Fanatics sells majority stake in NFT firm Candy Digital to Novogratz – Sportico.com
Fanatics has sold its 60% stake in Candy Digital, the NFT platform that it launched in 2021.
The company’s equity was bought by a group led by billionaire Michael Novogratz Galaxy Digital, Fanatics CEO Michael Rubin told employees Wednesday in an email, seen by Sportico. The email cites a few reasons for the move, including what Rubin called “an imploding NFT market” and doubts that NFTs are sustainable as a standalone business; competing targets for Candy investors; and a desire to preserve relationships with other shareholders who came to Candy via Fanatics.
On Thursday, Candy Digital announced that some of its other investors joined Galaxy Digital in the new funding. They include blockchain accelerator ConsenSys Mesh and growth equity fund 10T Holdings. Terms were not made public.
Fanatics co-founded Candy Digital in June 2021 with Novogratz, one of Wall Street’s most notable crypto investors, and digital media entrepreneur Gary Vaynerchuk. Four months later, the company was valued at $1.5 billion in a funding round that included former Fanatics investors SoftBank and Insight Partners.
The email did not specify a valuation of the Fanatics sale, although it suggests a figure lower than $1.5 billion.
Candy said in a statement that Fanatics has been a “great partner” for the company and that Candy continues to believe that “the utility and accessibility of digital goods is a game changer for consumers.”
“We are also thrilled to have the support of new investors who share our vision and believe in the potential of digital goods to shape the future,” the statement said.
Fanatics declined to comment. A representative for Galaxy Digital did not immediately respond to a request for comment.
The move comes amid a market reset for cryptocurrency, and more specifically, sports NFTs. Monthly sales for NBA Top Shot, the first major NFT sports product, fell to $2.2 million in December after peaking at $224 million in February 2021.
The new reality has caused many in sports to reset their expectations of the digital collectibles. In November, Dapper Labs, the company behind NBA Top Shot and NFL All Day, announced a 22% cut. That same month, Candy Digital laid off about a third of its roughly 100 employees.
“Over the past year, it has become clear that NFTs are unlikely to be sustainable or profitable as a standalone business,” Rubin said in the email. “Apart from physical collectibles (trading cards) that drive 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.”
The sale is the latest major business move for Rubin, who is trying to make Fanatics a one-stop trading platform for sports fans around the world. In addition to its core merchandise business, Fanatics is expanding into trading cards and sports games. Rubin recently sold his stakes in the Philadelphia 76ers and New Jersey Devils for $2.5 billion, and led a $250 million purchase of retro apparel maker Mitchell & Ness. Fanatics was valued at $31 billion in a recent funding round.
In his email to employees, Rubin mentioned that the sale will help Fanatics “maintain the integrity of our relationships with our investors,” some of whom also bought into Candy.
“Selling our stake at this time allowed us to ensure that investors were able to recoup the majority of their investment via cash or additional shares in Fanatics – a beneficial outcome for investors, particularly in an imploding NFT market that has seen strong fall in both transaction volumes and prices for standalone NFTs,” Rubin said.
The email also said Fanatics and Candy were never able to integrate culturally “due to shareholders with competing goals and objectives.” Fanatics will still have some involvement in digital collectibles – it has a separate NFT vertical linked to Topps, the trading card company it acquired a year ago.
Candy Digital’s partners include MLB, WWE and Netflix.
