One could argue that the last 2 years of massive investment in the NFT market was reckless. Over the last 3 months we’ve seen numerous layoffs, failures, and divestitures in many of the most hyped ideas in the NFT space. Candidly, many of these investments were made on promises before any productization or actual work was done. The goal of businesses looking to invest in these businesses need to be higher scrutiny and projects that are already well in development. The era of speculation is over.
According to an internal email obtained by CNBC, Michael Rubin’s sports platform company Fanatics is selling its 60% stake in NFT company Candy Digital to an investor group led by Galaxy Digital, a crypto merchant bank led by Mike Novogratz. Fanatics had previously held a majority share in Candy Digital. The sale comes as sports NFTs have seen a decrease in value and interest due to the overall downturn in the cryptocurrency market, which has affected companies such as Candy Digital and Dapper Labs.
Team Fanatics –
Happy New Year. I hope everyone had a chance to recharge and spend quality time with family and friends during the holidays, and that your 2023 is off to a great start.
As we’re getting back into the swing of things, I wanted to share some news with all of you. Effective immediately, Fanatics has divested our approximately 60% stake in Candy Digital. We have sold our interest in the NFT company to an investor group led by Galaxy Digital, the other original founding shareholder. When we looked at all the factors on the table, this was a rather straightforward and easy decision for us to make for several reasons.
Business Model – NFTs will most likely emerge as an integrated product/feature and not as a standalone business: Over the past year, it has become clear that NFTs are unlikely to be sustainable or profitable as a standalone business. 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. To that end, we already hold a broader and more significant set of NFT and digital collectibles rights within our Fanatics Collectibles business that came with our trading cards rights (NFL, MLB, NBA and more), which we are seamlessly integrating with the world-class physical collectibles rights we currently have. Ultimately, our goal is to grow the number of sports collectors. Connectivity between physical and digital collectibles will be the most powerful way to create an emotional resonance and enduring success for NFTs and their collectors.
Investor Relationships: Taking this immediate action not only makes sense for the strategic direction of Fanatics, but also allows us to maintain the integrity of the relationships with our investors. The investors in Candy bought into the vision not because of NFTs or Candy itself, but because of our track record at Fanatics. This proven track record is a result of your hard work and our alignment on the mission to build the leading global digital sports platform. Therefore, it was imperative to us to protect their investment as the market and financial environment changed. 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.
Cultural Integration: Similar to how quickly we mobilize when the right strategic acquisition or partnership presents itself, we move even quicker when we realize things aren’t working. One of our core values – One Fanatics…Win As A Team – is integral to our success and only works when we can leverage the collective intelligence and expertise of all of our teams and colleagues. Unfortunately, we never achieved full integration of Candy within the Fanatics environment or culture due to shareholders with competing objectives and goals. Our culture of building, growing and winning as a team is what makes this company special, and we were not willing to compromise on this front.
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 trading cards business together under Fanatics Collectibles with the incredible rights we have across the NFL, MLB, NBA, NCAA, WWE, UFC, F1, UEFA, Disney and more.
Happy New Year to all,