Topps Mulls Options Amid Claims MLB Fanatics Deal Done in Secret

The termination of the merger between Topps and the special purpose acquisition company Mudrick II on Friday could spark a lengthy legal fallout.

The death of the deal followed news that Major League Baseball and the MLB Players Association agreed to a joint venture contract with Fanatics. Beginning in 2026, the online retailer of licensed sportswear and merchandise will produce MLB-licensed trading cards and related products.

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Topps, which former Disney CEO Michael Eisner purchased as part of a group in 2007, has an exclusive license with MLB that runs through 2025. It also enjoys a license with MLBPA that runs through next year. The two licenses authorize Topps to use the intellectual property of MLB and its players, including club logos and players’ images. The proposed merger between Topps and Mudrick II would have taken Topps, which was publicly traded at previous times in its 83-year history, public once again.

Instead, there will be no merger. And despite a long working history together, Topps says MLB betrayed the cardmaker in its move to Fanatics.

“Not only were we unaware that Major League Baseball was negotiating with anybody other than Topps regarding our rights beyond 2025,” Topps chairman Andy Redman said in a statement, “but we were abruptly informed [last Thursday by] MLB that a deal was completed, finalized and exclusive with Fanatics.”

Redman also said that MLB Players Inc. (an MLBPA subsidiary that manages players’ name, image and likeness rights) never indicated to Topps that the union was negotiating with any other parties about licensing rights.

Worse yet for Topps, it faces the impending loss of blue-chip licensing partners with which it has done business for more than seven decades. A review of SEC filings reveal Mudrick II was aware the value of the future company would depend on intact licensing rights with MLB for Topps products. And a resolution for this dispute may require a trip through the courts.

Mudrick II and its dealings with Topps are no stranger to SPAC litigation. Earlier this month, one of Mudrick II’s shareholders sued the SPAC and its board members. Lawrence Bass, who seeks to have his case certified as a class action on behalf of other shareholders, argues in Delaware’s Chancery Court that the SPAC has breached its fiduciary duties. This alleged breach occurred when Mudrick II determined voting classes and accompanying rules for the Topps merger, which shareholders had expected to vote on this week.

Last December, 31,625,000 units of Mudrick II were sold to investors as part of an IPO. According to public records, Mudrick II has 21 months post-IPO (up until the fall of 2023) to consummate a business combination. In a statement, the SPAC pledged to continue to seek a new partner.

Like other SPACs, Mudrick II is a vehicle through which to raise funds and consummate a transaction with a target. The upside to Mudrick II investors is that if a transaction occurs, they obtain equity in the new entity and other financial benefits. If it fails, the SPAC will be terminated, and investors will get their money back.

Mudrick II announced on April 6 a plan to acquire Topps, with SPAC investors’ shares to then be converted into common stock. Had the merger closed, Mudrick II shareholders—attorneys for Bass claim in their complaint—would have seen a whopping 320,000% return on their $25,000 investment.

There are several ways the latest developments could spark litigation, which under the terms of Mudrick II’s SEC filings is governed by the laws of Delaware.

Mudrick II shareholders could argue they were misled or insufficiently warned about instrumental pieces of information pertaining to the Mudrick II-Topps deal. The Securities Exchange Act of 1934 requires that publicly traded companies provide accurate and timely information to investors and the public. Mudrick II’s IPO documents also detail obligations by its board to “promote honest and ethical conduct” and “promote the full, fair, accurate, timely and understandable disclosure in reports and documents.”

To that end, Mudrick II shareholders could insist their SPAC and its board failed to perform adequate due diligence. They could argue the board neglected to make necessary requests to Topps for clarifying information about the status of their business relationships with MLB, MLBPA and other rights holders with whom they negotiate extensions. Similarly, if shareholders acquire such evidence, they could insist that Topps misstated or omitted crucial information.

Shareholders, who may have assumed that Topps’ relationships with MLB and other leagues are on solid and lasting grounds, could maintain their investment was less secure than they were led to believe. To wit: Had they known more about Topps’ actual prospects for profitability and brand growth in the trading card industry, some Mudrick II investors might have declined to invest and placed their money elsewhere.

On the other hand, these investors were, to some degree, on notice about the inherent risks.

First, anyone who invests in a SPAC knows there is no guarantee it will succeed in a merger. That is the nature of a SPAC, which is a non-operational shell company and is designed to raise funds.

Second, the length of Topps’ licensing deals with MLB and MLBPA were mentioned in SEC filings and were reported by news media years before Mudrick II’s IPO occurred. In other words, the fact that Topps lacked contractual guarantees with MLB and MLBPA beyond 2025 and 2022, respectively, weren’t hidden risks.

Third, under the category “summary of some of the principal risks Topps faces,” Mudrick II’s SEC filing discloses a relevant bullet point:

  • Our business is highly dependent upon our license agreements with third parties, and a limited number of our licensors account for a large portion of our net sales. If we lose a license, we may not be able to ensure our consumers have continued access to the assets created under that license. In addition, such licenses may be difficult and expensive to obtain and, in some cases, retain.

This bullet point is listed 21st out of 25 bullet points, behind points related to the risks of COVID-19, emerging technologies and loss of key employees. Although this bullet point doesn’t address the probability of Topps losing its licensing agreements, it does explicitly acknowledge that risk’s possibility. It also intimates why its occurrence would be so devastating to the proposed merger.

Meanwhile, Topps and Eisner—who was set to receive about $600 million in cash and stock if the merger had completed—could demand a close review of the communications between MLB, MLBPA and Fanatics. They could conclude these parties engaged in tortious interference with a business relationship, which would entail Fanatics wrongfully inducing MLB and MLBPA to drop Topps. This would be a difficult claim to advance, however, particularly in a context where there is no breach: Fanatics’ deals with MLB and MLBPA are to take effect after MLB and MLBPA’s contractual relationship with Topps ends.

Scott Soshnick and Brendan Coffey contributed to this story.

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