MLB Ends Its 70-Year Relationship With Topps

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Hey Friends,

Major League Baseball sent shockwaves through the sports business world last week, deciding to abruptly end its 70-year relationship with Topps that allowed the company to produce MLB-licensed trading cards and other products.

Instead, Major League Baseball and its Players’ Association have agreed to a new exclusive trading card deal with sports apparel and collectible retailer Fanatics.

Fanatics has no prior experience in the business, but they have more than $325 million in fresh capital and are backed by giants like Silver Lake, SoftBank, and Jay-Z. They also recently hired Josh Luber to run the business, the former co-founder & CEO of multi-billion-dollar sneaker, streetwear, and collectibles marketplace StockX.

The deal will officially kick off in 2026 when MLB ends its agreement with Topps.

Seeing what they believed to be an undervalued asset, former Disney Chairman & CEO Michael Eisner teamed up with private equity firm Madison Dearborn Partners to acquire baseball-card maker Topps in 2007 through a $385 million buyout bid.

More than a decade later, that bet is paying off, big time. The collectibles market exploded in popularity throughout the pandemic, and Topps saw their annual sales increase 50% year-over-year.

Topps Annual Revenue

• 2019: $460 million

• 2020: $567 million (+23%)

• 2021E: $850 million (+50%)

So, riding industry tailwinds, Michael Eisner and his team negotiated a deal to take the company public through a merger with a special purpose acquisition company (SPAC) that valued the business at $1.3 billion. The interesting part? Michael Eisner was expected to profit about $600 million personally from the deal.

Everything was great until it wasn't. Michael Eisner reportedly received a call from MLB Commissioner Rob Manfred last Wednesday with some unfortunate news — the league and its players’ association had decided to end its 70-year relationship with Topps and go with Fanatics instead.

Reports vary on whether Topps was given a chance to match their offer, but it doesn’t really matter anyway. Fanatics recently raised $325 million in capital to invest in the business, and at 14x the market capitalization of Topps ($18B to $1.3B), it was unlikely Topps would have been able to afford it anyway.

Even worse, less than 24 hours later, the $1.3 billion SPAC deal to take Topps public was officially dead. There would be no $600 million payday for Michael Eisner.

Unlike some people, I don’t want to hold a funeral for Topps. Losing the exclusive rights to MLB trading cards is obviously a big deal, but their business isn’t dead yet.

They still have deals with Formula One, Star Wars, WWE, and others in place while making more than $250 million annually from their confections, gift cards, and digital businesses. Maybe I’m just an optimist, but we’ll see what happens.

2020 Revenue Breakdown

• Physical products: $312 million (55%)

• Confections: $198 million (35%)

• Digital products: $35 million (6%)

• Gift Cards: $22 million (4%)

In the end, the unfortunate events between Topps and Major League Baseball are just an extreme example of not getting too comfortable in business. Throughout history, well-capitalized companies led by aggressive CEOs have always try to disrupt legacy brands.

When Topps filed their prospectus to go public earlier this year, the risk associated with losing their exclusive deal with Major League Baseball wasn’t even listed in the Top 20 — they never saw it coming.

But that’s exactly what happened. Fanatics used a unique combination of cash and equity in the business to incentivize Major League Baseball to make the jump, leaving Topps empty-handed and devastating the future outlook of their company.

The deal is done, so I’m not sure how much value there is in harping on the mistakes that were apparently made. For me, it’s more about what do they do next.

Sure, they can still sell baseball trading cards, but they become much less valuable without the official MLB marks. Instead, do they double down on the NFT platform they’ve been experimenting with over the last 12 months? Do they choose to invest that capital in higher-margin products? Or maybe they simply pivot to other licensing deals in sports?

Only time will tell what strategy Topps ultimately chooses to pursue, but if I know one thing for certain, it’s that you don’t want to count out a man with hundreds of millions of dollars that feels like he’s been duped.

Have a great day, and I’ll talk to everyone tomorrow.

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