Fanatics sells its 60% stake in NFT company Candy Digital
Michael Rubin’s sports platform company Fanatics is divesting its 60% stake in NFT company Candy Digital, according to an internal email obtained by CNBC.
Fanatics, which previously owned the majority of Candy Digital, will sell its stake to an investor group led by Galaxy Digital, the crypto trading bank headed by Mike Novogratz, who was the other original founding shareholder, according to the email.
Fanatics declined to comment.
Candy Digital was founded in June 2021 in the midst of the sports NFT boom, competing with companies like Dapper Labs in the sports digital collection space. One of its first efforts came out of a multi-year licensing deal with MLB to produce non-fungible tokens, which included an exclusive Lou Gehrig NFT. It also released digital collectibles with Netflix‘s Stranger Things, WWEand several Nascar teams.
However, like the broader NFT market, sports NFTs also saw a slowdown amid the “crypto winter” that has seen the value of almost all digital assets plummet. Dapper Labs, the company behind the NBA Top Shot and NFL All Day digital trading platforms that ranked No. 9 on last year’s CNBC Disruptor 50 list, laid off 22% of the company in November.
Candy Digital had raised a $100 million Series A round in October 2021, valuing it at $1.5 billion at the time. Investors in that round included SoftBank’s Vision Fund 2, Insight Partners and Pro Football Hall of Famer Peyton Manning, according to previous CNBC reporting.
It is unclear what Fanatics received for its stake in the company, but Rubin wrote “Selling our stake at this time allowed us to ensure that investors were able to recoup the majority of their investment via cash or additional shares of Fanatics – a favorable result for investors, especially in an imploding NFT market that has seen sharp falls in both transaction volumes and prices for standalone NFTs.”
Rubin cited several factors for Fanatics’ divestment in the email, which he wrote was a “pretty straightforward and easy decision for us to make for a number of reasons.”
“Over the past year, it has become clear that NFTs are unlikely to be sustainable or profitable as a standalone business,” Rubin wrote. “Apart from physical collectibles (trading cards) that drive 99% of the business, we believe digital products will have more value and utility when connected to physical collectibles to create the best experience for collectors.”
In January 2022, Fanatics purchased Topps trading cards for approximately $500 million after also acquiring the rights to produce MLB trading cards, severing a nearly 70-year partnership between Topps and major league baseball.
Fanatics raised $700 million in new capital in December, aiming to use the new cash to focus on potential merger and acquisition opportunities across its collectibles, betting and gaming businesses. It also pushed the company’s valuation to $31 billion.
The company, which started as an e-commerce platform that sold team merchandise to sports fans, has sought to expand across the entire sports ecosystem. The company is also weighing an initial public offering, and Rubin recently met with more than 90 Internet, retail and gaming analysts from various Wall Street firms where he talked about Fanatics’ growth plans, according to previous CNBC reporting.
Fanatics, a three-time CNBC Disruptor 50 company, was ranked No. 21 on last year’s list.
Here is the full email Rubin sent to Fanatics staff on Wednesday:
Team fanatics –
Happy New Year. I hope everyone had a chance to recharge and spend quality time with family and friends over the holidays, and that 2023 is off to a great start.
As we are about to return, I wanted to share some news with you all. Effective immediately, Fanatics has sold our approximately 60% stake in Candy Digital. We have sold our share in the NFT company to an investor group led by Galaxy Digital, the other original shareholder. Looking at all the factors on the table, this was a pretty straightforward and easy decision for us to make for several reasons.
Business Model – NFTs are most likely to emerge as an integrated product/function and not as a stand-alone business: Over the past year, it has become clear that NFTs are unlikely to be sustainable or profitable as a stand-alone business. Apart from physical collectibles (trading cards) that drive 99% of the business, we believe digital products will have more value and utility when connected to physical collectibles to create the best experience for collectors. To that end, we already have a broader and more significant set of NFT and digital collectibles rights within our Fanatics Collectibles business that came with our trading card rights (NFL, MLB, NBA and more), which we seamlessly integrate with world-class physical collectibles we currently have. Ultimately, our goal is to increase the number of sports collectors. Connecting physical and digital collectibles will be the most powerful way to create an emotional resonance and lasting success for NFTs and their collectors.
Investor Relations: Taking this immediate action not only makes sense for the strategic direction of Fanatics, but also allows us to maintain the integrity of our investor relationships. The investors in Candy bought into the vision not because of NFTs or Candy per se, but because of our track record at Fanatics. This proven track record is the result of your hard work and our commitment to the mission of building the leading global digital sports platform. Therefore, it was important to us to protect their investments as the market and financial environment changed. By selling our stake at this time, we were able to ensure that investors were able to recoup most of their investment via cash or additional shares of Fanatics – a favorable outcome for investors, especially in an imploding NFT market that has seen strong fall in both transaction volumes and prices for standalone NFTs.
Cultural integration: Similar to how quickly we mobilize when the right strategic acquisition or partnership presents itself, we move even faster when we realize things aren’t working. One of our core values – One Fanatics…win as a team – is integral to our success and only works when we can leverage the collective intelligence and expertise of all our teams and colleagues. Unfortunately, we never achieved full integration of Candy into the Fanatics environment or culture due to shareholders with competing goals and objectives. Our culture of building, growing and winning as a team is what makes this company special, and we were not willing to compromise on this front.
We are 100% confident that this was the best long-term decision for Fanatics and our partners, and we look forward to growing our digital and trading card business together under Fanatics Collectibles with the incredible rights we have across the NFL, MLB, NBA, NCAA, WWE, UFC, F1, UEFA, Disney and more.
Happy New Year to everybody,
Michael Rubin
CEO, Fanatics
