Fanatics aims to be a $ 100 billion company

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

Paul R. Giunta | Invision | AP

The sports e-commerce company Fanatics is growing fast, but it is still nowhere near where it aims to be. Recently, the company said, it reached a value of $ 27 billion, and it wants to grow into an empire of $ 100 billion over the next 10 years.

Its latest round of funding, which included $ 320 million from the NFL, is making investors optimistic.

The NFL, MLB, NBA, NHL, MLS and various player associations have a combined stake in the Fanatics worth $ 5 billion, according to people with knowledge of the company’s business. People talked to CNBC about the company on condition of anonymity, as Fanatics does not publicly discuss its finances.

Fanatics is an important hub for sporting goods such as. sweaters and other clothing, as well as home, office and car consumer products with a sports theme. It could get a boost as governments lift Covid restrictions and allow more fans to participate in games. The company is also expanding into online sports betting.

CEO Michael Rubin is brave and says he is on a mission to conquer the sports e-commerce sector and beyond.

“I’m 100% locked into making Fanatics the most incredible digital sports platform in the world,” Rubin said at a conference in March.

Fanatics also have some skeptics.

“I still do not buy that it’s worth that level,” one manager said when asked about Fanatics’ $ 27 billion valuation.

The director, who spoke to CNBC on condition of anonymity, said Fanatics’ private status is a cause for skepticism. Private companies can hide revenue battles as they are not required by the SEC to report earnings.

“They can get away with a hell of a lot more because they have to anticipate the contribution of each business line to revenue and EBITDA and how that will change in the future,” the director said. “And the leagues are partners too, so it’s in their best interest to raise the value.”

Fanatics declined to comment on this story.

The latest round of investment came after Fanatics had two years of seemingly rapid growth. 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 company’s internal functions suggest that the goal is $ 10 billion in earnings before interest, tax, depreciation and amortization or EBITDA over 10 years.

Fanatics expect about $ 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.

To build a juggernaut

The comments from Rubin and the director came days after it was revealed that Fanatics’ latest $ 1.5 billion round of funding was largely driven by the NFL, MLB, NHL and Qatar Investment Authority – the sovereign wealth fund that owns UEFA. the football club PSG.

“We’re thinking about how we can build a business that is loved by billions of sports fans globally,” Rubin said at the MIT Sloan Sports Analytics Conference in Boston on March 4th. “The rating only follows the business results.”

Much of Fanatic’s growth has been generated through acquisitions, especially during a pandemic shopping trip. The company expanded its e-commerce business in 2020 when it acquired WinCraft, a company that makes sports-themed merchandise. It bought the Topps trading card company for $ 500 million to kick off 2022, while at the same time establishing partnerships with major sports leagues and their players’ federations to end 2021.

The WinCraft acquisition gave Fanatic’s 700 licensing rights to NCAA schools. The company also leveraged MLB’s e-commerce rights to customize future blockchain revenues when it launched the NFT company Candy Digital in 2021. So far, Candy Digital is valued at $ 1.5 billion.

Fanatics already had exclusive licensing agreements with the NFL and Nike to make jerseys and an exclusive e-commerce agreement with Walmart. Add the 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 would lure $ 1 billion into EBITDA by 2022.

Sports leagues are attracted to Fanatic’s future around their products, and investors like it trading directly with consumers.

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

Fanatics is also looking for technological opportunities to spur further growth. It aims to harness its artificial intelligence, cloud computing and machine learning technology to promote it. The company announces its 80 million users. Rubin has said that 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 catch rat

Source: Fanatics

IPO in the cards?

Several large investors have been sold on Fanatic’s future as it gets closer to a potentially listed offering that would yield large returns.

Companies including 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. Entertainer Shawn “Jay-Z” Carter joined in August. Hip-hop star Lil Baby, Dell founder Michael Dell and Joseph Tsai, Alibaba co-founder and Brooklyn Nets owner are also investors.

In addition, Silver Lake, Insight Partners and entertainment company Endeavor are investors in Fanatics’ expected $ 10 billion trading card business.

Investors will probably have to wait a little longer for a listing. The company does not plan to be listed this year, according to people familiar with the company’s business.

Andrew Harrer | Bloomberg | Getty Images

Fanatics target sports betting

Fanatics’ search for a $ 100 billion valuation could encounter several obstacles.

Inflation is rising, giving rise to fears of recession. Geopolitical strife could hit international growth as the war rages in Ukraine and relations between the United States and China become cooler. (Fanatics launched operations in China in February 2021.) Antitrust concerns have also surfaced over Fanatics’ deal with the NFL, which competitors claim is a form of collusion that harms competing online retailers. It 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 radically,” the CEO said. “I think sports are 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 an integration of online betting at some point. Rubin has long shown interest in online betting. Fanatics hired former FanDuel boss Matt King in 2021 and applied for a gambling license in New York as it appears to be accepting DraftKings, FanDuel, Caesars and MGM in space.

It is not clear which gaming company Fanatics will target, but people familiar with the business downplayed speculation about a potential acquisition of WynnBET. That betting company is reportedly on the market for $ 500 million.

Rubin expected that Fanatics would lead the category in 10 years. The benefit: Fanatics’ 80 million users and $ 19 per user. customer acquisition costs, which is lower than the average for betting companies. The cost is money spent on acquiring new customers through methods like marketing and promotion.

Fanatics can use the low price of the e-commerce area to pick up new customers and then take advantage of sports betting while consumers are in Fanatic’s ecosystem.

“The average price to acquire a customer in online sports betting today is $ 500 on a good day,” Rubin said at the conference. “I would much rather look at the different places where I could acquire customers and cross-sell them for online sports betting, than go out and spend $ 500 plus and get a refund for several years in a highly promotional environment.”

Fanatics is a two-time CNBC Disruptor 50 company. Sign up for our weekly, original newsletter that goes beyond 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.

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