Today, most sports card auction houses operate their auctions in the same way. Bidding starts at a pre-determined time, with low initial bids to motivate competition. Bids are increased via a set increment referenced to a min and max value. The auction then ends but enters extended bidding. Usually, anyone who has placed a bid on a specific item can keep bidding until no one has placed a bit on it for a set amount of time, say 10 minutes. After the close, A buyer’s premium of about 20% is added to the bid price so that the auction house can make money. However, many take a cut of the sale price before the buyer’s premium too.
There are variations to these terms, but most follow the same basic principles; Start the auction, bid at set increments, the auction closes, enter extended bidding, and after no one more bid placements, the auction ends.
The auction houses make money no matter the sale price, but are they maximizing bid values for consignors?
I’ve been reading a book called “What It Takes” by Stephen Schwarzman. He is the billionaire founder of Blackstone, the world’s largest buyout firm. He describes a common practice in the financial world, the two-round sealed bid auction. The genius of this type of action is that it encourages bidders, desperate to win an item, not just to bid one increment higher than another bidder, but to offer the highest price they can afford to ensure a win.
The premise of a two-round sealed bid auction is that in each round, the bidder submits bids in a “sealed envelope” not knowing what anyone else offered. The first round weeds out the low ball offers. The serious bidders then get to review what everyone else bid, and in round two, they submit another sealed bit.
Imagine the excitement and potential of this system for sports card auctions. I suspect the closing variance for the sports collectible market would be higher than the standard format. Still, I think an auction house that markets this type of method, particularly for high-end items, would position themselves uniquely in the hobby and attract a lot of consignors and potentially huge bids – making more money for themselves and the consignor.
Do you think an alternative auction format could have success? Let me know in the comments below or on Twitter.