One of the primary methods used to gain long-term value from baseball cards is to identify prospects early on before they become stars. That is, much the same way an investor and/or speculator might look to identify the next Google before it becomes Google or the next Amazon.com before it becomes Amazon.com, baseball card prospectors are constantly on the lookout for the next Bryce Harper or Mike Trout.
That said, the release of 2013 Bowman last week marked the first big release of the 2013 baseball card season, introducing the first Bowman Chrome prospect autos of the top two picks of the 2012 MLB First-Year Player Draft: Minnesota Twins OF Byron Buxton, the No. 2 pick in the draft and the virtually undisputed top prospect from the draft; and Houston Astros SS Carlos Correa, the No. 1 pick in the draft.
The base autos (that is, non-refractor, non-numbered autograph cards) of both of these players are off to a hot start, with Buxton autos going in the $130-$170 range (and one $200 sale) in the first couple of days of trading on eBay, while Correa base autos have traded in the $100-$130 range. However, unless the cards turn out to be short-printed, both players are being wildly overvalued.
Ungraded pricing of $130-$170 for Buxton, for example, implies a graded BGS 9.5/10 (graded BGS 9.5 Gem Mint with a 10 Auto) value probably in the $200-$250 range. By way of comparison, the 2006 Bowman Chrome Justin Upton prospect auto graded BGS 9.5/10 can be had in the $150-$200 range, while the 2008 Bowman Chrome Draft Mike Stanton (now Giancarlo Stanton) auto graded BGS 9.5/10 is selling in the $200-$250 range. The 2005 Bowman Chrome Matt Kemp auto carries an ungraded Beckett book value of $150, but a graded BGS 9.5/10 book value of $300 (there are zero eBay sales of BGS 9.5/10 examples of this card in the last three months, though they were going for around $250 a pop late last year).
And the only players with comparable Bowman Chrome autographed prospect cards worth more right now are Mike Trout and Bryce Harper, with current graded BGS 9.5/10 street values in the $500-$600 range.
Problem is, all of these guys are established stars in the major leagues. And while Byron Buxton is off to an absurdly hot start on the actual playing field in 2013, with a .368/.485/.682 (batting average/on base percentage/slugging percentage) line with five home runs and 30 runs scored through 135 plate appearances in 29 games, it's important to realize that he's doing this for the Cedar Rapids Kernals of the low Class A Midwest League, and is at least a year -- and more likely two or three years -- from being a regular in the big leagues.
So we know that Byron Buxton is probably not worth $130-$170. The next question, then, is how much is he worth?
Let's start by talking about what I call the Expected Value Comp Approach to prospect valuation.
The Expected Value Comp Approach (EV Comp)
In real estate appraisal, the most widely used valuation method is the sales comparison approach. Anybody who has ever bought a home has used comparable sales -- comps -- using recent sales of other homes in the same neighborhood or like homes with similar features in different neighborhoods in order to determine the value of a home before making an offer. This typically involves the use of the price-per-square-foot metric, while making adjustments for things like the number of bedrooms or the presence of a pool or other amenities.
For baseball cards, we can also use the comp approach to compare the values of the cards of current prospects to the values of similar cards of comparable -- but more established -- major league players. And then, by estimating the probability of certain outcomes (i.e., the probability of reaching certain levels of potential), we can develop estimates of expected value for a given prospect card.
Let's say, for example, that we estimate that a player we'll call Prospect A has three potential outcomes in a simplified scenario:
- A 10% chance of being a generational talent -- equivalent of Los Angeles Angels OF Mike Trout -- with a potential value of $500;
- A 40% chance of being a superstar -- or the equivalent of Los Angeles Dodgers OF Matt Kemp -- with a potential value of $150; and
- A 50% chance of being a bust or other common player, with a potential ungraded book value of $10.
Now to determine the expected value of Prospect A, all we need to do is multiply the potential value of each of the three potential outcomes by the probability of each potential outcome in order to get the expected value of each outcome and then add up the expected values in order to get a total expected value.