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Fanatics is divesting its 60% stake in NFT company Candy Digital

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Michael Rubin’s sports platform company Fanatics is divesting its 60% stake in NFT company Candy Digital, according to an internal email obtained by CNBC.

Fanatics, which previously owned the majority of shares in Candy Digital, will sell its stake to a group of investors led by Galaxy Digital, the crypto merchant bank led by Mike Novogratz, who was the other original founding shareholder, according to the e-mail. mail.

Fanatics declined to comment.

Candy Digital was founded in June 2021 in the midst of the NFT sports boom, competing with companies like Dapper Labs in the digital sports collectible space. One of their first efforts stemmed from a multi-year licensing agreement with the MLB to produce non-fungible tokens, which included a unique Lou Gehrig NFT. It also released digital collectibles featuring NetflixWeird stuff, WWEand several Nascar teams.

However, similar to the broader NFT market, sports NFTs have also seen a decline amidst the ‘crypto winter’ which has seen the value of nearly all digital assets plummet. Dapper Labs, the company behind digital trading platforms NBA Top Shot and NFL All Day, ranked #9 on last year’s CNBC Disruptor 50 list, laid off 22% of its company in November.

Candy Digital raised a $100 million Series A round in October 2021, valuing it at $1.5 billion at the time. Investors in that round included SoftBank’s Vision Fund 2, Insight Partners and Pro Football Hall of Famer Peyton Manning, according to previous reports by CNBC.

It’s not clear what Fanatics received for its stake in the company, but Rubin wrote, “Disposing of our equity interest at this time has enabled us to ensure that investors can recoup most of their investment in cash or additional shares in Fanatics – a favorable outcome for investors, especially in an imploding NFT market that has seen precipitous drops in transaction volumes and prices for standalone NFTs.”

Rubin cited several factors for Fanatics’ divestment in the email, which he wrote was a “pretty straightforward and easy decision for us to make for several reasons.”

“Over the past year, it has become clear that NFTs are unlikely to be sustainable or profitable as a stand-alone business,” Rubin wrote. “In addition to physical collectibles (trading cards) that drive 99% of business, we believe that digital products will have more value and utility when connected with physical collectibles to create the best experience for collectors.”

In January 2022, Fanatics acquired Topps trading cards for an estimated $500 million after also acquiring the rights to produce MLB trading cards, severing a nearly 70-year partnership between Topps and the major league from baseball.

Fanatics raised $700 million in new capital in December, with the aim of using that new money to focus on potential merger and acquisition opportunities in its collectibles, gambling and gaming businesses. It also raised the company’s valuation to $31 billion.

The company, which started as an e-commerce platform selling team merchandise to sports fans, has looked to expand across the sports ecosystem. The company is also evaluating an initial public offering, and Rubin recently sat down with more than 90 internet, retail and gaming analysts from several Wall Street firms, where he spoke about Fanatics’ growth plans, according to previous CNBC reports. .

Fanatics, a three-time CNBC Disruptor 50, was ranked #21 on last year’s list.

Here is the full email Rubin sent to the Fanatics team on Wednesday:

team fanatics –

Happy New Year. I hope everyone has had a chance to recharge and spend quality time with family and friends over the holidays, and that your 2023 is off to a great start.

As we’re getting back into the swing of things, I’d like to share some news with you all. Effective immediately, Fanatics sold our approximately 60% interest in Candy Digital. We sold our stake in the NFT company to a group of investors led by Galaxy Digital, the other original founding shareholder. When we looked at all the factors at the table, this was a pretty straightforward and easy decision to make for a number of reasons.

Business model – NFTs are likely to emerge as an integrated product/feature rather than a standalone business: In the last year, it has become clear that NFTs are unlikely to be sustainable or profitable as an independent business. In addition to physical collectibles (trading cards) that drive 99% of business, we believe that digital products will have more value and utility when connected with physical collectibles to create the best experience for collectors. To that end, we already own a broader and more significant pool of NFT and digital collectibles rights in our Fanatics Collectibles business that came with our trading card rights (NFL, MLB, NBA and more), which we are seamlessly integrating with the world. class physical collectible rights we currently have. Ultimately, our goal is to increase the number of sports collectors. Connectivity between physical and digital collectibles will be the most powerful way to create an emotional resonance and lasting success for NFTs and their collectors.

Relationship with investors: Taking this immediate action not only makes sense for Fanatics’ strategic direction, it also allows us to maintain the integrity of our investor relations. Candy investors bought into the vision not because of the NFTs or Candy itself, but because of our track record at Fanatics. This proven track record is a result of their hard work and our alignment on the mission to build the leading digital platform in digital sports. Therefore, it was imperative for us to protect your investments as the market and financial environment changed. Divesting our equity interest at this time allowed us to ensure that investors could recoup most of their investment through cash or additional shares in Fanatics – a favorable outcome for investors, especially in an imploding NFT market that has seen declines staggering increases in transaction volumes and prices for standalone NFTs.

Cultural integration: Similar to how quickly we mobilize when the right acquisition or strategic partnership presents itself, we move even faster when we realize things aren’t working. One of our core values ​​– A Fanatic…Winning as a Team – is essential to our success and only works when we can leverage the collective intelligence and knowledge of all our teams and colleagues. Unfortunately, we never achieved full integration of Candy into the Fanatics environment or culture due to shareholders with competing goals and objectives. Our culture of building, growing and winning as a team is what makes this company special, and we’re not willing to compromise on that.

We are 100% confident that this was the best long-term decision for Fanatics and our partners and we look forward to growing our digital and commercial card business together under Fanatics Collectibles with the incredible rights we have in the NFL, MLB, NBA, NCAA, WWE, UFC, F1, UEFA, Disney and much more.

Happy New Year to everybody,

Michael Rubin

CEO, Fanatics

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