Michael Rubin’s sports platform company Fanatics is divesting itself of its 60% stake in NFT company Candy Digital, according to an internal email obtained by CNBC.
Fanatics, which previously held a majority stake in Candy Digital, will sell its stake to an investor group led by Galaxy Digital, the crypto trading bank led 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 middle of the sports NFT boom, competing with companies like Dapper Labs in the digital sports collectibles space. One of his first efforts stemmed from a multi-year licensing agreement with MLB to produce non-fungible tokens, which included an exclusive Lou Gehrig NFT. He also released digital collectibles with Netflix‘s Stranger Things, WWEand several Nascar teams.
However, like the broader NFT market, sports NFTs have also seen a decline 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, which ranked No. 9 on last year’s CNBC Disruptor 50 list, laid off 22 percent of its company in November.
In October 2021, Candy Digital raised a $100 million Series A round, 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 reports.
It’s unclear what Fanatics received for its stake in the company, but Rubin wrote: “The sale of our ownership stake at this time has allowed us to ensure that investors are able to recoup the majority of their investment through cash or additional shares in Fanatics – a favorable outcome for investors, especially in an exploding NFT market that has seen a sharp decline in both transaction volumes and prices for standalone NFTs.”
Rubin cited several factors for Fanatics’ decision in the email, which he wrote was a “pretty clear and easy decision for us for several reasons.”
“Over the past year, it has become clear that NFTs are unlikely to be sustainable or profitable as a stand-alone business,” Rubin wrote. “In addition to physical collectibles (trading cards) driving 99% of the business, we believe digital products will have greater value and utility when paired with physical collectibles to create the ultimate collector experience. “
In January 2022, Fanatics acquired Topps trading cards for approximately $500 million after also acquiring the rights to produce MLB trading cards, ending a nearly 70-year partnership between Topps and Major League Baseball.
Fanatics raised $700 million in fresh capital in December, looking to use that new money to focus on potential M&A opportunities in its collectibles, betting and gaming businesses. It also raised the company’s valuation to $31 billion.
The company, which started as an e-commerce platform selling team merchandise to sports fans, is looking to expand across the entire sports ecosystem. The company is also considering 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 reports.
Fanatics, a three-time CNBC Disruptor 50 company, was ranked No. 21 on last year’s list.
Here’s 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 your 2023 is off to a great start.
As we get back into the swing of things, I wanted to share some news with you all. Effective immediately, Fanatics divested itself of our approximately 60% interest in Candy Digital. We sold our stake in the NFT company to an investor group led by Galaxy Digital, the other original founding shareholder. When we looked at all the factors on the table, it was a pretty clear and easy decision for us for several reasons.
Business Model – NFTs will most likely emerge as an integrated product/feature rather than a standalone business: Over the past year, it has become clear that NFTs are unlikely to be sustainable or profitable as a stand-alone business. Aside from physical collectibles (trading cards) driving 99% of the business, we believe digital products will have greater value and utility when paired with physical collectibles to create the ultimate collector experience. To that end, we now own a broader and more significant set of NFT and digital collectibles rights within our Fanatics Collectibles business, which come with our trading card rights (NFL, MLB, NBA and others) that seamlessly integrate with the world-class physical rights to collect that we currently have. Ultimately, our goal is to increase the number of sports collectors. The connection between physical and digital collectibles will be the most powerful way to create emotional resonance and lasting success for NFTs and their collectors.
Investor Relations: Taking this immediate action not only makes sense for Fanatics’ strategic direction, but also allows us to maintain the integrity of our investor relationships. Investors in Candy benefited from the vision, not because of NFT or Candy itself, but because of our expertise at Fanatics. This proven track record is the result of your hard work and our alignment with the mission to build the leading global digital sports platform. It was therefore imperative for us to protect their investments as the market and financial environment changed. Divesting our ownership stake at this time allowed us to ensure that investors were able to recoup the majority of their investment through cash or additional shares in Fanatics – a favorable outcome for investors, especially in an exploding NFT market that saw a sharp drop 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 act 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 weren’t willing to compromise on that front.
We are 100% confident that this is the best long-term solution 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 in the NFL, MLB, NBA, NCAA , WWE, UFC, F1, UEFA, Disney and more.
Happy New Year to all,