Today, most sports card auction houses operate using a familiar formula. Auctions open at a scheduled time with low starting bids to spark competition. Bids rise in predetermined increments, usually tied to a scale based on the current price. When the auction “ends,” it actually enters extended bidding: anyone who has previously bid on an item can continue placing bids until a certain amount of time passes without a new bid. Then, the item finally closes.
Afterward, the auction house tacks on a buyer’s premium, typically 20–25%, to the final bid price. That’s how they make money. Some even take a cut from the consignor’s side, too.
While the specifics may vary slightly from house to house, the model is largely the same: launch, bid, extend, close.
Auction houses profit no matter the final price. But here’s the real question: Are they truly maximizing results for consignors?
A few years ago, I read What It Takes by Stephen Schwarzman, the billionaire founder of Blackstone. In it, he describes a widely used method in the financial world: the two-round sealed bid auction. It’s designed to do one thing exceptionally well: drive bidders to offer the absolute highest price they’re willing to pay.
Here’s how it works. In round one, each bidder submits a bid in a “sealed envelope,” unaware of others’ offers. Lowball bids are eliminated. In round two, the serious contenders see the range of offers and submit one final sealed bid. It’s a system built for maximum urgency and top-dollar offers.
Now imagine applying that concept to sports collectibles, especially high-end items. The potential upside seems clear: the chance to push serious bidders to go all-in. I believe an auction house that experiments with this format, or even just offers it for select premium lots, could stand out in the crowded market and attract more consignors eager to maximize the value of their items.
So what do you think? Could a two-round sealed bid auction work in the sports card world? Drop your thoughts in the comments. I’d love to hear them.
Happy collecting!
I think first and foremost it’s quite odd that the auction house broadly describes themselves as consignees when the term has a fairly specific set of duties that auction houses only occasionally fulfill at best. Formally, to be a consignee, one takes possession but not title of the goods in question and acts as the fiduciary of the consignor and is paid by the consignor through factorage, or an agreed-upon amount paid by the consignor upon the sale and delivery of the item. The modern auction is essentially a twist on the factor system of trading that was the predominant manner of conducting international trade in the age of sail and still remains commonplace enough that the FTC has specific rules concerning how such agent-principle relationships need to be defined for accounting purposes when it comes to ordinary trade in goods. I believe there are laws in the UK that does the same, although the concept of “factor” managed to last longer in legal parlance when a ‘factory’ lost the ‘retailer’ meaning here in the States decades earlier. Most importantly, the consignor-consignee relationship does not involve a duty of care that concerns the buyer. The consignor is assuming the risk and paying for the services and expects in consideration in return the honoring of fiduciary duties that would form as a part of the relationship. This is an active duty, not some passive role. Auctions of course from the 1700s to the 1970s generally did just that (and the whole fast-talking auctioneer schtick is part of that, and of course there are consignors in the card business who very much will conduct business as understood both as a legal and historical matter). Until Christie’s and Sotheby’s both decided to charge a buyer’s premium in addition to charging the consignor the usual fee, which essentially de-incentivized the facilitation of the traditional arrangement which emphasized on finding the best possible price for the buyer and seller into one where the auctioneer, now a middleman whose interest is to introduce externalities to extract the most from both sides and inherently creating a suboptimal market for both buyer and seller. The internet only exacerbated what is effectively now a permanent rent-seeking structure posing as an agent, but really the auction house can’t lose, it can profit more or slightly less. It operates without risk of having to hold the bag in a spot market and can design the market to favor their own earnings since as the buyer and seller have no opportunity to directly share information – it’d be collusion.
We see artificial barriers that distort the market every day now. Goldin, Fanatics Collect has “premium auctions” that they act as gatekeepers to, sometimes against the stated desires of the ostensible consignor. I’ve had it happen often enough that I do all my sales through someone that only I’m paying, and handles the sale without taking a cut from the buyer because the auction platform is taking that cut. But I had to vet a lot of people to find someone who is trustworthy, competent, and on the same as me. Having someone who actually works as the seller’s agent for reals can go a long way to create fewer market failures due to manipulation and conflicts of interest. But to expect that everyone would automatically know how to understand the dynamics that is deliberately hidden and to know how to vet and negotiate with agents is certainly unrealistic. My background was in criminal and immigration defense and negotiating the least bad outcome in a rigged system is a full time job, and as a Nevadan I’ve also had the benefit of being able to making a living wagering until ironically legalization nationwide made it impossible for me to wager onshore. Once you have a rigged system, it’s pretty much impossible to hit rewind. Like it or not, the auction house is designing the auction and short of opening your own auction house (with blackjack, and hookers, of course) the rent-seeker in the middle is unlikely to facilitate any mechanism that bypasses the information asymmetry their presence creates. So, the auction itself would need to be one where truth-telling in the placing of bets is incentivized by design. There are multiple models of auctions that are, as proposed, multi-round sealed-bid. However, the enforcement mechanism is actually an externality – the fact that in most jurisdictions that practice English auctions, bids are legally binding and enforceable obligations. A functional court system where contracts can be enforced is necessary to limit the bidders to bid not just what they are willing to pay, but also able to pay, but in most cases you will not be able to pursue this avenue of recourse if they simply repudiate their obligation. In most cases you will not know who the winner is, and the auction house has no incentive to allow you to take the erstwhile winner to court since a court judgment is not going to get split to the auction house, and since you are already assuming the risk, the actual financial cut to the auction house is largely coming from the buyer if they pay. Without this mechanism in place, you will get high bids, but also a huge amount of non-payment cases. Since eBay is a place where you can see who is bidding, you can simply sue the non-paying winner if you have the tools and skills to do so without added cost. I in fact did this, and eBay promptly banned me and since at the time Paypal was part of eBay, also froze my Paypal account, prompting me to sue Paypal. All this was over a small-claims amount of money and everything ended up settled. I haven’t had an eBay or Paypal account since 2014. As a former public defender I was in court every single day and so it did not require me to deviate too much from what I did anyway. Small claims was easier than any of the 80 open cases I had going at once, but how many people get to say that? As long as you can’t enforce the contract, there’s no incentive to bid truthfully, and the seller gets screwed.
However, there’s a slight modification to the scheme that might work provided that the bidding is sufficiently competitive, which is essentially splitting the bidding into two rounds, with the first round being intended for price discovery and essentially an English auction with a time limit, and the top two bidders will then submit sealed one-shot bids with the underbidder in round one’s bid set as the reserve price. However, the winning bidder would be the one who submits the highest bid, but pays the underbidder’s bid instead. Essentially, an open ascending bid followed by a second price sealed bidding round. I don’t know if this is optimal, but it at least aligns the interests of all involved closest to equilibrium.
But variations of this system already exists. Second price sealed bidding is kind of how internet ad space gets auctioned, except automated. Although the setup doesn’t involve a middleman since one bids for Google ad space on Google, etc. However, even explaining a Dutch auction to the average person is surprisingly difficult, never mind a two stage process that is pretty obviously designed to socially engineer a more optimal outcome. Institutional inertia would likely kill off reform. After all, the buyer’s premium never went down since being introduced in the mid 70s, even though it entirely screws up the whole auction system and is pretty obviously a way to fix prices. The default to stare decisis will doom us all.