Michael Rubin’s sports platform company Fanatics is divesting its 60% stake in NFT firm Candy Digital, according to an internal email obtained by CNBC.
Fanatics, which previously owned a majority stake in Candy Digital, will sell its stake to an investor group led by Galaxy Digital, a crypto merchant bank led by another original founding shareholder, Mike Novogratz, 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 the likes of Dapper Labs in the digital sports collectibles space. One of its first efforts stemmed from a multi-year licensing deal with MLB to produce non-fungible tokens, including exclusive Lou Gehrig NFTs. He also released digital collections NetflixStranger Things, WWEand several Nascar teams.
However, similar to the broader NFT market, sports NFTs have also seen a downturn amid the “crypto winter,” which has seen nearly all digital assets lose value. Dapper Labs, the company behind digital commerce platforms NBA Top Shot and NFL All Day, which ranked No. 9 on last year’s CNBC Disruptor 50 list, shed 22% of its company in November.
Candy Digital raised a $100 million Series A in October 2021, valuing it at $1.5 billion at the time. Investors in this round include SoftBank’s Vision Fund 2, Insight Partners and Pro Football Hall of Famer Peyton Manning, according to a previous CNBC report.
It’s not clear what Fanatics received for its stake in the company, but Rubin writes, “Relinquishing our ownership stake at this time has allowed us to recoup the majority of our investors’ investment in Fanatics in the form of cash or additional shares — a win-win for investors, especially as both in an exploding NFT market that has seen sharp declines in transaction volumes as well as prices of standalone NFTs.”
Rubin cited several factors for Fanatics to ditch email, which he wrote was “a pretty simple and easy decision for us for a few reasons.”
“Over the past year, it has become clear that NFTs are unlikely to be sustainable or profitable as standalone businesses,” Rubin wrote. “Apart from physical collections (trading cards) that drive 99% of the business, we believe that digital products will have greater value and utility when they join physical collections 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 partnership between Topps and major league baseball.
Fanatics raised $700 million in fresh capital in December and aims to use the new money to focus on potential mergers and acquisitions in the collectibles, betting and gaming businesses. It also valued the company at $31 billion.
Starting as an e-commerce platform selling team merchandise to sports fans, the company has sought to expand across the entire sports ecosystem. The company is also evaluating an initial public offering, and Rubin recently met with more than 90 internet, retail and gaming analysts from various Wall Street firms to talk about Fanatics’ growth plans, according to a previous CNBC report.
A three-time CNBC Disruptor 50 company, Fanatics was ranked 21st on last year’s list.
Here’s the full email Ruby sent to the Fanatics staff on Wednesday:
Team fanatics –
Happy New Year. I hope everyone had a chance to recharge and spend some quality time with family and friends during the holidays, and that 2023 is off to a great start.
As we get back into the swing of things, I wanted to share some news with you. Effective immediately, Fanatics divested of approximately 60% of our interest in Candy Digital. We sold our interest in NFT to an investor group led by our other original founding shareholder, Galaxy Digital. When we considered all the factors in the table, it was a fairly simple and easy decision for us for several reasons.
Business Model – NFTs will likely emerge as an integrated product/feature rather than 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 the physical collections (trading cards) that drive 99% of the business, we believe that digital products will be of greater value and utility when integrated with physical collections to create the best experience for collectors. To that end, we already have broader and more substantial NFT and digital collectibles rights in our Fanatic Collectibles business, which we integrate seamlessly with our trading card rights (NFL, MLB, NBA, etc.) to the class physical collectibles rights we currently own. Ultimately, our goal is to increase the number of sports collectors. The connection between physical and digital collections will be the most powerful way to create emotional resonance and lasting success for NFTs and their collectors.
Investor Relations: Taking this urgent action not only makes sense for the strategic direction of Fanatics, but also allows us to maintain the integrity of our investor relations. Investors in Candy bought this vision not because of NFTs 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 our mission to build the leading global digital sports platform. Therefore, it was important for us to protect their investment as the market and financial environment changed. Divesting our current ownership stake has allowed us to ensure that investors can recoup a large portion of their investment in cash or additional shares in Fanatics – a favorable outcome for investors, especially in an exploding company that has seen a sharp decline in both transaction volumes and transaction volumes. in the NFT market. prices of independent NFTs.
Cultural integration: Just as quickly as 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 Fanatic… Winning 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 were never able to fully integrate Candy into the Fanatic environment or culture. 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 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 in the NFL, MLB, NBA, NCAA. , WWE, UFC, F1, UEFA, Disney, etc.
Happy New Year everyone,