The Hobby Sky is FALLING!...or at least that’s what I initially saw and heard when I came back from my first vacation during the pandemic (I have incredibly poor timing). News broke over social media that Fanatics secured exclusive licenses with the MLBPA, starting in 2023, and the MLB, starting in 2026, for producing licensed baseball cards. The reactions spanned the entire spectrum from positive to negative with a heavy weighting towards negative. Let's dig into all the details and speculate if all of the Chicken Little anguish is warranted.
First, let me say this - this is unquestionably the biggest news in the baseball card collecting hobby, let alone the overall hobby, in over a decade. The last time something this monumental happened was when MLB (and the other major sports) went from non-exclusive to exclusive licensing back in the late 2000’s. That was near the end of the manufacturer consolidation to the three major players (Topps, Upper Deck, Panini) and each of those major players claiming their territory. Topps planted its flag on the MLB and exited the other major sports, Upper deck planted its flag on the NHL and likewise exited the other major sports, and Panini claimed the NBA and the NFL while taking a halfway approach to baseball with an MLB Players Association-only license.
What Happened
The news started leaking out on Thursday, August 19th on social media from various sources that Fanatics had acquired the licenses for the next cycle of trading cards from both the MLBPA and the MLB, which are separate licenses. Rumors soon followed that Fanatics was also attempting to acquire the NBA Players Association, the NFL Players Association, and perhaps the NBA and NFL league licenses, and it appears that this has indeed acquired everything but the NFL league license. My guess is that the NFL league license is still under negotiation and will likely end up with Fanatics once all is said and done.
How it Happened
Fanatics is quickly turning into one of the behemoths of the sports business world. They started with licensed apparel and have recently begun making big bets and forays into multiple different areas of sports - memorabilia, NFT’s, sports betting, and now trading cards. In their most recent round of funding, one of their investors was, surprise, surprise, Major League Baseball, which by the way, brought the valuation of the company up to $18 billion. Meanwhile, Topps valuation before the Fanatics news as it was preparing for going public via a Special-Purchase Acquisition Company (SPAC) was paltry $1.3 billion in comparison.
With that funding power and expected $3.4 billion in revenue in 2021, they could basically outbid any of the existing players for whatever targets they chose. According to ESPN, an internal memo sent by the head of the MLBPA players association, Tony Clark, to its membership stated that the new Fanatics deal was worth 10 times more than their previous deal. In 2020, the Topps deal with the MLBPA was worth just north of $20 million for that year alone. There has not been any other numbers to work off as of yet, but I doubt the deal for the MLBPA came out to $200 million a year. It is likely some combination of increased yearly compensation plus equity in the newly formed Fanatics trading card division. And this is probably the same formula Fanatics used to swoop in and acquire all of the other licenses they have gobbled up so far (MLBPA, MLB, NBAPA, NBA, and NFLPA).
Fallout
It was first rumored that Topps was unable to match the Fanatics offer, but even if they were given that opportunity, I have to believe they wouldn’t have come anywhere close. And according to the New York Times, they actually weren’t given that opportunity
The timing of the announcement from the Topps perspective was also quite a blow as they were preparing to go public via a SPAC put together by Mudrick Capital Acquisition Corporation II ($MUDS) which was announced back in April. The final vote before the go live was scheduled for August 25th, and then it would have been all systems go shortly thereafter. Just a day after the Fanatics news broke, on Friday, August 20th, Mudrick announced that the SPAC merger was terminated upon mutual agreement with the Topps parent company. Safe to say that suddenly Topps is in a lot worse situation today than it was at this time last week.
The Sky is Falling!
Before I get too far into all of the theories and opinions, there is one very interesting tidbit that has surfaced about the new Fanatics Trading Card Division (or whatever it will be called). The co-founder of StockX, Josh Luber, has signed on to lead the new venture. He stepped down as CEO of StockX in June 2019, shortly after they previewed a dedicated collectibles section of the website that included trading cards in May 2019. Eventually this went live around October 2019, after Luber had left, but it is safe to assume that he likely had a hand in pushing that initiative to fruition. While he may get negatively labeled a “sneakerhead” by those in the hobby circles, it is interesting to see that in his LinkedIn profile, he starts it by saying “Trading cards are cool again”.
Now for the fun stuff. Let’s start with one of our more prominent hobby curmudgeons, Keith Olbermann:
Many other similar opinions were expressed in forums, discords, and from twitter handles I follow. Anything as simple as “This sucks”, “Fanatics sucks”, “Today is the day Topps died”, etc. I don’t have a ton of commentary here because most of it seems like emotional reactions as opposed to thought out ones. I will say that plenty of it is rooted in the fear of change and the loss of the familiar, which is understandable, but not something that is easy in providing counterpoints to.
Shortly after the initial shock, a lot of speculation shifted in a few different directions. One direction is that Topps, Panini, and/or Upper Deck would all become acquisition targets or possibly work out licensing deals with Fanatics.
As Phil says, a lot of this speculation is based on the startup barriers for the trading card industry. A main argument is that you can’t just put together the assembly line and production process with a snap of your fingers. While it sounds like a valid argument, the reality is that Topps and Panini contract out the printing process to the SAME independent company. It’s not like they are doing that in-house, and thus Fanatics will easily be able to do the exact same thing in sub-contracting their production line.
The second angle taken here is the brand and product cachet. What will happen without the hobby’s beloved Heritage products or Bowman prospect products, etc.? Fanatics can’t possibly afford to turn off the hardcore collectors by not acquiring the beloved products within the hobby community and bringing them over to the new endeavor. I honestly don’t think Fanatics cares about this, and I don’t think they should. The percentage of collectors who collect the non-flagship products for the love of the product and not for the players in the product is miniscule in the grand scheme of the hobby. Those people will literally have no bottom-line impact if they choose to stop collecting when Fanatics takes over, and the bottom-line is why Fanatics is getting into this game. As for the “1st Bowman” argument that drives prospect products, it really is as simple as a rebrand - call it Fanatics Prime Prospect or something like that for the first time a player gets their official prospect card. Prospectors aren’t tied to the “1st Bowman” brand - they want the first officially licensed prospect card whatever it’s called.
In the end, I think Fanatics would be willing to purchase portions or all of the existing big players or perhaps license their IP as long as it comes really cheap. But I fail to see why they would not be able to start from scratch, especially with some key hires on the logistical side of the business. They certainly have the money to be able to attract the necessary talent from the Topps, Panini, and Upper Decks of the world. Keep in mind that they have followed a similar path in the infancy of their Fanatics Sportsbook division. Hire an industry talent to lead the org (Matt King, former CEO of FanDuel), partner with an existing software gambling provider (like they can do with the production contractor for Topps/Panini), and not waste money and effort in acquiring any of the existing industry players.
The Future of Topps
Putting aside the potential for mergers and acquisitions or licensing of IP, Topps future growth sure has darkened after this news. They still have a baseline value business on the confectionery side of the house. In Q1 2021, they had $63.5 million in sales which would roughly lead to $250 million in yearly sales if we wanted to do some simplistic math. That foundation won’t change much. The real hit is on the growth side of the business, the trading card and collectables side of the house. It doubled in revenue year over year from Q1 2020 to Q1 2021 going from $50.2 million to $103.2 million. While this is not broken out by product line, you can lay a hefty bet that the majority of this was driven by their baseball properties.
The biggest speculation is what will happen between now and when the MLBPA and MLB licenses expire. The general consensus in the hobby is that Topps will keep the printing presses running non-stop until those licenses run out, significantly increasing print runs. I tend to agree with this theory and would be surprised if it doesn’t happen. Hobby buyers beware of potential supply gluts across the majority of products.
The other major talking point is what happens with the gap between the MLBPA license expiration (end of 2022) and the MLB license expiration (end of 2025). Once Topps no longer holds the MLBPA license, they will no longer be able to use the name, image, or likeness of players (NIL) without having individual deals with them like they currently do with Mike Trout and Shohei Ohtani. That is a three year gap where they have the ability to print trading cards with MLB logos and team names, but not with the majority of MLB players. They could give up printing their MLB products, sublet their license to Fanatics for the three year gap so Fanatics doesn’t go the Panini route with no logos or team names (if this is even possible to transfer over to another company), or perhaps the reverse where they sublet the MLBPA license from Fanatics. There are probably various other scenarios I am not thinking of, and honestly this one has me the most unsure of what is likely to happen. What I do know is that they will likely go full ham on the prospect products under the Bowman umbrella as amatuer and minor league players are NOT part of the MLBPA and thus not covered under the MLBPA license.
A final thought here unrelated to baseball card products. I expect Topps, again absent any integration with Fanatics, to significantly amp up the number of products and production runs of their existing non-baseball properties. Soccer (MLS & some portions of the European markets), Formula 1, Star Wars, WWE, Garbage Pail Kids, etc. will likely see the majority of the brands we see in baseball or derivatives of those in the near future, if we haven’t already.
The Future for Baseball Card Collectors
Let’s start with Fanatics and how they will do. The whole range of possibilities exist here, and pretty much everyone has an opinion here. Positive, negative, neutral, or ambivalent. For me, these are some of the items I will be looking to see how Fanatics approaches as I think they will be important to the future success and health of the hobby in varying degrees:
Solve the supply and demand problem. This is a large subject, but my main two points to address here are the retail flipping situation and the distributor/middle man model. I don’t have the ultimate answer here, but if Fanatics can eliminate the significant disparity between distributor pricing and general public pricing, the majority of the rest of the below challenges and concerns are almost moot points. The fact that I could be paying anywhere from 3 to 10 times markup on a product to someone who Topps originally sells the product to is typically an unhealthy long term situation. 100% direct sales or direct sales + mandated secondary prices seem like the solution, but I am not an economist. Retail flipping comes secondary to this main disparity issue above, but it is also a major pain point for the hobby. It seems like this is becoming less of an issue recently with a lot of retail sales moving online and dispersed to more vendors, but it is still a big problem that I don’t really have an answer to.
Solve the base card problem. We are swimming in base cards, especially in relation to the most important products in the hobby - Flagship, Flagship chrome, and the three core Bowman releases (Baseball, Chrome, and Draft). A majority of collectors give away a significant amount of the cards they acquire, or stick them in boxes and binders never to be looked at again. I can’t think of another product I purchase that I could care less about 90% of and actually would prefer to give away 90% of the product as soon as I open it.
Solve the hit wax era problem. We have entered the hit wax era, or whatever you want to call it, where 90% of the “hits” in a product are worth significantly less than the price you paid for the product. The plethora of autos and relics you end up with that are worth under $10 is very concerning to the long term health of the hobby.
Most relic cards have become a joke and lack value. Single color relics, especially “tighty whities” or “napkins” are especially boring. We want variation and multiple colors to have any interest. I get it; it’s a challenging issue to solve because when you go the opposite direction, you end up with player-worn material like the infamous Mark Ingram wearing 100 jerseys that aren’t even his own number or Leaf Trinity where patches were worn on team jerseys before some of the prospects were even born.
Quality issues. There are too many to name here, but the QC issues in the hobby are numerous. From poor printing and miscut cards, card condition issues straight out of the pack, missing hits, auto cards without autos, etc. The bar is low here and one would hope that after Fanatics hits its stride, a lot of these would be things of the past...but I’m not holding my breath on this one.
Sticker autos. Get rid of them. This one is less important from a long-term health perspective. But most collectors would prefer they don’t exist as it devalues the card and enables more shenanigans. Another change that would greatly please the hardcore hobby crowd.
Redemptions. Get rid of them. The highs are so high when you hit an auto of a great player, even if it is a redemption. The frustration and disappointment of not having that redemption filled for an extended period of time sucks. The fact that they expire makes opening older products a bit like playing Russian roulette as well. Getting a hit that is not redeemable is a bit of a kissing your sister situation. Like sticker autos, not really too important from a long-term hobby health perspective, but something that would be applauded by collectors far and wide.
Panini Points. Get rid of them. Less of a problem in baseball, but still something I’ve come across in some Panini baseball products. I really really hope Fanatics does not replace hits with Fanatics points or whatever their equivalent will be. It helps to increase the print runs, and it does nothing but frustrate the majority of people who end up with them. I understand there is some value here, but we could all do without them and still enjoy access to exclusives like the white sparkle packs in other ways.
On Average. This is a Panini problem and not a Topps problem. Topps guarantees the hits you get in boxes. Panini does not and uses the “on average” verbiage. I really hope that Fanatics does not do that as it will lead to negative hobby impact and it’s really not necessary. Sometimes one, on average two, sometimes three is not good for the hobby.
Final Thoughts
I prefer to withhold judgement at this point and would tend to be optimistic about the entire situation as it plays out moving forward. I will miss Topps, if that is indeed what happens, but there will also be plenty of things about Topps that I won’t miss. Things like their terrible website, paying lip service to the hobby’s concerns, increasing production AND prices every year, etc.
I want to circle back to an item I mentioned earlier - the co-founder of StockX, Josh Luber, leading the new Fanatics Trading Card division. He solved a not insignificant problem in the hobby, albeit one that he solved in the sneaker space first. Guaranteeing authenticity of the aftermarket product when moving from seller to buyer. There have been too many horror stories of buying sealed wax on eBay and elsewhere (outside of Baseball Card Exchange or BBCE) that turned out to be tampered with and resealed or worse. With StockX, they verify and guarantee the sealed wax as it moves from the seller’s hand to StockX’s hands and finally to the buyer’s hands. This gives me some hope that he will be aware and willing to solve some of the hobby’s bigger and tougher problems.
The fact that the sports leagues and players associations have some skin in the game is another interesting tidbit. It may end up meaning nothing, or it could lead to their interest in ensuring that the hobby stays healthy in the long term so it remains a cash cow and not just a quick cash grab with no thought of the future.
Finally, part of the reason I am optimistic is that it will be fun, no matter what happens. That is part of what a hobby should be. If they succeed, especially with new and fresh products and ideas, that would be great to be a part of. And if Fanatics fails, I will find the humor in how badly the ship goes down. I will make jokes at their expense. But I will also be ready to pivot towards pre-Fanatics collecting. More vintage, more junk wax, and more pre-Fanatics modern. There is so much of that which is on my long list of adding to my collection “one day”, and that day may come sooner when Fanatics enters the picture.
Change is what you make of it. For some collectors, the sky is truly falling. I feel bad for the set collectors if they in fact lose the ability to go after their favorite products year after year (Heritage, Gypsy Queen, Allen & Ginter, etc.). Outside of that, I think we have to exercise patience, see the glass as half full, and be prepared to pivot our collecting habits whatever the outcome ends up being. I, for one, don’t think the sky is falling.