“As the global leader in licensed sports merchandise, Fanatics is changing the way fans purchase their favorite team apparel and jerseys across retail channels through an innovative, tech-infused approach to making and selling fan gear in today’s on-demand culture.”
Player 1: Mike Rubin.
Mike started selling ski-equipment out of his parent’s basement when he was twelve. He later attended Villanova and dropped out to start a business that handled online sales and fulfillment for big-box retailers just as the e-commerce movement was was beginning. He sold the company, GSI commerce, to eBay in 2011. Among GSI’s properties was Fanatics, which started in 1995 as a single brick and mortar store in Jacksonville, FL. Rubin loved the business, so he bought Fanatics and 2 other retail properties, RueLaLa and ShopRunner, and put them under an umbrella company called Kynetic. He then moved the exec teams to Silicon Valley to pursue improvements in their technology platforms.
Player 2: Doug Mack
Doug Mack has been the CEO of Fanatics since 2014, previously CEO of One Kings Lane and Scene7. He began his career in the GE management training programs, and was elected to the Kate Spade Board of Directors in June 2014. Most notably, for our purposes, he is a passionate BC graduate who has successfully combined his love of sports with his drive for building great Internet companies.
Practice, Practice, Practice
As I mentioned in my presentation, Fanatics has consistently come out on top because they are always innovating technically. They use Salesforce products to group and target customer email groups, develop personalized content, and predict future needs. This is further enhanced by their usage of AWS and Attunity CloudBeam to store and migrate data quickly and effectively. With these services, Fanatics has effectively been able to not only deliver the most relevant merchandise at the right times, but also to engage customers to continue rooting for their teams even in the off-season.
Furthermore, they have quietly powered the online stores of the NFL, NBA, MLB, NHL, MLS, Nascar, the PGA Tour, and many other leagues and teams. With 300+ websites to test design variations through SiteSpect, they have gradually been able to perfect their online platforms. A small logo in the top corner labels each site, “a Fanatics experience,” and naturally customers become instant fans.
On the Offense
With the prevalence of e-commerce today, however, Fanatics has had to go above and beyond your typical e-tail site. They have based part of their business model off of fast-fashion companies like H&M and Zara, in the sense that you can’t make bets on what will be popular six to nine months in advance, rather they take a reactive approach to gain agility and market speed, given score results and spikes in interest are rarely predictable.
This approach has been enabled through vertical commerce. With proven success in North America, the company has dramatically scaled up design, manufacturing, and distribution capabilities. In 2017 Fanatics acquired the Majestic apparel brand, allowing Fanatics to take over their manufacturing capabilities along with their four current US locations. Following this deal, they also partnered with Under Armour to take over exclusive manufacturing and retail rights to all MLB apparel. These two moves mean that Fanatics effectively controls both ends of the MLB supply chain. Currently, 75% of Fanatics revenue comes from direct-to-customer sales through its websites and online shops – but the best part is, the most popular selling brand of apparel is Fanatic’s own, as opposed to others like Nike and Adidas. Thus, increased manufacturing capabilities will further their sustainable competitive advantage.
On the Defense
When events do happen, however, Fanatics has had some unprecedented responses. In 2016, after the Cubs won the World Series after waiting 108 years, fans only needed to wait minutes to commemorate it. How? Uber partnered with Fanatics so that fans could purchase championship hats and apparel through Uber, and drivers would be on the road to deliver gear within minutes. Fanatics and Uber had partnered previously to offer LA Rams apparel and athlete signed helmets, thanks to a memorabilia relationship with quarterback Jared Goff.
Better yet, Fanatics has also learned to use these fast-fashion powers for good. They helped raise money for victims of Hurricane Harvey by creating a “Houston Strong” clothing line that included all of the cities sports teams, with designs, team permissions, and shipping done all within 3 days.
In the Play-Offs: Fanatics vs. Amazon
For now, CEO Mack thinks that there are easier spaces for Amazon to go after than attempting to gain licensing rights in this market. Despite this, they have still quietly been making moves. In July 2017, Amazon secured a 3 year agreement with the French National Basketball League. While the Amazon logo will be displayed on merchandise, they still are not entering the manufacturing side.
This poses another issue: even if Amazon is trying to get their foot in the international sports merchandise market, is it even a market that Fanatics should enter? Currently, Fanatics has a fresh injection of capital from the SoftBank Vision Fund , specifically $1 billion. They feel that SoftBank is a great partner, and has Asian strengths that can help them as they attempt to expand to markets in Germany and China primarily, while later entering Japan and Australia. Furthermore, they already have a licensing deal with English Premier League soccer teams such as Manchester United. Overall, chairman Rubin says that they aim to quintuple annual sales to $10 billion over the next five years.
But, while the American appetite for burgers and beer flows across borders with ease, selling sports merchandise means rubbing up against entrenched cultural norms. For example, most UK Premier League clubs were formed in the 19th century as working-class social hubs, rather than businesses. Despite strong broadcast-rights deals, they have still been reticent to fully embrace commercial opportunities. Consider how much US fans pay in preparation for tailgating events: you buy apparel, chairs, snacks, drinks, maybe even branded grill covers or cornhole sets. But in England, the pre-gaming events are heavily policed and sports jerseys as casual wear is not exactly a fashion-norm. These varying traditions will prove to be large hurdles in Fanatics’ expansion efforts.
Back to the Home Field
Despite a global outlook, Fanatics is also considering how to expand within their home base. They have enviously side-eyed Disney, which makes $57 billion per year in licensed products thanks to franchises like Star Wars and Marvel. However, expanding beyond sports merchandise would require a pivot in branding and focus, so this seems to be only a far off adventure. Additionally, they are working to increase brand awareness to build their own profile and to collaborate with lifestyle and fashion brands for the fans.
As expected, they are not currently working on an IPO. Their focus remains on building a great company and growing the industry globally, while investing in a vertical model that best services the real-time expectations of sports fans. Personally, I think Fanatics has hit a home-run in the sports merchandising industry. They were first at bat to the licensing deals, consistently deliver what fans want, and their victories have sparked investor confidence. One of my Christmas gifts was a Boston College sweatshirt from (you guessed it) Fanatics, and I’m certainly a fan. I’m excited to watch where their international growth goes, and interested to see who will prevail in the competitive e-tail matchups.
Again, here are my questions. Feel free to leave yours below!
- As their place in sports merchandising becomes saturated in the US, will they enter into licensing agreements across other industries as well, infringing on Disney’s territory?
- While done sporadically before, do they hope to develop permanent relationships with companies like Uber to instantly deliver fan gear after big wins?
- How do they plan to adapt to the cultural significance of sports and technology in international markets?