You may not have heard of the company Fanatics, but if you purchased any official merchandise from the online store of a U.S. sports league or team in the past decade, you’ve been a Fanatics customer.
Until recently, the privately held e-commerce company was simply a retailer of licensed merchandise, but through a wave of sophisticated new rights deals, it is now also a designer and manufacturer.
New investments in the company this year from the National Football League, NFL Players Association, Major League Baseball, and Major League Soccer, in addition to a $1 billion investment from Japanese tech giant SoftBank, have given Fanatics a $4.5 billion valuation.
And all that new funding was arguably the least of the company’s news in 2017. Fanatics also bought apparel brand Majestic from VF Corp (owner of Timberland, The North Face, Reef, and Vans) just months after securing a new contract with MLB to replace Majestic as the manufacturer of official MLB fan gear. The acquisition means Fanatics will be able to have its baseball cake and eat it, too: leverage Majestic’s manufacturing capabilities to make and sell MLB fan merchandise, while it also makes and sells the official jerseys bearing the logo of the new on-field outfitter, Under Armour, beginning in 2019.
This year the company also reworked its existing contracts with the NBA, MLS, and NHL so that it now has the rights to manufacture fan merchandise, whereas before it was just a retailer for those sports. (It did the same with the NFL last year.)
Fanatics has quietly become one of the most significant tech companies in American sports, right up there with Amazon (which live-streamed 11 NFL games this season and powers MLB Statcast) and BAM Tech (the spun-off video streaming arm of MLB, which Disney acquired in full this year). Fanatics is small, at $2 billion in annual sales, but growing quickly, and gobbling up more rights and subsidiaries.
Its dizzying progress makes Fanatics our 2017 sports business of the year. Last year’s pick was Adidas. (Separately, Yahoo Finance crowns a broader Company of the Year, and this year it’s Amazon.) Read on for more about how Fanatics became so entrenched in the big leagues.
Tight relationships with pro sports leagues
The business that Fanatics is today started in 2002 with Michael Rubin acquiring NASCAR e-commerce merchandising rights for his company GSI Commerce. In 2011, he bought a college sports e-commerce business called Fanatics that included two brick-and-mortar stores in Jacksonville, Fla., and rolled it into GSI. In 2011, Rubin sold GSI to eBay for $2.4 billion, but kept the Fanatics name.
Fanatics has quietly powered the online stores of the NFL, NBA, MLB, NHL, MLS, Nascar, and PGA Tour, dating back to before Rubin sold GSI to eBay. When a fan visits the NFL shop, a small logo in the top corner labels the website “a Fanatics experience.”
In its newer deals, Fanatics is obtaining rights to design and manufacture the licensed gear, not just sell it.
“We’re building the first large-scale vertical commerce company,” says Rubin, who is chairman and owner of Fanatics, but brought in Doug Mack, formerly of One Kings Lane, a furniture and home decor online retailer, and software firm Adobe, to be CEO in 2014. “It’s different from an Amazon or Alibaba that sells exclusively other people’s merchandise. Most of what we sell at Fanatics is made by our own companies. We think v-commerce is where retail is going, and in e-commerce it’s virtually impossible to compete with Alibaba or Amazon by selling third-party merchandise.”
Buying Majestic, partnering with Under Armour
What Fanatics pulled off with MLB, Majestic, and Under Armour is a good example of how it is changing the traditional notion of licensing contracts.
At the end of 2016, Fanatics entered into a three-way deal with MLB and Under Armour: in 2019, Under Armour will take over for Majestic and Nike as the official on-field uniform provider, while Fanatics will be the official fan gear provider. Fanatics will get to manufacture and sell MLB fan gear with its own logo and the Under Armour logo, and also manufacture and sell the official jerseys, which will have the Under Armour logo.
And then Fanatics added a twist: it bought Majestic, which owner VF Corp was looking to sell off. This means that just as Majestic ends its run as the official on-field jersey provider, Fanatics can continue to use Majestic to manufacture fan gear.
So Fanatics will be the seller of all MLB merchandise at retail. It will manufacture and sell baseball merchandise from Fanatics, Majestic, and Under Armour.
You might ask: Why would Under Armour, which has sought to ramp up its own e-commerce business, want to allow Fanatics to manufacture and sell its product online?
It’s about playing to your strengths, Rubin says. And Fanatics’s strength is speed.
If a ball player is traded to a new team and you want to order a T-shirt or jersey with his name on it immediately, Fanatics adds the item to its website within minutes. It can ship the item to you in hours. (For the big performance brands, that process can take weeks.) It calls these “hot market” items. Another example: When an event happens involving a team or a player —say, a soccer star scores four goals in one game — Fanatics can instantly start selling online a custom T-shirt referencing the achievement. It isn’t unlike “fast fashion” retailers like Uniqlo and H&M.
“With our capabilities, we can fill in unexpected demand really quickly,” says Fanatics vice president of business affairs Gary Gertzog. “We understand that a lot of demand is unexpected. You don’t know which team will be hot and which players will be hot, so we have to be agile and nimble and ready to move. And frankly, it’s what the leagues and the major teams expect now.”
Indeed, the leagues love Fanatics, since producing more exciting fan gear, and faster, can only boost the visibility of a sport. “The strength of what Fanatics has built, and the strength of their vision over the past four years as we’ve been in business with them, is incredibly impressive,” says Kathy Carter, president of Soccer United Marketing, which is MLS’s commercial arm. “We have consistently been impressed with the way that they are putting the pieces in place.”
The big three apparel brands don’t do urgency so well, and may not want to try — so they’re letting Fanatics do it. And Fanatics says there’s no concern that it would impinge on their turf. “We’re not going to be a performance brand,” says Rubin. “Nike, Under Armour, Adidas, we think they do a great job outfitting athletes. We are a brand for the fan. So I think this is the model of the future — the leagues get the best partner to help them grow the sport.” For manufacturing and e-commerce, Fanatics is now that partner. And what was a behind-the-scenes brand in the past is becoming more consumer-facing. “I think you’ll continue to see the Fanatics brand become more and more prominent,” says Rubin.
Each deal Fanatics has with a pro league is different. For example, Fanatics has broad fan gear rights with the NFL, NBA, and NHL, but for jerseys, the NBA and NHL only allow Fanatics to sell a “replica jersey” that does not bear the logo of the performance brand sponsor of the league. With the NFL, Fanatics has “pro line” rights, which allow it to make and sell a player’s jersey if Nike is out of stock.
If designing, manufacturing, and selling licensed gear on its own web portals isn’t enough, Fanatics is also a wholesaler, with deals that allow it to sell to Dick’s Sporting Goods, Walmart, and Lids. And it operates a few select brick-and-mortar stores, including the flagship NBA Store in Manhattan that opened in 2015.
Three years ago, Fanatics only manufactured 5% of all the products it sold. Today that figure is up to 50%.
SoftBank and expanding into Asia
Fanatics has been aggressively expanding abroad, and will also open new offices in Europe and Asia in 2018. And now the company has Softbank to help it.
At $100 billion, SoftBank’s Vision Fund is the largest tech investment fund ever, backed by Apple, Qualcomm and others. Re/code writes that it has “reshaped Silicon Valley in 2017.” And Fanatics is one of the Vision Fund’s biggest investments so far: $1 billion. SoftBank has only invested more money into Nvidia, WeWork, FlipKart, and Roivant Sciences.
“I think they definitely saw us as one of these once-in-a-generation type companies that they wanted to get behind,” says Mack. “And we really believe, when you look at the popularity of U.S. and European sports in Asia, as well as local sports like Japanese baseball, there’s absolutely no doubt that SoftBank can be a major supporter of our global growth agenda.”
Who’s afraid of Amazon?
Almost all the business coverage of Fanatics poses a fair question: What happens if Amazon, the Goliath to Davids like Fanatics, decides to go for licensing rights?
Fanatics doesn’t think that will happen — or its leaders are faking it convincingly. “I’m a big believer in first mover’s advantage,” says Mack. “Any company with enough scale and enough dollars and enough time can try to compete, but I think there are probably easier spaces to go after.” For now, Fanatics also enjoys rights contracts with the leagues that last for years to come.
If anything, Rubin, who raves about Amazon and Alibaba, believes his company can coexist nicely with those giants. “I have incredible respect for Amazon and Alibaba,” he says. “The difference is they’re all about commoditizing products and we’re all about verticalizing products. I think they’re kind of complementary.”
Fanatics is up to 5,000 employees now, a number that doubles during the holiday season, when it does half its annual sales. It will ship more than 30 million different items in 2017.
NFL gear is still its biggest sport, but the company says MLS merchandise is the fastest growing, which positions Fanatics well for the future in a time when the NFL may be plateauing. “NFL’s business is still going to be up in 2017, it’s just not going to grow as substantially as it would have,” Rubin says. “Certainly it’s been a difficult year for them. But we’re huge believers in the NFL, we’re bullish on the long term prospects.”
For now, Fanatics is staying squarely in its lane: licensed sports team merchandise. But down the road, you can easily see where it could go. Disney brings in $57 billion per year in licensed products, thanks to franchises like Star Wars and Marvel. “We think our licensing model would be very applicable across many other industries,” says Rubin.