The question of whether baseball cards should be considered securities has been debated for decades. On one hand, baseball cards are collectible memorabilia celebrating America’s pastime. On the other hand, the trading and reselling of valuable cards shares similarities with trading stocks and bonds. Both sides have compelling legal and financial arguments for their perspective.
Those who argue baseball cards are securities point to the Supreme Court’s 1946 ruling in SEC v. W.J. Howey Co. The Howey Test established the criteria for determining what constitutes an “investment contract,” and thus a security regulated by the Securities Exchange Commission (SEC). Per the Howey Test, an investment contract is defined as an investment of money in a common enterprise with the expectation of profits coming solely from the efforts of others.
Proponents of classifying cards as securities argue many valuable baseball cards meet all prongs of the Howey Test. First, collectors invest money by purchasing packs of cards or individual cards with the hope that certain rare cards appreciate significantly in value. Second, the baseball card market constitutes a common enterprise as thousands of collectors trade and resell cards at shows, online marketplaces, and through third-party graders. Any profits realized from appreciation of a card’s value is solely due to external market forces and the popularity of the player rather than any effort by the card owner.
Another argument is that valuable vintage cards, especially those in pristine “gem mint” condition, are essentially unopened investments. Like stocks, their value fluctuates based on supply and demand. People purchase and hold cards long-term with the goal of selling them later at a higher price, not to display or use them for their intended commemorative purpose. In this sense, cards are more akin to securities than typical collectibles.
Others contend baseball cards should not be regulated as securities for several key reasons:
Baseball cards were created as consumer products for entertainment, not investments. Their primary function is to celebrate players and the sport, not generate profits. Subjecting casual collectors to securities regulations would be overly burdensome.
Unlike traditional securities, there is no promise of financial return on baseball cards. Appreciation is not guaranteed and depends on unpredictable future conditions in the collectibles market. Investments securities come with implied promises of dividends, interest payments, or capital gains which cards do not.
The baseball card market lacks several attributes of well-regulated securities exchanges. There is no central clearinghouse to ensure orderly or transparent trading. Price information is unreliable given the number of small transactions. Enforcing securities laws would be nearly impossible across the countless local card shops and collectors.
Classifying cards as securities could have unintended consequences of reducing their availability to the general public. Companies may limit production amid compliance costs and liability risks. Strict regulations could quash the grassroots hobby enjoyed by millions of casual collectors and fans.
Over the years, the SEC has generally side-stepped intervening to classify cards one way or the other, preferring to leave the matter unresolved. In 1990, the SEC issued an informal letter stating it had no plans to regulate cards as securities “at this time.” The Commission also acknowledged cards could meet the Howey Test definition in some circumstances depending on specific facts about an investment.
This ambiguous stance has allowed the vibrant collectibles market to continue with minimal SEC oversight. It also leaves open the possibility the SEC could someday change course and crack down on cards in response to a major fraud case or shift in policy. As the cards increase enormously in value over time, this debate is unlikely to fully disappear. For now, both sides have compelling arguments, and reasonable individuals can disagree on this complex issue.
While vintage baseball cards share some attributes with securities, there are also many valid reasons they are more accurately considered a collectibles hobby. The SEC has avoided a definitive ruling so far. Unless dramatic market changes occur or serious problems emerge, cards will likely maintain their current unregulated status. But the ongoing legal and financial comparisons ensure this debate over whether cards are securities will persist for years to come.
