Sports Finance Report: Fanatics to Replace Nike as Exclusive Manufacturer/Distributor of NFL Fan Gear

NEW YORK, NY - APRIL 03: The new Jacksonville Jaguars and other team jerseys are displayed during the unveiling by Nike as they begin their partnership with the NFL at Steiner Studios on April 3, 2012 in New York City. (Photo by Mike Lawrie/Getty Images)

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Fanatics to Replace Nike as Exclusive Manufacturer/Distributor of NFL Fan Gear

Starting in 2020, Fanatics will become the exclusive manufacturer and distributor of all Nike-branded, adult-sized (i.e. no kids), NFL fan merchandise. The league wants a partner with on-demand production capabilities so it can provide fans with “instant gratification” (think: Chiefs fan who seeks rookie Kareem Hunt jersey after 246 total yards/3 TDs in season opener) and maximize revenues; as opposed to the consumer finding the product “out of stock” (Nike would not have printed the jersey of a 3rd round selection in quantity before the season) and leaving money on the table. Fanatics produced Nike fan gear (to include the Swoosh) will be sold on NFL Shop (Fanatics controlled), on all team sites and in all team stadiums (some of which Fanatics controls), through and also at brick and mortar retailers like Dick’s, Modell’s. Nike will continue to manufacturer jerseys and the balance of their on-field product line for players and coaches. The deal runs through 2029.

Howie Long-Short: Sure, fans will benefit from Fanatics printing on demand, but this deal doesn’t happen unless everyone involved was going to benefit. Nike had been compensating NFL owners with a percentage of the wholesale price on all merchandise sold, but the new deal entitles team owners to a percentage of the retail price on products sold through Fanatics — in addition to their cut of the wholesale price on sales to brick and mortar retailers. Increasing the take on retail sales will help the league continue to grow the pie, particularly with Fanatics’ ability to increase sales by an estimated 50% over the life of the deal (thanks to its wide product line and on demand availability). Commissioner Goodell has openly stated the league’s intention to generate $25 billion in revenue by 2027 (currently at +/- $14 billion). NFL owners will receive ancillary benefits (think: increased valuation) from Fanatics’ “higher sales base”, as the league is a minority investor in the company.

As for Fanatics and Nike (NKE), they’ll come out on top too. Fanatics will increase sales (and ultimately their valuation), while Nike can refocus on what it does best – develop best in class sports performance footwear and apparel. Nike may not make more money with this deal, but any losses will be negligible since they’ll gain extra exposure with more Nike NFL product sold. MLB was the first to pursue this on-demand DTC model that split the rights between a performance brand and Fanatics, but with the NFL now on board it’s safe to say we’re looking at the future of fan gear sales – one’s an accident, two’s a trend.

There are a couple of ways to play Fanatics, as Alibaba Group Holdings (BABA) and Softbank (SFTBY) are stakeholders. In September ‘17, Softbank invested $1 billion in to the company at a valuation of $4.5 billion (+/- 2x revenue), bringing the total capital raised to $1.7 billion. Fanatics is well positioned for long-term success, maintaining exclusive long-term licensing agreements with all the major U.S. sports leagues through at least 2030.

Fan Marino: Fanatics has had a busy month, doing a deal with Aston Villa to become the exclusive licensing rights holder for all club merchandise (noteworthy as they’ll be competing with the big apparel brands) and another with Formula One (FWONK) to become the exclusive merchandise retail partner on race-day (they’ll have an enclosed Superstore in the Fanzone) and online. F1 fans can expect a wider range of merchandise for each of the 10 teams and custom gear designed for each of the 21 Grand Prix.

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Paul Rabil, The Entrepreneur, Discusses His Investment Portfolio

The NCAA lacrosse season ended on Monday, with Yale winning its first-ever National Championship; a 13-11 win over Duke. With the victory, Yale became the first Ivy League program to win the title since Princeton did it in 2001. On Friday, we released Part 1 of a 2 Part Interview with pro lacrosse star Paul Rabil. In Part 2, we discuss Paul’s success as an entrepreneur, the companies in his investment portfolio and the lacrosse equipment space. 

JWS: You’re not just a lacrosse player, you’re an accomplished entrepreneur with your investment arm. Tell us about Rabil Ventures?

Paul: Sure – we’re an operating, investment and advisory company. On the ops side, we’ve built a portfolio of fitness companies, we own an event business, called Rabil Events which hosts portfolio businesses like the Rabil Tour, Defensive Academy and Goalie Training; and we have other bespoke overnight training and educational properties. In 2014, we built the Paul Rabil Experience, which is an online video tutorial that we sold to Denver-based, TopYa!. When we (with his brother, Mike) opened a portfolio of fitness companies a decade ago, we learned a lot. We self-funded them, as we couldn’t secure any debt – this was back in 2008-2009 – and as a byproduct of that, we helped start a small business lending company, called Endurance Lending Network. During our Series A, we exited the business to Funding Circle in the U.K., who used that acquisition to launch Funding Circle U.S.A. As such, we consider ourselves operators first.

On the investment and advisory front, we focus on sports, media, fitness and fin-tech. As we don’t have the bandwidth to allocate to management of LP funds, we write personal checks ($25K-$50K), placing our bets in either Series Seed or Series A round. We look to work with amazing founders, in areas where we have domain expertise, and ask ourselves, are they (the businesses) solving a problem, and is this a problem we can help them solve? For our check size, it wouldn’t make mathematical sense to invest in larger rounds. Inherently there’s more risk in the early stage, by that’s why we stick to our investment thesis. 

JWS: Is there a single company in the portfolio that you are particularly excited about?

Paul: There are several. One is Brandless. They’re an e-commerce company that manufactures and sells food, beauty, personal care products. and household supplies. The e-grocery market is a $100 billion-dollar market. We love co-founder, Tina Sharkey, think their UI/UX is gorgeous, and they have a terrific marketing and customer acquisition strategy. Another portfolio company we like is the Athletic. Because of content ubiquity and a new customer that wants a carefully curated, trusted journalistic source, we’ve seen subscriber growth with the New York Times and Washington Post. We love The Athletic’s subscription model and their geo-centric reporting. Final company we think is interest is Petal. They’re attempting to solve a millennial credit-access and credit card deficiency problem. There are 45 million Americans who don’t have access to credit. They’re using new technology to offer credit at a slightly higher interest rate with no recurring annual fees. From a soft launch campaign, Petal’s garnered 80,000 email opt-ins, and plan to issue 5,000 credit cards this coming quarter. We expect to have 25,000 users by the end of 2018.     

JWS: Who are the major players in the lacrosse equipment space?

Paul: You have the legacy brands like Warrior, who has the largest market share in the hard goods category, then Brine (subsidiary of Warrior), STX, East Coast Dyes, StringKing, and others. What we’ve seen over the last decade though, are some of the global sporting goods and manufacturing companies enter into our sport. New Balance did through M&A (Warrior), then you have Nike, Under Armour and Adidas all produce hard goods and lacrosse-specific footwear. 

Howie Long-Short: Back in 2004, New Balance was seeking a growth opportunity (lacrosse was first gaining popularity amongst high-school kids) and acquired Warrior for an undisclosed amount. At the time, New Balance was competing with Reebok (NOT Adidas, Puma or Under Armour) to become 2nd (behind Nike) in U.S. footwear sales. In 2006, New Balance added Brine to its portfolio. New Balance is a privately held entity, there are no ways to invest in the company; unfortunately, the same goes for STX, East Coast Dyes and StringKing.

Fan Marino: The average sports fan may not be aware, but there are 2 pro lacrosse leagues (MLL, NLL). Can you describe how they differ?

Paul: First we have the outdoor game (MLL), which we’re accustomed to seeing at the youth, high school, college level, pro, and international level. This is 10-on-10, with the field size mirroring that of football and soccer. Then we have the indoor game (NLL), where you’ll see lacrosse in an NBA/NHL arena. It’s 5-on-5 with 4×4 nets and big Michelin-sized goalies. The MLL has 9 teams, and is a single-entity organization, like the MLS. The NLL has 9 teams, and is trade association, like the NBA and NFL. The NLL begins in the winter, and the MLL in the spring. There’s a scheduling slight overlap, which has proven to be problematic for the players, brands, and fans.

Fan: Is lacrosse a full-time job for guys in MLL and NLL?

Paul: It can be. By technicality, we’re part-time players. We’re only obligated to two or sometimes three practices per week, and they tend to book-end the weekend; so, you’re allotted time during the week to either work a full-time job elsewhere, or create ancillary income streams. Many of the players who have other full-time jobs will use their vacation days to take off Thursday afternoon and Friday for team practice. Other players take on more of an entrepreneurial spirit, where they either start a camp/clinic business, or build a lacrosse-specific product or company. The top players have sponsors who give them additional access to resources and economics. These are the players who are setting the stage for the future of pro lacrosse, and the younger generation of players that will see a professional league that can support them in a full-time capacity.

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What is JohnWallStreet?

JohnWallStreet, located at the intersection of sports and finance, is a destination for the educated sports fan.

While we won’t be publishing “hot takes” on LeBron’s relative greatness to Jordan, we will be offering up the most relevant sports related business news, in easily digestible bites, with commentary from both the sports money and sports fanatic perspectives.

We’ll cover publicly traded professional teams & stadiums (MSG, RCI, BATRA, MANU), television networks (DIS, FOXA, CMCSA, CBS, TWX, MSGN), apparel & footwear companies (NKE, UAA, ADDYY, FL, LULU), equipment companies (GOLFELY, FIT), ticketing companies (EBAY, LYV) content and facilities providers (CHDN, DVD, ISCA,TRK, LMCA).  If it trades on Wall Street, and has a sports angle, it’s in our wheel house.

Howie Long-Short and Fan Marino will be providing their expert opinions on each story. They have slightly different areas of expertise. Fan Marino is a firm believer that the SEC is the premier football conference. Howie Long-Short knows it as the Securities & Exchange Commission. Fan Marino lives and dies with the college selection of 5 star, blue chip recruits. Howie Long-Short spends his days analyzing blue chip stocks. Howie Long-Short knows that Black Monday occurred on October 19th, 1987. Fan Marino swears it happens every January after Week 17. You get the point.

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