A story in the UK press this week suggested that the UK distributer of Panini football stickers (Connect Group Plc) has delivered only half the profits from the stickers that it had expected after a ‘major drop off in demand.’ The share price duly responded:
This comes a week after it was reported that armed robbers had stormed a Panini printing house in Argentina, making off with packets worth up to $360,000. Meanwhile second-hand albums are selling for thousands of pounds on-line:
What is going on with the way we value these stickers? And might understanding the valuation process tell us something about the beneficial role played by markets, as well the nature of today’s technological disruption?
World Cup fever
Although the actual football world cup has just started, for some the main event has been in full swing for months.
The official Panini World Cup sticker album was released on March 22nd and some members of the episode team are already a long way down this particular rabbit hole. This is a genuine spreadsheet (one of several) created by one of the team (including ‘vlookups’):
This can end up being an expensive game, and not only in terms of time spent on excel. When a new tournament rolls around it is common to see stories calculating the costs of completing an album. This year a mathematics professor at Cardiff University arrived at an average cost of £774 for an individual unable to swap with other collectors.
(As an aside: some may be troubled, as I was, with the assumption that stickers aren’t evenly distributed, but apparently stickers are evenly distributed and the common belief that they are not probably illustrates our poor ability to conceptualise probability).
Of course, most of us will look to swap stickers and a network of willing swappers significantly brings down the average cost of completion. A network of ten would reduce the average cost from £774 (about 967 packets of stickers) to £247 (about 309 packs). It is arguably the case that swapping is very much part of the value we attach to collecting Panini stickers in the first place; the high costs people are willing to pay for old albums and stickers may be as much to do with the nostalgia of playground interactions as it is with memories of the tournaments themselves or the rarity of the item.
If we were all buying stickers as individuals, and were intent on completing the album, demand for stickers would be far higher: each of us would be looking at buying an average of 967 packs to achieve our goals, and we’d all be sitting on large piles of useless duplicates.
A swap ‘market’ brings down the cost and the waste. Moreover, there is an interesting relationship between demand and supply at work: I previously had to purchase more packs because the supply of the particular sticker I need was effectively constrained by the role played by probability. But as I introduce a network of swappers, this effect is reduced.
One person’s swap is another’s desperately needed sticker. My duplicate of ‘Mile Jedinak’ is no longer useless, I can swap it with someone who needs it for their ‘Birkir Bjarnason,’ effectively increasing the supply of each in the market place.
When I was growing up, your network might be your school. Today it can be far wider. A simple search revealed some of the websites available for Panini swappers to connect with each other.
The effect of this should be to bring down the amount of packs we need to buy to the minimum.
In the ‘old world’ the purchase price of one sticker would be 16p (there are 5 in a pack costing 80p) but collectors would end up paying more to complete the album because it matters which stickers you have. In a world of large networks, it is likely that any sticker you receive in a pack will be needed by someone who in turn has a sticker you need. It is also the case that Panini now allow you to specifically ‘order’ any stickers that you are missing, having a similar effect.
The press article about Connect group’s misfortune suggested that it was price increases that resulted in a fall in demand.
This may be true in that a price change could mean a shift along the demand curve (people still want the stickers but simply aren’t willing to pay that price for them), but there may be something more significant going on. If network effects are working as suggested above, then the demand and supply curves themselves have shifted: collectors don’t need to buy as many packets (demand) because the supply of each and every sticker has effectively increased. Previously, the effective supply of individual stickers was influencing demand for packets.
This in itself could have meant reduced profits for Connect even if the prices had been kept at the old levels. It could be a watershed moment for the world of collectibles.
On a more profound level, this development could also disrupt the market in Panini nostalgia. In a world where the anticipation of buying each new pack is removed, the social interaction of swapping becomes dehumanised and stickers are simply produced on demand, the human element is removed. You may as well order the pack fully completed, and who is going to pay up for those memories in thirty years’ time?
The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Past performance is not a guide to future performance.