Those Million Dollar Retro video games auctions are a scam
Karl Jobst does a lot of great videos on retro gaming and speed running, but this is one of his best. He pulls back the covers on how and why we now see retro video games selling for hundreds of thousands (now millions) of dollars – seemingly overnight – and why they are part of a massive (but largely legal) scam.
Update: Wired has done an article on this, as has Kotaku who follows up Jobst’s claims with the auction houses – who did everything they could to avoid admitting to the scheme.
We’ve all seen record breaking and very high profile sales of retro video games. In investigating these sales, Jobst finds some absolutely fascinating information. There is very good evidence of a massively collusive industry (i.e. one guy that owns all of these sites) that involves grading agencies, auction houses, and fractional hedge investing houses who are all owned by the same people. Even worse, they have been doing this same scheme from the coin collector bubbles in the 80’s to comic book sales and other collectibles.
The short story? You first recognize an market with collectors and buy up a number of rare games in excellent condition for a few thousand dollars on the open market. After you quietly get a collection of the highest quality items, you then set up your own specialty auction site and grading system for those games. You start selling them on your own auction site and manipulate and pumping the bids to around 2x-5x original prices using accounts you control. This ensures that you have bought the items back yourself. It doesn’t matter what others bid so long as you win your own auction with one of your fake accounts. This creates a history of massively increasing prices and sense of scarcity without actually costing you anything. You’re selling them to yourself on your own auction site so there are no fees or overhead other than running a simple website. This part is easy, because the money you ‘paid’ just comes right back to yourself since you are both the buyer, seller, and own the auction house. You then repeat this process every 6-12 months per game – raising the price higher and higher. As sales break every record, you contact industry news sites that report on these nitch areas (like retro gaming) and off-handedly mention your auction and show the package in your grading services package during the interview.
Eventually you need someone else’s money to make a living at this. As prices rise and publicity spreads of exploding prices, you can then create fractional ownership shares of an item – and sell those to the open market. With the increasing cash inflow, you can then continue to sell the same game again and again at higher and higher prices. You use fractional share owners to compete against fractional share bidders. Again, since you are always the winning bidder (along with the collection of fractional sales customers) this is all profit. The fractional owners walk away with some small amount of money on the gains, you as the auction house take a 15-20% cut, and 5% seller’s cut. Even better – the game never leaves your possession. You then put it back on the fractional sales site under the winner’s account – and sell shares at the newer, higher price – and repeat as long as you like. Each time you turn it over, you make 20-25% of the new, inflated sale price.
How did he figure this all out? By researching and finding out the same guys in the news with these winning bids just happen to be the same folks that own and run the auction houses and grading companies. He also finds they were the key players in previous collector run-ups like the 80’s coin bubble, the comic collection bubbles, and many others.
Definitely worth a watch and as a serious cautionary tale – because like the coin collector scams they ran like this in the 80’s and 90’s the market eventually collapsed.
