Fanatics is selling its stake in NFT startup Candy Digital to an investor group led by Galaxy Digital, which co-founded Candy along with Fanatics and Gary Vaynerchuk in early 2021. The news was first reported by CNBC, citing a Fanatics company email.
Update: Later in the day, Candy announced a Series A1 funding of an undisclosed amount. A Candy Digital spokesperson confirmed the funding includes a buyout of most of Fanatics’ stake. The round was led by ConsenSys Mesh and Galaxy, with ConsenSys and 10T Holdings joining the round. Galaxy founder Michael Novogratz and ConsenSys founder Joe Lubin are former roommates at Princeton. Candy uses the Palm network Ethereum sidechain. Palm was co-founded by Joe Lubin and former ConsenSys staffer Daniel Heyman. ConsenSys was interested in sports NFTs and reportedly landed a deal for Premier League football NFTs, only to attempt to renegotiate it.
In October 2021, Candy raised $100 million in a deal valuing it at $1.5 billion, co-led by Insight Partners and Softbank Vision Fund 2, with participation from Peyton Manning and Connect Ventures, the joint venture between sports agency CAA and New Enterprise Ventures. Notably, Softbank also participated in a $700 million funding round for Fanatics in December 2022 that valued the company at $31 billion.
“Over the past year, it has become clear that NFTs are unlikely to be sustainable or profitable as a standalone business,” Fanatics CEO Michael Rubin wrote in the email cited by CNBC. “Aside from physical collectibles (trading cards) driving 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.”
While there’s no question that NFT prices were inflated by speculation, it’s also hard to deny the transition of entertainment to a digital experience. Particularly for younger generations. Brands continue to embrace the concept, although many opt for the term ‘digital collectible’ to avoid association with scams.
Fanatics’ commitment to physical collectibles is unsurprising given its substantial investments in acquiring rights. Shortly after launching Candy Digital, Fanatics scooped up collectible rights for the MLB, NBA and NFL Players Association. Topps had owned the MLB rights for 70 years and was forced to abandon a SPAC listing. Fanatics later acquired it for $500 million.
Candy Digital owns MLB digital collectible rights as well as a variety of other rights, such as with NASCAR teams through the Race Team Alliance. Until recently, Candy was unable to use NASCAR branding, but its most recent collection launched in December showed the iconic branding front and center.
In November, it was reported that Candy had cut a third of its staff. Fellow sports NFT company Dapper Labs (NBA Top Shot, NFL All Day) also reduced staff by 22%, and Galaxy made a similar proportion of layoffs.
Meanwhile, Galaxy has made two acquisitions in the past two months: the GK8 crypto custody platform and Helios Bitcoin Mining from Argo Blockchain.
