Fanatics aims to be a $100 billion company

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Michael Rubin arrives at the Fanatics Super Bowl 2019 party on Saturday, February 2, 2019, in Atlanta.

Paul R. Giunta | Vision | PA

Sports e-commerce company Fanatics is growing rapidly, but it’s still far from its goal. Recently, the company said it had reached a valuation of $27 billion and wanted to grow into a $100 billion empire within the next 10 years.

Its recent funding round, which included $320 million from the NFL, has its investors optimistic.

The NFL, MLB, NBA, NHL, MLS and various player unions hold a combined stake in Fanatics worth $5 billion, according to people familiar with the company’s business. The 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 home, office and automotive. This could be boosted 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 emboldened and says he’s on a mission to conquer the sports e-commerce industry and beyond.

“I’m 100% committed to making Fanatics the most amazing digital sports platform in the world,” Rubin said during a talk in March.

Fanatics also have skeptics.

“I still don’t buy that it’s worth this level,” said an executive when asked about Fanatics’ $27 billion valuation.

The executive, who spoke to CNBC on condition of anonymity, said the fanatics’ private status was cause for skepticism. Private companies can hide revenue issues because they are not required by the SEC to report profits.

“They can get away with a lot more because they have to anticipate each line of business’s contribution to revenue and EBITDA and how that’s going to change going forward,” the executive said. “And the leagues are also partners, so it’s in their interest to increase the value.”

Fanatics declined to comment for this story.

The latest investment round came after Fanatics experienced two years of seemingly rapid growth. The company had a 2020 valuation of $6.2 billion, hit $12.8 billion in March 2021, and hit $18 billion in August. People familiar with the inner workings of the company suggest the goal is $10 billion in earnings before interest, taxes, depreciation and amortization, or EBITDA, over 10 years.

Fanatics forecasts around $6 billion in revenue 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 exec’s comments came days after it was revealed that Fanatics’ latest $1.5 billion funding round was largely funded by the NFL, MLB, NHL and the Qatar Investment Authority – the sovereign wealth fund that owns UEFA football club PSG.

“We’re thinking about how to build a business loved by billions of sports fans around the world,” Rubin said at the MIT Sloan Sports Analytics conference in Boston on March 4. “Valuation simply follows trading results.”

Much of Fanatics’ growth has been driven by acquisitions, especially during a pandemic shopping spree. The company expanded its e-commerce business in 2020, when it purchased WinCraft, a company that makes sports-themed merchandise. It acquired trading card company Topps for $500 million to kick off 2022, while forging partnerships with major sports leagues and their player unions to finish out 2021.

The purchase of WinCraft earned the 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 valued at $1.5 billion so far. .

Fanatics already had exclusive licensing deals with the NFL and Nike to manufacture jerseys and an exclusive e-commerce deal with Walmart. Add in 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 Fanatics will attract $1 billion. of EBITDA in 2022.

Sports leagues are drawn to Fanatics’ future around its products, and investors love that it deals directly with consumers.

Revenue also continues to grow as a result, according to the company. Rubin said Fanatics forecast $4.5 billion in revenue for its e-commerce business in 2022. That would be a jump from $2.3 billion before the pandemic.

Fanatics is also looking for technology capabilities to drive its growth. It aims to leverage its artificial intelligence, cloud computing, and machine learning technology to drive it forward. The company boasts of its 80 million users. Rubin said Fanatics has up to 16 data attributes per consumer. Data attributes, which contain characteristics about consumers, help companies personalize offers to consumers.

Green Bay Packers Fan Cave

Source: Fanatics

IPO in the cards?

Several major investors are confident in Fanatics’ future as it nears a possible initial public offering, which would offer big returns.

Companies such as Fidelity, Thrive Capital, Franklin Templeton and Neuberger Berman are among the investors. They 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 investors.

Additionally, Silver Lake, Insight Partners and entertainment company Endeavor are investors in Fanatics’ collectible card business, which is expected to be worth $10 billion.

Investors will likely have to wait a bit longer for an IPO. The company does not plan to go public this year, according to people familiar with the company’s business.

Andre Harrer | Bloomberg | Getty Images

Fanatics targets sports betting

Fanatics’ quest for a $100 billion valuation could face several hurdles.

Inflation soars, raising fears of a recession. Geopolitical disputes could hurt international growth as war rages in Ukraine and US-China relations turn chilly. (Fanatics launched operations in China in February 2021.) Antitrust concerns have also emerged over Fanatics’ deal with the NFL, which competitors say is a form of collusion that harms competing 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 changes dramatically,” the CEO said. “I think sport is the greatest entertainment in the world, but we have to keep making it relevant, and we have to keep it fresh and innovative.”

Expect more acquisitions and online betting integration at some point. Rubin has a long-standing interest in online betting. Fanatics hired former FanDuel General Manager Matt King in 2021 and has applied for a New York gaming license as it seeks to take on DraftKings, FanDuel, Caesars and MGM in space.

It’s unclear what gaming company Fanatics will be targeting, but people familiar with the company have played down speculation about a potential WynnBET acquisition. This betting company is said to be in the market for $500 million.

Rubin predicted that Fanatics would lead the category in 10 years. The advantage: Fanatics’ 80 million users and an acquisition cost of $19 per customer, which is lower than the average for betting companies. The cost is the money spent to acquire new customers through methods such as marketing and promotion.

Fanatics can use this low cost in the e-commerce space to attract new customers and then leverage sports betting while consumers are part of the Fanatic ecosystem.

“The average cost to acquire a customer in online sports betting today is $500 on good days,” Rubin told the conference. “I would much rather look at the different places where I could acquire customers and sell them in online sportsbook than spend over $500 and have a multi-year return in a highly promotional environment.”

Fanatics is a two-time CNBC Disruptor 50 company. Sign up for our quirky weekly newsletter that goes beyond the annual Disruptor 50 list, providing deeper insight into private companies like Fanatics that continue to innovate across all sectors of the economy.

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