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 Fanatics.com 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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