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Book Review: The Great Beanie Baby Bubble

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“It had gone from cute to heinous, and there was no good way for it to end” - Zac Bissonnette, New York Times bestselling author

At the height of the late 1990’s tech bubble, speculative mania also fueled a nationwide obsession in a cute-and-cuddly little “asset” best suited for small children, Beanie Babies. Ironically, the frenzy was not so prevalent among the children for whom these toys had been originally made. Rather, these pre-pubescent playthings captured the undivided attention of many financially frenetic adults seeking “fast money.” This frenzy was part and parcel of a “three-year beanie babies craze,” (1998-2001) as illustrated in author Zac Bissionette’s book titled The Great Beanie Baby Bubble—Mass Delusion and the Dark Side of Cute.

All of this commotion resulted from the firm determination of Ty Inc.’s very own “Steve Jobs of Plush,” Ty Warner to have his merchandise sold in retail stores “small enough that his sales would be crucial to their bottom lines.” This included “mom-and-pop toy and gift shops.” A brilliant marketing campaign elevated demand in plush toys all throughout the suburbs of Chicago in early 1996, during which they were widely collected by mainly middle-class folks with too much time on their hands. For example, even after their children had lost interest in them, Becky Phillips and Becky Estenssoro (two of the world’s foremost authorities on collecting Beanie Babies) were just getting started. Furthermore, rumors were virally spreading about these “otherwise unremarkable” products’ alleged potential to generate profits worth two to five times their retail price. The ability to repeat such a transaction many times could, of course, generate an enormous income.

This “incremental, peer-to-peer phenomenon” naturally evoked mass hysteria which prompted a startling increase in these beanie babies’ production volume and average price. For example, eBay’s surging plush collection consisted of more than 79,000 items as of March 9th, 1999 with an average price of “$30—six times their original retail price.”

Furthermore, within a few weeks, the price tags of Ty Inc.’s ultra-rare  #1 Bears had swiftly climbed up to a whopping “$5,000 or more apiece.” Initially, these Bears were novelty items set aside as gifts for Ty Inc. sales reps. In fact, only 253 of these had originally been produced. Another expensive collector’s item was Ty’s “Old Faced Teddies” whose worth was comparable to that of a “semester of college.” High prospects had fueled expectations that their value would skyrocket by the coming turn of the millennium. On that date (12/31/1999), Ty Inc. announced that it would stop making Beanie Babies, guaranteeing their status as collector’s items.

These extremely high prices prompted some nefarious collectors to go so far as to stalk UPS trucks and steal items from warehouses. In an effort to thwart theses undesirable activities, Mr. Warner had the heart trademark removed from all storage boxes containing his plush toys in 1998.

Perhaps the high point (or more appropriately, low point) of this craze was the “Beanie Baby Murder.” Bissionette outlines the altercation that transpired between firearms aficionado Jeff White and sawmill night shift supervisor Harry Simmons which heated up when a $200 loan that Simmons gave to White for purchasing Beanie Babies went south. Unfortunately, White spent every bit of it to feed his addiction to alcohol. The argument became increasingly heated until White shot Simmons dead. Much to his chagrin, Mr. White will forever be known as “the Beanie Baby Killer.” To this day, White remains incarcerated in the Northern Correctional Facility located in West Virginia, serving a life sentence.

Naturally, the primary beneficiary of all the wealth generated in this frenzy was none other than Ty Warner. According to Forbes, in this “three year Beanie Babies craze” Warner accumulated an estimated net worth of $2.6 billion, all of which had come at the expense of these speculators’ frustrating losses. Unfortunately, this fact would not become apparent to the hapless collectors until the ridiculously high prices of all their precious plush toys suddenly plummeted in 2001 back to their intrinsic values of roughly $4 to $5 per Beanie Baby. The bubble had truly burst.

In an effort to salvage his company, Warner “was forced to pump his own money back into the business as sales declined by more than 90 percent from the boom years.” However, this failed to curtail the damaging effects that this bubble would have on his financial and personal livelihood. In fact, “Warner claimed losses of more than $39 million on his tax return” in 2004. A few years later, Warner released whole new collections of plush toys partly in order to revitalize his tarnished business image. This included the Ty Girlz series of 2007.

Regardless, the damages done had taken a severe emotional and financial toll on both Warner and his long-time girlfriend Faith McGowan. In fact, McGowan had sunk into feelings of both depression and vindictiveness “after her split with Ty Warner at the turn of the millennium.” This severe stress very likely contributed to her sudden death in June 2013.

Things had only gotten worse for Warner, who on September 18th, 2013 “was charged with tax evasion related to a secret Swiss bank account where he’d been holding more than $100 million.” The federal government had alleged that Warner went to huge lengths to hide over $3 million (a paltry amount compared to his net worth) from his accountants. What’s so pitiful about this is the fact that initially the taxes evaded had amounted “to less than $1 million- although the tax loss for the entire period of conduct was higher.” Even when Warner had agreed to pay a $53.5 million civil penalty, the government prosecutors still demanded that he plead guilty at his indictment in October. To this day, Warner keeps a low profile, rarely granting interviews. He has wisely diversified his holdings to include some prime properties such as the Four Seasons hotel in New York.

The Beanie Baby mania was quite similar to its predecessor; the 1970’s “pet rocks” craze. They are both illustrative of the Greater Fool Theory which often prevails when possessions are confused with investments. This book does a terrific job of explaining what can go wrong in this scenario.