Last week’s sale of the Topps trading card business to Fanatics likely means Michael Eisner and partner Madison Dearborn ended up with the valuation they asked for when the agreed to take Topps public by SPAC in April last year. But it also underscores that a billion dollars or more in value was probably snatched away when Fanatics grabbed MLB and players licensing rights away last summer.
As Sportico first reported, the famed former Disney chairman and the Chicago-based private equity firm agreed to sell Topps’ trading card business to Michael Rubin-led Fanatics for nearly $500 million, while holding back the ancillary candy business for themselves. The sale of the card business means Eisner’s Tornante Company and Madison Dearborn made a decent profit on Topps, which they bought in 2007 for $385 million. Including a $100 million dividend they paid themselves in 2020, Eisner and Madison Dearborn made a 55% return on Topps, while retaining the candy arm, now named The Bazooka Companies Inc. As recently as 2018, internal evaluations reportedly considered the whole Topps business worth just $400 million.
The retention of the confection franchise isn’t insignificant. Based on public disclosures by Topps, the business sold $199 million of candy in 2020, generating earnings before interest, taxes, depreciation and amortization (ebitda) of $39 million. Based on the price-to-sales and price-to-ebitda valuation of two slightly larger, publicly traded candy companies, Hershey and Tootsie Roll, the Topps candy business—anchored by Bazooka Joe gum and Ring Pops—is arguably worth $800 million. The valuation hung on the total Topps card and candy business in April 2021, when Topps agreed to go public by a merger with Mudrick II SPAC: $1.3 billion.
But getting that top-line valuation is unlikely to be chalked up as a win for Tornante and Madison Dearborn, neither of which responded to a request for comment. Collectible cards are booming. Topps’ card business itself sold $369 million in physical and digital cards in 2020, and was projecting growth of more than 40% through this year, to $541 million, according to a Topps presentation to investors last April.
The total trading cards business is sizeable. Market figures are hard to come by, but sales of graded cards issued in 1999 or before probably will be $6 billion this year, according to Brent Huigens, CEO of PWCC Marketplace, one of the largest online sellers of collectible cards. And that ignores the highly popular 21st century cards. “Modern cards have seen a significant rise in demand over the past few years. In fact, the modern market could be growing at 2 to 3 times faster than vintage,” said Huigens, in an email.
Topps was aiming to pull much of the money collectors direct toward existing cards into new products focused on current athletes, such as with MLB NFTs. In both a formal presentation to investors and on television interviews, Eisner repeatedly compared Topps’ potential to Disney’s when he took over as CEO of that company in 1985. Disney’s stock appreciation under Eisner’s 21 years at the helm: 2,000%.
Certainly investors believed that much the same could happen. Shortly after Topps and Mudrick announced their merger last year, shares of the SPAC rallied to a high of $17.68. That pushed the valuation of Topps from $1.3 billion to as much as $2.7 billion when accounting for fully diluted share count. Of that, more than $800 million was Eisner’s alone, thanks to 46 million shares he was to own of the public Topps business. (Tornante intended to roll over all of its equity, while Madison Dearborn was cashing its investment out.) The key to the merger: Topps’ long run as the leading baseball card maker, backed by licensing deals with Major League Baseball and the MLB Players Association. How important was baseball to the business? After an unusual drop in its share prices on June 1, the Mudrick SPAC issued a statement saying MLB and Topps had “reaffirmed” their licensing arrangement.
Two months later, MLB and MLBPA announced they were letting their deals with Topps expire, which scuttled the merger less than a week before it was to be formalized. The announcement blindsided Topps, with players and the league inking long-term deals with Fanatics Trading Cards, a venture majority-owned by Fanatics with Silver Lake, Endeavor and Insight Partners as investors. Terms weren’t disclosed, but it was part of a series of recent deals MLBPA chief Tony Clark said would bring in $2 billion in revenue for players over 20 years. In the most recent year disclosed, Topps paid about $20 million in licensing fees to MLBPA, a fraction of the market value it lost by being outflanked for the rights.