Grading Economics

A Lawsuit Says PSA's Grades Are Subjective. Your EV Math Already Assumed That.

Bayley Coleman · 2026-08-01 · 7 min read

On July 28, 2026, a Baltimore collector named Nicholas Funk filed a proposed class action against PSA and its parent, Collectors Holdings, in Maryland federal court. The complaint's central claim is that PSA sells grading as an objective, standardized service while actually applying a subjective standard. PSA has not responded to the allegations, and none of them have been tested in court.

Set the legal outcome aside, because you cannot act on it. The useful question for a flipper is narrower: if grading really is subjective, does that break the math you use to decide whether to submit a card? The answer is no, and the reason is worth understanding, because it also tells you which of your assumptions actually is fragile.

What does the lawsuit actually allege?

According to the filing and reporting on it, the complaint alleges:

• PSA generated over $1 billion in grading fees it characterizes as fraudulent over the four years before filing, an amount that could reach roughly $3 billion if trebled under RICO.
• PSA markets grading as objective and standardized while relying on a subjective "eye appeal" judgment rather than fixed, measurable criteria. One line quoted from the case: "If an unchanged card can receive a different grade depending on the grader, the day, or an undisclosed standard, that is not reliability."
• Grading was performed in part by trainees and contractors with limited experience.
• A vertical-integration conflict: PSA assigns the grades while its corporate parent also participates in pricing, custody, resale, and lending against graded cards, which the complaint says contradicts PSA's positioning as having no financial stake in the cards it grades.

Two details worth knowing before you assume this is about you. The proposed class covers people who beneficially owned cards submitted through an intermediary (a bulk or group submitter) in the four years before filing, and direct PSA account holders are excluded. And the named plaintiff's own claim is small, about $300 in fees across seven cards. This is a structural case, not a big-ticket personal grievance.

Everything above is an allegation. PSA has not replied, a motion to dismiss is widely expected, and this post is not a prediction about the case.

Does subjective grading break the math?

Here is the part most coverage will miss. A decision model that assumed grading was deterministic would not need expected value at all. If you could know the grade in advance, you would simply look it up, compute the profit, and be done. The only reason expected value exists in this hobby is that the grade is uncertain when you make the decision.

So the model already encodes exactly what the complaint alleges. Concretely, in the engine behind The Report Card:

That last row is the one to sit with. The engine has a hard rule: no matter how good your comps and population data are, a raw card's grade is never treated as a high-certainty input. Not because of a lawsuit, but because it never was knowable. If your process is "the pop report says 43% of these gem, so this one probably gems," subjectivity is a real threat to your plan. If your process is "assign odds, weigh the outcomes, require a cushion before buying," you already built the variance in.

What the case should actually change

Two things deserve to move, and neither is the arithmetic.

Trust published gem rates less, not more

We have made this point in the break-even guide and the adverse-selection framing: a published gem rate reflects the cards people chose to submit, not a random raw copy, so it is a ceiling on your odds rather than an estimate of them. If the standard also drifts by grader or by day, that is one more reason to treat a category-level gem rate as a loose prior and discount it for your specific copy's centering and surface.

The practical version: when you plug a gem rate into any grading decision, ask what would happen if the true number were several points worse. If a few points of gem rate flips your call from grade to pass, the call was never strong enough to act on.

Price the conflict, not the verdict

The vertical-integration allegation is the genuinely new consideration, and it is not a math input. If one corporate family assigns the grade, publishes prices, holds the card in a vault, runs resale, and lends against graded cards, then the entity determining your card's grade also has interests in the venues where you discover its value. You do not need to believe anything improper happened to notice that arrangement deserves a discount on unquestioning trust.

What you can do about it is boring and effective: verify prices against sold comps you pull yourself rather than any single guide, and treat grader choice as a decision with resale consequences, which we break down in the grader comparison.

So what should you do differently on Monday?

1. Nothing to the arithmetic. Keep running expected value with probabilities across grades and a cushion before you buy. That framework anticipated variance from the start.
2. Discount category gem rates for your copy. Treat published rates as a ceiling. If your decision is sensitive to a few points of gem rate, pass.
3. Stop treating a grade as a fact about a card. It is one graded opinion recorded at one moment. That is true whether or not this case survives a motion to dismiss.
4. Keep your own comps. Pull sold prices yourself. It is the cheapest defense against depending on anyone else's number, whatever their incentives.
5. Watch the docket, don't trade on it. No ruling exists. If a court eventually finds facts, we will update this post rather than guess ahead of it.

The uncomfortable, honest version: this complaint is describing something experienced flippers already price in. A grade is a probabilistic outcome produced by human judgment, and the only protection was ever a model that expects to be wrong a predictable share of the time. That is why we publish our calls before outcomes exist, wins and losses both. A guide, not gospel.

Frequently asked questions

Sources

• Baltimore man sues PSA trading card grading service alleging federal RICO violations, WMAR-2 News (plaintiff, court, counsel, the quoted reliability line, vertical-integration claim, no PSA reply)
• 2026 PSA class action RICO case, Resell Calendar (July 31, 2026) (July 28 filing date, class definition excluding direct account holders, the $1 billion and roughly $3 billion trebled figures, the plaintiff's approximately $300 across seven cards)