Unintended Consequences of the Crossover and High Value Tax

tradedollarnut · November 28, 2012 8:45AM

PCGS has, up to now, been kicking NGC's patootie. It has gotten to the point where NGC coins, even those stickered, are routinely dismissed out of hand and bring 50 cents on the PCGS dollar. HOWEVER, with the new PCGS crossover tax there will be more nice coins left in NGC holders - in fact, some extra expensive ultra rarities may not even be sent to PCGS. NGC coins will no longer be routinely dismissed out of hand by collectors. Behaviour will be modified and NGC coins will be more accepted in sets. The Set Registry will fall in popularity at PCGS and increase in popularity at NGC.

Just some unintended consequence prognostication....

renomedphys · November 28, 2012 8:51AM

If I could afford a million dollar coin, I wouldn't really have a problem paying $10K to get it into a PCGS holder.

And I would.

Of course, I'm OCD.

keyman64 · November 28, 2012 8:52AM

Interesting thoughts on the topic...

jerseycat101 · November 28, 2012 8:57AM

<< It has gotten to the point where NGC coins, even those stickered, are routinely dismissed out of hand and bring 50 cents on the PCGS dollar..... >>

Sorry, but those types of sensational claims need data and facts to support them.

tradedollarnut · November 28, 2012 8:58AM

<< If I could afford a million dollar coin, I wouldn't really have a problem paying $10K to get it into a PCGS holder. >>

I have a set where every coin is over $100k - several over $500k. Up til now, it was going in for set review once a few more coins were added. No way, no how will it go in now - I'm not going to pay 1% of the value of the set for that. And that means that the few NGC coins I might have that would have been downgrade crosses will now stay as they are.

Just sayin...there's a limit to how much money can be pulled out of this hobby.

MrEureka · November 28, 2012 9:08AM

Just sayin...there's a limit to how much money can be pulled out of this hobby.

True, but that's not the issue. The issue is that you're unwilling to pay the price for this service, and you are not alone.

keyman64 · November 28, 2012 9:11AM

TDN, It has always sounded as though you are very confident in picking out strong coins for their grade, paying the right price if you think it will downgrade etc. With your level of expertise, why not just crack them out and send them in raw? It seems you always have people around you that would offer their professional opinion as well. Since I am poor in comparison, I will submit my coins at shows to save on shipping and any potential cross overs will be cracked out and sent in raw.

My thoughts on the topic.

Greeniejr · November 28, 2012 9:20AM

I must have had too much to drink because I actually agree wholeheartedly with Bruce. First for him it doesn't matter cracked or not because they are over 100k. Second because they are known and pedigreed rarities PCGS will know the coins anyway. I think this 1% is a mistake but I welcome an explanation from Don as to the rationale of this decision.

oreville · November 28, 2012 9:21AM

keyman64:

You said:

<< Since I am poor in comparison, I will submit my coins at shows to save on shipping and any potential cross overs will be cracked out and sent in raw. >>

Who says you have to be poor to feel that way? While I do not think of myself as a rich person, I will NOT ship coins to PCGS or NGC for grading just because I feel safer submitting them in person! Hey, it never hurts to save on shipping either. More coins for all!!!

PreTurb · November 28, 2012 9:23AM

Just sayin...there's a limit to how much money can be pulled out of this hobby

Keep... my... mouth... zippered... shut....

oreville · November 28, 2012 9:23AM

Is this going to be only a full numeric upgrade (from 65 to 66, or 65+ to 66 for example)?

DeliaBug · November 28, 2012 9:24AM

I see two sides to this and neither are beneficial to our host.

One is collectors with sizable collections, and TDNs post is a perfect example, of how this will hurt them. 1,000 $10 increments is not the way to boost profit as there is too much labor involved. For it to work, the high-end coins with $5k and $10k fees are necessary to balance it all out.

Secondly, there are dealers that cross coins. How are those dealers going to recoup those fees? Did the holder just get waaaay more expensive?

Also realize, with them being a public company, this 'revenue grab' could simply be the idea of some CFO's bean-counter buddy with no idea how the hobby works and was simply shoved down the throats of PCGS. If you want it to go away, the best way to accomplish that is to vote with your wallet and don't cross anything for a while.

BigMoose · November 28, 2012 9:25AM

TDN, the way I understand it, if you send in your entire set for set review, you will be charged 1% of the value of only those coins that upgrade or cross, along with the standard grading fees. But, if you get even a few uprades or crosses on very expensive coins, I can see where that would add up to a significant cash outlay.

MrEureka · November 28, 2012 9:27AM

I think this 1% is a mistake but I welcome an explanation from Don as to the rationale of this decision.

He has already explained that the fee compensates for risk, which scales with the value of the coin.

Of course, you could argue that the grading fees for raw coins have never been all that proportionate to value (and risk), so why start getting logical now?

JustNeedCoins · November 28, 2012 9:32AM

The OP is 100% correct. Many people fail to understand what he is saying. The OP is not saying that there will be no crossovers. It will make is less likely that there will be crossovers. Collectors will not automatically reason that a coin in a NGC's holder is subpar to a PCGS. Rather, there is now an alternative explanation.

keyman64 · November 28, 2012 9:53AM

<< keyman64:

You said:

<< Since I am poor in comparison, I will submit my coins at shows to save on shipping and any potential cross overs will be cracked out and sent in raw. >>

Who says you have to be poor to feel that way? While I do not think of myself as a rich person, I will NOT ship coins to PCGS or NGC for grading just because I feel safer submitting them in person! Hey, it never hurts to save on shipping either. More coins for all!!!

>>

Good point for sure.

barrytrot · November 28, 2012 9:54AM

Here is my question: Why now?

PCGS has existed for years and all of a sudden this is required? Why?

Answer likely: Because they can and they don't like leaving cash on the table any more.

keyman64 · November 28, 2012 10:01AM

One answer as to why...the other route might cost them money every now and then.

They think a coin will cross, they crack the coin out of the other holder and then realize that it will NOT cross because a holder or prong was hiding a defect? This is their version of an insurance policy or just plain protecting themselves rather than trying to come up with another massive cash cow....although I do believe this will add to their bottom line quite easily.

Coin Finder · November 28, 2012 10:02AM

Is this a tax or a fee? One implies choice.

keyman64 · November 28, 2012 10:07AM

<< Is this a tax or a fee? One implies choice. >>

Good point...to crack or not to crack prior to submission...or to even submit at all.

Manorcourtman · November 28, 2012 10:09AM

To the average J6P collector the fee is mostly insignificant. You figure on a $2500 coin the fee is $25. Not a big deal most likely to someone playing with $2500 coins. I'd bet 90%+ of the slabbed coin market is coins worth less than 5k or so. So I don't see any way possible NGC perception would change as suggested by the OP, except for possibly the 100k and over market. The way it see it it's a tax on the rich!!

Analyst · November 28, 2012 10:15AM

‭MrEureka: <<[Don] has already explained that the [1%] fee compensates for risk, which scales with the value of the coin. ... Of course, you could argue that the grading fees for raw coins have never been all that proportionate to value (and risk), so why start getting logical now?>>

‭From the standpoint of PCGS, there is much more risk involved in relation to evaluating a coin that is sealed in a holder. Problems are harder to detect in a sealed holder, especially if the holder is scratched or just worn. Further, I believe that a coin must be raw in order for the PCGS coin sniffer to be used. Moreover, the probability of graders failing to detect a doctored coin is much higher if it is sealed in a holder. It is easier to detect coin doctoring when a coin is raw.

The Formal Introduction of the PCGS ‘Coin Sniffer’ at the PCGS Luncheon

The PCGS SecurePlus Program, Part 1: An Explanation

Defining Coin Doctoring and Dipping, Additions to the PCGS Lawsuit Against Alleged Coin Doctors – 09/08/10

Nickcap · November 28, 2012 10:15AM

I could understand this increase if the amount was an actual insurance policy to back up PCGS word on coins and not an increase in grading revenue.

I fear this will backfire on PCGS from small to large collectors.

Mr Willis and Mr Hall will soon see a decrease in large Collector's submissions.

Just like TDN stated he wont cross a coin because of the 1%, wait until Simpson or High Desert says it isn't worth it to cross a coin.

PCGS, I hope you reconsider because this is bad business.

LindeDad · November 28, 2012 10:16AM

Rich people get rich by taking all costs into account and not spending money that is not needed.
In this case I think many that are not so rich might take that into consideration also. That extra 1% might just draw interest in the plastic it's in now for a few years.
BTW I have never sent a coin is for crossover always cracked them and went raw, will probably do that again if the need arises.

RYK · November 28, 2012 10:19AM

TDN,

Just think of the 1% surcharge as a, er, tax on the top 0.1% of collectors that allows PCGS to provide benefits to the rest, the 99.9 %.

Feel better?

Greeniejr · November 28, 2012 10:21AM

Here is an example where this new system would be problematic. In the auction that just ended in Switzerland there was an 1795 FH dollar raw that sold for $150k. Under the current system, the buyer can send it to PCGS insured for 150K, be fully protected and have to pay under $400 including shipping. They can send it to NGC for a similar cost (advantage PCGS). Since the coin was bought assuming it would at least MS63 if it did not grade at PCGS they can send it to NGC for still under $800 total. Under the new system they will be on the hook for 250 plus 1500 plus shipping. If the coin for some reason bags or is AU or even MS62 the person will have to pay the 1750 even though they will be getting an $80,000 coin back. They could underinsure it for the event that this happens but I am not sure if that is fair. If anything it should only be 1% of the final value which would make the fees a slightly less unreasonable $1050.

SanctionII · November 28, 2012 10:50AM

For any TPG, charging a fee for a service calculated by applying a percentage (i.e. 1%, 3%) to the "value" [who determines what the "value" is, the TPG?; and how is the "value" determined (the TPG price guide or some other measure?; and is the "value" determined before the coin is crossed over, or after the coin crosses over?)] of a coin instead of charging set fee (i.e. $10.00 bulk submission fee, $18.00 standard fee; or $200.00 walk through same day coin show grading fee) could create increased revenue, but it also creates an increase in the "risk" of liability for the TPG which is above and beyond the "grade guarantee" liability that the TPG has committed itself to. Any increased liability above and beyond that present by virtue of the grade guarantee could take many forms, arising from many different areas of the law.

Service providers who get paid through taking a percentage of the action are expected to be squeaky clean and are held to an exceedingly high standard (i.e. attorneys, securities brokers, real estate brokers). If you fail to meet the standard and/or if you are not squeaky clean you can get into trouble when your customers take a loss on deals you participated in. Heck, even if you meet the standard and are squeaky clean you may still get blamed and be forced to return some or all of what you were paid for your service.

I suspect that it will be inevitable that over time law (statutes, regulations and/or case law) will develop to address liability issues arising in connection with the professional grading of coins and other collectibles.

I wonder if TPG's have purchased from the insurance industry E&O policies of insurance to protect the TPG's from claims of "coin grading malpractice" and other types of claims?

oreville · November 28, 2012 11:00AM

I wonder if anyone with black NGC slabs might submit their coins to PCGS not realizing their NGC black slab is probably worth more than their coin now?

Sonorandesertrat · November 28, 2012 11:13AM

<< TDN,

Just think of the 1% surcharge as a, er, tax on the top 0.1% of collectors that allows PCGS to provide benefits to the rest, the 99.9 %.

Feel better?

>>

Ooh, now that makes ME feel better!

coindeuce · November 28, 2012 11:38AM

Musta been cheaper protection than adding a waiver of claim (with a requirement of notarization) clause to a submission form specifically structured for crossovers.

Barndog · November 28, 2012 11:46AM

Companies can make policy and pricing changes as they see fit. Consumers can make product and service decisions as they see fit. PCGS is testing it's free-market strength here. This consumer knows what he will do. Let's see what consumers en masse will do.

tradedollarnut · November 28, 2012 12:27PM

<< TDN, It has always sounded as though you are very confident in picking out strong coins for their grade, paying the right price if you think it will downgrade etc. With your level of expertise, why not just crack them out and send them in raw? It seems you always have people around you that would offer their professional opinion as well. Since I am poor in comparison, I will submit my coins at shows to save on shipping and any potential cross overs will be cracked out and sent in raw.

TDN, the way I understand it, if you send in your entire set for set review, you will be charged 1% of the value of only those coins that upgrade or cross, along with the standard grading fees. But, if you get even a few uprades or crosses on very expensive coins, I can see where that would add up to a significant cash outlay.
>>

Coins over $100k still have to pay the 1% of value tax - even if they are submitted raw. So any crossover and any grade review of an expensive coin just jumped dramatically in price. Can you imagine having to resubmit a few times to get the right grade? Sheesh!

Priller · November 28, 2012 12:29PM

<< 
PCGS, I hope you reconsider because this is bad business.
>>

That pretty much sums it up.

Companies typically start charging "bogus fees" when there is some demand for the service they are offering, but they really don't want to be doing it. It's essentially a business prevention mechanism (take your crap elsewhere, because we don't want it) .... meaning PCGS must want out of the crossover business all together.

To say that is fee is "strange" is an understatement.

tradedollarnut · November 28, 2012 12:32PM

<< To the average J6P collector the fee is mostly insignificant. You figure on a $2500 coin the fee is $25. Not a big deal most likely to someone playing with $2500 coins. I'd bet 90%+ of the slabbed coin market is coins worth less than 5k or so. So I don't see any way possible NGC perception would change as suggested by the OP, except for possibly the 100k and over market. The way it see it it's a tax on the rich!! >>

Yes, the over $100k part is a tax on the rich, but the crossover tax is a tax on all collectors. It will cause changes in behaviour [as most taxes do]. The ramifications to PCGS are real.

ColonelJessup · November 28, 2012 12:33PM

<< 

<< TDN,

Just think of the 1% surcharge as a, er, tax on the top 0.1% of collectors that allows PCGS to provide benefits to the rest, the 99.9 %.

Feel better?

>>

Ooh, now that makes ME feel better!

>>

Oh great. Talk about unintended consequences. In this scenario our host would be at risk of being viewed by all of Orange County as having embraced godless Communism through wealth redistribution. The late Paul Ryan would be spinning even more rapidly in his grave than he will be when the fiscal cliff is resolved at $1M instead of $250K.

AMRC · November 28, 2012 12:37PM

I was waiting for someone to comment on what effect this may have on grade-flation? For example 1% of an MS65 would be more than 1% of an MS64, no? Makes you kind of go Hmmmmmm....... Maybe even make CAC stickered coins even more valuable as well?

RedTiger · November 28, 2012 12:50PM

<< Companies can make policy and pricing changes as they see fit. Consumers can make product and service decisions as they see fit. PCGS is testing it's free-market strength here. This consumer knows what he will do. Let's see what consumers en masse will do. >>

Good point. If it doesn't work, PCGS can go back to the old way. If it works it has a chance of being a home run. After all, Home Run Hall is the principal's screen name.

One unintended consequence might be that fewer high value coins in PCGS holders will be sent to be crossed across the street, because the potential cost of crossing back has just gone up by 10x for some top coins. I'm sure the execs at PCGS will watch their numbers, and the customer feedback very closely. If the idea fails, and revenues fall, the company can always rescind their decision, or change it, perhaps scaling back the fee to say 0.5% or 0.2% of value for coins over $100k in value.

Personally, I don't play in the deep end of the value pool, so it has very little impact on me.

wondercoin · November 28, 2012 1:07PM

One interesting situation will be when NGC coins cross and create pop 1/0 coins at PCGS with no current price in the Guide. Let's say this happens in Vegas at an Invitational. How will the submittor have any idea what the 1% will amount to? And, will the Price Guide create new price entries on the spot at these events? What if the submittor entirely disagrees with the new price in the Guide? Isn't the coin already in a PCGS holder?

These are all simple questions and not intended to attack the added crossover fee. Just wondering how to advise my customers on all of this.

Wondercoin

roadrunner · November 28, 2012 1:14PM

I don't see any change in the current view and pricing of PCGS vs NGC. If anything I think it will get worse as the current pricing structure encourages and rewards cracking out
NGC coins. The downside risk is the smallest it's been in 4 years. Why even bother with X overs?

Caleb · November 28, 2012 1:24PM

<< Here is my question: Why now?

PCGS has existed for years and all of a sudden this is required? Why?

Answer likely: Because they can and they don't like leaving cash on the table any more. >>

How is PCGS leaving money on the table? Do they own the coins being sent in for grading?

messydesk · November 28, 2012 1:32PM

Once upon a time, the fee for a "Genuine Only" holder was $100. Seemed like a good idea to powers that be at the time.

lkeigwin · November 28, 2012 1:51PM

<< there will be more nice coins left in NGC holders

- in fact, some extra expensive ultra rarities may not even be sent to PCGS.

- NGC coins will no longer be routinely dismissed out of hand by collectors.

- Behaviour will be modified and NGC coins will be more accepted in sets.

- The Set Registry will fall in popularity at PCGS and increase in popularity at NGC. >>

TDN's bottom lines may be spot on. I agree this guarantee premium is short sighted.

Still, I wonder if PCGS will get away with it. Are they counting on buyers being even more conservative with NGC-graded coins because of the extra cost of getting them into PCGS slabs? Or is this just some bean counter's revenue idea?

How about no fee for downgrades? Will this change the crossing stats?

No fee for raw either. Isn't the guarantee risk the same as for a cross? I'm missing the justification.
Lance.

Wolf359 · November 28, 2012 2:00PM

Big thumbs down on the Crossover Tax.

mozin · November 28, 2012 2:19PM

What about all the NGC collections sent to Heritage for auction? When the consignors hears about this 1% surcharge for successful crossovers, the consignor will probably not allow Heritage to submit their NGC coins to PCGS for crossover, like Heritage routinely does now for their consignors. Looks to me like these NGC holdered coins will then be considered worth more than they are now. The price gap between NGC holdered coins and PCGS holdered coins will likely close up quite a bit.

This 1% PCGS surcharge on NGC successful crossovers is wrong! I know that from January 2013 on, I will no longer submit anything to PCGS for Crossover. My NGC graded coins with the CAC sticker will remain that way as long as I own them. And yes, the NGC/PCGS Registry will then suit my collection much better than the PCGS exclusive Registry. Most of us agree that there are some very nice coins offered in NGC holders anyway. Looks like we will likely find many more very nice coins in NGC holders starting January 2013.

I suggest to PCGS that they reconsider this 1% surcharge on successful Crossovers. I am a very strong PCGS collector supporter that simply cannot go along with this 1% surcharge.

notwilight · November 28, 2012 2:31PM

<< If I could afford a million dollar coin, I wouldn't really have a problem paying $10K to get it into a PCGS holder.

And I would.

Of course, I'm OCD. >>

Perhaps the reason you can't afford a $1M coin is because you don't watch your 1%'s. --Jerry

Nickcap · November 28, 2012 2:46PM

How is PCGS going to collect this 1%

Doesn't all fees have to be paid prior to grading?

Would we get a follow up bill or what is the procedure?

Coin Finder · November 28, 2012 2:53PM

I actually agree with TDN. This is a bad move and will not make sense in the long run. It is short sighted. They are looking for new review in the wrong place. Why mess with your best customers?

WaterSport · November 28, 2012 2:58PM

I am thinking that we are blowing a lot of hot air and that the goals of PCGS are only known by them and have not a thing to do with what was mentioned here. Only time will tell.

WS

DeliaBug · November 28, 2012 3:17PM

<< I am thinking that we are blowing a lot of hot air and that the goals of PCGS are only known by them and have not a thing to do with what was mentioned here. Only time will tell.

WS >>

The goal of PCGS is to make a profit for its shareholders.

JustNeedCoins · November 28, 2012 3:28PM

<< 

<< TDN,

Just think of the 1% surcharge as a, er, tax on the top 0.1% of collectors that allows PCGS to provide benefits to the rest, the 99.9 %.

Feel better?

>>

Ooh, now that makes ME feel better!

>>

Can we "redistribute" all the nice sets?

coinlieutenant · November 28, 2012 7:37PM

Full discussion of this topic is best saved for email or phone...but for those searching, as Mulder would say, the truth is out there.

Unintended Consequences of the Crossover and High Value Tax

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