Fanatics Denies Report of Rubin Mulling Equity Sale

Posted on: July 24, 2024, 02:11h. 

Last updated on: July 24, 2024, 02:34h.

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

Fanatics denied a report that said Chairman and CEO Michael Rubin could be considering selling a stake of up to $1 billion in the privately held company.

Fanatics valuation
Fanatics founder Michael Rubin at an event in 2021. Contrary to a media report, the company says he’s not selling equity. (Image: Getty Images)

Citing unidentified sources in the world of private stock transactions, William Cohan reported for the Airmail Newsletter that Rubin has been kicking the tires on potentially selling $250 million worth of his equity in the company that was founded in 1995. That could be part of a broader $1 billion sale of his stake in the company, but Fanatics said such a transaction isn’t in the offing.

A Fanatics spokesman told the New York Post that the Airmail Newsletter report isn’t accurate and that Rubin isn’t looking to sell any of his equity in the company. Fanatics was part of Global Sports Incorporated, which Rubin sold to eBay for $2.4 billion in 2011. The online auction site only wanted Global Sports’ e-commerce operations, paving the way for Rubin to astutely buy back Fanatics for $330 million.

That amounted to a pennies-on-the-dollar deal because Fanatics was valued at $31 billion following a $700 million capital raise in December 2022.

Fanatics IPO Appears to Be On Hold

The refuted rumor of Rubin potentially trimming his stake in Fanatics arrived as it appears increasingly unlikely the sports apparel giant will market an initial public (IPO) offering in 2024.

That IPO is one of the most widely anticipated in the sports world, including betting, but some Wall Street sources told the Airmail Newsletter Fanatics is grappling with earnings before interest, taxes, depreciation, and amortization (EBITDA) and revenue erosion this year – points the company refutes. A spokesman told the publication Fanatics expects 2024 sales of $8 billion compared with $7 billion last year. The parent of Fanatics Betting & Gaming also sees 2024 EBITDA topping last year’s figures, and 2025 EBITDA exceeding this year’s levels.

In a report out last December, Fitch Ratings observed that Fanatics’ 2024 and 2025 EBITDA should improve helped by a rebound in e-commerce sales and declining losses in the sports wagering unit. Still, the research firm lowered its rating on Fanatics to “B+” from “BB-“ — both of which are junk grades — due in part to weakening free cash flow (FCF).

“FCF is expected to be negative over the next two or three years, driven by operating underperformance as well as the losses incurred in the buildout of the Gaming subsidiary. FHI’s liquidity remains good across the rating horizon, enabling FHI to absorb negative FCF while maintaining good liquidity,” according to Fitch.

Fanatics IPO Still Possible

Even if Rubin were to sell some of his Fanatics equity it wouldn’t necessarily be alarming as founders frequently look to raise cash and diversify their portfolios. Nor would it be a detriment to IPO efforts. A cash stockpile of $1.7 billion helps matters.

For now, the company appears content to remain private and build out its various segments, including bolstering its sports betting unit and the Topps trading card division.

Fanatics counts the four major US sports leagues — Major League Baseball (MLB), the NBA, NFL, and the NHL, as well as Major League Soccer (MLS) — among its investors. Other investors include Silver Lake, SoftBank, BlackRock, Fidelity, and MSD Partners, an investment vehicle controlled by Dell founder Michael Dell.