Fanatics, renowned for its sports gear and collectible cards, is making a significant leap into the sports gambling industry, positioning it as a crucial element of the company’s future expansion. CEO Michael Rubin forecasts that betting operations could account for as much as 40% of Fanatics’ earnings within the next five years.
The company’s foray into the sportsbook market began in 2023 with the acquisition of PointsBet’s US assets, which Rubin described as a strategic launchpad for future profitability. Despite the hefty $1.5 billion price tag, Fanatics anticipates initial financial losses, projecting around $300 million this year and $150 million the following year, before achieving profitability by 2027. In a CNBC interview, Rubin noted that this strategy positions Fanatics favorably compared to competitors like DraftKings and FanDuel, which have invested significantly more to achieve their current size.
Fanatics currently trails behind the industry leaders, who each command approximately 35% of the US market. Nevertheless, the company has made substantial progress, increasing its market share from zero to about 8% in just two years. August marked a significant milestone for Fanatics, with a betting handle of $565.8 million, more than doubling its previous best and securing second place in New York according to state regulators.
Expansion remains a central focus for Fanatics. The company has reached an agreement with Boyd Gaming to launch online betting in Missouri and open Fanatics-branded sportsbooks at Boyd’s casinos located in Kansas City and St. Charles. Missouri will become the 24th US location for Fanatics’ betting division, underscoring its nationwide aspirations.
Rubin emphasized that Fanatics’ comprehensive network spanning products, memorabilia, and betting offers unique advantages. Customers receive “FanCash” on every wager, win or lose, which they can redeem for gear, tickets, or additional bets. This strategy not only reduces customer acquisition costs but also fosters engagement across multiple facets of the business. Fanatics plans to distribute approximately $1 billion in FanCash next year.
Moreover, the company has adopted player-friendly policies, such as refunding bets if athletes exit games due to injuries. While these measures can be costly—recalling an instance where it cost $1 million—Rubin argued that fairness cultivates long-term customer loyalty.
Industry analysts suggest that as the US market consolidates, Fanatics’ strategy could enable it to erode the market dominance of DraftKings and FanDuel. With its current valuation at $31 billion and projected $8.1 billion in sales from merchandise and trading cards in 2024, Fanatics is banking on its diversification strategy to transform sports gambling into its next major revenue stream.
If Rubin’s projections hold true, by 2027, sports betting could constitute nearly half of Fanatics’ profits, marking a significant evolution for a company primarily known for its sports apparel and collectibles to date. However, skeptics highlight the challenges of breaking into a saturated market. DraftKings and FanDuel have spent years and billions of dollars establishing their brands and customer bases. Fanatics, they argue, has a steep hill to climb in terms of building similar trust and brand recognition within the sports betting community.
The company’s integration of retail and betting could be a game-changer, some experts believe. By offering tangible rewards that fans can use across different aspects of the sports experience, Fanatics might capture a segment of the market that values both memorabilia and the thrill of the bet. Additionally, its existing relationships with sports leagues and teams could provide a unique leverage point that pure-play betting companies do not have.
On the other hand, the rapid market expansion also brings regulatory challenges. Each state in the US has its own set of rules governing sports betting, and navigating this complex landscape requires significant resources and expertise. Fanatics will need to ensure compliance and adapt its offerings to meet various legal standards, a task that is as crucial as it is daunting.
Overall, Fanatics’ ambitious move into sports betting represents a bold shift in its business model. The company’s willingness to absorb initial losses and invest heavily in customer engagement highlights its long-term vision. As the competitive landscape of sports betting continues to evolve, Fanatics’ ability to execute its strategy effectively will be closely watched by industry observers, competitors, and investors alike.
