Fanatics CEO Michael Rubin is selling his stake in Harris Blitzer Sports and Entertainment, which owns the Philadelphia 76ers and the New Jersey Devils, according to a statement.
Rubin backing out of the ownership group clears the path for Fanatics to further push into sports gambling and digital collector’s products such as NFTs. Per league ownership rules, Rubin couldn’t own part of a team and operate a gambling platform at the same time.
“As our Fanatics business has grown, so too have the obstacles I have to navigate to ensure our new business don’t conflict with my responsibilities as part-owner of the Sixers,” Rubin said in his statement. “With the launch of our trading cards and collectibles business earlier this year — which will have individual contracts with thousands of athletes globally — and a soon-to-launch sports betting operation, these new businesses will directly conflict with the ownership rules of sports leagues . Given these realities, I will sadly be selling my stake in the Sixers and shifting from part-owner back to life-long fan.”
Fanatics, which started as a sports apparel company and has deals with the four major US sports leagues, raised $1.5 billion in March at a $27 billion valuation. Earlier this year, the company bought collectible company Topps for $500 million and also owns digital collectible company Candy Digital. Now with Rubin parting from sports ownership, he has his sights set on the sports gambling market, an area he’s previously told Yahoo Finance he’s “super bullish” on.
“Online sports betting and iGaming is a business that we think, for us, will be a very significant business long-term,” Rubin told Yahoo Finance in February. “I’ll put it out there: We want to be the no. 1 player in the world long term. So a decade from now, I’d be disappointed if we weren’t the top player in the world, both in online sports betting, iGaming. We’re just getting started.”
Now legal in 31 US territories, sports gambling has taken off since its legalization in 2018. The total market is expected to reach more than $100 billion by the end of 2025. With active legislation in three states, including California, the market is expected to grow after this year’s midterm election cycle.
A costly effort
While Fanatics is well-positioned to engage with potential bettors and flaunt targeted promotions to the proper consumer, the company will still face expensive headwinds.
DraftKings (DKNG), FanDuel (PDYPY), Caesars Entertainment (CZR), and MGM International (MGM) have all been in the sports gambling space for several years but aren’t turning a profit in their overall sportsbooks. DraftKings reported a net loss of $468 million in Q1 2022.
Wall Street analysts have told Yahoo Finance it normally takes about three years for a company to turn a profit in a given state. Fanatics will be starting three years behind those companies in key states like Pennsylvania where some sportsbooks have already turned cash-flow positive.
Opening in a new state can be costly, too. Jeffries recently estimated that DraftKings will spend about $650 million to open operations in California if the market opens in 2023.
While it may appear like Fanatics is starting the race a lap behind, Rubin believes entering this market later may be beneficial in the long run.
“This business, like a lot of businesses, so many people got into it early because of how big it’s going to be, and it will be that big,” Rubin previously told Yahoo Finance. “And there’s been so much money invested, and in a lot of cases, lost. I think this business would become a good business long-term. It’s a very tough financial business today, people investing not hundreds of millions of dollars, but billions of dollars in losses this year, and will continue to do so.”
“From our perspective,” he continued, “we have probably the most digitally-oriented, transactional commerce brand, and we have the best database in all of sports. So that’s a real structural advantage to help Fanatics become the ultimate leader in this business , and at the same time, give a better experience to the fan.”
Josh is a producer for Yahoo Finance.