Michael Rubin arrives at the 2019 Fanatics Super Bowl Party in Atlanta on Saturday, February 2, 2019.
Paul R Giunta | Presentation | AP
Sports e-commerce company Fanatics is growing fast, but it’s far from where it wants to be. The company recently said it has reached a valuation of $27 billion and aims to grow into a $100 billion empire over the next 10 years.
The latest round of funding, which included $320 million from the NFL, has investors optimistic.
The NFL, MLB, NBA, NHL, MLS and various players’ unions have a combined stake in Fanatics worth $5 billion, according to people familiar with the company’s business. People spoke to CNBC about the company on condition of anonymity because Fanatics does not publicly discuss its finances.
Fanatics is a major hub for sporting goods such as jerseys and other apparel, as well as sports-themed home, office and automotive consumer products. It could get a boost as governments lift Covid restrictions and allow more fans to attend games. The company is also expanding into online sports betting.
CEO Michael Rubin is encouraged and says he is on a mission to conquer the sports e-commerce sector and beyond.
“I’m 100% committed to making Fanatics the most incredible digital esports platform on the planet,” Rubin said at a conference in March.
Fanatics also has some skeptics.
“I still don’t think it’s worth that level,” said one executive when asked about Fanatics’ $27 billion valuation.
The executive, who spoke to CNBC on condition of anonymity, said Fanatics’ private status was a cause for skepticism. Private companies can hide revenue difficulties because they are not required by the SEC to report earnings.
“They can get away with a heck of a lot more because they have to anticipate each business unit’s contribution to revenue and EBITDA and how that’s going to change going forward,” the executive said. “And the leagues are partners too, so it’s in their best interest to add value.”
Fanatics declined to comment on this story.
The latest investment round came after two years of seemingly rapid growth for Fanatics. The company had a valuation of $6.2 billion in 2020, reached $12.8 billion in March 2021 and reached $18 billion in August. People familiar with the inner workings of the company suggest that the goal is $10 billion in earnings before interest, taxes, depreciation or amortization, or EBITDA over 10 years.
According to people familiar with the company’s business, Fanatics projects revenue of around $6 billion in 2022 and $7 billion in 2023, and is targeting $10 billion annually.
build juggernaut
Rubin’s and the executive’s comments came days after it was revealed that Fanatics’ latest $1.5 billion funding round was funded in large part by the NFL, MLB, NHL and the Qatar Investment Authority — the sovereign wealth fund, which owns UEFA football club PSG.
“We’re thinking about how we can build a company that will be loved by billions of sports fans worldwide,” Rubin said March 4 at the MIT Sloan Sports Analytics Conference in Boston. “Valuation simply follows business results.”
Much of Fanatics’ growth has been generated through acquisitions, particularly during a pandemic shopping spree. The company expanded its e-commerce business in 2020 when it bought WinCraft, a company that manufactures sporting goods. It acquired trading card company Topps for $500 million to kickstart 2022 and forged partnerships with major sports leagues and their players’ unions through the end of 2021.
The WinCraft purchase brought Fanatics 700 licensing rights to NCAA schools. The company also used MLB’s e-commerce rights to align future blockchain revenue when it founded NFT company Candy Digital in 2021. To date, Candy Digital is valued at $1.5 billion.
Fanatics already had exclusive licensing deals with the NFL and Nike to manufacture jerseys, and an exclusive e-commerce deal with Walmart. Add in new revenue streams from Topps, a team e-commerce deal with the Dallas Cowboys and global rights to the Olympics, and people familiar with the company’s business suggested that Fanatics could post an EBITDA in 2022 would bring in $1 billion.
Sports leagues are drawn to Fanatics’ future around its products, and investors like that it deals directly with consumers.
As a result, sales continue to grow as well, according to the company. Rubin said Fanatics is forecasting revenue of $4.5 billion for its e-commerce business in 2022. That would be a jump from $2.3 billion before the pandemic.
Fanatics is also looking at technological opportunities to fuel further growth. It aims to leverage its artificial intelligence, cloud computing, and machine learning technologies to power it. The company advertises with its 80 million users. According to Rubin, Fanatics has up to 16 data attributes per consumer. Data attributes, which contain characteristics about consumers, help companies to personalize offers for consumers.
Green Bay Packers fan cave
Source: fanatic
IPO in sight?
Several major investors are confident in Fanatics’ future as it moves closer to a potential IPO that would yield big returns.
Among the investors are companies such as Fidelity, Thrive Capital, Franklin Templeton and Neuberger Berman. They joined investment firm SoftBank and Chinese e-commerce giant Alibaba Group.
NFL legend Peyton Manning is an investor. Entertainer Shawn “Jay-Z” Carter joined in August. Hip-hop star Lil Baby, Dell founder Michael Dell and Joseph Tsai, co-founder of Alibaba and owner of Brooklyn Nets are also investors.
Additionally, Silver Lake, Insight Partners and entertainment company Endeavor are investors in Fanatics’ proposed $10 billion trading card business.
Investors will probably have to wait a little longer for an IPO. According to people familiar with the company’s business, the company has no plans to go public this year.
Andreas Harrer | Bloomberg | Getty Images
Fanatics targets sports betting
The fanatics’ pursuit of a $100 billion valuation could face several obstacles.
Inflation is rising, raising fears of a recession. Geopolitical conflicts could hamper international growth as war rages in Ukraine and US-China relations cool. (Fanatics began operations in China in February 2021.) Antitrust concerns have also surfaced around Fanatics’ agreement with the NFL, which competitors say is a form of collusion hurting competing online retailers. That could entail a future challenge with the government.
But publicly and behind the scenes, Rubin remains optimistic about what lies ahead.
“Every industry is changing radically,” said the CEO. “I think sport is the best entertainment in the world but we have to make it relevant and we have to keep it fresh and innovative.”
Expect more acquisitions and online betting integration at some point. Rubin has long shown an interest in online betting. Fanatics hired former FanDuel CEO Matt King in 2021 and applied for a gaming license in New York to take on DraftKings, FanDuel, Caesars and MGM in space.
It’s not clear which gaming company Fanatics will target, but people familiar with the business have downplayed speculation about a possible acquisition of WynnBET. This betting company is reportedly on the market for $500 million.
Rubin predicted that Fanatics would lead the category in 10 years. The upside: Fanatics’ 80 million users and acquisition costs of $19 per customer, which are below average for bookmakers. Cost is money spent to acquire new customers through methods like marketing and advertising.
Fanatics can use this low cost in e-commerce to acquire new customers and then take advantage of sports betting while consumers are in the Fanatics ecosystem.
“The average cost to attract a customer to online sports betting today is $500 on a good day,” Rubin said at the conference. “I’d much rather look at the different places I could acquire customers and sell them for online sports betting than go out and spend $500+ and get a multi-year payback in a high-end promotional environment.”
Fanatics is a two-time CNBC Disruptor 50 company. Sign up for our original weekly newsletter, which expands on the annual Disruptor 50 list and offers a closer look at private companies like Fanatics that continue to innovate across all sectors of the economy.