Random Topps Musings - April 2013

   
   
- Ryan Tedards @SportsCardNews  
   
What's new at Topps? Nah, I'm not talking about Five Star Football. Quite honestly, products and that kind of information doesn't get my juices flowing. Packs were fun to open when they were $0.35 cents and I might get a Will Clark....... Let's get down to some things that do fire my imagination.  
   

I Can't Get No Satisfaction
Topps Customer Service Blows.  I know why it blows. It would cost a small fortune to have good customer service. Competitor Panini is seemingly able to do it with one guy, but a lot more goes into customer service then the person in charge. Let's not kid ourselves either. Panini doesn't sell as many cards in the U.S.A as Topps does. What grosses more revenue, Topps Series 1 Baseball or Panini's entire NHL Hockey products (1)?  Anyways, Topps has far more on their plate in respect to the volume of issues. But nothing is going to change in regards to the customer service at Topps. In fact, it could get worse before it gets better. Top level management would have to be stressing the importance of customer service for things to change at Topps. And by top level management I mean the Board of Directors (BOD) and the shot callers at Madison Dearborn and Tornante.

Lower level employees at Topps are not going to overhaul customer service. It's not going to happen. They don't have that authority. Lower level employees don't have that type of power in the big scheme of things. I could tweet the Topps twitter account, send 20 emails, call a dozen times. Anything I or anyone else does will not impact the customer service at Topps until Top Level management prioritizes it.

That is the cold hard reality of the situation. 2 year old redemption cards? That might be part of the business plan. You want innovation? Topps lost millions on websites eTopps and The Pit (2). The situation sucks for collectors. Sure, Topps does handle customer service issues in a positive way at times. They have people who care about collectors there. But those employees are powerless in the overall scope of customer service until top level management makes that call to make a change.

This is Not For You
Some Dealers are Pissed Too.  Here is the thing, customer service extends to the card shop owners and wholesale distributors who have issues as well. Dealers have reported numerous issues buying product off the Topps HTA Direct website.  That's just the tip of the iceberg. Some of these dealers are not happy at all. Trust me.

What about group breakers and rip and flippers?  What if they get damaged cards or shorted hits? How do group breakers deal with shorted hits in the midst of a live video with paying customers? That has got to be a sticky situation during those breaks.  Do they have to contact everyone involved in the break when they finally hear from Topps?  Some group breakers might make up for the missing hits by giving away something or opening more product for those involved in the break.  Doing so would take away some of the profits one could make on the group break.

What if you rip and flip and you get shorted some of your big hits or cards were damaged? We all know that cards typically sell really well right when the cards first come out. If you have to wait to get your damaged hit replaced then you might lose out on a lot of money.

Topps is not effectively able to communicate with its customers on a consistent basis and some dealers are finding the same problem. It hurts business for dealers when they can't get their problems and issues resolved. Even small time dealers can make huge orders because the margin is so thin on sports cards. It requires a big order to make a dent and have any impact in the business.  Product is coming out every week and many small dealers spend thousands a week ordering new product. 

Better Panini Man
When Panini America first started making cards back in 2009-ish the cards looked weak. Like a hawk over a dying carcass though, Panini has swooped in and hired talent from Upper Deck and Topps. The result in the last 6-12 months has seen some better looking and more collectible cards (3). Who knows what Panini will do in the future. Not all their products are winners. The MLB shut them out (4) and make no mistake the highest revenue products are still baseball.

 
   

Topps CEO Bounces: AKA Exit Strategy

Ok. I guess he didn't really bounce. He's on the BOD (5). There wasn't a whole lot of noise about Ryan O'Hara stepping down. Collectors could care less. They have no reason to really give a crap about the CEO of Topps. On his way out the door O'Hara bragged that he grew market share, popped open new markets and said the Topps brand was vibrant. (6)  All of which is probably true.

They run a lean business over in New York. So lean that when O'Hara stepped down they made the Chief Operating Officer double as the CEO. Granted, it takes time to find high level talent and a search could be on going for a new CEO (7).  But like I said, collectors don't care. In his ultra brief parting quote O'Hara mentions nothing about customer service. From redemptions, to communication, to damaged cards, Topps' customer service tastes like a piece of 1985 bubble gum.  Running a lean business means keeping costs under control. Even if that results in some unhappy customers.  The budget just doesn't call for going above and beyond the call of duty to make everyone happy (8).

 
   

Owner Dearborn likes to rip and flip: AKA Exit Strategy

So what is the plan? O'Hara had his exit strategy. A crazy person like me thinks that the true owners of Topps might be on the look out for their exit strategy too. Who are the owners? Tornante and Madison Dearborn. Probably many small time owners too, but those appear to be the two main players. I don't know about Tornante, but Madison Dearborn isn't in the business to buy and hold a company. Even if it's a profitable one, which Topps is. Madison Dearborn gets a good deal on a company and then sells it when the time is right (9). It's happened time and time again. It's what they do. When they partnered with Tornante in 2007 they got an apparent sweetheart deal for Topps that included an $80 million dollar cash discount. If someone waved $500 million in front of Dearborn I'd fall out of my chair if they didn't take it.

 
   

Owner Tornante likes Dearborn: AKA Exit Strategy

What about Tornante though? Perhaps Eisner and company over there own the biggest chunk of Topps. But would he have partnered with Dearborn if he didn't have a 10 year exit strategy in mind (10)?  Collectors hardly ever hear a peep from Eisner. He isn't in the business to innovate the sports card world. That was Upper Deck's role in the 1990's.  Look how much money Upper Deck blew out the door to grow market share. A ton. Look at where Upper Deck is now. Not a $500 million dollar company. Not even close. Maybe not even 10% of that. Eisner and company has no interest in growing the sports card business. It would cost too much money. Way too much. For me, it's all about the exit strategy for Topps.

 
   

So let's play: Who Would Buy Topps?

Some private equity branding house - similar to Madison Dearborn
. Eisner and Dearborn fatten up the books (11) and then get some other sucker PE group to pay a premium for America's card company.

Take Topps Public. Probably a reach but it is a possibility.  Topps was once a public company and traded on the open market. Dearborn and Tornante bought it off the open market back in 2007 and could IPO the company again (12).

Someone - not named Private Equity - buys it. For example, if Mark Cuban came out to California, took some medication, and then decided to drop $500 million to make Topps his own. He'd be the face of Topps. He'd pimp it and at every Mavericks game you'd get free packs. Look for 2014 Topps Five Star Dallas Mavericks Edition (13).

Panini Buys It. Reach. Big reach. Panini has some doe. Dearborn and Tornante would take Euro's. But don't hold your breath.

Upper Deck Buys It. Not happening. But it should be noted they had the "highest bid" in 2007 for Topps. It was a bid that may have not held up under due dillegince. But it was an offer. Crazy how much things can change in 6 years.   

Nobody wants it. Highly probable. Which is actually the nightmare situation for collectors (14).

 
   

Ok. Done with that game for now. Let's get back to some of the issues at hand.

Key employees bounce.

The CEO bounces but nobody cares about that guy.  Competitor Panini has jumped in and quietly hired the "Topps employee who controlled the Wal-Mart account."   While that doesn't impact many collectors on a direct level, many in the industry do follow the tweets from the Topps Twitter feed. In late April chief Topps Twitter content creator announced he was leaving the company.  I spoke with Mark Sapir just a month before the announcement of his departure. He didn't seem like a guy that was going to leave the company in four weeks. Not at all. What happened? Who knows. I've quit jobs on a whim in the past and it had nothing to do with my employer. Sapir did comment on Twitter he plans to pursue employment outside the sports card segment.

Besides Sapir most of the other Topps Sports employees are fairly anonymous. That could be by design. Again, lower level employees at Topps are essentially rendered powerless until Top Level management and the BOD empowers them to make significant changes to products and customer service. 

Products are Hit or Miss.

Taking a look at the recent offering of sports products - it's a hit or miss situation. Depending who you ask, reaction to the products can vary. I'll go through each of their products and give my biased take. 

2013 Topps Series 1 Baseball - the flagship MLB Baseball brand. This is a widely produced set that generates lots of cash flow. I thought some of the insert cards looked decent.  A lot has changed since 1990 when I first started buying Topps packs.  

2012 Topps Magic Football - pretty much a sticker dump.  But I did hear people who enjoyed the cards and the product. This isn't a premiere football brand for Topps and at any moment they will probably kill the Magic brand.

2013 Topps Turkey Red Baseball - sold exclusively online at topps.com. Nice little quick money grab where Topps can control the price. Look for card companies to do more of this. Anytime they can control all the costs associated with selling a product it bodes well for their wallet.

2012 Topps Supreme Football - this came out in late February. By that time I'm already trying to figure out who the 2013 NFL rookies will be. I have no idea if this product was any good or not.

2013 Topps Heritage Baseball - some collectors will really enjoy this set. There is a lot there to dig through and collect. I think it's a decent product and only wish they could go further with it. It's a mass produced and consumed set so it's hard for them to get too crazy with the ideas. I'd like to see a throwback product that really paid tribute to the vintage set in ways we haven't seen companies try before.

2012 Topps Valor Football - a set that was talked about and tweeted about for months before release. Boxes are still readily available.  The sizzle and build up for the product didn't match the end result.

2013 Topps Gypsy Queen Baseball - When this set first came out in 2011 it was hot. Now..... not so much. It's pretty much Series One dressed up in Gypsy Queen style.

2013 Topps Tribute Baseball - I always think the cards look really nice from this set. Granted, I ain't the guy who is going to pony up the $350 for a box.  I'll buy a couple singles on eBay.

2013 Topps Turkey Red Football - with 2012 rookies. Another controlled pull at the cash register. I really don't have a problem with card companies doing a money grab. It not like distributors and dealers are all non-profit saints.

2012 Topps Five Star Football - heard it was a good product with cards that weren't all chippy. Shoot. For $450 a box it better be nice.

 

 

 
Sub Notes  

(1) Wild speculation. It's late.

(2) eTopps and The Pit were ideas and the reported loss was on the watch of the old management. Dearborn and Eisner aren't card innovators. They saw how unprofitable eTopps was and put it in the shredder for good.

(3) With all this Gold Prizm buzz I think I pulled the highest selling NBA one to date.....

(4) The MLB has a history of dealing with American Companies. The fact that the big Panini balance sheet and big check book resides in Europe could have came into play.

(5) He has an equity stake so it serves his interest. Plus if the BOD is a paid gig then it's a check.

(6) Pretty much company speak 101.

(7) Or, because O'Hara is at the top end of the pay scale, eliminating his salary and expenses off the books fattens the companies bottom line to potential suiters. And, a new suiter would want to hire his/her own person to run the ship anyways....

(8) And you wanna fatten up the books? Trim your customer service budget. Make collectors wait 2 years plus for a redemption. It's like a 2 year interest free loan for Topps. They build in the costs of the  redemption cards when they make the product. By not fufilling the item it's like interest free money on a balance sheet.  

(9) Dearborn is the ultimate flipper. They buy and sell stuff all the time. Topps has been in the portfolio for a few years and the trigger finger might be itching.

(10) Partnering with Dearborn was apart of the exit strategy all along. Dearborn is the king of the buy and flip. That's not Eisner's wheelhouse. But he saw he could squeeze some value out of Topps for 10 years and then get Dearborn to flip it for him. All the while Dearborn gets an equity cut in the action to keep their juices flowing.

(11) I'm talking about the balance sheet not popular cards known as "book cards".

(12) It would be a dream come true scenerio for me. It would give dorks like me tons of company info, conference calls, analyst reports to pour over. Wow, juices flowing.

(13) I guess Panini's exclusive NBA trading card deal would get in the way of this.

(14) Straight nightmare. Dearborn and Tornante will continue to run a lean business until they find that sucker. Customer service issues could actually get worse before they get better for collectors.