Welcome to the third edition of Bull Case Bear Case. As always, the goal is to give investors a clear, balanced view of both sides of the coin. Prepare to tackle the week with confidence, and don't forget to subscribe to Pro for a look at an even larger slate of offerings!
Aldous Huxley: Brave New World (1st Edition) - Rally
1/24 @ 12:00PM ET
Valuation: $14,000
Bull Case
Rare book returns on Rally. With 28 assets trading, the average return for books on Rally is 43%. In total, 15 books are trading positively while 12 are currently priced under their market caps. Before we dive too deep into performance data, it is important to note that Brave New World was published in 1932. With that being said, books published in the 20th century have outperformed the sector overall, as copies printed after 1900 are up 52% compared to books published prior which are up 15% on average. Under more of a microscope, returns are even better. Books published in the 25-year range between 1930-1955 are up 106% since IPO and out of the eight examples trading, only one is negative while five are up 100% or more.
Impressive condition. Prices for Brave New World have fluctuated significantly over the last three years and while that is in part to general market trends, it is also tied to the condition of the books sold. While this is not the best conditioned example that has sold in the last five years, it is within the top 10%. The book has maintained its deep blue color minus some minor sunning on the spine. The coloration of the hardcover emphasizes wear and while the Rally’s example does have visible damage to its corners and edges, I have not reviewed a first edition copy that has not displayed similar chipping. For a book that was published 90 years ago and clearly sat on a shelf for the majority of its life, the overall state is one of the best available, helping propel it towards the top-tier of valuations. During this recent surge in prices, there have been sales that have settled in the mid four-figures for lesser quality copies which can be used when identifying trends but are not relevant as direct comps.
Controversial relevance. Thanks in large part to George Orwell and his cult classic 1984, speculative fiction has carved out a corner in the rare book world that has been attractive to collectors and investors alike. Books that the collecting community deem as culturally relevant have found an audience of buyers as their controversial takes are viewed as potential prophecies. There is an aura around books like Brave New World or Orwell’s 1984 that is attractive for movie adaptation and while a few of these have already been produced (we’ll get to those later), the general thesis around these novels is that they will stand the test of time as people remain weary of big government.
Bear Case
High markup and fees. Rally won this copy at The Gary Munson Collection of Horror and Fantasy Rare Books Auction hosted by Heritage Auctions in October for $10,625 and their IPO market cap is 31.76% higher than the purchase price. Baked into the offering amount is a steeper than usual sourcing fee which equals 15.25% of the total proceeds. Compared to another book that IPO’d on Rally recently, Moby Dick, the markup was 16.7% while the sourcing fee was 11.68%. The $14,000 market cap for this offering is the highest this book has ever been valued at and the Heritage sale was the second most expensive price publicly paid for a first edition copy to date. The most expensive sale took place at Christie’s on September 17th when a copy sold for $13,750. The Christie's book displayed similar wear but closed at a price that was five times its original estimate. That Christie’s auction was a breakout event for books as multiple examples including copies of Dune and Of Mice and Men reached prices that far surpassed the previously appraised valuations. Prices have since maintained but have failed to appreciate beyond that banner event.
Box office dud. Remember that part about how shows and movies that are based on books which promote dystopian societies are attractive to TV audiences? On one hand, for the sole purpose of maintaining relevancy, that concept is viewed as a bullish point for a book like Brave New World. There is just one problem; What if the lineup of TV shows that have been produced based on Brave New World have been considered failures? In 1998, NBC aired a television movie with an impressive cast that included Leonard Nimoy from Star Trek fame. The film fell flat though and reviews were mixed, earning a 46% from Rotten Tomatoes and 5 stars out of 10 from IMDb. Then in 2020, another Brave New World series debuted, this time on the NBC streaming service, Peacock. If you are curious how that show performed, it premiered on July 15, 2020 and just three months later was canceled after one season. There was a grand total of nine episodes and while the Huxley adaptation received some praise from sites like Vanity Fair, overall reception was poor and its ratings fell among the bottom 20% of all 2020 Peacock shows. For a book that is seemingly fit for the big screen, no one has managed to create a movie or series that is even remotely viewed as a success.
Are books returns on the decline? While books returns on Rally are up overall, performance has lagged as of late. Over the last four weeks, books are down -33.04% on average and the asset class has closed negatively in four consecutive week. Over the last week, books fell -11.74% on average, representing their worst trading week since real-time trading opened on Rally. The previous three weekly returns were -4.31%, -10.91%, and -6.08%. As more attention has moved towards assets like sports cards, memorabilia, and comic books, money has moved away from books. Whether this is nothing more than a short-term rotation or a signal of more ominous times ahead is something that will impact the market cap of Brave New World when it begins trading on Rally later this year.
1970-71 Bobby Orr Photomatched Jersey - Collectable
1/27 @ 2:30PM ET
Valuation: $399,000
Photo: Collectable
Bull Case
Unrivaled resume. Perhaps Orr isn’t worshiped like Gretzky by the more casual hockey fan, but to those in the know, he ranks very highly (think: easily top 5) among the best players of all time. Keep in mind as we list these achievements that Orr was a defenseman. Nine time All Star. 3x Hart Memorial Trophy Winner (MVP). 8x Norris Memorial Trophy Winner (Best Defenseman) - all time leader. 2x Stanley Cup Champion, Conn Smythe Playoff MVP both times. Led the NHL in points twice (only defenseman to do that). Led the NHL in assists five times. 3rd all time in assists per game. 2nd all time in Plus Minus. 5th all time in points per game. Orr simply changed the sport with his attacking abilities as a defenseman, demonstrating unparalleled speed and power.
All-time season. In the 1970-71 season, which this jersey is believed to be from, Orr became the first player (ever - defenseman or otherwise) to reach 100 assists in a season, set the defenseman records for both points and assists in a season, set the record for highest single-season plus minus by a defenseman, and won the Hart and Norris trophies. The match was conducted by Resolution Photomatching, which most notably conducted the photomatch for the three most expensive basketball jersey sales of all time. In 2019, Classic Auctions sold Wayne Gretzky’s regular season home debut jersey for $221k. At the time, it was advertised as photo-matched, but without a letter from a photo-matching service. At Heritage two years later, with MeiGray photo-matching, it sold for $660k. This Orr jersey was photo-matched by similar standards when it sold at Classic Auctions in February of 2021 for $209k. With the photomatch completed by Resolution between then and the IPO almost a year later, a bullish investor may find the increased $399k valuation more than palatable.
Track record of high-value sales. Six figure sums for Orr jerseys are not a new phenomenon. Orr jerseys, not more spectacular than this one, have attained six figure results at auction since the mid 2000s. In fact, a jersey believed to be from the very same season sold for $135k at Leland’s in 2006. While the card market has skyrocketed since (whatever multiple you use, it’s significantly more than ~3x), memorabilia’s appreciation has been slower, particularly over the last two years. Bulls would argue that the category is due a catch-up period. An already Resolution-matched jersey believed to be from the same season sold at Heritage in August of 2020 for $150k. That this jersey, not yet Resolution-matched, sold for $209k in February of 2021, 46% higher, is perhaps indicative of a market for these items that is beginning to advance.
Bear Case
Market inertia challenging to overcome. While bulls might argue memorabilia is due a moment in the spotlight relative to cards, bears might argue that the consistent laggard status has persisted for a reason. That esteemed Orr jerseys have been selling in the low to mid $100k range since the mid 2000s and have only recently nosed just above $200k is suggestive of a long term return profile in the low to mid single digits. Given the range bound nature of results over the course of a decade and a half, the $399k valuation may prove difficult for investors to swallow. The volatile and not upward-trending NHL viewership numbers over the last decade will do little to assuage these concerns, though there is some reason for optimism as the league begins its new deal with TNT and Disney (ESPN).
Photo-match uncertainty. To be clear, the photo-match appears quite conclusive. The concern, however, is that the match is conducted to two undated images. These images are believed to be from 1971, and there are other supporting details - relating to the stamp on Orr’s stick in one photo and the contract in question in the contract-signing photo. There’s very little reason to believe the jersey isn’t from 1971. Rather, the point is that the increased credibility of the Resolution photomatch is not likely on par with the Gretzky jersey, for example, where multiple specific games were matched. It’s not uncommon to see a photo-match add multiples of value, but the photo-match must significantly advance the effort of placing the item on the player at a specific point. Therefore, the corresponding increase in valuation here (nearly doubling in less than a year), where those advances are perhaps lacking, may not appeal to a bearish investor.
Long fill time. This asset has been open for early access since December 26th, with considerable press coverage since. Should the asset not fill quickly upon its official opening, about a month later, there may be greater ask volume than bid volume when the asset opens for secondary trading. Assets following a similar path to full-subscription have experienced challenged trading debuts.
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Disclaimer: You understand that by reading Altan Insights, you are not receiving financial advice. No content published here constitutes a recommendation that any particular security, transaction, or investment strategy is suitable for any specific person. You further understand that the author(s) are not advising you personally concerning the nature, potential, value or suitability of any particular security, transaction, or investment strategy. You alone are solely responsible for determining whether an investment, security or strategy, or any other product or service, is appropriate or suitable for you based on your investment objectives and personal financial situation. Please speak with a financial advisor to understand if the risks inherent in trading are appropriate for you. Trade at your own risk. Past performance is not a guarantee of future results.
