Fanatics Sells Candy Digital Stake Amid ‘Imploding’ NFT Market

Posted on: January 4, 2023, 06:06h. 

Last updated on: January 4, 2023, 06:40h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Fanatics is divesting its 60% interest in non-fungible token (NFT) platform Candy Digital as prices for digital collectibles plunge.

Candy Digital
An ad for NFT platform Candy Digital. Fanatics sold its 60% stake in the company to Galaxy Digital. (Image: Business Wire)

The sports apparel giant that’s fast approaching entry into the US online sports wagering market is selling its stake in Candy Digital to Galaxy Digital for an undisclosed sum. Galaxy is a crypto banking entity controlled by Mike Novogratz and was the original coinvestor in Candy Digital alongside Fanatics.

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,” wrote Fanatics founder Michael Rubin in an email to employees.

Candy Digital was born in July 2021 just as the market for digital collectibles was ramping up and as cryptocurrencies — a key element in the NFT arena — were soaring. Around that time, platforms such as NBA Top Shot rose to acclaim. In October 2021, Candy Digital raised $150 million in venture funding at a $1.5 billion valuation. However, by early 2022, enthusiasm for digital collectibles, sports and otherwise, waned, leading to massive plunge in prices.

Fanatics Maintains Traditional Collectibles Exposure

The NFT is an emerging digital asset class, and while it’s possible that enthusiasm for digital collectibles and prices eventually rebound, many collectors still prefer something they can physical hold, store, or hang on their walls.

On that front, Fanatics is well-positioned, because the Florida-based company is exactly one year removed from announcing its $500 million acquisition of Topps Sports & Entertainment. That was a sensible deal because in August 2021, the buyer announced card deals with Major League Baseball (MLB) — for years fertile territory for Topps — and the NBA, as well as agreements with the players of those leagues and the NFL Players Association (NFLPA).

“Over the past year, it has become clear that NFTs are unlikely to be sustainable or profitable as a standalone business,” Rubin added in the email to staffers. “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.”

Some companies that Fanatics will soon clash with have NFT platforms. DraftKings Marketplace debuted in 2021, partnering with Autograph, an NFT collecting platform cofounded by Tampa Bay Buccaneers quarterback and seven-time Super Bowl champion Tom Brady.

Fanatics Sports Betting Debut Imminent

Rubin didn’t mention to employees the proceeds from the sale of Fanatics’ 60% Candy Digital stake being directed to the company’s sports wagering efforts. But it is a possibility.

Earlier today, the firm told the Massachusetts Gaming Commission (MGC) that it’s planning to launch an online sportsbook in the current quarter.

That endeavor likely pertains to multiple states and will be costly, as Fanatics enters into direct competition with the likes of DraftKings and FanDuel, among others.