On October 24, 2003, five prominent veteran eTopps participants met with senior Topps officials to present a vision of a reformed eTopps market intended to promote Topps' sales and increase eTopps' value to its participants. On November 18, a white paper prepared prior to this meeting was released broadly to the eTopps community and has been the subject of intense discussion, both laudatory and negative, on the community's message boards.

My fellow members of eTopps Clubhouse have asked me to critically and independently evaluate the white paper proposal developed by Leo Klein (bearabull), Patrick Hussey (crimsondynamo), Mike Masinick (masinick), Mike Clark (ronin), and John Gast (TLV). My only credential for doing so is being a dedicated eTopps collector for nearly two years, though I represent less than 0.009 percent (that is, less than one-hundredth of one percent) of the current total market cap. My experience, financial investment, and strategic insight pales in comparison to the five white paper authors, who each have participated in eTopps since its early days, self-report a cumulative 7 percent financial stake in eTopps, and have contributed greatly to the analytical thinking of the community. But, like them and many other participants, I have committed even more time, interest, and reflection than money to eTopps. I want eTopps to survive and thrive because I profit tremendously from my enjoyment of the program even if I do not profit financially.

Print Run Floor

Perhaps the most controversial proposal in the White Paper is for eTopps to set a floor on the number of cards that it prints. eTopps would hold the extra cards that fall below the floor for distribution through the catalog or marketing offers.

Conceptual soundness: A-

Critics of the print run floor argue that print runs should be set based on market demand, with the number of cards issued depending on how many people order at IPO and not a preset floor by eTopps. They are also concerned that increasing the print runs of very low print run cards will hurt their prices since eTopps will be producing (though not necessarily selling) more cards than there is demand for. However, print runs today are not purely set on market demand. First, there is already a ceiling that limits the number of cards that can be issued below actual demand or, in some cases, may increase demand for cards because eTopps makes the card more tempting to IPO purchasers because it looks more “limited.” Second, eTopps already holds back an unknown number of cards above the number of cards ordered at IPO.

By implementing a floor, the authors aim to reduce some unhealthy behaviors, such as high-priced short prints and rampant flipping, that can be seen as market failures. It is perverse that a card that is not desired at IPO becomes highly desired on eBay, and flipping cards on eBay immediately after issuance indicates that more cards were sold at IPO than there was a demand for. While the few people that get these cards at IPO are winners by ending up with a more valuable card, there are many more losers who want the card but find it unexpectedly expensive or hold other cards with low print runs are hurt. In addition, the chase for short prints can lead people to purchase cards that they do not want because they anticipate a possible short print or holders of short printed cards order other unpopular IPOs merely to protect their own short print. These cards are then often flipped on eBay shortly after IPO. A print run floor could help to partially correct these market failures by giving purchasers more information for making rational decisions at IPO and not making any one card overly valuable for being the shortest print (instead, the value of being short print would be spread more modestly over several cards).

Finally, even with a floor, eTopps would still have its print runs set more by market demand than any other sports card product I am aware of. All cards’ printings between the floor and ceiling would be contingent on IPO orders and IPO orders would also determine which cards are at the lowest or highest print runs set by eTopps.

Feasibility: A-

Two difficulties could arise from setting a print run floor. However, they could be moderated if the floor is set sufficiently low. First, eTopps will be left with cards if IPO purchases are less than the floor. Second, if there is not as strong of a premium on a single card being the short print, some people who currently order merely to get or prevent a short print will stop placing these orders. The extent of these difficulties depends on how high the print run floor is. If the floor is high, eTopps may have many cards left unsold that may not make attractive catalog items or marketing offers. Also, a high floor will dilute interest by IPO purchasers who seek cards that are relatively scarce. However, if eTopps sets the floor low enough, then eTopps will hold back relatively few cards, and there will still be a premium for scarcity (though likely less than for today’s short prints) for all of the cards at the floor. In this case, the cards eTopps holds back will still be sought after as catalog items. (However, they still may not make good marketing offers since those unfamiliar with eTopps are unlikely to find cards that did not sell well at IPO appealing just because they have low print runs. More new participants will want a free Lebron James card than a low print run Drew Gooden card.) Finally, a print run floor may also help eTopps better plan and budget printings and could potentially reduce marginal printing costs.

The White Paper recommends that the floor should be set so that about 30 percent of cards are at the floor level. That suggests that a floor of about 800 to 850 cards would have been appropriate for 2003 football, and perhaps 500 for 2003 basketball. Clearly, setting the floor prior to the set’s issuance is harder than retrospectively, but I would suggest that eTopps experiment with a floor initially set very low. This will reduce the shock to the system and reduce criticism, but help introduce a concept to reduce the market failures existing today. If successful, eTopps can gradually increase print run floors, but should still have it affect a minority of cards.

Card Buyback

While the print run floor is one of the more controversial proposals, a buyback of undervalued cards is one of the more popular. The buyback would attempt to pull some of the excess supply off the secondary market, especially for sets issued in 2002. With fewer cards available, it is hoped that the prices would stop sliding and perhaps even start increasing.

Conceptual soundness: A

As the authors point out, about 94 percent of cards issued in 2002 and 2003 are now below IPO prices. New members are unlikely to find eTopps attractive until a higher portion of previously issued cards start exceeding IPO prices. 2,000 to 5,000 cards of many players were sold readily at the peak of eTopps in 2002. That is now several times more than the number of cards that are being sold to meet current demand and many 2002 card prices have eroded to less than $2.00 or $3.00. Furthermore, these large print runs seem increasingly inflated as new cards of the same players are issued. At perhaps the most extreme example, how can the market sustain 4,000 2002 Drew Gooden cards when only 390 were purchased in 2003?

Feasibility: C

While it is impossible to argue with the advantages of reducing the supply of overproduced cards that are dragging down eTopps’ prices and reputation, the feasibility of doing so is problematic when you consider eTopps is already suffering losses. The White Paper takes a major step in improving the feasibility of the proposal by having Topps buy back the oversupplied cards with reward points rather than actual money. But, ultimately, giving tens of thousands or more reward points (now worth $1 each) will cost eTopps in the cost of items provided in the catalog. eTopps would assume a large risk that it will hold many overproduced cards indefinitely without any certainty that demand will increase sufficiently to redistribute hundreds or thousands of cards.

An Alternative Proposal

Given the importance of the concept and the problematic feasibility, allow me to propose a more modest variation on the buyback proposal. It may not achieve the same scale of buyback that would be necessary to bolster the prices of overproduced cards, but it is at least a step in that direction, results in a constantly available catalog, and minimizes the risk to eTopps of holding thousands of unwanted cards indefinitely. My variation would pose several limits on the risk eTopps incurs. First, eTopps would offer to buyback only a limited number of any card, perhaps 1 percent of a card’s print run at any time. eTopps could further limit this by only accepting a single copy of a specific card from any account, so that no one account could dump all of a specific card up to the limit. As the White Paper suggests, eTopps would pay 1 reward point for $1 in current value, rounding down in eTopps’ favor. The cards bought back from eTopps would be available in the catalog 24 hours a day with changing stock as cards are bought back by eTopps and redeemed by other participants, at a cost of 1 reward point for each $1 in current value, rounding up in eTopps favor.

Let me use the 2002 Tim Raines, Jr. card as an example. 5,000 Raines Jr. cards were distributed (often as a free offer) and the card has a recent 7-day average of about $1.80. eTopps would offer to buy back up to 50 Raines, Jr. cards, no more than one per account, for 1 reward point (rounding $1.80 down to the nearest whole dollar amount). Why would anyone sell a Raines, Jr. card for only 1 reward point? Remember that there are no transaction costs, so if someone sold this card on eBay they would lose about 40 to 70 cents in eBay and PayPal fees. Thus, a $1 reward point does not look so bad. The price for a participant to “purchase” the Raines, Jr. card from the catalog would be 2 reward points. This rounding down for buybacks and up for catalog sales helps eTopps control the number of reward points from constantly increasing and avoids gaming by participants. Otherwise, participants could sell cards to eTopps worth only slightly above a dollar amount and buy cards from the catalog slightly below a dollar amount, pocketing nearly $1 in the exchange. This alternative proposal would create a major new “trading” program where participants can sell back certain cards and redeem their points for other cards without the $0.30 eBay fees currently paid by both traders in privately-arranged trades.

Besides the limited scope of my proposed buyback, another critique could be that at first the only cards being sold back to eTopps are the most oversupplied cards, like the Tim Raines, Jr. and 2002 Classics cards. A catalog filled with 50 Raines, Jr. and 40 Joe Morgans is not appealing. But, as these unpopular cards reach the 1 percent limit, participants wanting to get more rewards points would need to sell back other cards so the catalog stock may become increasingly attractive. Furthermore, the rounding of prices in eTopps favor will encourage participants to sell back some higher-priced cards since the rounding penalty is proportionately less than for low-priced cards. Also, the catalog would still have the same cards eTopps currently puts in the catalog and cards held back below the print run floor. If the print run floor is sufficiently low these held cards will retain some price advantage due to their scarcity and are likely to be more attractive as part of the catalog than they were at IPO for this reason. Even if some cards sit indefinitely in the catalog, these are the cards that were most in need of a buyback to reduce their oversupply, and a modest 1 percent reduction would be accomplished. As some of these cards are picked up by collectors an equal number of additional cards can be bought back; the cards that are redeemed may end up with a collector to keep for the longer term. If eTopps finds this limited buyback/trading through the catalog to be successful, it could expand the buyback beyond 1 percent or 1 per account for some or all cards.

Marketing Offers

Since Topps announced $3 million in losses from its Internet division, it has slashed much of eTopps’ advertising including (perhaps thankfully) the national TV ads. The White Paper offers several less expensive marketing suggestions, most notably offering “access” cards that provide a temporary eTopps account username and password that recipients can use to claim a free eTopps card. These cards could be distributed at sporting events and sports card shows, and “electronic” access cards could be distributed through e-mail or placed on sports Internet sites. The free card could be customized to the recipient’s favorite sport or team so that individuals linking to eTopps from a NASCAR web page could get a NASCAR card while those receiving a card passed out at a Packers football game could get a free card of that team.

Conceptual soundness: A

This proposal responds to a problem Topps identified with previous marketing efforts whereby people were drawn to the eTopps page but did not open an account. This offer would encourage interested recipients to take that next step and open an account to get their free card.

Feasibility: A-

Providing unique temporary usernames and passwords wouldn’t be necessary. eTopps has already begun using promotional codes to give new members special offers and those would work in this situation as well. The White Paper also suggests that the offer can only be redeemed once per address (or perhaps registered credit card) to limit to one free card per account and not to give free cards to existing members.

New eTopps Product Lines

The White Paper recommends that Topps create new product lines with the “eTopps” brand. For example, it proposes making a cardboard version with the eTopps logo and the same design and pictures as the electronic cards but on lower quality card stock than the current in-hand cards. This card would be sold in wax packs alongside regular Topps brands.

Conceptual soundness: C-

The intent of making the eTopps brand better known among buyers of traditional cardboard sports cards is good, but I dislike introducing a cardboard product with the eTopps brand name. One reason that many of us became disillusioned with cardboard is the exponential increase in the number of product lines. Why add yet another cardboard item? In addition, a few committed eTopps collectors aim to owning a master set of all eTopps cards or at least all eTopps cards of a certain sport, team, or player. The addition of a lower quality cardboard card in addition to the regular eTopps card would make it almost impossible and less desirable to do so. Further, even with a parallel cardboard set, would anyone who collects cardboard cards really find any more incentive to go to eTopps.com to also get a premium version on the internet? I could support a very limited version of this proposal if Topps produced a small number of eTopps look-alike cardboard cards for insertion in Topps’ existing cardboard brands as a marketing promotion. In this way, the free card offers described above could be even more effective if the recipient could see a copy of the card that they will be able to redeem for free after opening an eTopps account.

Feasibility: A

Since I do not like the concept, I will not dwell on the feasibility. I assume that, with 50-plus years of experience, Topps would have no trouble adding yet another traditional cardboard series to its product line if it so desired.

Part 1 - Expanded Fantasy Games & Redesigned Catalog

Part 3 - Shipping Fees, Website Redesign, and Concluding Thoughts