Passion Investments: Toys
Financial Engineering
Richard John Pietschmann
11/01/2006

The sight of a miniature locomotive chugging across tiny trestles past stations painstakingly built to scale wields a strange fascination for many adults. And, judging by the auction prices collectors now pay for vintage train sets, the allure of this hobby is growing among an affluent group of toy train enthusiasts.

THE VALUE of rare toy trains and their accessories, such as exquisitely detailed stations, is steaming ahead, with some prices reaching six figures. The estimated value of this 1930s Lionel 20th Century Limited passenger set is in the mid-200,000 range. (Photograph by Stout Auctions.) 

Toy train collecting owes some of its current esteem to the 2004 sale of the Ward Kimball collection. Kimball, a Disney animator, was perhaps the most famous American collector of toy trains. His collection was so large and elaborate that it had to be broken into two parts for auction. The assemblage sold at an estate sale for $5 million. Also that year, a collector shattered the U.S. record for a single toy train sold at auction: $100,100 for a German-made Märklin circus train.

Another train maven set a high-water mark in 2004 for a U.S.-made train, paying $77,000 for a 1937 Lionel brass Hudson engine once displayed on the office desk of Lionel Trains founder Joshua Lionel Cowen. Greg Stout, owner of the eponymous Pennsylvania auction house that sold the engine, expected the only known 1930s Lionel 20th Century Limited passenger set still in its original boxes to fetch somewhere in the mid-$200,000 range at an auction in late September (after Worth went to press).

VALUE JUDGEMENT
The toy trains that have delighted children for more than a century have long been collector’s items. But the market has shifted in recent years: The rarest models now sell for six-figure sums at auctions in Europe and North America. Rarity and provenance often determine desirability in this market, though sentimentality certainly plays a role. Some experts caution that as collectors age, the midprice market may collapse. At the high end, however, young, affluent collectors continue to drive prices upward. 

Pierce Carlson, a U.S.-born collector who has lived in London for more than 30 years, says the world record for a toy train, as of August, was more than $200,000, paid for a 220-foot long circa 1906 Märklin large-scale Gardiner set auctioned at Christie’s London in 2001. "It had unbeatable provenance, coming from a distinguished American family that has [owned] an island at the tip of Long Island for the last 300 or so years," he says.

Many of the toy trains that change hands at this price level do so quietly among fewer than 50 very powerful collectors around the world. "The very best are sold or traded through a phone call," says Jaynes Friedman, toys and trains consultant for San Francisco auction house Bonhams & Butterfields. Friedman says this "toy train Mafia" is intensely private. "They don’t want to be exposed to the market, and they don’t want to be known."

Recently, however, growing numbers of young, affluent collectors who are relatively new to the hobby exhibit a voracious appetite for rare trains and accessories. Seven of the top 10 prices paid at auction for toy train items have been recorded since 2003. "Up to two or three years ago, American trains just did not sell for near six-figure prices," Stout says. In the past year, however, the private market has seen a substantial rise in these lucrative deals—as many as 10 to 15 of them have been consummated, he says.

Beyond the recently surging market for rare European and American collectibles, the appeal of toy trains is broad. Frank Sinatra had an elaborate layout at his Palm Springs compound. Pop music icon Neil Young admires them so much that in 1995 he became part owner of Lionel. Young and his partners acquired the company from Richard Kughn, a Michigan real estate developer and entrepreneur who rescued the brand from probable oblivion by buying Lionel in 1986. Singer Rod Stewart, actor Mandy Patinkin and television celebrities Tom Snyder and Sally Jessy Raphael (a rare female member of what is primarily a boy’s club) are reported to be collectors.

Sentimental Journeys
Toy trains appeared not long after the real thing began to revolutionize transportation. In the 1860s, hand-pulled versions emerged in Europe, followed soon after by “clockwork” (wind-up), steam-powered and models with tracks. Cowen invented his battery-powered electric train in 1901, and the company to which he lent his middle name—Lionel—became the most illustrious toy train business in the United States, creating items now prized by collectors. As household use of electricity became widespread, plug-in electric trains came to dominate the hobby.

THE VALUE of the Lionel 20th Century Limited passenger set is high because it is the only known set still with its original boxes.

From the beginning, U.S. and European toy trains and their collectors were split over brands and styles. This rift persists, partly because the hobby is so connected to youthful memories. Few mainstream North American collectors are interested in Märklin, Bing and Hornby, whose toy train sets are revered in Europe. Likewise, the European aficionados are not attracted to prized U.S. brands such as Lionel, American Flyer, Ives, Marx and Voltamp.

The manufacturing periods of the toy trains are divided into pre-World War II, postwar (1945 to 1969) and modern (from 1970). The golden age was from about 1893 to 1914, explains Hugo Marsh, head of Christie’s toy department and author, along with Pierce Carlson, of Christie’s Toy Trains.

Pop music icon Neil Young admires toy trains so much that in 1995 he became part owner of Lionel.

Collectors seek trains that are comprised of locomotive and rolling stock (often called sets, especially if they include track or are still boxed); locomotives and tenders; and individual passenger and freight cars. According to Marsh, locomotives and the cars they pull make up the bulk of the toy trains market. Accessories were sold in smaller quantities than the trains and are thus scarcer, making them often more valuable than the trains themselves. Märklin stations made at the turn of the 20th century are among the most valuable items in train collecting, with recent documented prices as high as $110,000; a boxed station commanded a rumored $130,000 in Europe.

Along with manufacturing date, the condition of a toy train also drives its value. This leads many enthusiasts who love to play with their trains to eschew sets. Some sets would plummet in value if they were even opened, let alone handled. Friedman tells of a factory-sealed 1960s Lionel pink girls set sold at Bonhams & Butterfields in the early 1990s. To prove the contents were complete without breaking the seal, Friedman had the box X-rayed and included the films with the sale. Rarity can trump all other considerations, however. "Rarity is more important," Carlson says. "I have many examples that are unique or one of two or three."

Top: THIS MARKLIN gauge III locomotive and tender sold
for $82,500 in 2005. Bottom: The Rock & Graner
Nachfolger train station went for $71,500 in 2004.(Photography by Noel Barrett Antiques & Auctions.)
End of the Line?
Although prices at the high end continue to climb, some fear this may be the collector market’s last journey. Carlson, a collector for 25 years, admits he is no longer very active in the market and has sold more than half of his collection over the past decade. As sentimental collectors who have sustained the market for so long gradually fade from the scene, a serious and possibly irreversible decline may follow, particularly in the midlevel market. "Go to a train show, and you’re hard-pressed to find anybody without gray hair," Friedman says.

An analysis of the vigorous eBay toy train marketplace by SmartCollector, an online research firm based in Michigan, shows that the average lot selling price dropped from $71.55 to $63.20 between the third quarter of 2001 and the third quarter of 2005, even as the value of all toy train transactions grew from $4.8 million to $7.5 million. SmartCollector CEO Chris Cameron says the market for pre-1940 toy trains is clearly declining, with 1950s prices beginning to follow. He adds that the aging toy train affinity group is fading from the marketplace, with insufficient numbers of new enthusiasts and younger collectors stepping in to support it.

According to Friedman, accurate modern reproductions of rare and vintage trains and accessories depress even the four-figure sector of the market. For example, the highly collectible Lionel pink girls set that sold at Bonhams & Butterfields in the early 1990s for $9,800 is now available as a faithful replica for less than $1,000. “Now I see [the original] at train shows in the $2,500 to $3,000 range,” Friedman says.

With what Christie’s Marsh calls “a huge quantity [of toy trains] in captivity” owned by elderly collectors, the specter of a price-depressing market glut is a concern. On the other hand, those focused on the most extraordinary trains see a market beset by chronic under-valuation, compared with other collectibles, and believe this will fade as savvy younger collectors come into the fray. “What accounts for the leap in value in the past few years,” Stout says, “is that tremendous amounts of money are coming into the hobby.” Driven by a new breed of toy train collector-investor, the market for the best-of-the-best has soared. “They’re not interested in average or common pieces,” he says. “They’re interested in the best. And when it’s the best, it will bring silly money.”

Top Toy Train Auction Prices
(As of August 2006)

$218,500: Richard and Linda Kughn’s Carail layout (RM Auctions,  2003)
$212,400: Märklin circa 1906 Gardiner gauge V steam passenger train (Christie’s London, 2001)
$110,000: Märklin Central Station (Noel Barrett, 2005)
$109,700: Märklin circa 1902 gauge III Romanian-market steam CFR Royal passenger train (Christie’s London, 2002)
$100,100: Märklin gauge I circus train (sold as four separate lots, Noel Barrett, 2004)
$82,500: Märklin gauge III locomotive and tender (Noel Barrett, 2005)
$77,000: Lionel 1937 brass Hudson engine (Stout, 2004)
$73,500: Lionel Blue Feather boxcar (Stout, 2004)
$71,500: Rock & Graner Nachfolger train station (Noel Barrett, 2004)$65,700: Märklin 20-volt Crocodile articulated electric locomotive (Christie’s London, 1994)

(Includes buyer’s premium; prices converted to U.S. dollars at current rates if unsupplied.)

Richard John Pietschmann is a regular contributor to Worth.