Paragon's New Auction Model - Will it Work?

[aeneas01]

to begin with i think you have to applaud any business that enters an established market place with a fresh approach, which is what paragon has appeared to have done with their unique auction pricing format. rather than charge traditional consignment fees based on lot hammer prices, paragon will instead require consignors to "advertise" their lots in paragon's auction catalogs by purchasing "ad space" ranging from $300 to $1,500 a pop (buyers will not be charged any fees). at first blush this seems like an interesting angle, but will work, does it even make sense?

interestingly, the vast majority of items sold at most big sports memorabilia auction houses typically fetch $1,000 or less. for example, in nine auctions conducted by lelands from 01/2008 through 11/2009, a whopping 80% of the lots sold went for $1,000 or less. further, an incredible 95% of the lots sold fetched $3,000 or less.

so let's say a consignor wants to list an item with paragon that's expected to bring $1,000. paragon's cheapest option is a 1/6 page ad that runs $300. this of course equates to a hefty 30% cost to the seller, a percentage well above the typical auction house consignment fee. even though it's possible to chisel this price down to $167 if you're willing to go for paragon's $1,500 full page ad with a 9 item max option, the cost to the seller is still about 17% which isn't much different than what other auction houses charge - but keep in mind that this option will only get the seller a 1/9 page ad. needless to say the numbers get even worse for consignors wanting to list items in the $750 or lower range.

even with a big ticket lot, say a $10,000 item, paragon's model still doesn't appear to be a great deal for the consignor. for example, i would imagine that someone listing a $10k item would want a full page ad - but at $1,500 a pop it's still a 15% cost to the consignor. as would be expected, things begin to look much better for consignors wanting to list $15k, $20k, $25k, etc. items - but this comes at a hefty cost to paragon i would imagine...

big ticket lots typically make up a tiny percentage of an auction house's inventory (2% or less) yet these lots can be responsible for more than 30% of the house's revenues - in other words big ticket lots can often make or break an auction. for example, in the nine leland auctions mentioned earlier, only 1.2% of the lots sold went for $10k or more, yet these lots were responsible for almost a full third of leland's revenue. another example would be hunt: in eleven auctions conducted by hunt from 03/2008 through 02/2010, only 2.8% of their lots sold for $10k or more, yet these lots were responsible for 43% of hunt's revenue.

but given paragon's "ad" model with a $1,500 max ad price, paragon won't be able to generate the same sort of revenue contribution on big ticket items, not by a long shot, which might be tough for paragon given how expensive quality catalogs are to produce and distribute.

then there are the obvious questions such as what happens if your item doesn't sell after you've placed your $300 ad? hard to imagine that paragon could afford to issue refunds or even issue credits for subsequent catalog ads. and what about ad placement? how does one ensure that their ad is placed in the most desirable and advantageous section of the catalog, right hand page vs left hand page, front or back pages vs middle pages, top or bottom of the page, etc.? i suppose paragon could take a stab at first come first served, but i'm not sure how that would sit with most consignors, especially when they're paying the same amount of money for an ad, say $1,500 a pop for example.

paragon seems to feel confident that no buyer fees will generate frenzied bidding or, as they put it, will make bidding much more intense - should be interesting to see if that pans out. and if it does, will the end result be a downward adjustment to the current market value of collections that may have been artificially inflated by past 15%-20% buyer's juice? whatever the case, auctions houses need buyers - will no buyer's fees produce this in droves? will be interesting to watch.

here's a look at a couple of random catalog pages - the photo on the left is a single page ad from gfc's last auction (glove) and the photo on the right is a 4-lot ad from a huggins & scott catalog. the glove sold for $5,400 - had this ad been in the paragon catalog the cost to the consignor would have been 28% ($1,500 full page ad / $5,400) as opposed to gfc's 20% consignor's fee. the baseballs sold for $300, $650, $700 and $450. a 1/4 page ad in paragon's catalog is $400, $375 if you're willing to buy a full page. combined ad cost to the consignors would have been 76% or 71% respectively compared to huggins & scott's 17.5% consignor's fee.





here are a couple of more random catalog pages - the photo on the left is a 6-lot ad from huggins & scott (jerseys) and the photo on the right is a 4-lot ad from gfc. the jerseys sold for $500, $275, $800, $900, $600 and $900. a 1/6 page ad in paragon's catalog runs $300 or $250 if you opt for full page $1,500 deal. combined ad cost to the consignors would have been 45% or 38% respectively with paragon compared to huggins & scott's 17.5% consignor's fee. the bats sold for $1,735, $0 (no sale), $270 and $264. combined ad cost to the consignors would have been 71% and 66% respectively with paragon compared to gfc's 20% consignor fee.





here's an auction house comparison derived from published auction results - the main point is to compare the price ranges lots sold for as a percentage total lots sold. for example, let's take a look at the lelands column, from top to bottom: 9 auctions were sampled, average lot price was $988, 63.6% of the lots sold went for $500 or less, 80.3% went for $1,000 or less, 94.5% went for $3,000 or less, etc... some interesting info imo.





...

[cigarman44]

Great breakdown. I thought this too when looking at their site. Nothing in my collection even approches 1000.00, so for me it wouldn't be a viable selling platform.

[gingi79]

Far be it for me to comment on other people's collections but somehow I doubt most of us has $10k items that we would sell. I base this on the fact that I like seeing others collections and read the monthly pick ups threads. When you consider the fact that $10k would buy you a pretty amazing HOF quality item, I imagine most people would post it for us to admire and yes critique.

On the other hand. I absolutely agree that a "Buyers Premium" is a scam. It's a ponzi scheme. As I was led to believe the Seller's premium was to pay for listing and research of the item. My parents used to attend auctions in NYC back in the early to late 70's and that was how it was explained to them. Then, the buyers premium was made up to offset some of the cost of the seller premium and they switched the research fees unto the buyer. Anyone want to guess why guys like Lou Lampson are in business? That's right! It's a sham to drain every last dollar out of every auction. Lampson fleeces Auction houses for shoddy research with a reputation. Then the Auction house fleeces buyers and sellers because they are allowed to and it became common, socially acceptable practices.

So in short, sellers are going to be less likely to consign because of the increased fees but the lack of a buyers premium will make buyers more interested in bidding higher. Catch-22, should be interesting to see how it plays out.

[genius]

Auction format is not what drives bidding, it's the quality of the items being offered.

[aeneas01]

Far be it for me to comment on other people's collections but somehow I doubt most of us has $10k items that we would sell.

my sample included 10 auction houses, 66 auctions and almost 50,000 sold lots - of these sold lots, less than 3% went for $10k or more. take robert edwards out of the equation, and the ratio of lots that sold for $10k or more drops to less than 2%. clearly guu collectors aren't the only ones that don't have a bevy of items valued at $10k or more burning holes in their pockets!

but speaking of the relatively rare items out there that are indeed valued at $10k or more, one has to wonder why owners of such items would gamble on a place like paragon over a place like robert edwards, spc, gfc, etc. - let's take a $30k item for example - is it really worth a potential savings of $4k or so in seller fees to go with paragon? or would someone that could afford to have a $30k item in his collection rather go with a house that has a proven track record of attracting big spenders (especially considering most auction houses would probably be willing to negotiate the consignment fee on items in that price range)?

and what about a buyer willing to spend $30k on a piece? wouldn't he be just as willing to spend $35k (which includes a buyer's premium) at an established auction house? perhaps a house that he's done business with for many years?

a "Buyers Premium" is a scam....

there's no arguing that many buyer's don't dig having to pay an additional percentage on top of the hammer price regardless of what they think it is or isn't used for, but it's the nature of the auction biz, not just sports memorabilia auctions. heck, there are lots of folks that think restaurant tipping is absurd and that the $9 burger and $6 beer menu pricing should be enough to cover employee wages without having to cough up an additional 15%+...

but the lack of a buyers premium will make buyers more interested in bidding higher.

apparently that's the plan but in reality how will this exactly work? let's say a prospective buyer sees an item in the paragon auction that he thinks is worth $500. does he say to himself "hey, i can go as high as $550 because i'll still be ahead given that i would have had to pay $575 at hunt for the thing because of buyer's fees..."? is this what happens on ebay? hmm...

Auction format is not what drives bidding, it's the quality of the items being offered.

if that were only true, if it was just that easy...


...

[Capital-Sports]

Interesting concept, but I don't see this working for them long term.

Plus their website looks like it was made by a 7th grade web design class.

[aeneas01]

Plus their website looks like it was made by a 7th grade web design class.

they're using "simple auctions", an auction software solution that more than a few well known sports memorabilia auction houses use - no doubt it's familiar to collectors that do business with several different houses. in fact i think it looks almost identical to lelands...


...

[allstarsplus]

Good analysis and like anything new it is understanding the dynamics. Seems to me on the high-end items, this format could be a win-win to the buyer and seller.

Again, everything depends on the final hammer price so this first auction will show whether or not this will be the format for the future.

If it is a big success, do you think others will try to adopt this format?

[Capital-Sports]

they're using "simple auctions", an auction software solution that more than a few well known sports memorabilia auction houses use - no doubt it's familiar to collectors that do business with several different houses. in fact i think it looks almost identical to lelands...


...

I'm well aware what "Simple Auction Site" software is and know a lot of auction houses use it. I was stating that the home page looks like a 7th grade web design class designed it, as in it looks unprofessional. I'm not sure what Lelands site your looking at because they look nothing alike.

[aeneas01]

I was stating that the home page looks like a 7th grade web design class designed it, as in it looks unprofessional...

"Plus their website looks like it was made by a 7th grade web design class." Capital-Sports

thought you were referring to their website, but now i gotcha...

Good analysis and like anything new it is understanding the dynamics. Seems to me on the high-end items, this format could be a win-win to the buyer and seller.

Again, everything depends on the final hammer price so this first auction will show whether or not this will be the format for the future.

If it is a big success, do you think others will try to adopt this format?

as it stands right now, i'm not seeing much of a win for sellers in terms of consignment savings - maybe the win for sellers will be realized through no buyer's fees? that's part of paragon's plan, that's what they're up-selling, will be interesting to see if it actually plays out (although i'm not sure how you would accurately measure this)...

btw, do bidders typically budget for buyer's fees at auction houses? for example, would a bidder typically have a budget in mind, say $1,500 tops, and thus only bid up to $1,282 knowing that coupled with the 17% buyer's fee he will be at his budget of $1,500? or would a bidder typically bid up to his $1,500 budget and worry about the buyer's fee later, i.e. not include the buyer's fee? i would think the latter, no?

as far as others maybe adopting this format if it proves to be a success? i can't see it - would be pretty tough for them to give up 50% of their revenues (buyer fees), and then some, i would imagine...


...