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Volume 24 No. 197
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Fanatics Founder Says Sports Merchandise Business Still Has Plenty Of Room For Growth

The licensed sports merchandise business is still ripe for disruption, said Fanatics Founder & Exec Chair Michael Rubin at the inaugural SBJ Dealmakers In Sports conference in N.Y. He added that Fanatics’ own maturation remains “in the second inning.” Fanatics in the last several years has radically transformed a rather traditional, staid business by creating a more vertical model that involves large-scale partnerships with each of the major U.S. pro leagues, as well as designing and distributing hot-market goods in rapid fashion. “It’s really easy [to transform] a sleepy business like this,” said Rubin, also a co-owner of the 76ers and Devils. “It was about as sleepy as you could get. We realized early on with the internet that the leagues had a massive opportunity to build a direct-to-consumer business. They could not only make a lot more money, but serve the fans better and use the data to build their overall businesses.”

ROOM FOR GROWTH: Fanatics now generates about $2B in annual revenue, up exponentially from $12M 15 years ago and $250M in ’10. But Rubin acknowledged the company is still “irrelevant” in the collegiate and international markets, and that for all its success and steady growth in retail pricing and royalties to leagues, has yet to expand meaningfully the overall licensed sports merchandise business. “One of the biggest challenges is growing the entire segment,” he said. “It hasn’t been a growth business. Units sold, which I consider a really important metric, has been relatively flat for 20 years. I consider the industry about a $25B business now globally. How do we figure out how to make that a lot bigger and get a much bigger share of the entire closet? We have verticalized the business, but what we haven’t done yet is materially grow the industry.” The company earlier this year closed on a $1B round of funding, led by Japanese firm SoftBank, that valued Fanatics at $4.5B. The money will be used primarily to help build infrastructure around Rubin’s grand vision “and help us execute.” But he said an IPO remains a much more distant prospect. “Eventually, we’ll be a public company, but now is a good time to keep acquiring rights and going through our growing pains,” he said.

Quick hits:
* On accepting criticism: “We like to be poked. It makes us a better company.”

* On Fanatics’ NFL sales amid the furor surrounding player protests during the national anthem: “Our NFL business is still up. It’s up in November, was up for Black Friday. It’s not as good as it could be, but it’s still a good business. Being up in single-digit [percentages] isn’t something that excites us, but it’s still a good business.” Regarding the larger anthem controversy, Rubin said, “In the near term, it’s created some pain [for the NFL], but they will come out of this a better sport.”

* On the future of the Fanatics brand: “It’s a brand of the fan. It’s not a performance brand,” adding that there are no plans to compete in that space with the likes of Nike and Under Armour.

* On the biggest sports business story he’s watching: the changing media landscape and entry of emerging digital players such as Apple, Amazon, Twitter and Facebook. “It could be even more radical than some people think.”