Michael Rubin’s sports platform company Fanatics is selling its 60% stake in NFT Candy Digital, according to an internal email obtained by CNBC.
Fanatics, which previously owned the majority stake in Candy Digital, will sell its stake to a group of investors led by Galaxy Digital, the crypto merchant bank headed by Mike Novogratz, which was the other original founding shareholder, according to the report. ‘E-mail.
Fanatics declined to comment.
Candy Digital was founded in June 2021 amid the NFT sports boom, competing with companies like Dapper Labs in the digital sports collecting space. One of its first efforts came out of a multi-year license agreement with MLB to produce non-fungible tokens, which included an exclusive Lou Gehrig NFT. He has also released digital collectibles with netflixfrom Stranger Things, WWEand several Nascar teams.
However, like the broader NFT market, sports NFTs have also seen a decline amid the “crypto winter” which 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 its 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 this 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, “Disposing of our stake at this time allowed us to ensure that investors could recover most of their investment in cash or in additional shares in Fanatics – a favorable outcome for investors. , especially in an imploding NFT market that has seen steep drops in both trading volumes and standalone NFT prices.”
Rubin cited several factors for Fanatics’ divestiture in the email, which he wrote as a “rather simple and easy decision for us to make 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. “In addition to physical collectibles (trading cards) which represent 99% of the business, we believe that digital products will have more value and utility 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, severing a nearly 70-year partnership between Topps and baseball’s top league.
Fanatics raised $700 million in fresh capital in December, with the aim of using the new money to focus on potential merger and acquisition opportunities in its collectibles, betting and gaming businesses. It also pushed the company’s valuation to $31 billion.
The company, which began as an e-commerce platform selling team merchandise to sports fans, has sought to expand across the broader 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 spoke about Fanatics’ growth plans, according to previous reports from CNBC.
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 –
Good year. I hope everyone had a chance to recharge and spend some quality time with family and friends over the holidays, and that your 2023 is off to a good start.
As we get back to the rhythm of things, I wanted to share some news with you all. Effective immediately, Fanatics has sold our approximately 60% stake in Candy Digital. We sold our stake in the NFT company to a group of investors led by Galaxy Digital, the other original founding shareholder. When we looked at all the factors on the table, it was a pretty simple and easy decision to make for several reasons.
Business model – NFTs will most likely emerge as an integrated product/feature and not a standalone business: Over the past year, it has become clear that NFTs are unlikely to be sustainable or profitable as a standalone business. In addition to physical collectibles (trading cards) which account for 99% of the business, we believe that 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 own a larger and larger set of NFT rights and digital collectibles within our Fanatics Collectibles business that came with our trading card rights (NFL, MLB, NBA and more) , which we seamlessly integrate with the world-class physical collectibles rights we currently have. Ultimately, our goal is to increase the number of sports collectors. Connectivity 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 to Fanatics’ strategic direction, but also allows us to maintain the integrity of our investor relationships. Candy investors bought into the vision not because of NFTs or Candy herself, but because of our background at Fanatics. This proven track record is the result of your hard work and alignment with the mission to build the world’s leading digital sports platform. Therefore, it was imperative for us to protect their investment in the face of changing market and financial environment. Divesting our stake at this time ensured that investors were able to recover most of their investment in cash or additional shares in Fanatics – a favorable outcome for investors, especially in an NFT market. implosion that has seen precipitous declines in standalone NFT trading volumes and prices.
Cultural integration: Similar to how quickly we move when the right strategic acquisition or partnership comes along, we move even faster when we realize things aren’t working. One of our core values – A fanatic… Win as a team – is integral to our success and only works when we can leverage the collective intelligence and expertise of all of our teams and colleagues. Unfortunately, we never achieved the 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 was the best long-term decision for Fanatics and our partners and we look forward to growing our digital card and trading card business together under Fanatics Collectibles with the incredible rights we have on the NFL, MLB, NBA and NCAA. , WWE, UFC, F1, UEFA, Disney and more.
Happy New Year everyone,