The Undervalued Asset That Turned Into A $6 Billion Sports Giant
How one entrepreneur bought back his business and turned it into a global sports e-commerce powerhouse.
|Joseph Pompliano||Aug 14|| 6|
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Most sports fans are familiar with Fanatics, the online retailer of licensed sportswear and merchandise, but few seem to be aware of the long road it took to a $6 Billion valuation. Let’s take a look at the history of Fanatics, their current business model, and their recent valuation.
Brick & Mortar
Fanatics, founded by brothers Alan and Mitch Trager in 1995, was originally a retail storefront in Florida selling Jacksonville Jaguar and local collegiate gear. With the Trager brothers laser focused on e-commerce and SEO throughout the late 1990s and early 2000s, the companies growth exploded. Over the next decade, Fanatics grew aggressively through a combination of affiliate marketing, repeat customer business, and acquisitions (Source).
(Photo credit: Wall Street Journal)
In 2011, Fanatics was purchased by Michael Rubin’s company GSI Commerce, for $277M through a combination of cash and GSI stock. Shortly after the transaction closed, GSI Commerce was subsequently purchased by Ebay for ~$2.4 billion (Source).
The kicker? In an effort to compete with Amazon, Ebay was only interested in GSI’s long-standing relationships with their current commerce customer list of retailers and brands. Ebay decided to divest the businesses that were not considered “core to it’s long-term growth strategy”. The undervalued assets - Fanatics, ShopRunner and Rue La La, were sold back to GSI’s Michael Rubin through a newly formed holding company. To close out the deal, Ebay loaned the newly formed holding company $467M while Rubin put in an additional $31M in cash (Source).
Where Is Fanatics Now?
Since the 2011 re-purchase of Fanatics, Rubin has been on a tear. He’s raised about $1.5 billion in funding and secured exclusive merchandising contracts with all the major US professional sports league (Source).
Fanatics closed a $350 million investment round yesterday, which valued the company at roughly $6.2 billion. The company originally set out to raise $250M but was significantly oversubsrcibed as they reported a 30% increase in revenue from 2019, despite the global pandemic causing sports to shutdown for 5+ months. The Series E Funding Round was “led by Fidelity and Thrive Capital, with participation from Franklin Templeton and Neuberger Berman” (Source).
Both the NFL and MLB also have reason to be happy. In 2017, both leagues combined to invest $150M in Fanatics. This new round will increase their equity valuation by $100M (Source).
Looking into the Future
Fanatics, along with the likes of Lululemon and Bonobos, believe that vertical commerce is the key to competing with large online marketplaces like Amazon. Although the funding round hasn’t been publicly announced (Rubin will be on CNBC this morning), it’s rumored that Fanatics plans to use the majority of funding as an investment in their v-commerce strategy (Source).
What’s v-commerce? Here is how Rubin defines it directly from his website (Source):
V-commerce means selling unique, specialized and differentiated merchandise that cannot be commoditized by the Internet. It allows online retailers to control their destiny by owning their merchandise, marketing it and selling it directly to consumers.
The model allows for incredible speed to market, benefiting not only customers but the fans that shop with the company’s retailers and partners. It also provides the opportunity for Fanatics to continue to establish strategic partnerships and deals that drive industry growth.
In simple terms, the power of v-commerce is in the ability for a company to own, produce, and control their own merchandise through an in-house end-to-end model.
Ultimately, through a combination of strategic partners like the NBA & MLB and merchandising agreements with professional sports leagues that run until at least 2030, Fanatics is in a prime spot multiply their revenue over the coming decade.
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Today’s extra credit is a Michael Rubin interview from 2019. Rubin talks about his financial and business success, where he thinks e-commerce is headed, and his friendship with Meek Mill.
It’s so good one YouTube user commented “I can't believe an hour went by.. felt like 20min”.
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