Over Thanksgiving break in 2020, Fanatics founder Michael Rubin flew to Detroit to spend a day with StockX founder Josh Luber. It was just supposed to be two e-commerce innovators hanging out, with Rubin responsible for the just-in-time apparel juggernaut, and Luber behind the secondary market for hot sneakers and other coveted goods. Rubin wasn’t expecting their time together to significantly change his business. But then Luber started talking about the disjointed distribution process that underpins the trading cards business.
Trading cards companies like Topps make cards and sell them to distributors, who then sell them to retailers. And those retailers sell them to consumers, but some of those folks then resell their cards on eBay, often in a professional bit of market arbitrage after securing the most desirable ones. Rubin saw this as perhaps the least direct-to-consumer approach to what he thought should be a pretty direct-to-consumer business. He’d been researching and looking into trading cards for a few months by that point, but Luber broke it down in such a way that “the lightbulb went off then and there,” Rubin says.
Not long after New Year’s, Rubin hired Luber to be chief vision officer for the newly launched Fanatics Collectibles trading cards division, which at the time had nothing to sell exactly. That wouldn’t be the case for long: In August 2021, Fanatics secured the trading cards rights for Major League Baseball, MLB Players Association, the National Football League Players Association and the National Basketball Association. Flush with that momentum, Rubin and company went out and raised $350 million in September for a $10 billion valuation for Collectibles. Then in January 2022, it paid a reported $500 million to acquire Topps, the most recognizable brand name in the business. In a year, the company went from not being in trading cards at all to being the industry’s biggest player.
This alone has been a blockbuster development, but it was just one of many in a very big year for Fanatics.
At the start of 2021, Fanatics was one business, coming off of 2020 with $2.6 billion in revenues from sales largely through its own website and the more than 300 team and league e-commerce sites that the company operates around the globe. In the last year, however, it’s expanded to add three new business categories in collectibles, betting and gaming, and NFTs. Over the past decade Rubin has built the most successful—and powerful—sports fan apparel business on the planet through a combination of technology and vertically-integrated supply chain operations. Coinciding with its move into trading cards, the company spun out its primary e-commerce-and-apparel business as Fanatics Commerce, and established a broader Fanatics parent company, with Rubin stepping in as CEO.
Fanatics was already a juggernaut in apparel and merchandise; now it’s aiming to use that same ambition and operational agility to rule the rest of the sports fan economy. “We’ve gone from one business to four businesses over the course of the last year,” says Rubin. “We built the most transactionally driven digital sports brand, and we’ve got a database of more than 80 million customers. The ability to use those assets to help us build the leading digital sports platform, it’s really exciting.”
To become that broader digital sports platform, Fanatics is aiming its business deeper and deeper into each aspect of a fan’s relationship with their favorite sport. Here’s how they plan to do it.
Commerce at the core
In the week between the Super Bowl and the NBA All-Star Game, Fanatics announced that it had teamed with Jay-Z and a group of other famous names to acquire majority ownership of sports merch company Mitchell & Ness for roughly $250 million. It adds more streetwear-styled muscle to Fanatics’ ever-expanding sports fan apparel and merch empire.
Doug Mack, CEO of Fanatics Commerce and vice chairman of the broader Fanatics parent, says the key to the company’s success is a combination of variety and agility. In 2019, the company partnered with broadcaster Erin Andrews on a new line called “WEAR by Erin Andrews” to offer women more stylish sports-related apparel, and it has quickly grown into an eight-figure franchise. Meanwhile, back in August 2021, when global soccer star Lionel Messi abruptly left Barcelona to sign with Paris Saint-Germain, the Fanatics merch machine needed to be ready. “In that moment, there would never be enough Messi jerseys to service all of the demand,” says Mack. “The manufacturing just takes time. But with our rights and partnership with PSG, and on-demand manufacturing capabilities, we developed Messi apparel that we were able to produce and make immediately available.”
For fans, it simply takes a couple of clicks to find and buy the gear they want. The infrastructure to make that happen is much more complicated and is the backbone of how Fanatics has built its business, as well as the trust of consumers and partners that they can deliver. “What we do under the hood is extremely hard,” says Mack. “We’re making investments to the tune of hundreds of millions of dollars in operations, manufacturing and technology to only build upon this foundation.”
That foundation is also providing the base from which Rubin is expanding. “The business model we established with Fanatics Commerce, which was reinventing an industry that’s better for the fan, and better for the partners, is something we think about for every business we get into,” says Rubin. “We’re always taking learnings from the commerce business and applying them to these new businesses.”
In the cards
Last year, Rubin says Fanatics grew its business by 30%, with about $4 billion in revenue. The company has $2 billion in cash on its balance sheet, and most recent valuations peg it at about $18 billion. The flurry of acquisitions and expansion over that time may appear sudden, but inside the company, there is a very clear strategy for identifying and evaluating potential new business opportunities.
“How can we make this better? How can we innovate for the fan? If we can’t answer that, we’re out,” says Rubin. “Then it’s about figuring out how we can make it better for our partners—the leagues, players associations—and if we can’t do that, we’re out. Then we say, okay, is it a big enough business opportunity? If it’s great for fans and great for our partners, but it’s not material enough, we’re out, because we don’t want to kill brain cells. That’s the filter for everything.”
Putting trading cards through that filter, it all makes sense. Fanatics built its business on making fan merch available quickly and efficiently, and saw an opportunity to apply that model to the largely disjointed distribution of cards. For partners, its trading cards rights agreements gave equity to leagues and player unions that guaranteed them at least $1 billion in revenue over the duration of the contract. For Fanatics’s own bottom line, it adds a $700 million business, even before the NBA and NFL rights kick in for 2026.
NBA president of global partnerships Sal LaRocca says that Fanatics occupies a unique place in the sports world, which positions it as an ideal partner in trading cards. “They’ve built a considerable amount of customers and fans in their database, and we felt that it was really the next phase in the evolution of the card market, coming together in one ecosystem,” says LaRocca. “So that vision was why we saw it in our best interests to align with them for the long term.”
Tastes like digital candy
When Dapper Labs launched NBA Top Shot in October 2020, it rocketed NFTs into the sports collectibles mainstream. Understandably, this became a market in which Fanatics saw an opportunity. In June 2021, Rubin launched a new NFT-based company called Candy Digital, cofounded with Galaxy Digital founder Mike Novogratz. VaynerMedia CEO Gary Vaynerchuk serves as a board member and advisor. The company quickly acquired NFT licensing rights for Major League Baseball, then launched its own NFT marketplace in January, which logged $1 million in trade volume in its first eight hours and was most recently valued at $1.5 billion.
Vaynerchuk met Rubin many years ago, but really got to know him when they worked together on the popular All In Challenge, which raised $60 million to help fight food insecurity during the pandemic. That experience convinced him to team with Rubin on Candy Digital. Vaynerchuk, who is a big sports fan and has been early to making and marketing NFT experiences, says that success in sports NFTs—and most sports products—comes down to one’s ability to get rights. Something Fanatics has been doing in apparel for years. “It’s like the cable news industry,” says Vaynerchuk. “ESPN became ESPN because it got rights to NFL, NBA, hockey, and baseball. It is a game of rights. Whoever got the official rights to MLB was going to have a better NFT product in that genre. Knowing Michael’s relationships and tenacity made this comfortable. If I was going to go somewhere and work with someone, this is a safe place to go.”
At the time, Rubin said that the goal for Candy is to broaden the fanbase for digital collectibles and that these products live in the sweet spot at the intersection of passion, community, innovation, and digital transformation. He could just as easily be talking about his vision for Fanatics overall.
Betting on the future
In just over a month after New York State opened up online sports betting in January, there has been more than $2 billion wagered, including a quarter of all mobile Super Bowl bets placed in the U.S. With its technological infrastructure and massive database of fans, Fanatics knows that betting and online gaming is a natural next step for expansion.
Last June, the company hired former FanDuel CEO Matt King to run its yet-to-be-launched betting and gaming division, as well as former Los Angeles Dodgers executive Tucker Kain as Fanatics’ new chief strategy and growth officer.
Rubin and Mack see massive potential in betting and gaming but not yet the right business economic sense, with New York State taxing 51% of sports book revenues. So Fanatics hasn’t jumped in just yet. Instead, it’s building its internal team and infrastructure in order to be ready to flip that switch at a moment’s notice. That’s what has impressed Kain most in his first year at the company. Kain joined the LA Dodgers as CFO in 2012 and later established the team’s investment arm, Elysian Park Ventures. He admires the simplicity in what Rubin and Mack have outlined as Fanatics’ process balancing the fan, its partners, and good business. The challenge is to not overcomplicate it.
“We can’t afford to be slow, but we do need to be deliberate and thoughtful,” says Kain. “If an opportunity hits all three criteria, we need to be ready to move. That’s a healthy tension. Our job is to be aware of the opportunities and start building up for them over time, and then when the opportunity coalesces, our pace needs to accelerate. That’s the balance in being thoughtful and strategic in our thinking, and then really nimble and fast in how we execute.”
Skating to where the puck is headed
What stands out amid all the acquisition and expansion action is that Fanatics doesn’t need this. This isn’t a company acting out of desperation for growth, or a frantic compulsion to keep up with trends. Rubin and his leadership team simply recognize the potential to leverage the infrastructure they’ve built over the last decade in order to get closer to fans’ relationships with sports in more meaningful (and profitable) ways. The key to this is how Fanatics has built up its capabilities, without the immediate need for it all to coalesce into synergies across the company. This flywheel of sports fandom is being built methodically, piece by piece.
Mack says that the company’s organizational architecture divides these new expansion categories into relatively separate businesses. “Look at the gaming business: We brought in Matt King, and he’s getting the resources he needs and has the cap table he needs to bring in the right investors and make the moves he needs to make to be successful,” he says. “With the trading card company, we have the rights, but we knew it would be really hard to build that infrastructure. We thought making an acquisition to have that infrastructure come in on day one was right.”
Each part needs to be able to function within itself, with a clear plan to be a strong, high-quality, and durable business. “When you build these relatively autonomous areas with great talent, and then you have really smart plans around when do you build, when do you partner, when do you buy, it starts to break down and becomes very digestible,” says Mack.
The past year, and how these developments integrate with the rest of Fanatics’ business, may be the company’s sternest test of those ideals. Rubin, meanwhile, has no plans to slow down. His goal for 2022 is to make the company’s moves last year look like nothing.
“I want to look back and be embarrassed by 2021,” he says. “I want last year to be ashamed of itself. And I think we can do it.”
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