The Topps Company

founded: 1938 variant name: topps

Contact Information:

headquarters: one whitehall street
new york, ny 10004-2109 phone: (212)376-0300 fax: (212)376-0573 url: http://www.topps.com

OVERVIEW

The Topps Company, or Topps as it is commonly known, produces a broad array of candy, comic books, and trading cards. Originally produced for children, Topps trading cards—especially baseball, football, basketball, and hockey cards—now appeal just as much to adult collectors. With a price tag of nearly $10 a pack, some Topps trading cards are marketed specifically with the adult buyer in mind. Some Topps cards, like the 1952 Mickey Mantle card, are now highly sought after collector's items worth tens of thousands of dollars.

The Topps Company is divided into three main production segments, confectionery, collectible sports products, and entertainment products. The confectionery division manufactures a variety of non-chocolate candy products aimed primarily at the children's market. Topps' candy brands include lollipops such as Ring Pop, Push Pop, and Baby Bottle Pop, and what is arguably the company's most famous candy, Bazooka Bubble Gum. In 2000 Topps began marketing Pokemon products under license from Nintendo of America. They include Pokemon Pops, Pokemon Popzoids, and Poke-mon Treasure Pops. Topps also sells seasonal lines of candy as well as novelty candies. Topps' collectible sports products include its annual lines of trading cards that feature pictures of athletes from Major League Baseball, the National Football League, the National Basketball Association, and the National Hockey League. By 2001 Topps was producing more than 10 lines of baseball cards, including brands such as Bowman, Bowman Chrome, Bowman's Best, Bowman Reserve, Topps Chrome, Topps Finest, Topps Gallery, Topps Gold Label, Topps Heritage, Topps Stadium Club, and the traditional Topps line. The Etopps line, introduced in 2001, is available only through the Topps Web site. Sports trading cards are sold in packs whose cost ranges from $.99 to $7.00. Full series can also be purchased. The entertainment products segment produces trading cards and sticker albums based on current films, television programs, comic books, musical celebrities, and the like. Topps also develops its own lines of comic characters for stickers and cards, such as Wacky Packs and Garbage Pail Kids.

COMPANY FINANCES

The Topps Company's sales nearly doubled between 1999 and 2001, rising from $229.41 million to $439.27 million. This growth followed a series of declines in the late 1990s, which also saw the company's net income sink into the red. Income has also recovered in the meantime, climbing from $15.57 million for 1999 to $88.49 million for 2001, an increase of more than 500 percent. The Topps Company's stock ranged from a low of $7.63 in the third quarter of 2001 to a high of $10.69 in the fourth quarter. The stock earned $1.97 net per share in 2001, up from only $0.34 two years earlier.

Despite the firm's public image, sports trading cards were Topps' lowest selling segment in 2001. The company's confectionery products led in sales with $172.53 million, about 39 percent of the total. Entertainment products followed with $143.82 million or almost 33 percent of the total. This represented a mighty surge for Topps' entertainment segment—in 1999 its sales were a mere $9.32 million. The increase was due to the overwhelming success of Topps' Pokemon cards and stickers in both the United States and Europe. Collectible sports products, mainly trading cards, brought up the rear with $122.92 million, down about 8 percent.

ANALYSTS' OPINIONS

As 2002 began, analysts were skeptical about Topps' near term prospects. At the beginning of the year, sales of Topps' Pokemon products had plunged by close to 95 percent from the previous year, which resulted in large declines for both the entertainment and confectionery segments. Those losses merely segued with problems in other areas of the company. As a Value Line report put it in February 2002, "Topps doesn't have much to cheer about. The collectibles division continues its downward trend as the traditional card collecting business seems to have reached a plateau, and perhaps entered a contractionary cycle. As the company tries to ramp up demand by offering autographs and other value-added materials, costs have risen sharply, thus putting even more pressure on margins. Confectionery sales are holding up, though. Ring Pop and Push Pop products have been drawing greater demand from consumers." Valueline considered etopps, the company's online offering, a step in the right direction, but inadequate to turn the firm's fortunes around—at least in the short term.

HISTORY

The Topps Chewing Gum Company was founded in Brooklyn in 1938 by four brothers, Abram, Ira, Philip, and Joseph Shorin. Starting out with regular chewing gum, it was not until after World War II that the company introduced its most famous and successful product, Bazooka Bubble Gum. From 1953, comics that could be redeemed for premiums were included with each piece of gum. Over the years, almost 700 different comic gags were written for the comics. They are recycled every seven years or so.

A milestone occurred in 1947 with the hiring of Sy Berger. On Berger's initiative, Topps began producing baseball trading cards in 1951. The following year, it released its first major set, the legendary 1952 series. At that time, Topps was going head to head with another baseball card maker, the Bowman Gum Company, to sign major league players to annual trading card contracts. By 1956, when Topps acquired Bowman, it had established itself as the clear leader in baseball cards. By 1957 Topps had added football, basketball, and hockey cards as well. For 20 years, Topps enjoyed a virtual monopoly in the trading card field. In 1975, Fleer brought suit against Topps, claiming that its exclusive contracts with players violated antitrust laws. Topps was found guilty in U.S. District Court, and it was enjoined from enforcing the exclusivity clauses in its contracts with athletes.

Topps continued to expand its confectionery line over the years, adding grape, strawberry shake, and sugarless flavors of Bazooka Bubble Gum. Ring Pops (a lollipop that is worn on the finger) were introduced in 1977, while Push Pops hit the market in 1986. Since they were launched in 1998, Baby Bottle Pops (a bottle of powdered candy topped with a lollipop nipple) have been one of Topps best selling candy items.

Topps was acquired in a management-led buyout in 1984, and three years later made its first public stock offering. At the same time, it changed its name to The Topps Company Inc. The company reported sales of $268 million the following year, with about 69 percent coming from the sale of sports cards. By 2001, that percentage had dropped to about 28 percent. In 1995 Topps acquired Merlin Publishing International Limited, a company that produces sticker albums. Called Topps Europe since March 1997, the subsidiary continues to market stickers and albums featuring players from various European soccer leagues. In the late 1990s, the company stepped up Far Eastern distribution of its confectionery products. In 2000, in cooperation with Nintendo of America, Topps introduced a Pokemon line of candy and trading cards, products that gave a significant boost to the sales of Topps Entertainment segment in 2000 and 2001.

STRATEGY

In its early years, Topps marketed its products—especially Bazooka Bubble Gum and its packs of baseball cards—to children. By 2000, the company still saw children as its primary customers, calling itself "a serious player in the kids' candy market" in its 2001 annual report. It designs its candy products specifically to appeal to kids; it makes an effort to get its candy products into stores where kids are likely to see them; and, its TV advertising is produced with the children's audience in mind.

In its sports collectibles area, however, Topps has oriented itself increasingly to adults collectors who make up 70 percent of the market for trading cards and frequently purchase them with an eye toward their future value. During the 1990s, Topps issued a number of new lines of trading cards, whose design and pricing—some as high as $7 a pack—were geared specifically toward the adult collector. Ironically, the trading cards were originally conceived as an incentive to for kids to buy Topps bubble gum. However, in 1992, the gum was discontinued at the behest of collectors who complained that it marred the cards, rendering them less collectible.

FAST FACTS: About The Topps Company

Ownership: The Topps Company is a publicly owned company traded on the NASDAQ Stock Exchange.

Ticker Symbol: TOPP

Officers: Arthur T. Shorin, Chmn., Pres., and CEO, 65, 2001 base salary $838,082; Ronald L. Boyum, VP Marketing and Sales and GM Confectionery, 49, 2001 base salary $277,308; Scott A. Silverstein, EVP, 39, 2001 base salary $245,692

Employees: 420

Principal Subsidiary Companies: The Topps Company's European subsidiary, Topps Europe Ltd., makes stickers and albums that feature players from major European soccer leagues. Topps also has subsidiaries in Canada, Brazil, and Argentina.

Chief Competitors: The Topps Company competes with other firms primarily engaged in making confectionery products and trading cards. Some primary competitors include Fleer/Skybox International, Donruss Trading Cards Inc., and Spangler Candy Company.

INFLUENCES

The Topps Company is greatly influenced by changes in popular culture and it must carefully plan new product releases (especially in its trading card lines) to coincide with the narrow window of popularity generated by current movies and television programs. Like yesterday's newspaper, a box of trading cards for a movie just out of circulation seems old and pointless. For example, Topps' Pokemon products, the company's best-selling line in 2000 and 2001, had worn out its welcome by the end of 2001, and sales dropped by 95 percent. The products developed to replace it—series based on films such as Planet of the Apes, Lord of the Rings, Jurassic Park III, and Marvel comic book superheroes—didn't come near to matching Pokemon's earlier popularity. Collectors of Topps sports cards also continuously demand new and different products. By 2001, the firm had no fewer than 12 lines of baseball cards, including its new, Internet-only etopps line.

CURRENT TRENDS

In the 2000s, Topps began using the Internet in unique ways to create new avenues for marketing sport collectible items. In March 2001, for example, the company initiated a series of unique auctions on eBay: oneof-a-kind collectible items from its business files, including contracts and cancelled checks to players, signature cards, and the original photos used on cards. Around the same time, it brought out a new line of sports cards, Etopps, also in cooperation with eBay. Etopps is modeled on a stock market, right down to making IPOs, in this case Initial Player Offerings. Etopps cards can only be purchased online for a limited period of time; they are only sold individually, not in packs. The price of a card depends on the particular player and estimated demand. After a purchase Topps will ship all or part of the order to a collector. Collectors can also opt to establish a "portfolio" at Topps. The company stores the cards in its own vaults, guaranteeing their mint condition if the owner wants to sell them later on the Etopps trading floor at eBay. Etopps was expected to expand the market for trading cards by drawing in participants in other online sports activities, such as rotisserie league baseball. Etopps is essentially open only to adult collectors since buyers must have a credit card.

CHRONOLOGY: Key Dates for The Topps Company

1938:

The Topps Chewing Gum Company was founded in Brooklyn New York

1947:

Topps introduces Bazooka Bubble Gum

1951:

Topps produces its first set of baseball cards

1953:

Topps includes comics with Bazooka Bubble Gum for the first time

1975:

Fleer sues Topps for antitrust practices and as a result Topps is forbidden from signing players to exclusive contracts

1984:

Topps acquired in management buyout

1987:

Topps makes first public offering of stock on NASDAQ national market

1992:

Gum no longer included with trading cards

1995:

Topps acquires Merlin Publishing International Limited

2000:

Topps introduces its Pokemon line

THE TOPPS 1952 SET

Topps released its first baseball cards—two 52-card sets called the Blue Backs and Red Backs—in 1951. But it was with the release of Topps' first major set the following year that the company hit stride. The 1952 Topps set, which consisted of 407 cards with hand-colored black and white photos, is now the most coveted set of baseball cards of all times. A 1952 Mickey Mantle rookie card reputedly sold for $49,000; a complete 1952 set in near-mint condition is listed at $62,000. But it wasn't always that way. Despite the initial popularity of the series, at the end of the 1952 season, a large number of unsold packs languished in Topps' warehouse. For much of the next decade, Topps tried to sell them off. By 1959 demand was so low that Topps couldn't sell ten of the cards for a penny. A decision was made to get rid of the old 1952 cards rather than have them clog the warehouse. As a result approximately 500 cases of 1952 Topps baseball cards were loaded onto a barge, hauled out to sea, and dumped in the Atlantic Ocean. Those cards would have been worth millions of dollars today!

PRODUCTS

Through the years, Topps has kept up a constant search for new ideas to add to its trading card line. Besides its sports cards from baseball, football, basketball, and hockey, the company has produced successful sets of cards with images from movies, television, and comics. They have ranged from Hopalong Cassidy, Bring 'Em Back Alive, and Davey Crockett sets in the early 1950s to Marvel Superheroes, Pokemon, Star Wars, and Lord of the Rings in the 2000s. A more unusual set, "Enduring Freedom" was released following the terrorist attacks on the World Trade Center and the Pentagon. It chronicled many of the events and personalities connected with the attacks: New York Mayor Rudolf Giuliani, the American flag, an F-117 stealth fighter, White House National Security adviser Condoleezza Rice, even Osama Bin Laden—whose card, Topps CEO Arthur Shorin said, could be stamped on or ripped apart. To avoid possible controversy, there were no images of the attacks themselves. However, a card that portrayed Yasser Arafat giving blood drew fairly bitter complaints nonetheless. Topps said it hoped the cards would help educate children about the attacks. A portion of the sales was donated to the WTC relief fund.

GLOBAL PRESENCE

Topps gradually extended its market internationally, until by 2001 it distributed its products in 60 countries and about half of all sales were made outside the United States. In 1995 it acquired a U.K. company, Merlin Publishing International Limited, which two years later was renamed Topps Europe. Topps Europe produces collectible stickers and albums. Topps has negotiated licenses with two major U.K. soccer leagues, the Premier League Soccer and England National Soccer, as well as with some Italian soccer leagues. Soccer stickers and albums are sold in Europe and in Asia under both the Merlin and Topps brands. In 2001 the sticker products were produced in conjunction with an Italian company. In 2000 and 2001, Topps' candy made inroads in Asian markets, particularly Japan.

EMPLOYMENT

Topps employed about 420 workers in 7 countries in 2001. In addition to employees in its various production facilities, photos of athletes used on the trading cards are taken by company and freelance photographers. Graphics work on trading cards is performed both by in-house artists as well as by design agencies contracted for specific projects.

SOURCES OF INFORMATION

Bibliography

"50 years of topps." tuff stuff presents topps, 2001.

joseph, dave. "he's topps in his trade." newsday, 24 july 2001, a54.

sindrich, jackie. "topps turns attack into trading cards." san diego union-tribune, 9 november 2001, e7.

the topps company home page, 2002. available at http://www.topps.com.

"the topps company, inc." hoover's company profiles, 2002. available at http://www.hoovers.com.

wadler, joyce. "now (still) cleaning up: topps company." new york times, 27 october 2000, b2.

For an annual report:

write: the topps company, one whitehall street, new york, ny 10004-2109

For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. the topps company's primary sics are:

2064 candy and other confectionery products

2067 chewing gum

2759 commercial printing, not elsewhere classified

also investigate companies by their north american industry classification system codes, also known as naics codes. the topps company's primary naics codes are:

311330 confectionery manufacturing from purchased chocolate

311340 nonchocolate confectionery manufacturing

323119 other commercial printing