Explaining the whopping $10 billion valuation for Fanatics’ nascent trading card business

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  • Fanatics President Michael Rubin joined CNBC’s “Squawk Box” on Thursday to discuss the company’s expansion into the sports trading card arena.
  • Fanatics sent another shockwave through Wall Street this week when it was revealed that their trading card business is valued at over $10 billion after already raising more than $350 million in funding.

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Sports merchandise company Fanatics sent a shockwave through Wall Street this week when it was revealed that its trading card business is overvalued. over $10 billion In order to raise new capital.

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A month after the Fanatics took over the licensing rights for top sports leagues, including Major League Baseball and the National Football League, the Fund raised a $350 million round. The e-commerce giant spun off its trading card company from its merchandising business last August. Rubin lured the league and player associations out of existing partners by offering them equity in the new business.

“Trading card companies are good makers, but they didn’t have the vision to build a direct-to-consumer model and then bring all the pieces together to create a great collector’s experience,” Fanatics president Michael Rubin said on Thursday. ” On CNBC’s “Squawk Box.” “This is exactly what we did with our Fanatics Commerce business in the merchandising category – and are now doing it with Trading Cards.”

Calculation of the $10 billion valuation of fundamentalists

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Some on Wall Street are stunned at the value of the trading card company of fanatics, especially since the licensing rights do not transfer for another few years, but sports attorney Irwin Kishner said that it is possible to explain “very good reasons why How did they get there. .”

Traditional valuation metrics include discounted cash flow, comparable companies in a sector, EBITDA and cost of assets, Kishner said. However, these combined metrics may not be the only ones that apply in the case of radicals.

“You’re looking at what the projected cash flow might be for each of their business segments, and that’s what you’re valuing this business for,” said Kishner, co-president of sports law firm Herrick, Feinstein. Worked on mergers and acquisitions and represented teams including the New York Yankees.

A sports banker, discussing Fanatics’ evaluation on condition of anonymity due to privacy concerns Topps was valued at around $1 billion before Fanatics stole their star client in MLB and crushed Topps’ plans for the SPAC merger. Businesshala also informed of That Panini was worth about $3 billion. Taking those valuations and applying them to the fanatics’ card business—he has rights to the MLB, NFL and National Basketball Association—leads to a valuation of $10 billion.

Kishner said the hiring of executives by hardliners like Glenn Schiffman, former chief financial officer of the IAC, should also be included. And Rubin has built equity with the way the fanatics are positioned for the future, including starting an NFT company called Candy Digital.

“What you’re betting on is management,” Kishner said.

The fanatics plan for the physical business card space to expand it by opening up markets to get the most out of it through direct-to-consumer offerings. For example, if collectors must purchase a trading card, they will be able to insure the property, grade, store and even market them to sell or trade through fundraisers. The company will likely collect the transaction fee.

Rubin also noted that traditional trading card makers will “make EBITDA of about $1 billion on a combined basis this year.” He said the business card sector is a “highly profitable business” with “massive opportunities”.

“There are a lot of people in the middle of this hobby and are perfectly set up for a unified direct-to-consumer experience,” Rubin said.

Not everyone agrees with Rubin’s assessment. When discussing the matter, the CEO of Wall Street labeled the Fanatics trading card agreements as futures contracts because the company cannot yet produce collectibles. The executive spoke to CNBC on condition of anonymity to speak freely about the affairs of another company.

“I understand that statement because they haven’t fully executed to their potential — yet,” Kishner said when asked if he agreed with the label. “But the way they got baseball contracts, the way they are picking up different management talent from different companies, and positioning themselves as a technology company – you can get NFTs, paper trading cards all under one roof. Speaking of bringing together ., and blockchain technology. So, there’s a lot here.

“You are buying a property that you anticipate will have high growth due to market forces and the way you position that asset,” he said.

What will the fanatics buy next?

Over the past year, when fundamentalists have acquired fresh capital, acquisitions are usually sought.

For example, the company purchased licensed sports merchandise maker WinCraft in August 2020 using money from a $350 million Series E funding round. And in 2017, it bought VF Corp’s licensed sports group for about $225 million. That deal included the Majestic athletic brand, and it came right after Fanatics took the MLB apparel rights to Majestic.

Fanatics are not expected to start their trading card business from scratch and will likely seek to buy out an existing company in a space such as Upper Deck.

Asked about this on Thursday, Rubin replied: “It is possible that we will buy one of the trading card companies because they are good companies.”

Expect more moves from hardliners in the coming months as the company expands before seeking an IPO.

Kishner said fanatics’ business plans resemble investing in real estate, adding it “seems high now, but 10 years from this date, you’ll want to buy it.”

“They have associated themselves with different leagues, taken the TOPS business plan and made it their own,” Kishner said. “This company is going to be a disruptor.”

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