Milton Friedman Society
Freed from desire
How to commercialize passion goods
By Anton Memminger
In a small town close to the Swiss-German border sits one of Europe’s best kept secrets: a house on the main street, built for craftsmen in the early 20th century, stays unnoticed by most that pass by it. Nothing hints that in its vaulted cellar lie thousands of the most rare and exclusive Cuban cigars ever made. Castros’s Palmeras, Norma’s Behike and Cohiba’s first “Gran Reserva” are boxed next to limited humidors and experimental ceramics, some of which are worth 5-digit sums. But what really makes this place so remarkable is that its existence is hidden behind an online shop, which does not deserve its name – a static PDF last updated in 2017.
To clarify, in the late 2010s premium cigars experienced the same fate as high-end watches and cars. A general increase in demand and facilitated use of web tools led to the creation of (online) ecosystems where knowledge was accumulated and goods could easily be bought and sold. This made markets more transparent and rather soon investors identified a new asset class they were desperate to add to their portfolio: passion goods! They offered superior returns compared to traditional asset classes, could be used in everyday life and were often seen as status symbols.
Aficionados were intimidated by the speed by which the dynamics of collecting changed. Prices exploded, which in turn led to more investors entering the market further accelerating price developments. Simultaneously with investors buying in bulk, conserving their purchases and putting them in vaults, the number of objects that actually saw the light of the sun decreased. Pre-investment collectors of passion assets had mixed feelings. Not overly excited about the paper gains of their collection, many shared a feeling that through the investment craziness their hobby had lost its soul.
The rise and fall of the European Super League (ESL) illustrate the same phenomenon. When on the evening of the 18th of April twelve of Europe’s most prestigious football clubs announced that they would build their own competition, football fans were heavily disappointed. They saw the ESL as flawed.
Allocating three quarters of the spots to the founding members was far too static for the highly variable performance of football clubs. Although termed “Super”, it included FC Arsenal and AC Milan, two teams that over the last four years failed to qualify for the UEFA Champions League (CL), currently the most elite tournament in club football. But ultimately the fans fury was sparked by the presumed incentives of the architects behind the ESL, to further commercialize European football.
Several of the twelve founding clubs have serious financial problems (ESL founders took the top 5 places of football teams with the highest debt). Covid-induced lockdowns worsened the situation, as ticket sales plummeted and their merchandise business is travel dependent. The ESL would have allowed these clubs to capitalize on their brand and would have provided predictable cash inflows, hence easing their financial situation.
Still, the ESL would have changed football forever. The incredibly high payments for participants and the guaranteed spots for the founding teams would have most certainly hurt competition. The concentration of top teams would have dominated other (inter-) national leagues and tournaments making them less relevant. It is easy to conclude that the sport as a whole would have lost a part of its attractiveness.
Within 48 hours the ESL was called off with most of the twelve clubs distancing themselves from the planned competition. The objections of fans, employees and footballs governing bodies were too great. Nevertheless, the league had already secured the funding for their financial concept, backed by a $4.2B loan from J.P. Morgan. This can be seen as an indication that indeed under the current structure some clubs miss out on potential capital and investors see potential in a smaller competition compared to the Champions League.
So, how should a good super league look like? To be attractive for fans, its qualification must be determined by merit alone in line with the core belief that in football “everyone can make it”. It needs to be small, to keep the average quality of games high and the tournament more competitive as participants performance is more homogeneous. This is also crucial to meet clubs’ financial expectations, through higher demand for licensing rights.
When it comes to the commercialization of passion goods, things are more difficult. First of all, their impact is much smaller compared with the world’s biggest sport. Furthermore, most passion goods were initially designed and sold to private households. Their value for culture is primarily captured in their design, their technical achievements and in the people involved in their creation. For these aspects museums provide the perfect canvas. And for the goods themselves more efficient markets have led to more restorations and awareness.
Still, this doesn’t mean that the hunt for collectibles will die. Some treasures will always remain secret. Even better, for those willing to pay the market price, finding the right object has become much easier.
When I last visited my cigar dealer a couple of weeks ago, he was full of joy. In his position of quasi-retirement, he couldn’t care less about the fact that he is a walking arbitrage opportunity. He has found his peace in cultivating tomatoes and chilis in his house pursuing a quest to make the perfect salsa. Selling his stock to British or Asian collectors has become a joke. He wants to see his cigars being smoked.
Thaler, R. (2015). Misbehaving: The Making of Behavioral Economics, W. W. Norton & Company