Mickey Mantle card
BusinessWeek
Topps introduced its first baseball card set in 1952, and although sales were weak at first, this Mickey Mantle card is now second most valuable in the world.
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updated 4/20/2007 6:23:12 PM ET 2007-04-20T22:23:12

A peculiar scene plays out every year around February at Play Ball Sports, a trading card and memorabilia shop in Westland, Mich. Customers in their 60s, 70s, and 80s line up out the door, eager to get their hands on boxes of newly released Topps baseball cards. "It started in '92 or '93," says store owner Mike Odetalla. "Grandmothers and grandfathers became our biggest collectors." Their disinterested grandkids, once the prized consumers of the trading card industry, are presumably at home surfing MySpace pages and playing video games.

This sums up the challenges facing Topps, the New York candy maker that began sticking baseball cards in penny packs of chewing gum in 1952, and which today is the No. 1 player in the $1.51 billion trading card industry. Sales in the sports card division — which make up about half of the company's revenues — fell off 15% annually between 2000 and 2005, as more kids flocked to high-tech diversions as well as gaming cards like Magic: The Gathering and Yu-Gi-Oh. "There's an urgency in our industry to get the kids back," says Alan Narz, owner of Big League Cards in Orlando and columnist for Card Trade magazine.

Now, a big new player is stepping up to the plate for Topps. In March, the Tornante Co., the investment firm of former Walt Disney Chairman and CEO Michael Eisner, partnered with private equity firm Madison Dearborn Partners in a $385 million bid to take the ailing card and candy company private.

The proposed acquisition, which endured a 40-day go-shop period that ended last week and now will be put before shareholders on May 5, concerns some insiders who worry the price is too low. Yet Eisner, an entertainment industry power hitter who knows a thing or two about putting smiles on the faces of young ones, may be just the spark Topps needs to reconnect with its core consumer. As of press time, neither Eisner nor a representative of Tornante weres available for comment.

Baseball cards weren't always marketed toward kids. They got their start in the mid-19th century, when photography and baseball were both maturing. Sellers of cigarettes like American Tobacco used the novelty cards to sell packs of smokes. Honus Wagner, the Pittsburgh Pirate who was among the first five players to be inducted into baseball's Hall of Fame, was one of the first to publicly object to tobacco companies using his image on the cards, claiming that they appealed more to kids than adults (one of the main reasons his 1909 card set a new industry record of $2.13 million at auction in February).

Through the 1920s and '30s, more emphasis was placed on the young sports fan, as media outlets such as The Sporting News used baseball cards to sell magazines, and candy makers such as Cracker Jack and American Caramel stuck them at the bottom of packages of sweets.

Gum drop
During the Great Depression, American Leaf Tobacco became Topps, maker of Bazooka chewing gum. Decades later, in 1952, a young employee named Sy Berger designed the first Topps baseball card set, released with packages of Bazooka. Though the cards were by no means an instant hit (Berger famously dumped returned boxes of the 1952 set in the Atlantic Ocean to make room in inventory), their timeless design and substantial production set into motion the modern-day trading card industry.

Growing demand for cards in the 1950s and '60s meant Topps could sell packs of cards by themselves, minus the gum. And by the 1980s, competition from companies such as Fleer, Bowman, Donruss, Score, Upper Deck, and as many as 70 other U.S. card makers fed off the massive base of dedicated young collectors Topps had helped to nurture.

But since 1991, earlier card collectors have grown up, and Topps and others have largely failed to entice new generations of sports fans. Beckett Media, the Dallas-based publisher of card collecting price guides, estimates that by 2006 trading card sales had dropped 73% over the 15-year period, to $300 million from $1.1 billion.

Many in the industry blame a shift toward higher-priced premium card sets, with fancy inserts. Whereas a regular pack of Topps cards costs around $3, other sets sell for considerably more. The Topps Sterling collection, which features limited-edition signature cards in a cherry wood box, is aimed at collectors and costs around $300. "They priced the kids right out of it," says store owner Odetalla.

And then there's the stepbrother of sports cards — trading card games, which first came onto the scene in 1993 with the Magic: The Gathering series, printed by Wizards of the Coast, a company later bought by Hasbro. In the past decade in particular, "trading card games have skyrocketed in popularity, value, and overall appeal," says Beckett editorial director Doug Kale. "With trading card games you can interact with other friends," he adds — and that's a big plus with the video-gaming, MySpace generation.

Magic: The Gathering still has a following of about 6 million customers worldwide between the ages of 15 and 25, according to Kale. One Topps rival — privately held Upper Deck in Carlsbad, Calif. — also jumped into games when it bought the international licensing rights to Konami's Japanese game Yu-Gi-Oh!, which sold some 15.8 billion cards between 1999 and 2006. Topps still sells no games, and may be missing a big opportunity.

Clearing the field
One possible way forward is interactive cards. Mattel introduced its HyperScan card games in 2006. They use CD-ROM and radio-frequency identification (RFID) technologies to allow users to select a character from a card, such as The X-Men's Wolverine, and have him or her battle an opponent on a television screen, just like a video game. If Topps were to introduce a similar system for professional athletes, it could be a winner. According to retail consulting group NPD, Electronic Arts' Madden NFL 07 video game for Sony's PlayStation 2 sold more than 1.8 million copies in 2006, making it the best-selling game in the U.S.

For most investors with $385 million to spend, a company struggling this desperately to hold on to its core consumer would be close to the bottom of the list. But Eisner, who told the press in March that he plans to "grow [Topps] in new and exciting ways," must see some great promise. For one thing, his timing was financially favorable: Shareholders will receive $9.75 per share, down from a $10 high on Feb. 2.

And though Topps still hasn't addressed the problems most prevalently plaguing it, it did have a rather serendipitous year in 2006. Fleer went bankrupt and Major League Baseball ended licensing arrangements with Donruss, leaving only Topps and Upper Deck to compete in baseball cards. As a result, "Topps had a nice resurgence in its baseball card business," says Jim Barrett, analyst with CL King & Associates in New York. The rookie cards of popular young NFL players Reggie Bush, Matt Leinart, and Mario Williams also brought some resurgence to Topps' football cards.

Cyber-bubble
This is hardly Eisner's first acquisition since leaving Disney in 2005. He has snapped up Team Baby Entertainment, a maker of sports-themed kids DVDs; Veoh, an amateur video-sharing site like Google's YouTube; and Vuguru, a multimedia studio.

As there have been no other offers the board has been willing to consider, it looks as though Tornante and its partners will close the deal with Topps by May 5. Along with Eisner's other deals, this looks to be a key piece of a nascent digital media empire, one that is likely to focus on a younger audience. Only time will tell exactly what Eisner has in store for Topps, but if you've ever dreamed of digital bubble gum or virtual baseball cards — they may soon be a reality.

Copyright © 2012 Bloomberg L.P.All rights reserved.

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