Fanatics to Replace Nike as Exclusive Manufacturer/Distributor of NFL Fan Gear

Fanatics 200x200

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.

Interested in Sports Business? Sports Finance? Sign-up for our free daily email newsletter list, here!

Fanatics to Take on Nike, Adidas, Under Armour

Fanatics 200x200

Aston Villa Football Club (AVFC) has announced that Fanatics, Inc. will replace Under Armour as the exclusive licensing rights holder for all club merchandise, in time for the 2018-2019 season; but, unlike traditional sports merchandising deals, the company logo will not adorn team gear. Instead, the online retailer of licensed sports apparel will negotiate separate pacts for various pieces of merchandise (think: match-day kit, practice gear, fan apparel) with multiple 3rd parties. The rising value of kit sponsorship deals for the world’s most prominent clubs and the resources required to turn a profit on those partnerships, have left second-tier clubs like Villa with little marketing attention, less merchandise to sell and inevitably depressed revenues; opening the door for a new entrant. With the deal, Villa becomes the first English club to adopt the manufacturing model used in North American sports; Fanatics will manage everything from production to point of sale (including the Villa Park store and e-commerce platforms).

Howie Long-Short: This deal is sensible from the Fanatics perspective because it requires minimal capital expenditure to enter the potentially lucrative English football market. Villa’s status as a second-tier club meant that Fanatics faced little competition for the rights; and the company already maintains production and warehousing facilities in the U.K., properties acquired in their $225 million acquisition of Majestic Athletic. It remains to be seen if the club can increase merchandise sales without a major sportswear label’s logo on their products (hint: they will be), but if successful, sponsorship rights will continue to rise as the traditional players (NKE, ADDYY) look to retain control over the apparel space. Much like cable television providers and sports broadcast rights, the current establishment can’t afford to lose their association with sports teams/leagues and still manage to hit their growth targets.

There are several ways to play Fanatics, as Bank of America (BAC), Alibaba Group Holdings (BABA) and Softbank (SFTBY) are all stakeholders. In September, Softbank invested $1 billion in to the company; bring its total valuation to $4.5 billion (or +/- 2x revenue). For comparison purposes, retailers Dick’s Sporting Goods (DKS) and Hibbett Sports, Inc. (HIBB) currently have market caps ($3.33 billion, $494 million); roughly half of what they generated in 2017 sales ($7.92 billion$973 million). Of course, Fanatics is far better positioned for long-term success, maintaining (among other advantages, like a DTC model) exclusive long-term licensing agreements with all the major U.S. sports leagues through at least 2030.

Fan Marino: The team’s match-day kit is going to be designed by Luke 1977, a Birmingham based (where the team plays) premium menswear brand. The company’s logo will replace Unibet on the new design. For what it’s worth, Luke 1977 was named the ’10 Young Fashion Brand of the Year, beating out Diesel, Fred Perry and Firetrap in the process.

Interested in Sports Business? Sports Finance? Sign-up for our free daily email newsletter list, here!

AC Milan Owner Reportedly Bankrupt, Ordered to Auction off Assets

AC Milan

AC Milan owner Yonghong Li is reportedly bankrupt, initiating concerns about the solvency of the team’s ownership group and the status of the team’s star players. Li took out a high-interest loan to purchase the Serie A club from former Italian Prime Minister Silvio Berlusconi, a loan that he could only repay if the team were to return to the Champions League (for the first time since ’12). Currently residing in 7th place (just the Top 4 qualify) and unable to refinance the loan, the club may now be forced to sell off its star players to make loan payments. Reports indicate Li’s assets will be auctioned off on Taobao (BABA subsidiary), with decisions regarding the club’s future will likely be postponed until that occurs. It is unclear if AC Milan will even be considered among Li’s assets; the club is technically owned by Sino-Europe Sports, a holding company that Li maintains a stake in. It must be noted that Li has dismissed reports that he’s insolvent as “fake news.”

Howie Long-Short: Li (as part of a Chinese consortium) acquired the club in April ’17 for $911 million, with the help of a +/-$500 million high-interest loan from Elliott Management and +/-$400 million in off-shore assets; allowing him to take control of the franchise for less than $150 million in cash. For comparison purposes, NFL majority owners must pay at least 30% of the team’s purchase price (+/- $1 billion).

Fan Marino: If you think a U.S. professional sports franchise would never be sold to a prospective owner without the fiscal resources to support team operations, think again. In 1996, John Spano took controlling ownership (for 4 months) of the New York Islanders; acquiring the floundering franchise for $165 million. Spano, worth just several hundred thousand dollars at the time, convinced a series of banks (and league execs) that he had $230 million in assets to his name; enabling him to pull off the fraud. ESPN did a 30 for 30 called “Big Shot” on the story. It’s a must watch, here’s the trailer.

Interested in Sports? Sports Business? Sports Finance? Sign-up for our free daily email newsletter list, here!

Amazon Closes Event Ticketing Operation, May Relaunch with New Platform in 2019

Amazon200x200

Amazon (AMZN) has announced it will be closing its U.K. event ticketing operation (Amazon Tickets), less than 3 months after abandoning plans to launch in the United States; though, the company may be planning to relaunch in 2019 with new technology. Amazon’s open distribution model had some initial success in Europe (signed a partnership with AEG, launched a concert series), but the company’s inability to work out a partnership with Ticketmaster (in the U.S.) was its downfall. Speculation exists that AMZN is working on a new platform that would sync with both Echo and Firestick devices and use AI-powered Alexa to locate tickets.

Howie Long-Short: If you’re looking for “underdogs” that could potentially take on Ticketmaster (LYV), look at Alibaba subsidiaries Tao Piao Piao and Damai.cn. Tao Piao Piao, an online ticketer, was formed out of a partnership between Alibaba (BABA) and Damai.cn in May 2016; BABA has since increased its stake in Tao Piao Piao to 96.7%. In March 2017, Jack Ma’s e-commerce giant acquired the ticketing agency Damai.cn for an undisclosed sum (BABA a minority investor since ‘14). The Alibaba Pictures Group (the entertainment sector of BABA) reported in September, that H1 ‘17 revenue increased 313% YOY (to $165 million); attributing the growth to increased contributions from Tao Piao Piao.

Fan Marino: Here’s to hoping AMZN re-enters the ticketing space; they intended on cutting the service and processing fees for Prime members, a change that would have resulted in a savings of +/- $15 for every $100 ticket purchased.

Interested in Sports? Sports Business? Sports Finance? Sign-up for our free daily email newsletter list, here!

Discovery Communications to Launch “Netflix for Sports” For ’18 Winter Games

discoverycommunicationsx200

Discovery Communications (DISCA) controls the exclusive rights to broadcast the 2018 Winter Olympics (+ the ’20, ’22 and ’24 Games in Paris) across Europe (excluding Russia) and will use the Pyeongchang Games to introduce a new interactive streaming platform that has been described as Europe’s “Netflix for sports”. Eurosport Player will offer fans of the Olympics the ability to watch “every minute, every athlete and every sport, live and on-demand”; enabling the company to aggregate a wide variety of viewing data (across all platforms, both live and catch-up), as it works towards the launch of a DTC subscription service for “superfans” of niche sports. DISCA will air the ’18 Games on linear television, across the continent (50 countries), on its Eurosport (think ESPN) channel.

Howie Long-Short: In 2015, DISCA paid $1.6 billion for the next 4 Olympic Games (including $180 million for the ’18 Games), but company CFO Gunnar Wiedenfels says the games won’t impact full-year profits; lucrative content licensing agreements (i.e. BBC, Amazon in select countries) have already helped the company recoup much of its commitment. Of course, DISCA is on the hook for just a fraction of the $7.65 billion NBC agreed to pay for U.S. TV and online rights through ’32.

Fan Marino: Alibaba (BABA) has launched its first “major branding effort” with the Olympic games (part of a 10-year partnership), a 3-ad story-telling campaign meant to showcase the company globally. While one ad focuses on the company’s values and history championing small businesses, the other 2 convey true Olympic tales; one of a rower who stopped in the middle of a race to let ducks pass and another of a Kenyan Ice Hockey team that had previously never experienced ice. Get your tissue boxes ready.

Interested in Sports? Sports Business? Sports Finance? Sign-up for our free daily email newsletter list, here!

Juventus Building a Global Brand

Juventus Football Club (JVTSF) is looking to build its brand internationally, authorizing the sale of licensed team products in Japan, China and Australia. The Serie A champions are introducing several new product categories as part of the global expansion, including bespoke leisurewear, an exclusive luggage collection and car accessories. All products will be available on e-commerce platforms, like VIP.com, and within select brick and mortar retailers within each region.

Howie Long-Short: VIP.com is a subsidiary of the Chinese corporation Vipshop, which trades on the NYSE under the symbol VIPS. VIPS shares are up 42% since news broke Sunday evening that Tencent Holdings (OTC: TCEHY) and JD.com (JD) are investing $863 million in to the company. TCEHY is putting up $604 million for a 7% stake, while JD spends $259 million for a 5.5% stake. The companies paid a 55% premium for the shares, in what is being perceived as an aggressive attempt to defend against BABA.

Fan Marino: President Andrea Angelli had the one-year ban for his role in a mafia related ticketing scandal lifted, but Italian Football Federation doubled the club’s fine (to $710,000) and will force the team to play its January 22nd match vs. Genoa, with one of the stadium’s main sections closed. Losing the advantage of a rowdy home atmosphere could alter the league’s final standings. The club currently sits one point behind 1st Place Napoli and one point ahead of 3rd Place Inter Milan.

Juventus introduces licensed products in Asia and Australia as part of global expansion

For the balance of today’s newsletter, sign-up here!

Nets Owner Sells 49% of Franchise at $2.3 Billion Valuation

Brooklyn Nets owner Mikhail Prokhorov has agreed to sell 49% of the NBA franchise to Alibaba (BABA) co-founder, Joseph Tsai; with Tsai receiving the option to purchase controlling interest in the franchise in 2021. Prokhorov will remain the operating owner for the next 4 years, while Tsai will not maintain any role on the business or basketball side of the franchise during that time. The deal does not include the Barclays Center, which has an estimated value of $1 billion.

Howie Long-Short: Tsai acquired the Nets at a $2.3 billion valuation, eclipsing the NBA record $2.2 billion that Tilman Fertitta paid for the Houston Rockets. The Nets lost $23.5 million last season (2nd most in NBA, beyond only Detroit), while generating a league lows from its local TV contact. There is simply no way the Nets are worth $2.3 billion. The last NFL team sold was Buffalo, for $1.4 billion in 2014. The NFL generated around $11 billion in revenue during the 2014 season. The NBA generated roughly $8 billion last year. How could NBA teams be worth over a billion dollars more, when the league generates less revenue and pays out a higher percentage to their players?

Fan Marino: Sports fans want 3 things from the owner of their favorite team; a passion to win, a willingness to spend and to stay out of player personnel decisions. Based on that criteria, Prokhorov has been a tremendous owner for the Nets. As a Nets fan though, I’ll never forgive him for hiring Billy King, signing off on one of the worst deals in professional sports history and moving the franchise from New Jersey.

Joseph Tsai agrees to purchase 49 percent minority stake in Nets, sources say

Editor Note: The summary for this story was written by our friends at The Water Coolest. Check out TheWaterCoolest.com for the latest market news and professional advice.

For the balance of today’s newsletter, sign-up here!

LULULEMON CEO SAYS BRICK AND MORTAR RETAIL IS HERE TO STAY

Lululemon (LULU) CEO Laurent Potdevin remains bullish on the future of brick and mortar retail, saying “people don’t want to be stuck on their phone” and those that seek “mindful lifestyles continue to crave human connections”. The company employs 10,000 “educators” to develop those connections within in their 421 stores and an additional 2,500 “brand ambassadors” worldwide to foster human engagement. Potdevin points out that Lululemon should not be grouped with other struggling athleisure apparel companies, as the brand does not sell footwear and controls its fleet of stores (competitors tend to be wholesale companies).

Howie Long-Short: Yoga’s popularity in China is growing and Lululemon is cashing in with sales in the country up 350% YOY. LULU, who has an exclusive partnership with Tmall (BABA), China’s largest B2C e-commerce platform, saw a 100%+ increase in traffic and higher conversion rates lead to a 175% YOY increase in sales on the platform. Rapid growth within the Asian market puts the company’s $4 billion revenue target for 2020 in sight.

Fan Marino: Speaking of footwear, NBA MVP Russell Westbrook is the new face of Jordan Brand (NKE). Westbrook signed a 10-year deal that will make him the highest paid endorser in the history of the company. Westbrook will also get his own signature shoe line. While financial terms of the deal were not released, Westbrook shouldn’t be short on cash. He recently signed the richest deal in NBA history, a 5 year $205 million extension with Oklahoma City.

Lululemon CEO: Retail isn’t dead because people ‘crave human connections’

ALIBABA ACQUIRES MOBILE GAMING COMPANY, LAUNCHES DIVISION TO DEVELOP OWN TITLES

Alibaba (BABA) Digital Media and Entertainment Group has announced the acquisition of mobile gaming company Ejoy and its plans to launch a new games division; just 6 months after laying out plans for a $145 million venture into mobile gaming distribution. The new division will develop its own titles and leverage the resources of BABA sister platforms, like online videos and movies, to push its way in to the world’s largest gaming market. The Chinese online gaming industry was last estimated to be worth $11.8 billion and is expected to grow to $27.5 billion by the end 2017.

Howie Long-Short: While late to the game, Alibaba is not new to the gaming sector. In 2014, the company made a $120 million investment into mobile gaming co. Kabam, the developer behind Marvel: Contest of Champions and Kingdoms of Camelot. The expected growth within the industry certainly provides BABA the opportunity to carve out market share, but they have some ground to make up; competitors Tencent (OTC: TCEHY) and NetEase (NTES) currently bring in 70% (41.2% and 28.5% respectively) of all Chinese online gaming revenues collected. It is worth noting that online gaming revenues accounted for 47% of TCEHY’s 2016 total revenue.

Fan Marino: Retired gamers and nostalgia junkies spent last weekend on their couches, as Nintendo re-released its classic Super NES system on Friday September 29th. The console, originally released in November 1990, includes 21 games including classics; “Super Mario World” and “Yoshi’s Island”. The biggest complaint I’m hearing about the re-released version? The controller wires are still too short! The more things change, the more things stay the same.

Alibaba Is Making Bold Moves in Online Gaming With Newest Acquisition

 

ALIBABA EXECUTIVE PURCHASES SAN DIEGO NLL TEAM; JOINS KROENKE, PEGULA AS TEAM OWNERS

Alibaba (BABA) Executive Vice Chairman, Joe Tsai, has purchased the San Diego based expansion franchise of the National Lacrosse League, set to begin play for the 2018-2019 season, for $5 million. With the expansion, NLL now has teams in 10 cities with the intention of adding a couple of new franchises annually. League attendance surpassed 10,000/game last season (up 12%) and the NLL now has 25,000 subscribers to their digital TV network, launched just 9 months ago. Tsai, a former Yale lacrosse player worth an estimated $11.4 billion, has also expressed interest in purchasing a piece of the Brooklyn Nets.

Howie Long-Short: When guys like Stan Kroenke and Terry Pegula are investing in teams, the league has a future. It is also a lot more affordable than buying an MLS expansion franchise these days ($150 million).

Fan Marino: Did you know that NLL games are played indoors? Unlike collegiate lacrosse that is played on an outdoor field, NLL is played indoors in a rink or “box”. The games are 6 on 6, each teaming having a goalie and 5 “runners”.

Lacrosse League Expands to San Diego With Alibaba Billionaire