Betting on Beanie Babies

©Copyright 1998 by I. Nelson Rose. All rights reserved worldwide. Gambling and the Law® is a registered trademark of Professor I. Nelson Rose, Whittier Law School, Costa Mesa, CA.[/size]

If you want to teach your children how to gamble, have them spend their allowances on Beanie Babies.

In this era of instant heirlooms, these cute, under-stuffed toy animals have become the collectibles of the betting generation.

Collectibles -- such as coins, stamps and limited edition art -- have always contained an element of speculation. It may be fun to look at the first Superman comic book, but if you own this 60-year-old treasure, it is in part because you are hoping it will go up in value.

Fads reflect the society in which they develop. Housing tracks blossomed during the 1950s. Crazes of the era included games that could be played in suburban backyards: Hula Hoops and Frisbees.

In the 1990s, the obsession is gambling. Everything is speeded up, in anticipation of the arrival of the new century.

The Internet is decades away from being as profitable as television, but you would not know that by looking at the stock market. With Internet companies you do not have to worry about the stock falling if profits fall -- none of them are making a profit today.

Buying Beanie Babies is more than a fad. For both adults and children, it has become a form of gambling, similar to a pyramid scheme or chain letters.

The current craze in Beanie Babies echoes the infamous Dutch Tulipmania of the 1630s. Speculators sought to make quick profits trading tulips of unusual colors. Outrageous prices were paid, in the hopes of reselling to "greater fools." While a small house in town cost about 300 guilders, a single tulip bulb is recorded having been sold for 5,500 guilders.

As lease one Beanie Baby, original price $7 - $8, has sold for over $5,000.

Fortunes really can be made during such wild speculation. You just want to get in and out of the market before the inevitable crash. In other words, you want to be the seller of that $5,000 Beanie Baby, NOT the buyer.

All speculative bubbles grow out of unrealistic expectations. Although Beanie Babies are mass-produced in China and Indonesia, the manufacturer, Ty Inc., has created artificial shortages by randomly retiring models. Shortages inevitably lead to hoarding -- even if the shortage is illusionary.

Those of us who did not save our childhood Star Trek toys or Barbie dolls in their original boxes, unopened, for 30 years, have all heard of the millions of dollars we threw away. This time we won't miss out.

Frantic Beanie Baby buyers have followed UPS trucks to toy stores. One shop owner in Monterrey, California told me that he stopped opening Ty delivery boxes in the store when a virtual "riot" broke out among out-of-control customers and he had to call the police.

Beanie Babymania is exacerbated because buyers do not know how many copies of a model have been or are going to be produced.

McDonald's outlets were mobbed when the fast-food chain gave away a Teenie Beanie Baby with every Happy Meal. Adults as well as children threw or gave away the food. One homeless woman, offered an uneaten burger, groaned, "Ugh, not another Happy Meal."

The promotional campaign did not emphasize that there would be 250 million Teenie Beanies distributed.

The mass media has fed the craze by reporting "market values," as if they were real, for retired models.

A photo in the June 1998 issue of Mary Beth's Beanie World Magazine, self-described as "America's Best Selling Beanie Baby Magazine," featured a child, who appears to be about five years old. The caption: "Caleb Devaney shows off some of his Beanie collection, which may someday pay for his college education. His collection is worth an estimated $36,000 on the secondary market."

I hope his parents did not put his college fund into Beanie Babies. Not only is there no reason to believe the market will last until little Caleb applies to Harvard -- remember Cabbage Patch dolls? -- but there is, in fact, no true secondary market.

Note that Ty itself never says what a Beanie Baby will be worth in the future. It might well be securities fraud for a seller to promise that a collectible will go up in value.

Collectors may be able to sell to other collectors (the "greater fool"). But there is no New York Beanie Exchange.

Lots of stores advertise that they sell Beanie Babies. But few say they buy.

As a test, I contacted stores that have the word "buy" in their ads. I said I had a Chops the Lamb in mint condition, with a "market value" of $225. Here are a sampling of the responses:

"We sell out of state, but we don't buy out of state."

"Not interested at this time. Thanks."

"You'll have to sell at a local show."

I eventually found one store that would pay me $100 for my $225 Chops.

If I had bought Chops for $7 when new, I would grab the $100 and run. If I had paid $225 -- well, at least I would know who was the greater fool.