"Breaking" News: The Whatnot Lawsuit

For many sports fans, March 16th was just another mundane Monday on the calendar, filled with the typical Sunday Scaries materializing as they sat down to start the workweek and pick up everything pushed off on Friday. However, for a small subset of sickos engrossed in the sports card world—commonly referred to as “The Hobby”—Monday was very much far from the mundane.

On Monday, The Athletic broke the news that Paul Lesko, a lawyer who polices and comments on The Hobby from Twitter (it’s not, and never will be, “X”), has filed a lawsuit against Whatnot for what he and 30 plaintiffs allege is unlawful gambling. Lesko and Co. claim that the online sports card industry giant is violating both California state law and the federal RICO Act through the various unregulated “breaking” formats hosted on its platform. They assert the randomization and unpredictability of these sales constitutes illegal gambling.

Now, many of you not involved or aware of the happenings in the sports card industry are probably feeling fairly lost right now, which is understandable. I myself was a novice collector just over a year ago, asking my friends what a “hit” and “pulls” were. Now I’m refining my PC (personal collection) to consist of only color matches of Noles pro players and Young Guns of Florida Panthers. Simply put, this world is beyond confusing and can become expensive very, very quickly if you don’t have an idea of what you’re doing.

That said, many of the articles I’ve read don’t really delve into the details of this hobby, so we wanted to break it down as concisely as possible to give you the full context of what’s happening and why it’s such a big deal:

Sports and Trading Card Game (TCG) Cards

• Sports cards have been popular since their mass production began back in 1865—yes, Reconstruction Era for my fellow history buffs—beginning as promotions to entice consumers to buy products from companies, including tobacco companies, breakfast cereals, chewing gum, you name it.

• After a major dip in the early 90s due to overproduction, card collecting has rebounded back to billions (with a “b”) of dollars in earnings and is projected to keep growing in the coming years.

• Card collecting has expanded into Trading Card Games (TCG), like Pokémon, Magic: The Gathering, Yu-Gi-Oh, etc., where cards are used for both gameplay and collected.

• Sports cards can be bought in various sizes, commonly in pack and box variations, ranging from a few dollars to tens of thousands of dollars. A common hobby box will run in the couple of hundreds depending on production size and demand.

Whatnot

• Whatnot is an online platform where you can buy literally almost anything, hence the name. You want a vintage duck-themed pocket change dish? Here you go.

• However, the site’s bread-and-butter is sports cards, full stop.

• It serves as a host to sellers offering products through virtual auction live streams which can be conducted in either sudden death or extended counter bid formats.

• Sellers range from fully online stores and brick-and-mortar local card shops (LCSs) who can tailor shows and auctions however they wish, selling single cards, packs/boxes, or running what are called “breaks”.

Card “Breaking”

• In a nutshell, breaks involve streamers (or breakers) offering an amount of product that would often be either unobtainable or too expensive to obtain for the common collector.

• They also offer high-end “repacks”, which are cards that have already been pulled out of product and are often graded (professionally authenticated and scored on overall card quality). Grading is scaled, and higher graded cards fetch higher prices during resale. Selling repacks is nuanced, but the main thing to note is the value of the card is subjective to the seller at the time of repack based on current comparable or “comps”. However, the secondary market is like any index and can be exceedingly volatile.

• Chances to obtain these cards are auctioned off spot by spot, and are typically assigned by teams of the sports involved or individual players which are randomized—often on an actual roulette wheel.

• There is so much more that can be unpacked (pun unintended) here in terms of different breaking styles and tactics, but for purposes of brevity, that’s the dish.

Knowing what you know now, we can get back to the lawsuit and the true ethics of breaking. Lesko filed the suit in California, where Whatnot is headquartered, alleging the site violates California gaming laws pertaining to illegal lotteries, as well as the federal RICO Act. For the unfamiliar, the RICO Act has been commonly used to dismantle organized criminal elements and corporations since its inception in the 70s, which is objectively wild to think about its mention here.

In the lawsuit, Lesko describes Whatnot as perpetuating an unregulated casino where it and its sellers encourage compulsive spending without proper checks. In layman’s terms, the website is able to run itself like the Bellagio without all the regulation and precautions a standard gambling institution needs to take to protect their customers’ well-being. Now would also be a great time to state that Whatnot absolutely refutes these claims. In a statement to The Athletic, Whatnot firmly states gambling isn’t allowed on their platform, card breaking is a long-standing format in collecting and is offered at physical shops and conventions. Further, they take all the necessary precautions to protect buyers and hold sellers accountable with real-life consequences when rules are broken.”

Which brings us to the Smells Fresh Sports take on the whole situation. With staff members who have friends in the Whatnot game and who have spent countless hours in streams, certain things become apparent:

1. Whatnot streams exist on a spectrum, with the poles being reputable sales equivalent to local card shop purchases to worse odds than casino gambling. For instance, when playing roulette at the casino, it’s simple - put money you, yourself, are okay to wager on exactly the bet you want, get money back in established industry odds if your wager hits. On some Whatnot streams, you first must wager money to get a randomized spot. Wheel spins, but might not be a desirable spot (commonly known as “chases”) or one you wanted. Second, unknown cards are pulled with unknown odds, and you may not win anything at all (often times, sellers may only ship “hits” and retain the base cards). In the roulette example above, this is the equivalent of spinning the wheel once to get your wager randomly assigned, then again to see if you hit - a double whammy. Many breakers would likely take this opportunity to clarify that the randomization introduces “fairness” into the situation…which is a really large grey area. Here’s a scenario to effectively highlight this: All that remains on a “board” are the largest chase team and 3 undesirable teams. Though there are more undesirable teams remaining, the odds to hit the most coveted chase team is now at 1:4 compared to the previous 1:30-32. What’s the logical outcome here? Those with deep pockets are going to throw massive amounts of money for better odds at the chase team, but are more likely to scoop up the lesser teams, in turn reducing any “fairness” previously believed available.

2. Breaking itself is not the boogieman and can be extremely positive if done correctly. If you went to Target right now and bought a box of cards, you are already gambling on the purchase alone. Typically, any store that sells cards—even Ace Hardware sells boxes—will have a fat sign above them that says something to the effect of “All card sales are final.” That’s because you can’t open the product, be unhappy with it, and return it like a traditional purchase. The opening is the game itself. Enter breaking. When done correctly, breaking allows a buyer to only enter into a gamble for cards they want, and at a much better price and scale. As a one-track buyer myself, if I want a high-end Jamie Arnold rookie card, I can seek out breakers running PYT/PYP (Pick Your Team/Player) and select the Athletics or Jamie and avoid all the cards from other teams I don’t want. If there are multiple boxes involved, it’s a much cheaper and more focused option for me to chase a high-end card I want than to buy boxes on my own.

3. Which segues us into the fact that not all sellers and sales tactics are created equal. I myself have seen sellers employ some of the scummiest schemes to sell spots in breaks or individual cards. That’s not to say that the overwhelming majority of sellers on the platform are doing right by their customers at all times, especially those running PYT/P. A particular hockey breaker I follow divides the retail cost of the particular box(es) among the 32 NHL teams. When doing so, they up the price of chase teams in order to offset lower prices for less valuable teams. This makes the price point more enticing for someone looking for less desirable teams on the back of someone who wants to gamble for chases. The flip side of that coin are sellers who I have personally witnessed lying or misleading their customers on value, whether individual card resales or mystery repacks, in order to inflate their profits by potentially exploiting uninformed buyers. If you hop on a stream, you’ll likely see people either running, or lamenting in various chats, the “5-second Sudden Death” streams which are another entirely different demon.

4. Whatnot is not the only guilty party here, just the one named in the lawsuit. Whatnot is not alone in platforming breakers, with sites like eBay Live, Fanatics Live, Drip, Loupe, and even TikTok employing the same-styled breaking or auction tactics. However, Whatnot is the largest of all these sites, thus they’re more easily seen as the proverbial torch bearer.

All in all, there is a boatload of controversy surrounding Whatnot, breakers, and The Hobby in general these days. If you want another rabbit hole, you can look at the conspiracies surrounding Fanatics and their preferential treatment of loyal breakers. But suffice it to say, a lot of the current controversy is warranted, unfortunately with sellers doing things the right way caught in the crossfire.

That said, all indicators point to card collection continuing to grow YoY in the near future. However, regulatory change to platforms like Whatnot is likely a great place to start on improving the hobby for the majority of collectors. And at the end of the day, it’s beneficial for bout buyers and sellers alike. It will definitely be interesting to see the outcome of this case as the result will potentially usher in major changes in the way cards are bought and sold. Regardless, the whole existence of this lawsuit shows the 160-year tradition that has brought joy to sports fans isn’t going away anytime soon.