The $10 Billion Trading Card Business

Huddle Up is a daily newsletter that breaks down the business and money behind sports.

If you would like to join more than 47,000 other professional athletes, business executives, and casual sports fans that receive it directly in their inbox each morning, subscribe now.

Hey Friends,

Fanatics has been the hottest topic in sports business all summer.

Just weeks after announcing a new trading card business and exclusive deals with the NFL, MLB, and NBA, Michael Rubin and his team have raised a $350 million Series A funding round that values the newly created entity at more than $10 billion.

The $350 million capital raise comes from a trio of investors, including private-equity giant Silver Lake, entertainment conglomerate Endeavor Group, and Insight Partners, a private-equity shop & venture capital firm with over $30 billion in assets under management.

Here’s roughly how the Fanatics Trading Card cap table looks after the investment:

• Michael Rubin owns slightly over 80%

• NFL, MLB, NBA, and their unions own about 14%

• Silver Lake, Endeavor Group, and Insight Partners own about 3.5%

Important note: this new business, called “Fanatics Trading Cards,” is an entirely separate entity from the $18 billion sports-merchandise retailer “Fanatics” that Michael Rubin has been building since 2011.

I think the idea that Fanatics Trading Cards, a business that didn’t even exist six months ago, is now worth more than $10 billion shocked a lot of people.

Sure, they negotiated exclusive rights with the largest sports leagues in North America, but how much are those really worth? Before having their business upended by Fanatics, two of the most prominent trading card players globally, Topps & Panini, were only worth about $1 billion and $3 billion, respectively.

That’s a significant jump to a $10 billion valuation, especially without any revenue to justify it. Still, this news represents two things — the potential opportunity and the investment climate we are currently in.

On the potential front, this business has the opportunity to be massive. The trading card industry has exploded in popularity and value over the last 12 to 24 months. And that industry growth has led to an inflow of both monetary and intellectual capital.

The Chernin Group and an impressive list of investors including Mark Cuban, Kevin Durant, Dwayne Wade, Mark Wahlberg, and more invested $40 million in Goldin Auctions earlier this year. Also, Wall Street billionaires Steve Cohen and Dan Sundheim teamed up with entrepreneur and collector Nat Turner to buy Collectors Universe for nearly $1 billion.

That inflow of capital is essential, but so is how Fanatics plans to attack the industry.

Topps and Panini just focused on the primary market, holding the exclusive rights and selling cards to distributors. But that means they missed out on all the price appreciation and potential fees in the secondary market.

That’s where Fanatics believes they can capitalize, becoming a one-stop-shop for all parts of the trading card market, including primary sales, secondary sales, and even other ancillary services like fractionalization, grading, and storage.

It’s certainly a tall order. If it were easy, Topps, Panini, or someone else would have already done it. But I really think Fanatics is uniquely positioned to capitalize on the surge in demand that the trading card market has experienced.

Exclusive rights are one piece, albeit an important one, but now the focus shifts to building a world-class product that can capture outsized value.

I agree that it’s interesting to see an investment institution like Silver Lake assign a $10 billion valuation to a business that doesn’t have a tangible product or any revenue, but this is the market we operate in right now.

Capital is a commodity, and with investors forced to go further out on the risk curve, they know that sometimes it’s necessary to throw out traditional valuation metrics like discounted cash flows & revenue multiples and just get aggressive on the terms.

Is that the right answer? It depends, but I’ll tell you one thing — if this ends up being a massive, industry-defining business, no one will care if Silver Lake and others invested at a $5 billion, $10 billion, or $15 billion valuation.

Remember, pessimists sound smart. Optimists make money.

I hope you all have a great weekend, and I’ll talk to everyone on Monday.

Your feedback helps me improve Huddle Up. How did you like today’s post?

Loved | Great | Good | Meh | Bad

Huddle Up is a daily newsletter that breaks down the business and money behind sports.

If you would like to join more than 47,000 other professional athletes, business executives, and casual sports fans that receive it directly in their inbox each morning, subscribe now.

SoFi is the financial super app, where you can save, spend, earn, borrow, and invest.

If you’re looking for financial guidance, there’s a good chance SoFi can help. The investing platform is comprehensive, letting you buy whole stocks and fractional shares, trade crypto, and manage retirement accounts.

Plus, SoFi products are designed to work better together to give you additional cash rewards when you make smart money decisions like monitoring your credit or just logging into the app.

SoFi is transforming the industry and disrupting how the world sees personal finance. SoFi is the app you need to get your money right from investing to getting out of debt. I’m a SoFi member, and I love it.

Download the SoFi app to get started, and you’ll get $5 to $1000 just for signing up.

*The probability of receiving $1000 is 0.028%