There has always been a collector’s market for exclusive collector cards and other mint condition items from the past, but the start of COVID-19 really elevated this niche community, and helped propel the world of collecting to a whole new level. For instance, the most expensive card ever sold was a 1952 Mickey Mantle card that that was sold in August of 2022 for an alleged amount of 12.6 million dollars. Whereas the most expensive video game ever sold was a 1985 never-opened copy of Super Mario Bros that was sold in August of 2021 for an alleged amount of 2 million dollars.
Both of these record-breaking transactions allegedly occurred around the COVID-19 window, a period that also saw the rise of Reddit’s “Wall Street Bettors” who helped the stock market hit record highs as well as the re-emergence of crypto-scammery, such as NFTs, but the reason that these two transactions and others like are referred to as “alleged” has to do with the sketchiness around the sales. The way the sales occur is a near-copy of the sketchiness around the sales of one-of-a-kind art pieces. Simply put, the gimmick around unique art pieces can be described as a process that attempts to inflate the value of art to manipulate a grey area within tax laws through the act of “charitable giving”. As a result, anonymity often cloaks the identity of the buyers and sellers. This elaborate scheme has repurposed benevolent rules and regulations into ways that can easily cheat the taxman. And to understand the hoax of the century that is exclusive collector cards and other nostalgic items from the past, it is important to understand how the tricks of the art market have come to more niche collector markets.
How to cheat the taxman people through art donations?
Donating art is one of the simplest ways for anyone to pay less tax, but taking advantage of this loophole requires that a person have a high net worth. It also requires the involvement of a few other stakeholders as well. Once a piece of art is purchased, it never gets donated right away, typically being stored for some time, perhaps being taken out of storage to be loaned out for display at a world-class museum or premium art gallery. Otherwise, they tend to stay locked up in locations known as “freeports”.
Freeports are zones that a country will designate with a special status related to regulations, customs, and taxes, and tend to be in close proximity to shipping ports and airports. While supporters of freeports argue that they can help create jobs and stimulate the local economy, the loopholes it that an item at a freeport is considered to be “in transit”. And they can stay “in transit” for unlimited amounts of time, thus acting as an anonymous storage service, exempt from duties and taxation, perhaps until the owner of a very expensive painting is ready to take the painting out of storage and prepare it for donation.
Once the painting is taken out of freeport, it is reappraised, and it is during the re-appraising process that the value of the painting gets inflated. And whether legitimately or through conspiracy is difficult to tell, because the price of art is purely subjective. If certain appraisers get a reputation for being generous with their appraisals, then they are more likely to get repeat business, but it is also not uncommon for the art owners to tip the appraiser for their service. After the art piece has been reappraised, perhaps to ten times the value paid for the art piece, the owner has a decision to make regarding what happens next; either put it up for auction or donate to a museum or gallery.
If the owner decides to have the art piece put up for auction, they will pay a small fee, depending on the sale price of the piece, while the bigger portion of the fee is paid by the buyer. The issue with auction houses, however, is that the entire buying and selling process can be anonymous—to the point that even the auction house might not know who the seller of an extremely expensive painting might be. And the buyer can also stay anonymous by using a purchasing agent. So, even after millions of dollars have exchanged hands, it is entirely possible for both the buyer and seller to remain completely anonymous. With this anonymity, it makes it possible for an art owner to conspire to illegitimately inflate their art piece’s value in a variety of ways including by buying it back or donating it with an over-inflated value. Of course, at the end of the auction process, the previous owner would be expected to pay capital gains tax on the money earned from the sale, but that is a rate far lower than the income tax rate.
But if the owner instead decides to have the art piece donated to a museum or gallery with a charitable status, they are able to deduct the entirety of the appraised value from their income tax. And although there are limits to how much a person can deduct from their annual income, the deductible amount can be spread out over multiple years to be deducted against future annual income earnings.
As great as it is for extremely rare pieces of art to be made available on display at museums and galleries, the anonymity involved with the art market is so secretive that, beyond the tax implications, the art market becomes the perfect tool for money laundering, and nobody truly knows how many items are stored in freeports, thanks to tax loopholes and secrecy laws. As an example, the Mexican government recognized just how easy it was for someone to move a piece of art worth tens of millions of dollars as opposed to hard currency, so they passed a law in 2012 that limited the use of cash and required transparency, not only about purchasers in the art market, but also for casinos, jewelry stores, pawnshops, and even armoured-car dealerships. After the introduction of these laws, the art auction houses reported a loss in business of approximately 30 percent, which has persisted over the years.
The fix behind nostalgic items from the past.
The fix behind nostalgic items from the past, like collector cards, goes back many decades, but what most people do not know is that the starting point was never an even playing field. Today’s scamming around collecting cards is nothing new apart from being more large scale. The easiest way that collector cards and other nostalgic items are able to have their prices illegitimately inflated is if the cards are exclusive and there is a very limited number of that card, like rare pieces of art. It is also not uncommon for people to use straw buyers to inflate the actual value of those exclusive nostalgic items, both in-person or by self-bidding on their own EBay item.
Also, back when many of the small hobby and game shops sold individual collector cards, some would utilize a hair-dryer to heat up and weaken the glue seal of collector card packs to open them and take a look at the cards, keeping those packs with rarer cards and returning the rest for sale. It is probably not just coincidence that the story behind many of these mega collectors who were super lucky with the cards they pulled is that they also happened to be in the hobby and game shop business.
What often gets ignored in this saga is that the chase for finding those rare items can lead people to overleverage their finances due to a misbelief that there is a market for them, but there often is not. An item is only worth what someone is willing to pay for it, which often, for niche items, isn’t much. But that type of video is not going to go viral on social media.