What Baseball Cards Can Teach Us About Fair Market Value

As a kid, baseball and football trading cards were my life. I absorbed the stats on the back of each card and rattled them off at school like it was a homework assignment. I have boxes and boxes of cards I accumulated over the years, as do many of you I am sure (if your parents haven’t tried to throw them away yet).

What do baseball cards have to do with the value of your business? More than you might think.

Trading card resources such as Beckett list estimated prices for nearly every sports trading card available. These prices represent what we in the valuation world call “fair market value.” This is the price at which a willing buyer and a willing seller, after reviewing all material facts about the card, would likely transact. Most business valuation engagements, including those for IRS gift and estate tax reporting purposes and divorce proceedings, require the use of fair market value as the standard of value.

Fair market value typically assumes the purchaser is a “financial” buyer (someone who is investing in the business with no plans to create synergies or other economies of scale) unless certain circumstances dictate otherwise. However, when many business owners contemplate the value of their business, they often envision it from the standpoint of a larger, similar company paying a premium to acquire their company because of expected post-transaction efficiencies. Those efficiencies motivate the acquirer to pay more for the business than a financial buyer. The value to a specific buyer is called “strategic value” or “investment value” and it is not the standard of value used in many business valuation engagements.

For example, I have a 1994 Kenny Lofton Upper Deck card that has a quoted value of $0.50. Someone who has the entire 1994 Upper Deck set except for the Kenny Lofton card may be willing to pay a premium above the card’s $0.50 fair market value because they can derive additional value by completing their set. This premium price is the strategic or investment value to that specific owner, but it does not reflect the card’s fair market value in the general marketplace.

Just like in the baseball card example, the perspective from which a company’s value is evaluated can significantly impact the concluded value. When business owners need valuation services, it is important that all parties understand what standard of value is being used — whether fair market value or something different — so the value of the business can be considered in the correct context.