Monthly Archives: August 2014

Paying for Ideas

By Lloyd Graff

15th Anniversary of Madden NFL from EA-Sports

As we diligently rub metal on metal, producing the stuff that makes the wheels roll smoothly, the big money in the economy continues to flow to the world of ideas, entertainment and health.

A few thoughts to connect.

Monday Amazon agreed to buy Twitch for $970 million. Google thought they were going to get it but Amazon swooped in at the last minute. Twitch is a site that broadcasts online video game competitions. They aspire to be the ESPN of video gaming. Who knew?

But this is a big business and growing fast. Twitch is in the top 15 most trafficked Websites. It gets 55 million unique viewers a month as a three-year-old company. The number of hours users spend on Twitch is the same spent on MTV and a tad behind CNN. For Amazon it means an advertising vehicle for the company and a big opportunity for growing ad revenue to reach a prime demographic that is hard to reach – young men.

One of the video game competitions Twitch broadcasts is Madden NFL, which came out with its 15th edition Monday. The 25-year history of this game is fascinating. The game’s creator, Trip Hawkins, was a football player at Harvard. He wanted to combine his love of the game with his passion for computers. As a child he had played the board game Strat-O-Matic and wanted to bring a version of it to the Apple II, the computer gaming platform of the day. While he was not banging helmets on the field for the Crimson, he worked on the code for his video game, which became the genesis of his multi-billion dollar firm, Electronic Arts. Hawkins admired John Madden as a student of football and wanted to get his input and possibly even his name and voice for the game. John Madden was famous for his fear of flying and traveled to every game on a land conveyance. Through a friend of a friend, Hawkins located Madden traveling on an Amtrak train in 1984. He bought a ticket and found the famous coach and commentator in the club car. He introduced himself and told Madden about his project in the hope that Madden would buy into the idea even though he was not computer savvy.

The game’s popularity has grown steadily through the years, with total sales of $4 billion since its inception. They have an estimated 6 million active players today. Madden receives $2 million a year from Electronic Arts, a nice royalty but paltry compared to the $50 million Electronic Arts pays the NFL and NFL Players Union for the exclusive gaming rights. With Twitch under Amazon’s flag I can imagine those numbers rising significantly.

Meanwhile, Kevin Durant, the NBA’s Most Valuable Player last season, weighs shoe offers from Under Armour and Nike. Under Armour has offered him a $265 million 10-year deal to endorse its shoes. Current shoe endorsement Nike probably will not match it. Kevin Plank started Under Armour in his basement and has come a long way toward challenging Nike in athletic apparel. He is hoping that Kevin Durant will be his Michael Jordan, or his Madden.

But the Durants and the Maddens are the tiny exception. Consider the lock the NCAA and its schools have had on their huge cash cows, the college football and basketball players who have always worked for nothing except their scholarships. The NCAA cartel has really taken advantage of its players. The organization rakes in billions of bucks each year and then terrorizes the players if they get a hamburger from an alum.

The era of athletic serfdom is beginning to end now with smart lawyers blitzing the NCAA from all directions. Some players will be getting a little money soon, and considerably more of the pie down the road.

A side note. The Libman family, which owns a 118-year-old cleaning products family business that started with brooms manufactured in downtown Chicago in 1896, recently signed a smart endorsement deal with the Big Ten Conference. Libman is the exclusive floor mop at all 12 of the conference’s schools.

Every time a kid swoops onto the basketball court of an Indiana vs. Ohio State game to mop up sweat, you see the Libman brand. It’s a nice branding device for the company and another piece of money for the colleges. Of course, the players don’t see a penny.

What these disparate dots on the economic map illustrate is that money gravitates to good ideas and where we spend our time and cash. When we go to IMTS in a few days, the emphasis will be on better machines to make things, which is crucial in the machining business. There will be a little booth in the corner where a geeky young woman or man will have a better idea for your business, like Trip Hawkins offered John Madden on the Amtrak train in 1984. Maybe you will feel a twitch when you see it.

Question: Should college athletes be paid?

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The ‘next frontier’ for 3D printing and additive manufacturing

Courtesy of Chicago Tribune. By James Janega

As Chicago wraps its mind around 3D printing for consumers, business and transformative projects including the UI Labs-led Digital Manufacturing and Design Innovation Institute, there’s a document that provides some broad insights.

The Wohlers report, released each spring for almost two decades and covering in depth the state of 3D printing and more sophisticated additive manufacturing used by industry, shows a field increasingly focused on high-end manufacturing.

The 2014 report adds an important layer to the familiar picture of 3D printing, in which everyday consumers can buy and use tabletop devices suitable for the home hobbyist.

The Midwest plays a vital role in advanced and additive manufacturing in the U.S., said Terry Wohlers, principal at Wohlers Associates in Fort Collins, Colo., which has tracked 3D printing and additive manufacturing for 19 years.

The industry “has been maturing,” he said of 3D printing and related technologies now moving from novelties to industrial use. “The next frontier is the use of it for manufacturing.”

Advances in additive manufacturing will make it easier and cheaper to produce specialized parts on short demand. Meanwhile, software is getting emphasized in the short term in order to make sense of data from ubiquitous sensors found in modern factories, said William King, CTO at the UI Labs initiative, a public-private partnership funded by federal and state agencies and heavy manufacturers based in Illinois and the Midwest.

“Today, manufacturing is still very much a pencil-and-paper industry,” King said. But he said it is changing fast.

“Manufacturing companies are tracking and using data like never before,” King said, allowing factories to improve productivity, use assets more efficiently and tie manufacturing operations to finance and marketing efforts. “Over the next decade, manufacturing will become completely digital. Factories will be run from tablet computers, and every machine tool in every factory will be connected to the Internet.”

Within the next year, “manufacturing companies will have increased use of the power of modern computation and simulation as well as data,” said University of Texas professor Joseph Beaman, a pioneer of 3D printing technology and a technical adviser for advanced analysis at Digital Manufacturing and Design Innovation Institute.

“They’re not just a ‘push-button’ technology,” Wohlers said of additive manufacturing. “There’s a lot that goes on before and after you hit the start button.”

Additive manufacturing — the layering and adhesion of materials as is the case with 3D printing — has become more reliable and consistent than ever, contributing to a fast-growing industry with $3.07 billion in revenue last year, Wohlers said.

A familiar storyline has been an explosion in use of home-based low-cost 3D printers such as MakerBot and 3D Systems Cube and CubeX. Some 72,000 personal 3D printers were sold in 2013 at an average cost of $1,208, the Wohlers Report said.

But industrial printers have seen an even faster increase over the past year, with heavy manufacturing uses edging past consumer electronics and modeling, the report said. More than 9,800 commercial devices — some large enough to print V6 engine blocks — were sold at an average price of $90,370 and for as high as $5 million.

Senvol LLC, a consulting company started at the Wharton School of Business and cited in the Wohlers Report, cites seven instances for when additive manufacturing in heavy industry can be useful enough to disrupt existing manufacturing processes:

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Little League is Big League

By Lloyd Graff

Philadelphia’s Taney Dragons, Mo’ne second to left

I was going to write about the important stuff — unemployment, Fed policy, Ferguson, and the price of the new Hepatitis C wonder drug. But then the Little League World Series came on TV and I knew what really spoke to me.

I’m one of the millions of men and women hooked by the Little League World Series — broadcast on ESPN, brought to you by Kellogg’s Frosted Flakes. I know it’s all brilliantly packaged by the media flacks, but the authenticity of the 11-13 year-old boys and one amazing girl have lifted the event from obscurity to center stage.

A million years ago I played Little League Baseball. But my team could not have challenged these kids. They are focused and athletic, yet still unpolished enough to relate to.

The big hype for the event is around 5’4” Mo’ne Davis, the female star of the Philadelphia Taney Dragons. She is superbly athletic, plays shortstop, and pitches. She can bring it at 70 miles per hour, which is the equivalent of a 91 mile per hour fastball from a Major League mound. She has control and an effective curveball.

When my daughter Sarah was growing up I taught her to “throw like a guy” with full arm rotation. She was bigger than Davis, but not as coordinated. And girls and their fathers would never have dared to intrude on the male domain of Little League Baseball. A pity, in retrospect.

I love the Mo’ne Davis story. The girl has moxie and a remarkable calmness about her to go with her technically perfect left-handed delivery.

Jackie Robinson West, the Little League team from the south side of Chicago, has excited the Windy City. In a year when both the Cubs and White Sox are pathetic, these kids have achieved front page status. With rampant gang violence and kids their age being slaughtered daily in random shootings, it is fresh air for the city to see a cohesive group of black boys, coached by fathers, compete with the best teams in the country. Baseball has lost favor amongst kids in Chicago. The ball diamonds in my neighborhood are neglected. Girls play softball, but boys hardball has generally been forsaken for basketball, soccer and football. So the Jackie Robinson West boys are a delightful anomaly for a city where baseball seems like more a sport for middle aged (and older) white guys.

In South Williamsport, Pennsylvania, the annual Little League World Series has struck a national nerve. The television ratings of Wednesday evening’s Jackie Robinson West vs. Philadelphia’s Taney Dragons were seven times that of the ESPN broadcast of the first place Los Angeles Angels vs. the Boston Red Sox the same night. People wanted to see Mo’ne pitch. She had just been put on the cover of Sports Illustrated — generally a bad omen. She lost that night, but struck out six batters in less than three innings against a powerful Las Vegas team that had a burly blond kid 6 feet tall who threw even harder than her.

The baseball in the Little League games is not as artistic as in the Big Leagues, but the energy and passion makes up for it. The kids really care. They cry after losses. Chubby kids with glasses hit home runs. Shrimpy kids make terrific plays in the outfield. Coaches really coach and comfort devastated young boys who have just lost the biggest game of their lives.

I’m a sucker for a good story. I even loved the Tim Tebow saga. I understand that a Mo’ne Davis autographed baseball is going for $500 on eBay. And the beauty is that she couldn’t care less.

Question: Should girls play Little League Baseball?

Question 2: Will a woman ever play in the Major Leagues?

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“Carbide Doesn’t Go Bad”

By Lloyd Graff

This basic truth haunted Brian Nowicki for years as he moved through important jobs in the distribution of tooling and machine tools for 30 years. The opportunity he saw was in the dead inventory sitting in the Lista and Vidmar cabinets all over the world, filled with perfectly usable cutting tools that were no longer needed by manufacturers or couldn’t be sold by the Sandviks, Iscars and Kennametals because they had developed slightly more advanced cutting materials to push.

Tooling Marketplace is Nowicki’s online answer to the problem of unloved inventory. It is an Internet supermarket of carbide and other cutting concoctions artfully displayed and organized so buyers can buy new surplus cutting tools for a fraction of the price they would pay for the current favorites of the industry. Nowicki and his partners knew that “last year’s model” did not mean “no good,” just “unloved.” If he could get the cutting tool manufacturers to buy into his concept of unloading yesterday’s best idea in tooling on his site, he had a business.

He and his partners were veterans of the cutting tool industry. They had contacts all over the world of chip-making. They wanted to build a site that would be focused on just one piece of the metalworking world. It would have some of the elements of an eBay, but it would not be a hodgepodge of goods. It would have some of the best of a Grainger or MSC, but it’s strength would be its depth and familiarity with the primary industry it was serving.

Tooling Marketplace just launched in August and the early indicators are positive. Manufacturers like Kennametal and Ingersoll have embraced the idea and put over $3 million worth of inventory on the site. Nowicki expects to double that amount in the next few months.

Now his biggest challenge is to attract the buyers. He makes money when the goods actually move out of the bins. Tooling Marketplace gets a 12% commission from the sellers and an 8% handling fee from the buyers. Transactions are all online. Tooling Marketplace is sending out targeted email blasts to advertise special deals. They need to get traction fairly quickly to make their site a legitimate habit-forming Internet location for both the everyday and the exotic in cutting elements. They invested $100,000 in the software to make the idea into a business. They are hoping distributors of tooling will be both buyers and sellers on Tooling Marketplace and will attract end users who will invest the time to browse last year’s model of boring or drilling carbide to save some cash. On many jobs the difference between 41-25 and 42-25 carbide on the shop floor is infinitesimal.

The big test for the site is to be able to attract viable new inventory to keep buyers interested. The inventory will come if they can get the word out to the buyers and get them to try it — the usual chicken and egg problem in the distribution world. I wish them luck — and lots of carbide.

Question: It is it worth spending a lot of time looking for bargains while running a business?

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Do You Know What You Want?

By Noah Graff

A principle my parents have repeated to me is that nobody in the world is a mind reader. Therefore, to get what you want from other people you have to be as clear as you possibly can.

I usually hate going to a new barber because they ask me tough hair questions that I do not feel qualified to answer. They ask things like, “Do you want it short on the sides?” “How much should I take off the top?” “What gage should I use?” “Do you want it thinned out?” I’m not a barber. I don’t know this stuff. Why can’t they just do their job and give me a haircut I like? The big problem is that after 34 years of getting haircuts, I still have a lot trouble knowing what is actually going to make me happy. But I can say, after the barber is finished, I usually do know whether I’m satisfied or not.

It’s a tough situation for a new barber because she can’t read my mind. All she can do is guess what I want, and compounding the challenge, sometimes I don’t even know what I want. Sometimes I just want to say something like, “make me look cool, or do something that will be appropriate for work.” I have been going to my current barber, Dita, for many years. She can remember what I’ve liked in the past because she cuts my hair every month, but what makes her special is that she can use her intuition to style my hair in ways that I couldn’t have envisioned myself.

It is a wonderful and rare thing to be able to trust a pro to do what I want without proper instructions. Dita is just about the only person in this world who I can say comes close to reading my mind. When going to new barbers, my best results have come when I first comb through a magazine and find a photo of an actor or model whose hair I like, and then show the photo to the barber before she begins. The barber then at least has a clear vision of what I have commissioned her to create. Please new barber, do not ask me how to do your job. You’re supposed to be the pro!

At Graff-Pinkert we constantly repair and rebuild screw machines, a process which takes both creativity and experience trying various methods to make machines work smoothly. We always encourage our mechanics to ask questions when they are unsure how to deal with a problem, as it is obviously better to ask than screw up a machine or get stuck and waste time. We have the advantage of employing people with decades of screw machine experience — we have an Irish guy who has worked on Wickmans for a half century. More often than not, the solutions to their technical problems come from the mechanics conferring with each other rather than with the people in the office. Lloyd, Rex, and I want to know the significant technical issues occurring in the shop, but sometimes we just have to say, “I’m not sure how to do it, but I know you can figure it out. SO JUST GET IT DONE.” The mechanics get paid because they are professionals who we can trust to do things we can’t. The system usually works well, because even though we don’t know how to repair the machines, we at least know what we want in the end.

There are very few people in this world like my barber who can predict what other people want. So before you can clearly tell someone what you want from them, you better make sure what you want is clear in your own mind first.

Question:  Do you usually get the haircut you want when you go to the barber?

Noah Graff is a Salesman at Graff-Pinkert & Co.

Check out this Seinfeld clip in which Jerry’s carpenter unsuccessfully reads his mind

Seinfeld Clip – Jerry And His New Cabinets

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Surviving August

By Lloyd Graff

Robin Williams in “Good Morning Vietnam”

August is a strange month for me. It is the month of my mom’s birth and death, August 11, 1993. It is a celebration of surviving my heart attack, a near death experience in 2008. It is the time my daughter Sarah and son-in-law Scott come to Chicago for a week with my three spectacular granddaughters.

The baseball season is in its dog days, and my Cubs are in last, as usual. But oh those fabulous prospects – the best in the game they say – will turn it around next year. Well, maybe in 2016. With my August pre-occupation with life and death, I always wonder if I will be lucky enough to cheer the next Ernie Banks.

In business we feel the excitement of IMTS growing toward Labor Day. I can already feel me knees rebelling against the endless aisles of McCormick Place.

School is starting this week in my neighborhood, and the kids are oiling up their iPads and computers. My wife Risa is gearing up her educational therapy practice. She is in the “make school easier” business, and beginning in August, needy parents and struggling kids find their way to her office in our house.

In August, Rabbis like my daughter have started planning their Jewish High Holidays (Rosh Hashanah and Yom Kippur) sermons. The High Holidays are somber days of contemplation, fasting and relief. I’m particularly aware of the clergy prep. While writing this blog I sat next to two local rabbis who were planning their Temple services at the local Starbucks.

August also brings the Fantasy Football draft and NFL football pre-season, the former being the more important of the two. I find it fascinating that today the statistics of the game have become more important than who wins or loses for many people. The game really is a lot more fun seen TV than paying $100 to attend a game, fight the traffic, and sit in the sleet. Games may as well be played in big TV studios. Fans in the stands, who needs it? Just give me the stats in real time.

For the French, Italians and Spaniards, August is the traditional vacation month. Five weeks of saying goodbye to work. To me it is a quaint custom for the monied elites. I’d go nuts if I didn’t work for over a month. Oh, maybe I could survive it with constant doses of televised baseball, football and audio books, but it would be tough.

I am soaking up August, that difficult transitional month between summer and fall, baseball and football, and who shall live and who shall die.

Question: What was your favorite Robin Williams film?

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Congress Cares?

By Lloyd Graff

Congressman Francis Underwood from the show, “House of Cards”

Man plans. God laughs.

A client of ours just had a huge fire that wiped out much of his capacity. He is scrambling to pull things together overnight to service his customer base. The insurance adjusters dither while he awaits the settlement.

Another client jumped into the machinery market because he landed a big new account that wants parts in September. He’s buying a $100,000 machine and new secondary equipment. It had not been in the budget finalized in April, but a million dollar job was not going to be missed for want of a machine to run it properly.

In Washington, the bonus depreciation law is up for debate again, behind and in front of closed doors. Code name – Section 179. The trade associations I belong to, the Precision Machined Products Association (PMPA) and the Machinery Dealers National Association (MDNA), have their law firms and lobbyists out buying drinks and advocating hard for the resuscitation of the expired law. It’s why we hire lobbyists and pay them $500 per hour to schmooze staffers and channel money to campaigns. But I have to wonder, in the end, how much do the incentives really change behavior?

In our machinery business we expected a rush of business before Section 179 expired last year. But I can attribute to it only one sale, a ridiculously cheap 1-1/4″ RB-8 National Acme, that a client (who happened to have an accounting background) rushed through because of the tax incentive.

I know this dissing of the catechism of tax benefits for business is Obamaesque blasphemy, but I really think it is true. People buy capital equipment generally only when they have a pressing need for it. Without a pressing need, they may buy a smaller item like a hardness tester, or a cleaning tank. At Graff-Pinkert we rushed to buy a Graymills cleaning machine last year and a backup generator the year before to get the convenient write-offs. They were purchases we could have lived without, but the ability to write them off against income did play a role in our timing and was an impetus to pull the trigger. If you multiplied our cleaning tank and generator buys through the whole economy it would be significant.

Section 179 is not part of the backbone of capital spending in the United States. It will not have a pivotal effect on our machine tool business. For big companies it will barely ripple the water. On the margins, the last-second buys of a clutch, a repair part, a set of bearings, or a generator, magnified by thousands of little buyers, is significant. It’s worth fighting for in Washington, but if we don’t get it, there’s still next year for another schmooze at it.

Question: Do feel like your congressman cares about you?

Lloyd Graff is Owner of both Today’s Machining World and Graff-Pinkert & Co.

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Auction Rookie

By Noah Graff

Auction at Ameriflo, Two Mazak Turning Centers

Last Tuesday, I attended an auction in Carmel, a suburb of Indianapolis, trying to pick up a few CNC machines to round out Graff-Pinkert’s stock. Key Auctioneers was auctioning off machine tools owned by Ameriflo Corporation. The company wasn’t out of business. It had just decided to outsource its machined parts.

The sale featured an L32 Citizen manufactured in 1999 and four Mazak CNC Turning Centers, Multiplex 6200Y machines. Two of the Mazaks were new in 2000 and two in 2004. Mazak Turning Centers are not Graff-Pinkert’s specialty, but we are always trying to learn the CNC market better, and if there is an opportunity for a great spec we try to explore the possibilities. My boss, Lloyd Graff, saw an advertisement for the auction in the Chicago Tribune of all places. We had received only one email blast promoting the sale and had not received any print flyers for it, so we thought the auction might be a sleeper.

I had been given a rough number that I could spend at the sale for the Mazaks. I was told that if I could buy one of the 2004 Mazaks for $60,000, not including the 12% buyer’s premium, it would be too good a deal to pass up–even with our very limited experience with the equipment. An auctioneer colleague of ours estimated that the retail price from a used dealer for one of the 2004 Mazaks in good condition would be about $120,000. At the sale, I was told by a Mazak sales rep that if these type of machines were bought new today from Mazak they would cost $450,000 each. My instructions for bidding on the 2000 machines were more vague. All I remembered was, “bid a lot less than the $60,000 we targeted for 2004 Mazaks.”

I spent more than an hour the day before carefully inspecting the four Mazaks and the Citizen. The operator of the machines from Ameriflo put the machines under power and was extremely helpful in giving me the straight dope on the equipment. The machines had put in a lot of hours over the last 10-15 years, running lights-out a lot of the time. The bar loaders and the parts conveyors weren’t working on the Mazaks. One machine had a recently replaced motor, one needed a new ball screw, one just had a new battery installed. He told me the machines were all “good machines.” I had at least confirmed that the four Mazaks were relatively aesthetically pleasing and were running.

The auction was small, with only a few hundred lots. After just 15 minutes, the newest, best Mazak was on the block. The bidding started at $30,000. This was one of the main machines I had come for so I jumped into the action. It was the first time I had actually gotten to bid at an outcry auction. In the past I had pushed the button to bid online with my bosses directing me at my side. A few times at past outcry auctions I had permission to bid on certain items, but the prices went over my threshold before I could even throw a number out. But this time I was in the ring. I went back and forth with two other bidders. At least two auctioneers were swarming me, waving there hands just a few feet away trying to egg me on to bid more. One bidder was online, the other, who ended up buying all four Mazaks, I had seen the day before, inspecting the machines at the same time I was. I bid $40,000, then $50,000, and the intensity built as it got into the $60,000s. I think my highest bid was $67,500. I had reached my spending limit and I admit I was a little relieved when I couldn’t go any higher, even though I think that the $70,000 it went for was probably a good deal. But a price of $70,000 plus 12% buyer’s premium, rigging and repair costs was a lot of cash to throw at something I knew little about, even if I did know some customers who might be interested in it.

After the machine sold, I called my boss and told him what happened. He was pleased that I got in the thick of the bidding and gained the experience, but he was glad I didn’t go any higher. He said something like, “We don’t want that type of machinery anyway. Maybe you can get the Citizen when it comes up.” So, when the last Mazak 6200Y (new in 2000) came up, I sat back and watched it sell for a mere $40,000 to the same guy who had bought the other three similar machines. When the bidding ended on that machine I thought to myself, “That machine was probably the steal of the auction. This was the opportunity I blew.”

Looking back, I don’t think I should flagellate myself for not bidding. The money wasn’t coming out of my pocketbook and I had just been told that it wasn’t the type of equipment we wanted to spend our money on. Later, I spoke with the guy who had bought the four machines. He asked me if I was Lloyd Graff’s son or Jim Graff’s son–the machine tool business is a small incestuous world. Then the guy told me that he had not even planned to bid on the fourth Mazak, but it was just too cheap not to buy. Ug. I was learning. What did I learn? I should have been better prepared. I should have had a better bidding plan. I should have known more about the machines. Maybe I should have gone into battle with a partner.

I held out hope to get the Citizen, a machine we do have some experience with. Our target price was $40,000. The machine was clean and running but it was still pretty mature in CNC years–not as bad as dog years, but computers have come a long way since 1999. Heck, in 1999, I was a college sophomore, Bill Clinton was President and the Bulls had won the NBA Championship the year before. Also, the Citizen’s bar loader was an oddball at 6 feet. I got in the mix and bid all the way up to $47,500. I was then relieved when someone else after some deliberation bid up to $50,000 and won the machine.

I felt fine as I left the auction. I gained bidding experience, learned quite a bit about CNC equipment and made some good contacts. I think I might have let a good fish get away, which does not feel good, but I would have felt more disappointed if I had lost out on a multi-spindle screw machine or Hydromat that I knew well.

Question: Do you enjoy buying stuff at auctions?

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