Pack-ripping apps are changing the way people buy and sell cards. But analysts say their 'slot-like payoff' raises risks.
In times past, if you wanted to buy baseball cards or Pokemon cards, you'd go to a store, buy a package, rip it open and decide which cards you wanted to keep, which you wanted to sell for a profit and which you'd toss.
But now, a handful of new apps are digitizing that process and bringing a turbocharged version to people's phones, raising new possibilities as well as risks for users and gaming investors, BofA analysts said in a research note on Wednesday.
So-called pack-ripping apps like Triumph and Arena Club - the latter of which lists Baseball Hall of Famer Derek Jeter as a founding partner - allow users to virtually open card packs through the app and choose which cards they want to have shipped to their home, which they want to store on the platform and which they want to sell back, according to the analysts.
That might sound like an activity for only the most devoted card enthusiasts. But those apps are growing rapidly, said the BofA analysts, who estimate that they bring in around $2 billion in annual revenue.
Just as prediction markets have redefined the boundaries of what people can win and lose money on, the lottery-like anticipation that comes with pack rips - that is, the act of buying a pack of cards and opening it to see what common or rare cards it contains - "could be the next big expansion" of gaming mechanics, the analysts said.
"Rips represent a natural new vertical for online sports betting and iGaming operators, given similar gaming or lottery mechanics and customer demographics," the analysts said.
"Pack rips have a slot-like payoff distribution mechanism, with users chasing unique or rare cards (the 1-of-1 card or jackpot), while simply selling back unused or unwanted cards immediately," they added.
The sports-betting site FanDuel, which is owned by Flutter Entertainment $(FLUT)$, recently announced a partnership with Arena Club to test out consumer interest in digital pack rips, according to Barron's. Cyrpto exchange Coinbase (COIN) in September also said it would soon allow users to rip packs on their phones. Rips are also available on platforms like Crypto.com, Underdog and PrizePicks.
The interest comes as the collectibles market continues to grow, spurred by social media, the card industry's increasing focus on rare finds and limited print runs, and the expansion of financialization more broadly.
Pack-rip videos, some of which show tallies of the total value of the cards against the purchase price, are common on YouTube and TikTok, where creators talk about the prices of Pokemon and "Magic: The Gathering" cards with the detail and intensity of live stock-market coverage. Quarterly sales of "Magic: The Gathering" crossed $600 million for the first time ever earlier this year. EBay $(EBAY)$ bought TCGPlayer, an online card marketplace, in 2022.
The BofA analysts said weekly active users on pack-ripping apps have increased from around 50,000 a year ago to more than 1.7 million today. The audience is largely male. The analysts estimated that around 58% of rips are for Pokemon cards, and 15% are for sports cards.
The cards shown on any pack-ripping app are, in theory, backed by an actual physical, authenticated copy of that card in storage. According to a summary on PrizePicks, users select a pack they want to open, with a randomizer deciding which cards they get. Users can see their chances of landing certain cards beforehand.
The analysts said the cut those apps get from any one transaction is similar to a slot machine and is based on the difference between the price a customer pays to open a pack on an app and the potential value of the cards inside.
The analysts said most pack rips have an "initial take rate" - or the share of any transaction a site takes for itself - of around 5% to 10%. If a user tries to sell cards back, some apps will offer them around 85% to 90% of the market value, rather than 100%.
However, they noted that sports cards were a "volatile asset class," with peak-to-trough swings of as much as 50%. And as the betting market gets bigger, questions could emerge over marketing to minors and whether pack rips should be viewed as a retail transaction or as gambling, the analysts said.
"If pack rips continue to grow in popularity, we expect the industry to face increased scrutiny, but based on our conversations, legal experts believe the category is on solid regulatory footing as long as the cards remain backed by physical inventory," the analysts said.
-Bill Peters
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