Auction Action: Analyzing the Video Game Market After Heritage's Signature Auction

Records. Scandal. Debate. Intrigue.

Few asset classes have been more hotly discussed than video games over the months since Heritage’s last Video Game Signature Auction in July. At that auction, the record for the most expensive video game sold was broken (by Zelda at $870k) and then shattered (by Super Mario 64 at $1.56mm).

A few things of note have occurred between then and now:

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·       Certified Collectibles Group announced it was entering the video game grading space

·       Collectors Universe announced its acquisition of video game grading company, Wata Games

·       Rally set a new record for the most expensive videogame when shareholders accepted a $2mm buyout offer for Super Mario Bros

·       YouTuber Karl Jobst released a 52-minute video levying accusations of alleged foul play, manipulation, and deceitful practices in the video game space

·       Proof journalist Seth Abramson continued that crusade, releasing NES population data to raise the possibility of future market saturation

·       Goldin Auctions held its first ever standalone comic, video game, and trading card auction

·       Otis received a $301,000 buyout offer for Halo: Combat Evolved, which was accepted by shareholders, netting them an 852.6% return since IPO.

·       Fractional markets have raised over $1mm for video game initial offerings. That’s just since the last Heritage signature auction.

·       The average 2021 return of video game assets on fractional platforms increased from 40% to 175%

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Right, so just a pretty sleepy few months huh?

In recent weeks,  the noise around alleged scandal and wrongdoing seems to have lessened. However, it has not disappeared entirely, and the likelihood that it will do so, particularly before Wata releases a census of games graded to date, is quite low.

The October Heritage Signature Auction represents one of the first significant opportunities to understand how the market is reacting to all of the above events and to gauge whether or not steam is escaping. Such an understanding will be of particular importance to those in fractional investing circles, as video game appreciation on the platforms has been fairly indiscriminate in recent months. It’s clear that many investors have simply sought exposure to the top titles on offer without necessarily doing the painstaking research on different variants and how they’ve been treated in the past.

Those decisions may soon come home to roost.

At a macro level, this auction does not look dramatically different from the July edition. Total sales realized in the October auction? $8,179,434 from 993 bidders. Total sales realized in the July auction? $8,454,233 from 985 bidders. Total bids & registered phone bidders in October? 9,616. Total bids & registered phone bidders in July? 9,855.

So far, this is all seeming pretty solid. Similar total sales, similar amount of bids, similar amount of bidders. Probably means that the overall interest is about the same, and that the outcomes should therefore be fairly similar.

But however you’d like to attribute it, at face value, the October edition seems to have lacked the same punching power as July, when tens of thousands of people were watching influencers follow the auction on Twitch, the Heritage site crashed, and records were set. It is perhaps telling that the top sale, of an almost mythologically early variant of the Legend of Zelda, failed to top either the first or second (a later but higher graded Zelda) highest outcomes in the July auction. Overall page views are the second such sign of cooling; the July auction garnered 403,427 page views. October? 168,867.

It should also be noted that those October sales totals mentioned above came on a significantly higher number of lots than in July (632 vs. 490). When we look at the mean, median, and 25th & 75th percentile sales, we see that the July auction outperformed by every measure.

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When we examine the average sales figures for the top 50 lots, we see that the July auction was a heavier hitter at the top, but that the middle of the pack was slightly stronger in October. So, while there were a few more headline-worthy sales in July, demand in the tens of thousands to low six figures remained strong in October. In fact, there were more six figure sales (17) in October than there were in July (15).

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The mix of the top 50 sales changed dramatically from July to October. Most notably, the lack of a repeat of the $1.56mm Super Mario sale meant that N64 sales made up a significantly smaller portion of the top 50 sales in October. N64 ceded that lost territory to NES primarily, while PlayStation also experienced a significant uptick.

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The average sales price by system in the top 50 illustrates a similar story. The average sales price for N64 declined considerably, and Super Nintendo also fell, but the rest of the systems all experienced growth. Notably, more modern systems, PlayStation and Xbox, saw increased attention and prices this month.

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It’s clear that the record sale of Super Mario 64 for $1.56mm in July had an outsized result on the data at play here. That sale was an outlier, nearly doubling the record sale set just two days earlier. No game had even been above $1mm, let alone $1.5mm. The level attained was extremely unexpected, and to some, fluky (as perhaps evidenced by weaker sales in the months to follow). To be clear, the sale still matters, which is why we’ve reported the data above, but it raised curiosity: what if that result was excluded from the July figures?

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The October weakness versus July becomes far less pronounced, and suddenly, October actually appears to be the stronger auction at the higher end. Not only that, but the distribution of top 50 sales between the two auctions becomes very similar. We do still also see a decline in the average sales price of N64 sales in the top 50, albeit smaller, but that indicates that perhaps the N64 market did run hot in the summer.

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The primary takeaway: yes, the October auction was, by many measures, weaker than July, but the difference was not all that dramatic, particularly if you’d like to discount the July Super Mario 64 sale as not representative of true, underlying demand. If the video game market is softening considerably in light of recent negative attention, that wasn’t emphatically demonstrated in this auction.

Alas, here’s the problem: the fractional market for video games hasn’t behaved as if video game demand has been stable since July. The fractional market for video games has behaved as if video game demand continued to skyrocket, knowing no bounds. As a result, many of the sales we’ll highlight below do not reflect favorably for the comparable fractional asset.

Where there was absolutely weakness in this auction was in titles and variants that have appeared at auction consistently, as we’ll cover in the results. After prices charged higher at seemingly every auction for a year straight, seeing prices that are not only lower than July levels, but also than spring levels and even in some cases lower than November 2020 levels is jarring. This perhaps shows that there may be some skepticism around populations, and there is heightened importance placed on seeking out assets that one can more confidently assert are rare. Moreover, diehard collectors with deep pockets may have already successfully captured those titles.

For fractional investors, those trends would underscore the importance of researching and understanding variants and comps. Without even delving into the reputational risk currently at hand, this market is very high risk to begin with, on the basis of its very short track record and very limited data pool alone. While maybe the broader market could catch up to some fractional valuations, adding undue risk to an already risky asset class by purchasing at levels that are significantly disconnected to the market is ill-advised.

As always, research. Learn as much as you can. And then assess if the risk is palatable for you and your personal situation.

On to the comps!

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Mike Tyson’s Punch-Out!!

Heritage (WATA 9.8 A++, Oval SOQ): $312,000

Heritage (WATA 9.4 A+, Rev-A, Round SOQ): $216,000

Otis (WATA 9.4 A+, No Rev-A, Round SOQ): $670,320

While this auction didn’t necessarily dazzle across many titles, there was considerable strength for Punch-Out!! The $312,000 sale is not only the highest price achieved for the late production Oval SOQ, but the highest price achieved for Punch-Out period. It was the first time a 9.8 was offered in that variant, and the previous high was $102k for a 9.6 back in April.

The variant on Otis would be considered superior to both of the copies that sold this weekend, with no Rev-A indicating its an earlier production. One of those has never sold with Heritage before. Whether there’s significantly more near-term upside from $670k is another question – Zelda in the same variant (no Rev-A) but a lower grade sold for $870k in July, which now appears to be a frothy moment, and Zelda is considered a more significant part of video game lore.

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Goldeneye 007

Heritage (WATA 9.8 A++): $192,000

Heritage (WATA 9.4 A++): $33,600

Rally (WATA 9.6 A++): $110,250

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The last time Goldeneye traded on Rally in September, it gained an astonishing 341%. Remarkably, the market level reached sits nearly equidistant from the 9.4 and 9.8 results at Heritage. Whether it should sit there is hard to determine without population data, but shareholders won’t feel the quadrupling in September was completely and totally unfounded.

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The Legend of Zelda

Heritage (9.6, A+, Oval SOQ): $156,000

Rally (9.4 B+, Round SOQ): $115,000

This is another fairly remarkable result for an Oval SOQ NES game. The last time Heritage sold an Oval SOQ 9.6 was in September of 2020 for $50,400. Rally’s copy, which is Round SOQ but does have the Rev-A designation, is slightly earlier, and just funded a few months back. The value was determined before a No Rev-A, Round SOQ copy sold for $870k at Heritage in July, so there was some margin of safety built in once that record was set, and this result for an Oval SOQ copy should inspire further confidence.

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Super Mario Bros

Heritage (9.4 A): $150,000

Otis (9.4 A+): $302,174

Both of these games feature the Round Seal of Quality and the Rev-A designation; Heritage indicates this is the first such copy they’ve offered. While the Otis copy got swept up in the excitement around Hangtab sales and other records in July and August, this isn’t a terrific sign for the mid-production version. This sale is just above the sale of a slightly later, but higher graded Oval SOQ 9.6 for $144k in July.

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Super Mario 64

Heritage (WATA 9.6 A++): $102,000

Otis (WATA 9.6 A+): $388,000

The copy on Otis, of the same variant, was recently de-listed and investors will be refunded. Clearly, there has been a significant softening from the potentially fluky $1.56mm 9.8 sale in July, which we discussed above.

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Nintendo World Championships

Heritage (WATA 6.5): $84,000

Otis (WATA 8.5): $274,690

The Otis cartridge is up 30% from its IPO value of $211,300. Heritage’s most recent sale of an NWC cart was for an 8.0 in July for $180k. Before that, it was a 5.0 for $52,800 back in November. While the increase over that result may seem small a year later given the strength of the market and the higher grade, it’s important to bear in mind that Otis’s copy is likely among the very highest graded (but if only we knew exactly..).

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Halo: Combat Evolved (Not for Resale variant)

Heritage (WATA 9.8 A): $84,000

Otis (WATA 9.8 A+): $301,000

The decision to relent to a buyout offer that drove 853% returns for shareholders is proving to be a prudent one thus far, as it appears the buyer could have found a vastly better deal with a few months' patience. It was revealed on the Otis Twitter Spaces today that Otis purchased this game; Halo is coming back to the platform!

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Mario Kart 64

Heritage (9.4 A+): $66,000

Otis (9.2 A+++): $57,900

Otis’s game launched in August for $57,900, and despite trading as high as $110k, it now sits flat. Even still, this result is probably a bit close for comfort for shareholders given the higher grade.

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Contra

Heritage (WATA 9.6 A+): $60,000

Heritage (WATA 9.2 A+): $28,800

Otis (WATA 9.2 A+): $52,480

Both Heritage copies were of the Rev-A, Round Seal of Quality variant, the same as the Otis game, which is up 60% from its March 2021 IPO. That copy, trading closer to the level realized by the 9.6 in this auction, is likely to retrace toward its IPO value, which, at $32,800, was actually above the result for a 9.2.

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Gyromite & Duck Hunt

Gyromite

Heritage (WATA 9.2 A+, Matte Sticker First Production): $43,200

Duck Hunt

Heritage (WATA 7.0, C, Hangtab Round SOQ): $33,600

Rally: $56,400

(Gyromite: WATA 9.0, No seal, Hangtab Round SOQ)

(Duck Hunt: WATA 9.2, No seal, Hangtab Round SOQ)

Okay, there’s kind of a lot to unpack here. Gyromite and Duck Hunt were “pack-in” titles sold in the NES Deluxe Set back in 1985. As such, they have no outer seals, and that’s why Rally’s titles do not have seal grades. The copy of Gyromite sold at Heritage is a “pack-in” copy, and also features the matte sticker seal, which makes it of the earliest production. Asa result of both the higher grade and earlier production, one would expect it to fetch a healthy premium over the Rally copy.

However, the Duck Hunt copy is not only not a pack-in copy, it’s also in a significantly lower grade. The resulting likelihood is that the sum total of the two Heritage sales should not be markedly higher than the value of Rally’s asset, with the inferiority of the Gyromite copy and superiority of the Duck Hunt copy balancing out.

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Teenage Mutant Ninja Turtles

Heritage (9.8 A+): $43,200

Heritage (9.2 A): $9,000

Rally (9.4 A): $22,000

The result for a 9.8 is a strong one, up approximately 50% on the sale of a 9.8 from one year ago. The 9.2 sale comes in slightly weaker than both an earlier October sale and an August sale for $9,600. The 9.4 valuation at IPO a couple of months ago may be just slightly on the strong side (hard to tell as always without knowing the 9.8 pop), but not egregiously so.

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Pokemon Yellow Version

Heritage (9.8 A++): $42,000

Otis (9.8 A+): $79,341

Rally (9.6 A++): $66,000

The game on Otis is down 17% in the last month, and there is reason to believe the downward trajectory could continue, despite a pop this week. This Heritage result is a little more than half of the November 2020 sale for a game in the same variant and grade.

The Rally copy, lower-graded, was up 20% a few weeks back, and may be in for a reversal the next time it opens. A 9.6 in the pixelated variant hasn’t sold since April, and that was for $18k. We’ve seen many games fall short of April levels in this auction.

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Grand Theft Auto

Heritage (WATA 9.6 A++, Teen Rating First Production): $40,800

Heritage (WATA 9.6 A+, Rating Corrected): $8,400

Rally (WATA 9.8 A+, Rating Corrected): $47,250

A somewhat challenging comp here, but not one that should’ve given much inspiration for Rally’s asset to catapult 131% higher yesterday. Some clarification on the variants: the first production featured a "Teen" rating. Even Aas a fully grown adult, I think I'd feel like I was doing something wrong playing GTA. So, in later productions, the rating was changed to "Mature". The sale of the 9.6 with Rating Corrected is not a significant improvement over a $5,760 sale of a 9.6 A back in July of 2020. A 9.8 with Mature (corrected) rating last sold a year ago for $13,200. A 2-3x multiple over the rating corrected 9.6 would’ve been palatable, but 5-6x is harder to see, particularly as it now trades at a premium to the earlier production (understanding that it does have a higher grade).

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Final Fantasy VII

Heritage (WATA 9.8 A++, “Masterpiece” Misprinted): $33,600

Heritage (WATA 9.8 A, First Production): $18,000

Rally (WATA 9.8 A+, “Masterpiece” Corrected): $85,000

A tough result here, as Final Fantasy VII came back down to earth after a massive $144,000 sale in July. That July sale was for the same, later variant as Rally’s copy in a 9.8 A+, which would’ve made the impending $85,000 launch value look palatable - that is, until the earlier variant with the word “Masterpiece” misprinted on the box sold for $33,600. Not to mention, a first production of this game in a 9.8 sold for just $18k, which makes little sense. This may be the case of four 9.8s of any kind coming to market within a few months' time introducing pop report uncertainty for collectors.

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Super Mario Bros 3

Heritage (WATA 9.6 A+): $27,600

Otis (WATA 9.6 A): $40,000

Rally (WATA 9.4 A+): $50,500

Both games come from the later “Right Bros” production, though the Heritage copy is “No Mexico” and the Otis copy is “w/ Mexico” – this has not previously made a significant difference to value, and a “w/ Mexico” copy sold in August for $33,600. Though the Otis copy remains up an astonishing 700% since IPO, it is down 36% over the last month, having run particularly hot after the excitement around video games peaking in July.

The news is even worse for the lower graded Rally copy, which more than doubled in the last trading window in October, and shareholders will hope for stronger results before the next opportunity to trade.

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Halo: Combat Evolved

Heritage (9.8 A): $25,200

Rally (9.4 A+): $17,000

Heritage’s sale of a 9.8 for $25,200 comes in well below their July sale of a 9.6 for $31,200, a comp off of which the Rally valuation was presumably based. The Rally copy funded a couple months back and has yet to trade, but the softness here may lead to a choppy initial window.

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Zelda II: The Adventure of Link

Heritage (9.6 A+): $22,800

Otis (9.6 A+): $39,323.50

The Heritage sale, in the same variant and grade as the Otis copy, led to an immediate pullback in the Otis shares, which dropped from $18.75 to $13.33 on Friday. Still, the market cap sits well above the result. At this cap, the Otis game is more in-line with an April sale of the same grade for $38,400. Shockingly, this result is well below a $30,000 sale from a full year ago, which is hard to swallow given how strong video games were in the middle of the year.

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Castlevania II: Simon’s Quest

Heritage (9.6 A+): $13,800

Rally (9.6 A+): $18,000

According to the Heritage description, it would be quite an incredible rarity to see a copy of this game in the same variant and grade as Rally’s copy, as this is not only the highest graded copy Heritage has graded, but they’ve also only offered three Round SOQ copies, period. We get a perfect comp just weeks after Rally launched and funded their copy for $18,000. Time will tell if shareholders sell into weakness when trading opens.

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GameBoy Pokemon Blue

Heritage (9.4 A++): $13,200

Rally (9.4 A++): $26,400

Both the Heritage and Rally games are of an early production variant with a pixelated ESRB rating and Rattata screenshot. However, it seems the big dollars are preoccupied with chasing the highest grades (a 9.8 of this variant sold for $114k) or the variant with a Sandshrew screenshot. This result is actually lower than the sale of a 9.2 in the same variant in July for $14,400. A 9.4 A+ sold in late September for just $6,600, which reflects the benefits of selling in a signature auction versus a less-trafficked monthly.

This result would also not bode well for the Otis copy, which is of the later Black ESRB variant and trades at $15,000, more than the earlier production result with a better seal grade.

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Super Mario Land – Yellow Screenshots

Heritage (WATA 9.4 A+): $13,200

Otis (WATA 9.4 A+): $16,905

This game on Otis has been in steady decline over the last month, leveling down repeatedly on the path to a 29% loss. With this result, there may be further weakness ahead. This result is about a third below what this game captured in April.

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NES Golf

Heritage (9.4 A): $11,400

Otis (9.8 A): $24,719

This Heritage sale is almost double what a copy of the same grade and early production sold for back in September of 2020. It’s not unreasonable to think that a 9.8 could fetch at least double the level of a 9.4. The last time a 9.8 sold was in November of 2020 for $18k, which was triple the level of a 9.4 two months earlier. Of course, the market did rise over those months, so the 3x multiple would not apply.

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NES WrestleMania

Heritage (WATA 9.2 A+): $9,600

Rally (WATA 9.6 A+): $18,000

This is just the third sealed, Round SOQ copy that Heritage has offered. The most recent was also a 9.2 (with an A seal) back in May of 2020 for $1,080, which shows just how far things have come since then. Given the higher grade and the absolute dearth of copies in the earlier variant, the 2x multiple would not be high relative to other, similar situations.

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