Numlock Sunday: Eben Novy-Williams on the bare-knuckle business of baseball cards
By Walt Hickey
Welcome to the Numlock Sunday edition.
This week, I spoke to Eben Novy-Williams, who wrote “Fanatics to Buy Topps in $500M Deal as Trading Card Biz Zooms into 2022” for Sportico. Here's what I wrote about it:
Fanatics, the largest seller of licensed sports apparel in the world, last year made a daring play to scoop up the long-term exclusive rights to baseball cards out from under longtime trading card producer Topps. It worked, and a plan to take Topps public through a special purpose acquisition company at a valuation of around $1.6 billion was scuttled, and the entire trading card business was swiftly reshuffled. Now, Fanatics has reached a deal to buy the Topps trading card business for $500 million. The Bazooka Candy Brands business will remain with the current owners, but Fanatics is getting the company with infrastructure to produce trading cards as well as around 350 Topps employees with expertise in the business. This also brings Fanatics several rights it lacked, like UEFA, F1, Bundesliga and the Disney trading cards. The Fanatics Trading Cards company, yet to print a single card, was worth $10.4 billion last year.
I’ve been dying to have Novy-Williams on because I’ve been following the news from Sportico all year about a number of really thrilling stories, from the trading card business to the Broncos litigation and more. The space has been incredibly busy and exciting lately.
This interview has been condensed and edited.
Thank you so much for coming on. You have been reporting all about the trading card space and how over the past couple years, particularly the pandemic, it got extremely popular among consumers and then really kind of sparked a massive billion-dollar tussle between established players and new guys. What has been going on between Topps and Pinelli and this new fellow Fanatics?
It's so interesting to me because I think if you had asked people, let's say, three years ago about what was happening with the trading card industry, I think you would've had a lot of people who were bearish on the future. This is a once really vibrant part of the sports economy, that in the past 20 years had kind of gradually fallen out of favor. I think a lot of people were kind of skeptical that we would ever see valuations or interest in the way that we had seen them before. And then the pandemic hits, and I think there's a number of potential reasons here, but sports trading cards explode. There's certainly a nostalgia aspect that I think was really resonant. There's a lot of people that had disposable income that they were not using in the ways that they used to, that I think were also looking for alternative asset classes and things that were not the market to invest in.
I think it was kind of a perfect storm for trading cards, and as a result the market essentially re-blossomed. That became a really interesting moment for the companies that make these cards. One of which you mentioned, Topps, has long been the leader in the U.S.; they ran into another kind of fascinating business trend, which is the SPAC trend. They cut a deal earlier last year to go public in a $1.3 billion deal — and then right after that, everything fell apart for Topps. You mentioned Fanatics in there; Fanatics is the dominant sports apparel company globally at this point, and they have spent the last year looking at other industries they can get into. Trading cards was one of the ones that the founder Michael Rubin decided he wanted to go after.
What he did was essentially negotiate the most valuable licensing deal that Topps has — the Major League Baseball and Major League Baseball Union deal — out from underneath Topps. And when it was announced that Fanatics had gotten that license, they also announced a few others, NFL players union, NBA, et cetera. It scuttled the Topps deal to go public; it really changed the future of the Topps company dramatically. Flash forward five months, in early January Fanatics reaches a $500 million deal to buy the trading card business from Topps. So not only did Michael Rubin's company scuttle a deal to take Topps public, he also, five months later, just purchased essentially the infrastructure and the IP out from under the company as well.
It's really some buccaneering stuff. It's got like Michael Eisner involved, it's got everything. It was a fascinating saga to watch in real time and in a field that you'd mentioned was dead.
Yeah, there's going to be a Harvard Business case study for sure, really on the Fanatics expansion overall, but certainly on the trading card portion of it. You mentioned Michael Eisner, the former chairman of Disney, he was going to have a massive windfall: I think we had estimated it was about $600 million from Topps when it went public. That is obviously not happening now. He got a pretty good valuation in this Fanatics deal, all things considered. The one thing he no longer gets is he doesn't get to share in the upside of the trading card world. And we've gone a while here without mentioning NFTs, but I think they're kind of instrumental in thinking about the future of what a company like Topps is, right? Certainly in the near future, a blend of selling digital items and physical trading cards. Maybe in some distant future, just selling the digital version of things. But Michael Eisner essentially got him and their partners — Madison Dearborn, who were the co-owners Topps — they got the top line valuation that they were going to get in this back deal. But whatever the big business boom, if it continues, and the upside that was going to come to Topps as a result of this changing landscape, they're essentially missing out on all that.
I mean, also a big coup for the unions and the leagues.
No question there. There are a few industries that have exploded in the past I would say two years in sports that have been massive windfalls for the league unions, teams, players, athletes, that didn't really exist before that. Sports betting is the one that people point to the most; it was essentially not legal outside of Nevada in the U.S. until 2019, and now every sports team league seems to be signing these big, massive commercial deals, advertising deals, for sports betting. I would put NFTs and crypto and blockchain in that category as well. We've seen if it's crypto.com arena, if it's the Jersey deal that Miami signed, there are massive sports betting and massive crypto NFT blockchain deals that are happening right now that essentially were not even on the radar of most marketing directors if you had asked them three years ago.
It was peculiar because NFTs have become extremely over-hyped, but I remember — I think it must have been y'all reporting on it too — because one of the first actual stories with regards to digital assets were people attempting to package sports moments into these things, back when there was some wide-eyed enthusiasm from normies about NFTs that didn't relate to apes. That seems to be something that sports was very early to, and then exploded, and now sports is still almost now catching up on it.
It's interesting. I have always said that I've never considered the sports industry to be on the cutting edge of what is new and important from a technological standpoint; I think that surprises people. They think of leagues and the people who own these teams and think that they must be really leading when it comes to corporate tech and analytics and things like that. The truth is that it's not. They were early on NFTs because Top Shop became such a big thing in early 2021. My general feeling on NFTs is that it is essentially a vehicle for which teams and leagues are being more innovative with things that they probably just should have been innovative with before. I'll give you a perfect example: The Dodgers sold last year an NFT version of their World Series ring. The person who bought the NFT of the World Series ring also got an actual version of the ring, a physical version, and got the opportunity to throw out the first pitch at Dodger Stadium.
Now the Dodgers essentially pitch this as: We're selling a World Series NFT, and here's what you get with it. And I would argue that the NFT is the least interesting part of that transaction, right? The ability to throw out the first pitch at Dodger Stadium is a once-in-a-lifetime opportunity. The ability to have a Dodgers World Series ring is amazing. And the digital part of this is just in third in that calculation, I think.
The truth is that the Dodgers always could have auctioned off an opening pitch at Dodger Stadium, or could have auctioned off a ring. It just took NFTs, and this idea of blending digital collectibles with some kind of tangible asset as well. It took this to open the aperture for a lot of teams and let them realize that there are some really innovative, cool things that we can be selling. In some ways I think of NFTs, at least right now in sports, as a Trojan horse of sorts in which it's just become the vehicle by which teams are selling and thinking about fan engagement in a way that they probably should have years ago. But the fact that they're getting to it now also seems like a good thing for fans as well.
Yeah, that's a really good point, because if you think about it they have kind of lagged like the hospitality and the travel industry when it comes to these unique experiences. Otherwise, just focusing on butts in seats, when this could just be a chance to offer a level, even above premium box seats.
For sure. And there's so much cool stuff that's happening right now. Another good example here, the folks who bought Club Necaxa, the Mexican Liga MX soccer team, they sold 1 percent of the franchise through an NFT sale last year, which I think is the first time that that's kind of ever happened in North American sports where an equity piece in a franchise essentially went out to public auction in that way. Again, the thing you're buying there is the equity option and a team that could be valued at around a 100 million dollars now, and could be worth so much more in the future. But NFTs is just the way in which it came to the owner as the idea to sell this thing, and it was the vehicle by which the transaction happened.
That's just kind of avoiding having to file paperwork with the SEC for an IPO! You talked about ownership and we were talking a little bit about this before the call, but the most interesting story that has been going on that y'all have been obsessed with is what's going on with the Broncos. There's so much going on there. Can you just talk a little bit about that, what's been going on in Denver?
I won't get into all the background as to how we got here, but when Pat Bowlen, the owner of the Broncos, died, his kids essentially couldn't decide who was going to inherit the team. He did not leave firm instructions on how that was going to happen. The NFL requires its teams to be controlled by an owner that has a certain percentage, and as a result, the Broncos are going to almost, by everyone's estimation, they're going to hit the market very soon. And if the Broncos sell, they're going to be the most valuable sports team ever traded in the U.S. That is obviously a fascinating story for us; anytime there's a 4-billion-dollar transaction in sports, that's a big story. The reason I think it is especially interesting is that valuations across U.S. sports have skyrocketed over the past 20 years.
As you become higher and higher priced, there are fewer and fewer people wealthy enough out there that can afford these assets. We're not there yet, I don't think, but at some point the NFL becomes too big to sell. The NFL has a requirement that each team be owned by someone that had put 30% down in cash. If we're talking $4 billion for the Broncos, that's around $1 billion, $1.5 billion dollars of cash right there. There is not a huge debt limit in the way that there is in the NBA, so owners can't borrow against the team for a lot of liquidity, like they can in other leagues. It's difficult, you need a lot of money to buy an NFL team.
As the teams get more and more expensive, at some point, we are probably going to hit a point where the pool of prospective buyers is so small that you don't get the competitive bidding process that you want if you're the NFL. If you look at the last NFL team to sell, it was the Carolina Panthers four years ago. There was not a really huge list of deep-pocketed people lining up to compete for that sale. It ended up with David Tepper, who is a great owner for the NFL, he's exactly the kind of person the NFL wants, but, at some point again, as these teams get higher and higher priced, we're going to hit a point where it's more difficult to sell them because there are not enough people that have the money and the interest to owning the NFL team to make it really competitive. Happening in the background here is another big story we've been covering: the fact that all the other leagues in the U.S. have opened ownership opportunities up to private equity funds.
The reason they're doing that is exactly what I'm talking about. They realize that, particularly, when it comes to selling minority stakes, there are just not enough rich people that have an interest in owning these things. As a result, the only way to make it easier for owners to sell it, the only way to keep competitive bidding going, is to widen the pool of prospective buyers. They've all chosen to widen that pool by letting funds like Arctos Sports Partners, or Sixth Street, or CVC, or Silver Lake, let them buy equity in teams. The NFL has not done that, and most likely will not do that for a very long time. They don't feel like they need to. They want the idea of owning an NFL team to be a really exclusive club opportunity, and they think that maybe opening it up to funds loses that opportunity. But again, every league is confronting this. All the leagues have taken one tack, the NFL is holding firm, and it's really going to test those rules to see what happens for the Broncos.
That's really interesting. It's got everything, they just settled this sprawling legal case with a former Canadian holding company. The kids each own 11 percent, which is a hilarious amount of a team to own. It's an amazing story, and I'm still looking forward to y'all's coverage of it.
There are a lot of NFL owners, obviously that are getting older in age. I think the estate planning and the estate unwinding for a lot of these owners is going to be fascinating in the next 20 years, again, because it's becoming so prohibitively expensive to own these teams. When you have, I think Pat Bowlen had seven kids, and a lot of them perhaps want the team or don't want a different sibling to have it, it becomes a really interesting drama. There's probably an HBO Succession version of the Broncos that could probably be a really compelling read that someone might write at some point. But no question, anytime there's an NFL team up for sale — especially one like the Broncos, which is a top 15 NFL team from a valuation standpoint — that's a story that is going to have the entire industry paying close attention.
Amazing. Well, I have loved your work since you were at Bloomberg; when y'all started Sportico, I was really excited to see it. I think that it's such a cool enterprise. Where can folks find you, where can folks find the work?
Thanks. I appreciate that. Sportico launched about 18 months ago; we're part of the Penske Media Corp umbrella, so we're sister companies with Rolling Stone, and Variety, and the Hollywood Reporter and Robb Report. The basic thesis was that we wanted to be a digital media company aimed at the business of sports. And that is both thought leadership that is breaking news on a lot of stuff that we're talking about.
It's providing insight into the way this business works and is also a live events portion as well. That's the thesis. It's a small world in the business world that's covering this industry. We thought there was room for one more company, and we decided to give it a shot. Folks can find us at sportico.com; we also have a podcast, a Sporticast that is hosted by myself and our editor-in-chief, Scott Soshnick, who was also with me at Bloomberg. That is also another way that people can follow what we're doing. But if people out there are interested in the billion-dollar inner machinations of the sports industry, which I think more and more people are interested in, Sportico is a pretty darn good place to stay up-to-date on everything that's happening.
If you have anything you’d like to see in this Sunday special, shoot me an email. Comment below! Thanks for reading, and thanks so much for supporting Numlock.