Is the Coin Grading Business Sustainable?
Tuesday December 26, 2006
I got to thinking about an interesting concept over this past weekend: What happens when all of the coins that need to be graded are already in slabs? Of course, there are a lot of coins out there, and we'll never see all of them in slabs, but grading services are like any other business. They need to maintain their current levels of revenue at the very least, and hopefully grow. So what are these companies going to do when the numbers of coins needing grading and certification begin to drop off due to fuller market penetration?
Unfortunately, I think we're already seeing the answer: Marketing gimmick certifications. For example, the First Strikes designation is bizarre enough that one really has to wonder if the entire purpose of this designation wasn't to simply generate income for the grading services. Then I hear that grading services are refusing to certify the 20th Anniversay Silver Eagle sets as such unless all 3 coins are submitted in unopened mint packaging. All most people really want to certify is the reverse proof coin in the set, which is selling at very strong prices right now, but what better way for the grading services to generate some additional income than to require that three coins be submitted in order to get the designation on the one coin people really want? Clever, huh? Or greedy?
The fact of the matter is that at some point, the grading market will reach the point where most worthwhile coins are already in slabs. In order to sustain their businesses, grading services will have to sell us on new reasons to send in our coins. Marketing gimmicks like "First Strikes" is an example of this. Perhaps one of the scariest is the move towards the 100-point grading system. Under such a system, coins could be given a grade from 1 to 100, unlike the current Sheldon based grading system of 1 to 70. The Mint State (MS) grades would run from 70 to 100 under one proposal. If such a system is implemented, we'd have to submit all of our coins all over again, since VF-20 would become something like VF-30 and MS-63 would become something like MS-76. And we would all happily send them in (along with the re-grade fees), because who wouldn't want a higher numerical grade for their coins?
Unfortunately, I think we're already seeing the answer: Marketing gimmick certifications. For example, the First Strikes designation is bizarre enough that one really has to wonder if the entire purpose of this designation wasn't to simply generate income for the grading services. Then I hear that grading services are refusing to certify the 20th Anniversay Silver Eagle sets as such unless all 3 coins are submitted in unopened mint packaging. All most people really want to certify is the reverse proof coin in the set, which is selling at very strong prices right now, but what better way for the grading services to generate some additional income than to require that three coins be submitted in order to get the designation on the one coin people really want? Clever, huh? Or greedy?
The fact of the matter is that at some point, the grading market will reach the point where most worthwhile coins are already in slabs. In order to sustain their businesses, grading services will have to sell us on new reasons to send in our coins. Marketing gimmicks like "First Strikes" is an example of this. Perhaps one of the scariest is the move towards the 100-point grading system. Under such a system, coins could be given a grade from 1 to 100, unlike the current Sheldon based grading system of 1 to 70. The Mint State (MS) grades would run from 70 to 100 under one proposal. If such a system is implemented, we'd have to submit all of our coins all over again, since VF-20 would become something like VF-30 and MS-63 would become something like MS-76. And we would all happily send them in (along with the re-grade fees), because who wouldn't want a higher numerical grade for their coins?
Comments
That is a good question and one that keeps Pcgs and NGC up at night.
You dont mention reslabbing. Where people crack it out and resubmit. I am sure this is a tiny percentage of there business but a portion.
I think the 100 point system is inevitable and will happen after consolidation of the slabbing companies.
But in the meantime they will continue to come up with “marketing gimmicks” like special “CC” dollar holders or Redfield holders and so on.
I wonder if where they really make there money is on slabbing Modern coins and controlling the number of 70 vs. 69 in anything from a 2006 Penny to 2007 AE.
As suggested by Mr. Trike, I think the greater isssue is whether the Sheldon scale will be overhauled. If it happens, the grading services will be flooded with business. With that said, however, I hope that the clamor for a 100-point scale dies and that the numismatic world comes to its senses in terms of the Sheldon scale.
As for whether all the good coins have been slabbed, I would say unequivocally that they have not. Today’s coinmaking technology certainly allows production of MS70s and 69s, as well as PR70s and PR69s. So, then what’s left?
Well, in my view, there are millions of choice and gem quality coins, mostly moderns, whose values will go up as enlightened collectors increasingly turn to MS60s through MS65s. Who knows … maybe there are even a few unslabbed MS68 Franklin halves and MS69 Morgans out there waiting to be slabbed, too!
As for the rhetoric about the 100 point scale, consider that any numbering system ultimately is arbitrary. The Sheldon scale is perfectly acceptable and will be even better when software programs and hardware developments allow automated grading.
Only then will we truly have a fair and equitable system of grading coins. Until then, the greatest challenge we as collectors and honest sellers have is the eradication of bogus, incompetent, or over-generous grading service that are only too willing to apply non-existent and unrealistic grades to coins.
I just saw more than 150 Franklin halves graded in MS70 condition, thanks to the generosity of one such company. None of these specimens were truly above MS61. Of course, neither PCGS nor NGC acknowledge any Franklin strikes anywhere near this condition.
I contacted the company to call their attention to the matter and to urge corrective actions. Naturally, they did not reply. There ought to be laws that protect coin collectors and honest sellers from these charlatans and thieves!