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Good Thursday Morning. Here’s the rundown of this week’s Sports Business Playbook:

• 📰 This Week’s Topic: Fanatics’ entry into new frontiers (collectibles, live commerce, sports betting, and events) space signals the latest areas of the sports industry they are seeking to conquer. The moves follow a similar pattern to another ecommerce giant that has expanded and engulfed additional industries: Amazon.

• 🍸️ Impress Your Friends at Cocktail Party: Want to show off your sports knowledge in a public setting but don’t have time to read the deep dive? Hit the “Impress Your Friends at Cocktail Party” section at the bottom for a CliffsNotes of this week’s topic

• 🤯 “Whoa of the Week”: What we really think about college conference alignment

• 💪 Weekly Reminders that Sports are Awesome: A no. 2 pencil bat and a reminder that football players come in all shapes and sizes

Hey team,

Most of you are familiar with the Fanatics brand and/or have recently interacted with one of their sites when looking to buy sports merchandise.

The sports ecommerce giant has active relationships with 900+ brands around the world, including all North American professional leagues and entertainment properties, several global entities (i.e., F1, LaLiga), and almost all major college teams/conferences in the States.

These partnerships include everything from selling officially licensed apparel on the Fanatics site, to managing the organization’s ecommerce (and sometimes retail) operations, to actually making the jerseys and league apparel that the players wear.

While it may have a spotty relationship with some fans due to overzealous marketing campaigns and questions over clothing quality, Fanatics is the 800-pound gorilla in the sports ecommerce industry and has become a media darling due to its strong business growth (most recently valued at $31 billion in 2022) and the magnetic presence of its CEO, Michael Rubin.

And it appears that they are not slowing down.

Rubin has said he wants Fanatics to “be a $100 billion company.” To achieve this, they are using their scale and deep pockets to rapidly expand into other verticals:

• Collectibles

• Live commerce

• Events

• Sports betting

The current path Fanatics is on reminds me of another tech giant that conquered ecommerce and began to disrupt other entrenched sectors: Amazon.

This week, we’re talking more about Fanatics’ business lines and the motivation for their continued expansion as they seek to become the one true “global digital sports platform.”

Fan-tastic Start

Fanatics came from humble beginnings.

In 1995, two brothers, Alan and Mitch Trager, started “Football Fanatics,” a brick and mortar sports apparel/merchandise shop in a shopping mall in Jacksonville, Florida.

As ecommerce slowly started to gain traction in the early 2000’s, Fanatics began to develop an online presence to complement their retail operations. This approach gained traction, and it caught the attention of another prominent ecommerce player: one Michael G. Rubin.

Rubin had started an apparel and logistics company called GSI Commerce in the late 90s, and it continued to grow rapidly as ecommerce went mainstream. He wanted to expand his presence, so in 2011, he acquired Fanatics from the Trager’s and merged the brand into GSI.

A few months later, Rubin sold GSI to eBay for $2.4 billion, but he then proceeded to buy back the Fanatics brand and operations as a part of the transaction so he could keep growing it.

It was the first of many good decisions by Rubin.

In the 12 years since, Fanatics’ ecommerce business has taken off, and the valuation has exploded:

• 2012: $1.5 billion

• 2013: $3.1 billion

• 2020: $6.2 billion

• Early 2021: $12.8 billion

• Late 2021: $18 billion

• 2022: $31 billion

Interestingly, as Fanatics has raised capital and grown its valuation, it has taken money not only from institutional investors — i.e., Andreessen Horowitz, Silver Lake, and SoftBank — but also from strategic investors within the sports industry — the NFL, NBA, MLB, and Endeavor (owner of UFC, WWE, and IMG, to name a few).

The capital from the strategics is obviously beneficial, but it has an additional, sometimes more important benefit: it incentivizes these major entities to work with Fanatics to grow its presence in the space given the strategics have a vested interest in Fanatics’ success.

This approach has been particularly helpful as Fanatics has developed additional lines of business in new sectors in order to maintain its growth trajectory.

In the last two years alone, Fanatics has stood up four new entities underneath the Fanatics parent company. We’ll talk more about each now.

Fanatics Collectibles

Michael Rubin is known for being a cool guy. You’ll regularly catch him courtside at Philadelphia 76ers games, hanging out with sports and culture royalty, and throwing his infamous white party every year in the Hamptons. He also does a ton of social justice work and is passionate about a number of philanthropic causes.

But, let’s not forget that Michael Rubin is a total shark when it comes to business, and he isn’t afraid to have some sharp elbows when it comes to getting his way.

Nowhere was this mentality more on display than in the case of Fanatics Collectibles.

Many of you are probably familiar with the company Topps. It is one of, if not the, biggest baseball card brands out there, and it held the rights to produce MLB cards for over 60 years.

In 2021, the firm was riding high on the sports trading card industry’s resurgence over the last decade — the industry is expected to grow to $62 billion by 2027. It was valued at over $1.3 billion as of April that year, and it had brought in former Disney executive Michael Eisner and a number of other major executives to take its growth to the next level via IPO with a SPAC.

But then, Fanatics happened.

In August 2021, Topps was blindsided by the news that both the MLB and the MLB Players Association were ending their agreement and signing with Fanatics, which did not even have a real card production company at the time.

Why did the league do it? Because, as noted earlier, the MLB and MLBPA have been investors in Fanatics since 2017.

Losing your core line of business doesn’t bode well for the public markets, so Topps pulled its plans for an IPO. But that’s not even the most brutal part.

After kneecapping Topps’ business, Fanatics then turned around a year later and bought the card company for about 38 cents on the dollar ($500 million), so it could use Topps’ operations and historical MLB IP.

Check out the longer NYT piece on the inner workings of the deal if you’re interested — it reads like a real life version of the baptism scene from The Godfather.

So, essentially out of thin air, Fanatics created a trading card company valued at $10.4 billion. And as you can expect, they have not stopped there.

The company now holds licenses with the three biggest professional leagues and in North America and their respective player associations — NFL, NFLPA, MLB, MLBPA, NBA, and NBAPA — and the sharp elbows are out again with another well-established card brand.

Earlier this week, the NFL Players Association pulled a similar move to the MLB and ended its agreement with Panini, which had held the rights for nearly a decade, three years early in favor of Fanatics.

This is the latest chapter in a quickly escalating, litigious feud between Panini and Fanatics, and it’s likely that Fanatics will emerge victorious and take out another competitor on its way to the top of the collectibles market.

Fanatics Live and Fanatics Events

To build on its burgeoning collectibles business, Fanatics has waded into two complementary areas.

First, Fanatics is getting into the live commerce game with its Fanatics Live platform. The company hired Snap and Google veteran Nick Bell to lead this division, and it is attempting to create its own version of the digital customer shopping experience where users can buy trading cards and other collectibles via live curated and personality-driven content.

It may sound odd at first glance, but this industry is massive. China, considered the originator and market leader in this area, has a live commerce market that was estimated to be $500 billion in 2022.

While the US has lagged behind, the market is expected to grow to nearly $32 billion in 2023 (up from $6 billion in 2020), and Fanatics’ bet is that this growth will accelerate.

In another move, Fanatics announced last month that it was partnering with IMG, a subsidiary of Endeavor (remember that point from earlier about strategic investors?), to launch Fanatics Events.

The plan is to organize and host global events focused on all aspects of fandom, including sports, collectibles/memorabilia, music, and culture. The comp that’s being used is to create a sports version of Comic Con.

Fanatics took this literally, hiring Lance Fensterman, who ran New York Comic Con, to be the CEO of Fanatics Events.

It is expected that the group will host its first events next year.

Fanatics Sportsbook

This one has been a long time coming.

Fanatics made a splash in the sports betting space a few years ago when it hired former FanDuel CEO Matt King to lead its betting operation, and it has been slowly building the platform since then. In January 2023, the beta app launched in four states.

Fanatics has always been considered as the biggest threat to the market leaders because of its pedigree and deep pockets, but one major question was been facing the giant: market access.

If you remember from Part 1 of the sports betting market industry report, each state has its own rules on the number of licenses it awards to operators, and many of the states that are live with sports betting have already allocated all of their licenses. This effectively shuts Fanatics out of those states.

But, there is a loophole: acquiring a company who holds one of those licenses.

Earlier this summer, Fanatics overcame a bidding war with DraftKings (the pettiness behind the competitive bid from DK is well worth the read) and completed its purchase of Australian betting operator PointsBet’s US business. This deal should give Fanatics operating rights to 14 states by the start of football season (sports betting shops’ Christmas), and the organization is also opening a series of brick and mortar sportsbooks in various states.

Fanatics’ bet here is that it can develop a superior tech product to the antiquated sports betting apps and convert its massive ecommerce database (estimated to be in the mid-to-high 8 figures) into sportsbook users without breaking the bank on customer acquisition costs.

Jeff Bezos in an Off-White Hoodie

When The Athletic awarded Fanatics CEO Michael Rubin its annual “Sports Business Person of the Year” at the end of 2022, an industry executive used the phrase “the Amazon of sports” to describe the ecommerce giant’s dominance in sports licensing and merchandise.

I’m not going to lie, I was under the impression that I was first to coin this phrase during my US sports betting industry breakdown a few weeks back, so I stand corrected.

[Stephen A. Smith voice] : HOWEVA!

My application of the “Amazon of sports” moniker is different (and better 🤷), and here’s why:

Led by its visionary founder, Amazon rapidly took over and revolutionized the ecommerce market in just under two decades. From there, it then set its sights on disrupting both related (advertising) and unrelated business units (cloud computing, streaming/entertainment, healthcare).

With Fanatics, we are seeing a similar trajectory unfold, and a visionary (albeit more stylish; hence the section title) founder is at the helm. The ecommerce revenue stream is the cash cow, and it’s funding the expansion into other industries — collectibles, live commerce, events, and sports betting — that the company deems ripe for disruption.

The organization developed a playbook and then executed it to perfection:

• Reach critical mass in the ecommerce market

• Bring on the leagues as equity partners so they have a vested interest in your success, which cocoons you around their business and opens up opportunities for quick expansion when launching new lines of business

• Hire A+ talent with deep industry expertise to deliver on the promises made for the new lines of business

So, why are they doing this?

Like Amazon, Fanatics is what I call a “business black hole.”

These firms are goliaths with a huge gravitational pull that consumes what’s around them. As they grow in size, they need more and more matter to sustain themselves. Therefore, to survive, they must continue to seek out new things to consume (yeah, I watched Interstellar recently).

Applying this analogy to Fanatics’ business, the firm reportedly did $8 billion in revenue last year. Using the last reported valuation of $31 billion, this means the firm is operating at roughly a 4x revenue multiple, which is incredibly undervalued when compared to other public tech companies. On top of that, the firm boasts a pristine compound annual growth rate (CAGR) from 2012-2022 of 35.37%.

This growth and strong fundamentals is a blessing and a curse because it sets expectations for shareholders about continuous growth, particularly as Fanatics prepares a much anticipated IPO in the next few years. This means taking massive swings when it comes to quickly entering into new markets and attempting to take market share.

What’s Next on the Feeding List

My parting prediction: Fanatics kicks the tires on two major areas of the sports industry that are in need of disruption — ticketing and media rights.

I don’t think they’ll wade into the media rights fray given the amount of uncertainty about the future of the space right now with cable vs. streaming, increasing media rights fees, and that there are even bigger, more well-capitalized predators out there (including the OG business black hole, Amazon).

But ticketing feels like something that’s right up Fanatics’ alley. It complements the existing lines of business (ecommerce, collectibles) really well, they have the relationships with their league partners that would allow them to wedge the rights free, and there is not a more hated company in the world right now post-Taylor Swift Eras Tour than the current market leader, Ticketmaster.

One path would be to hire industry leaders and then go acquire a Ticketmaster competitor (i.e., SeatGeek) to gain technology access and immediate market share. Would be somewhat similar to the Fanatics Sportbook play they ran.

It would be an uphill battle given the tech stack required and the existing, definitely not a monopoly relationship between Ticketmaster and Live Nation, but as we’ve seen from the past decade, you don’t get rich betting against Michael Rubin and Fanatics.

Impress Your Friends at a Cocktail Party

Want to show off your sports knowledge in a public setting but don’t have time to read the deep dive? This section is the CliffsNotes of this week’s topic

• Opener: Fanatics, the sports ecommerce giant, has rapidly grown over the last decade (35% compound annual growth rate) and is now worth more than $31 billion. Some of the money the company has raised comes from strategic investors in the industry, including the MLB, NBA, NFL, and their respective player associations.

• Shot: To continue this growth trajectory ahead of an expected IPO, it has launched four new business units — collectibles, live events, live commerce, and sports betting — in the last two years

• Chaser: Fanatics has developed an excellent playbook where it leverages the relationships with strategic investors to enter into new industries and quickly gain market share. They then hire industry experts to lead those business units.

• Chaser: Fanatics is running a similar path to Amazon where it dominated ecommerce and now is moving into other industries to sustain its growth rate and satisfy shareholders. I call it the “business black hole” problem because it is a self-perpetuating cycle of needing to always grow due to past growth.

• Chaser: Bold prediction: because of the need for growth, I expect Fanatics to take a hard look at the ticketing industry and attempt to unseat Ticketmaster at some point in the near future.

“Whoa” of the Week

Insane, mind-blowing things constantly happen in the sports business world. Here was my favorite of the past week.

1. Some may be upset by realignment right now, but most of us will still be tuning in to college football come September

Weekly Reminder that Sports are Awesome

This newsletter is, of course, mostly centered on the business side of sports and the things that happen off the field. That being said, it’s important to remember why we fell in love with sports in the first place, though.

This section is meant to highlight the amazing things that happened in sports this week that serve as that reminder.

1. Phillies’ Bryson Stott used a bat decorated like a no. 2 pencil during the MLB’s Little League Classic game in Williamsport

2. I’ve seen this picture over and over and it makes me laugh every time

Thanks for reading! Let me know what feedback you have.

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Until next time, sports fans!

-Alex