Fanatics, Michael Rubin’s sports platform company, is selling its 60% stake in NFT company Candy Digital, according to an internal email obtained by UKTN.
Fanatics, which previously owned the majority stake in 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 middle of the sports NFT boom, competing with companies like Dapper Labs in the digital sports collecting space. One of the first attempts came from a multi-year licensing deal with MLB to produce non-fungible tokens, including a Lou Gehrig NFT exclusive. It also released digital collectibles with Netflixstranger things, WWEand various Nascar teams.
However, similar to the wider NFT market, sports NFTs also saw a decline amid the ‘crypto winter’ that has seen the value of almost all digital assets plummet. Dapper Labs, the company behind NBA Top Shot and NFL All Day digital trading platforms that was ranked #9 on last year’s UKTN Disruptor 50 list, laid off 22% of its company in November.
Candy Digital had raised a $100 million Series A round in October 2021, valued 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 UKTN reporting.
It’s unclear what Fanatics received for its interest in the company, but Rubin wrote, “Disposing our ownership interest at this time allowed us to ensure that investors could recoup the majority of their investment through cash or additional shares of Fanatics. – a favorable outcome for investors, especially in an imploding NFT market that has seen steep declines in both transaction volumes and prices for standalone NFTs.”
Rubin cited several factors for the Fanatics divestment in the email, which he said was a “pretty simple 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 standalone business,” Rubin wrote. “Apart from physical collectibles (trading cards) that drive 99% of the business, we believe digital products will have greater value and usability when connected to physical collectibles to create the best experience for collectors.”
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 association between Topps and baseball’s top league.
Fanatics raised $700 million in new capital in December, aiming to use that new money to focus on potential M&A opportunities in 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 selling team merchandise to sports fans, has sought to expand into the entire sports ecosystem. The company is also considering an IPO, and Rubin recently met with more than 90 internet, retail and gaming analysts from several Wall Street firms, where he talked about Fanatics’ growth plans, according to previous UKTN reports.
Fanatics, a three-time UKTN Disruptor 50 company, was ranked No. 21 last year.
Here’s the full email Rubin sent to Fanatics staff on Wednesday:
Team fanatics –
Happy New Year. I hope everyone has had a chance to recharge and spend quality time with family and friends over the holiday season, and that 2023 is off to a great start.
Now that we’re getting back into the groove, I wanted to share something new with all of you. Effective immediately, Fanatics divested our approximately 60% interest in Candy Digital. We sold our interest 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, this was a pretty simple and easy decision for us to make for several reasons.
Business Model – NFTs will most likely emerge as an integrated product/feature and not as a standalone business: Over the past year it has become clear that NFTs as a standalone business are unlikely to be sustainable or profitable. Aside from physical collectibles (trading cards) that control 99% of the business, we believe digital products will have greater value and usability when connected with 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 collecting rights within our Fanatics Collectibles business that come with our trading card rights (NFL, MLB, NBA and more), which we integrate seamlessly with the world-class physical collecting rights we currently hold . Ultimately, our goal is to grow the number of sports collectors. Connectivity between 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 Fanatics’ strategic direction, but also allows us to maintain the integrity of our investor relationships. The investors in Candy bought the vision not because of NFTs or Candy itself, but because of our track record 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. Therefore, it was imperative for us to protect their investment as the market and financial environment changed. By divesting our ownership interest at this time, we were able to ensure that investors could recoup the majority of their investment through cash or additional stock in Fanatics. 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 an integral part of our success and only works if we can leverage the collective intelligence and expertise of all our teams and colleagues. Unfortunately, we never achieved the full integration of Candy into the Fanatics environment or culture due to shareholders with competing objectives and goals. Our culture of building, growing and winning as a team is what makes this company special, and we weren’t 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 cards 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 everybody,