The company’s equity was purchased by a group led by billionaire Michael Novogratz’s Galaxy Digital, Fanatics CEO Michael Rubin told employees Wednesday in an email, which was viewed by Sportico. The email cites a few reasons for the move, including what Rubin called “an imploding NFT market” and doubts that NFTs are sustainable as a standalone business; competing goals of Candy investors; and a desire to preserve relationships with other shareholders that came to Candy via Fanatics.
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Fanatics co-founded Candy Digital in June 2021 alongside Novogratz, one of Wall Street’s most notable crypto investors, and digital media entrepreneur Gary Vaynerchuk. Four months later, the company was valued at $1.5 billion in a funding round that included prior Fanatics investors SoftBank and Insight Partners.
The email didn’t specify a valuation in the Fanatics sale, though it does imply a number lower than that $1.5 billion.
Candy said in a statement that Fanatics has been a “great partner” to the company, and that Candy still believes that the “utility and accessibility of digital goods is a game-changer for consumers.”
“We’re also thrilled to have the support of new investors who share our vision and believe in the potential of digital goods to shape the future,” the statement said.
Fanatics declined to comment. A representative for Galaxy Digital didn’t immediately respond to a request.
The move comes amid a market reset for cryptocurrency, and more specifically, sports NFTs. Monthly sales for NBA Top Shot, the first major sports NFT product, fell to $2.2 million in December after highs of $224 million in February 2021.
The new reality has caused many in sports to reset their expectations for the digital collectibles. In November, Dapper Labs, the company behind NBA Top Shot and NFL All Day, announced a 22% staff cut. That same month, Candy Digital laid off about a third of its roughly 100 employees.
"Over the past year, it has become clear that NFTs are unlikely to be sustainable or profitable as a standalone business," Rubin said in the email. "Aside from physical collectibles (trading cards) driving 99% of the business, we believe digital products will have more value and utility when connected to physical collectibles to create the best experience for collectors."
The sale is the latest major business move for Rubin, who is trying to make Fanatics a one-stop commerce platform for sports fans around the globe. In addition to its core merchandise business, Fanatics is expanding into trading cards and sports betting. Rubin recently sold his stakes in the Philadelphia 76ers and New Jersey Devils at a $2.5 billion valuation, and spearheaded a $250 million purchase of retro apparel maker Mitchell & Ness. Fanatics was valued at $31 billion in a recent funding round.
In his email to employees, Rubin mentioned that the sale will help Fanatics "maintain the integrity of the relationships with our investors," some of whom also bought into Candy.
"Divesting our ownership stake at this time allowed us to ensure investors were able to recoup most of their investment via cash or additional shares in Fanatics—a favorable outcome for investors, especially in an imploding NFT market that has seen precipitous drops in both transaction volumes and prices for standalone NFTs," Rubin said.
The email also said that Fanatics and Candy were never able to fully integrate culturally "due to shareholders with competing objectives and goal." Fanatics will still have some involvement with digital collectibles—it has a separate NFT vertical tied tied to Topps, the trading card company it acquired a year ago.
Candy Digital’s partners include MLB, WWE and Netflix.
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