveraged Kanye and Pharrell and Drake and Travis Scott to wear their product but more importantly brought them in and engaged them in the creation process and the collaboration process. Sneaker collaborations with those high-profile people were their silver bullet.
So how do we do that for trading cards? I can’t force Travis Scott fans to like basketball cards but if I made rapper cards and I have Travis in the set, then they’re way more likely to like trading cards that way. So zerocool really is about new audiences, it’s about exposing new audiences to trading cards. One, because we think there’s a market there and we can sell cards in those spaces but also, because nobody only likes one thing. Even sports card collectors might have other hobbies. So maybe you’re a basketball card collector but you’re saturated in your basketball card collecting because Panini makes 50 basketball card sets a year, so you’re good. But maybe you also like fashion and then we come out with a fashion set and maybe I’ll buy a couple fashion boxes as well. Because that’s just a different part of your personality and interest base as you do that. It all goes to the larger question of, how do we grow the industry? How do we grow it smart? And I think having it truly part of culture is just one of the key parts of that, and so that’s a big focus of what zerocool is.