Michael Rubin arrived at the Fanatics Super Bowl 2019 party in Atlanta on Saturday, February 2, 2019.
Paul R. Giunta | Vision | PA
Sports e-commerce company Fanatics is growing fast, but it’s still far from its goal. Recently, the company said it has reached a valuation of $27 billion and intends to become a $100 billion empire within the next 10 years.
The latest funding round from the NFL, which includes $320 million, is keeping investors optimistic.
According to people familiar with the company’s business, the NFL, MLB, NBA, NHL, MLS and various player associations hold a joint stake worth $5 billion in Fanatics. 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 consumer products for the home, office and automotive. This could escalate as governments lift Covid restrictions and allow more fans to attend matches. The company is also expanding into online sports betting.
CEO Michael Rubin was emboldened and said he is on a mission to conquer the sports e-commerce industry and beyond.
“I am 100% committed to making Fanatics the greatest digital sports platform in the world,” Rubin said in a speech in March.
Fanatics have their skeptics too.
When asked about the $27 billion valuation of Fanatics, one executive said, “I still don’t think it’s worth that level.”
Speaking to CNBC on condition of anonymity, the executive said the special status of the fans was cause for skepticism. Private companies can hide revenue issues as they are not required by the SEC to report profits.
“They can achieve much more because they need to estimate the contribution of each line of business to revenue and EBITDA and how this will change in the future,” the manager said. “Leagues are also common, so it is in their interest to increase the value.”
Fans declined to comment for this story.
The latest round of investment comes after Fanatics experienced two years of seemingly rapid growth. The company’s 2020 valuation was $6.2 billion, $12.8 billion in March 2021 and $18 billion in August. People familiar with the internal workings of the company suggest that the target is $10 billion in earnings before interest, taxes, depreciation and amortization, or EBITDA, over 10 years.
Fanatics projects revenue of about $6 billion in 2022 and $7 billion in 2023, while targeting $10 billion each year, according to people familiar with the company’s business.
Build a Juggernaut
Rubin and the executive’s comments come days after it was revealed that Fanatics’ last $1.5 billion funding round was largely funded by the Qatar Investment Authority, the sovereign wealth fund that owns the NFL, MLB, NHL and UEFA football club PSG.
“We’re thinking about how to build a business that is loved by billions of sports fans around the world,” Rubin said at the MIT Sloan Sports Analytics conference in Boston on March 4. “Valuation only tracks business results. »
Much of Fanatics’ growth was driven by acquisitions, especially during the pandemic shopping spree. In 2020, the company expanded its e-commerce business by acquiring WinCraft, which produces sports-themed products. It acquired trading card company Topps for $500 million to kick off 2022, while partnering with major sports leagues and player associations to finish 2021.
WinCraft’s acquisition gains Fanatics 700 NCAA school licensing rights. The company also leveraged MLB e-commerce rights to align future blockchain revenue when it launched NFT company Candy Digital in 2021. Candy Digital is currently valued at $1.5 billion.
Fans already had exclusive licensing deals with the NFL and Nike, and an exclusive e-commerce deal with Walmart to produce jerseys. Add to Topps’ new revenue streams a team-based e-commerce deal with the Dallas Cowboys and worldwide rights to the Olympics, and people familiar with the company’s business have suggested that Fanatics will pull in $1 billion in EBITDA in 2022.
Sports leagues are interested in the future of Fanatics with their products, and investors love that it engages directly with consumers.
According to the company, revenue also continues to grow as a result. Rubin said Fanatics forecasts $4.5 billion in revenue for its e-commerce business in 2022. This will be a jump from the pre-pandemic $2.3 billion.
Fanatics is also seeking tech talent to continue its growth. It aims to use its artificial intelligence, cloud computing and machine learning technology to push it forward. The company has 80 million users. Rubin said Fanatics has up to 16 data attributes per consumer. Data attributes that include consumer-related attributes help companies personalize their offerings to consumers.
Green Bay Packers Fan Cave
Public offering on cards?
Many major investors are confident in the future of Fanatics as it approaches a possible IPO that will yield huge returns.
Investors include companies such as Fidelity, Thrive Capital, Franklin Templeton and Neuberger Berman. They have joined investment firm SoftBank and Chinese e-commerce giant Alibaba Group.
NFL legend Peyton Manning is an investor. Artist Shawn “Jay-Z” Carter joined in August. Hip-hop star Lil Baby, Dell founder Michael Dell, and Alibaba co-founder and Brooklyn Nets owner Joseph Tsai are also among the investors.
Additionally, Silver Lake, Insight Partners, and entertainment company Endeavor are investors in Fanatics Enterprise’s $10 billion collectible card venture.
Investors will likely have to wait a little longer for an IPO. According to people familiar with the company’s business, the company does not plan to go public this year.
André Harrer | Bloomberg | Getty Pictures
Fans target sports betting
Fans’ quest for a $100 billion valuation may run into a few hurdles.
Inflation is rising, raising fears of recession. As the war in Ukraine escalates and US-Chinese relations cool, geopolitical disagreements can hurt international growth. (Fanatics launched in China in February 2021.) Antitrust concerns have also emerged over Fanatics’ deal with the NFL, which its competitors say is a type of collusion that harms rival online retailers. This could attract a future challenge with the government.
But publicly and behind the scenes, Rubin remains optimistic about what lies ahead.
“Every industry is changing dramatically,” the CEO said. “I think sport is the greatest pastime in the world, but we have to continue to make it relevant and keep it fresh and innovative. »
Expect more purchases and online betting integration at some point. Rubin has a longstanding interest in online betting. Fanatics hired former FanDuel General Manager Matt King in 2021 and applied for a gaming license in New York as he wanted to tackle DraftKings, FanDuel, Caesars and MGM in space.
It’s unclear which gaming company Fanatics will target, but folks familiar with the company downplayed speculation about a potential WynnBET acquisition. This bookmaker is reportedly on the market for $500 million.
Rubin predicted that the Fanatics would lead the category within 10 years. The advantage: Fanatics’ 80 million users and an acquisition cost of $19 per customer, which is below average for bookies. Cost is money spent on acquiring new customers through methods such as marketing and promotion.
Fans can use this low cost to attract new customers in the e-commerce space and then take advantage of sports betting while consumers are part of the Fanatic ecosystem.
“The average cost of acquiring a customer in online sports betting today is $500 on a good day,” Rubin said at the conference. “Rather than spending over $500 and getting a multi-year return in a highly promotional environment, I would rather look at different places where I can acquire customers and sell them at online sports betting. »
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