Michael Rubin’s next gamble: Turning Fanatics into a sportsbook

Michael Rubin’s Fanatics is synonymous with sports apparel. He wants it to be synonymous with sports betting. (Joe Carrotta/For the Washington Post)

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PHILADELPHIA — It was halftime of a 76ers game, and the owners’ lounge, in the bowels of Wells Fargo arena, was humming: Bartenders poured Opus One wine into plastic cups; Pat’s cheesesteaks lined the buffet table; and those lucky enough to have courtside seats for the game filed in to mingle.

Sixers co-owner David Blitzer lamented that the Phillies hadn’t forced a Game 7 of the World Series. Eagles safety C.J. Gardner-Johnson, wearing an Allen Iverson Mitchell & Ness throwback jersey and green-tinted dreadlocks, shared a hug with the rapper Meek Mill. Meek Mill, then, went looking around for someone else.

“You gotta meet Mike,” he said.

Michael Rubin, the billionaire CEO of sports apparel and e-commerce giant Fanatics, soon materialized wearing a black hoodie, black jeans and Nikes. He quickly noted Gardner-Johnson’s Iverson jersey.

“We just bought Mitchell and Ness!” he said.

“I’ll put it on my IG,” Gardner-Johnson said.

With a smile, Meek Mill added: “Everybody’s working on direct-to-consumer.”

Rubin, 50, is a former minority owner of the 76ers. He sold his shares in the team this year to focus on Fanatics, which for the last decade has been the go-to website for sports fans to buy licensed gear ranging from jerseys and hats to car magnets to onesies. Over the last two years, Rubin has expanded Fanatics’ reach, acquiring Mitchell & Ness and investing in the hat retailer Lids; buying up trading-card rights; and signing up dozens of NBA players as investors. Fanatics recently completed a $700 million round of fundraising. Investors valued the company at $31 billion.

Rubin, though, has his eye on something bigger: sports betting.

“People say that I’m nuts saying I think we’ll be the number one player in the space a decade from now,” he said before the game. “But I do think that.”

This series will examine the impact of legalized gambling on sports, through news coverage, accountability journalism and advice for navigating this new landscape.

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Rubin speaks in a raspy voice with a Philly twang. He’s of that breed of billionaire that seeks out visibility rather than cocoon himself in his fortune. His Instagram feed is plastered with photos of famous athletes (Joel Embiid) and musicians (Jay-Z), which has made him a bona fide celebrity in his own right, part Gatsby and part Bezos.

New England Patriots owner Bob Kraft compared him to a tech mogul. Magic Johnson said he’s the only person who has ever reminded him of famed Lakers owner Jerry Buss. Noah Garden, an MLB executive, called Rubin an “a–hole.” “That’s what I thought when we first met, but we’re great friends now,” Garden quickly added.

“A lot of people with money are awkward,” said Sixers star James Harden, who considers Rubin a friend. “Michael’s so normal.”

The question is whether that can all help Rubin turn his e-commerce behemoth into a successful sportsbook, and whether that pivot can propel Rubin’s Fanatics into a brand that is as meaningful to sports fans as, say, ESPN. If he can, he’ll make sports merchandise the latest frontier, joining TV advertising, media companies and star personalities, set to be conquered by betting.

It won’t be easy. Four years in, the sports betting industry is already littered with well-positioned companies that are licking their wounds. Many operators spent billions of dollars acquiring customers. DraftKings’s stock price is a quarter of what it was two years ago. Wynn’s digital business was on track to lose $200 million in the third and fourth quarters this year. FanDuel, the only gambling operator to turn a quarterly profit this year, spent $1 billion on marketing last year.

Sportsbooks are sweating their billion-dollar marketing bet

Rubin, who knows a thing or two about parties, has either missed this one or has perfectly positioned his array of businesses for the moment. Instead of spending millions on marketing, Rubin said, he can lure his customers with … free T-shirts.

“I’m gonna tell you this right now with no fear of people copying me because they don’t have the businesses,” Rubin said. “I’m going to create the greatest cross-loyalty program in sports? Do you know how much we can do?”

Rubin grew up in the Philadelphia suburbs, the son of a veterinarian and psychiatrist. He was a lousy student and an even worse athlete, he said, but he was always hustling. His first business was a snow-removal operation. He’d charge neighbors $20 to shovel a driveway and then hire other kids to do the work, paying them a couple of bucks an hour. “It was a high-margin business,” he said.

He dropped out of Villanova after just a semester, but in the late 1990s, he saw Amazon making moves in e-commerce. He thought he could do something similar for companies and, calling his firm GSI Commerce, signed up brands like Ralph Lauren and Toys R Us to run their websites and process their online orders. He got the major sports leagues, too. E-Bay bought GSI in 2011 for $2.4 billion.

Rubin took his money and bought Fanatics. If he could partner with all the leagues and make his own merchandise, he reasoned, he could own his supply chain and have exclusive products. He’s spent the last decade building that business, and turned his league partners into Fanatics investors, too. Because of their deals with leagues and apparel companies, no one else has the same ability to make products as quickly and get them to market as Fanatics.

It is an admirable feat of vertical integration, though a rival has filed antitrust suits against the NFL, MLB and Fanatics, arguing the leagues have given Fanatics preferential exclusive rights that undermine competition. (Rubin declined to comment on the cases.) Fanatics was also sued by the Equal Employment Opportunity Commission after an employee filed a racial discrimination case. That case settled in 2019.

Those who have done business with Rubin talk about him as a “relationships guy,” but that undersells the creativity and grit that bonds those relationships. At GSI, he once rented a truck, wrote a message on the side begging a CEO to get a deal done and parked it outside the CEO’s house.

Friends talk of waking up at 6 a.m. to phone calls from Rubin when he gets interested in a subject or has a deal to close. Jeff Shell, the NBCUniversal CEO, recalled a morning in Atlantic City when he went for coffee and found Rubin in line with his clothes on from the night before. “It’s not that he was partying,” Shell said. “But after I went to sleep, he got to know everyone there. He had a different gear.”

Nick Khan, the co-CEO of WWE, said Rubin also has a knack for solving problems big and small. When Chinese tariffs threatened to interfere with the manufacturing of WWE gear, the company struck a new licensing deal with Rubin to solve the problem. At Rubin’s famous Super Bowl party one year, Khan remembered arriving to find 100 valet parkers. “It’s 100 degrees, you don’t want to be outside, you don’t want to wait,” Khan said. “Michael thinks of these things.”

“I work with much smarter people than me every day,” Rubin said. “But if you have good street smarts, and if you’re just unrelenting, you get things done.”

It was an hour before tip-off, and Rubin was in pitch mode.

“Say you make a bet on Russell Wilson,” he said, describing his vision for the Fanatics mobile sportsbook that is expected to launch next year. “And we said you get his jersey on top of that if you win. Or you go online and we say, ‘Hey, open up a [betting] account and we’ll give you this order for free. Would you give us a shot?”

He didn’t wait for the answer, musing instead about how every bettor might get a percentage of every bet returned to them, win or lose, to buy merchandise. Or how anyone at a Lids store might get a free order if they signed up for a gambling account.

The possibilities, he explained, are endless. He said Fanatics is in the process of signing marketing deals with some 3,000 athletes, mostly to autograph collectibles for now, but they could also be recruited for rewards experiences. High-roller bettors or card collectors could win the chance to play one-on-one with an athlete or get a follow on Instagram.

Harden said he was game for whatever Rubin asked of him: “As a partner in the business, whatever makes the business and the brand, I’m with it.”

Sportsbooks say you can win big. Then they try to limit winners.

If other operators have to go buy their customers, Rubin believes he already has his: the more than 95 million sports fans who he said have shopped on his website. He has their data, he said, and most have taken the most important step with any would-be gambling operator: giving him their credit card numbers.

To Rubin, the online sports business is a good one if you look at the mature markets in Europe and not at the last four years in the United States, where the market has been overheated. “People are hemorrhaging money here,” he said. “Market access has been too expensive, I want to be patient. We don’t want to be in a business we can’t make a billion dollars in.” (Rubin does not bet on sports, but he enjoys action. Harden said he first met Rubin at a casino in the Bahamas, when he noticed him playing cards — and betting a lot. Asked how much, Harden laughed and said, “I don’t want to put his business out there, but it was a lot.”)

Indeed, the gambling market has proved trickier to conquer than early optimists envisioned. Since 2018, operators have spent billions — on commercials, signing up famous spokespeople, buying media companies — hoping to attract customers. But profits have proved elusive.

FanDuel and DraftKings have cornered big chunks of the market, leaving another 60 or so companies to consider their options. Caesars announced this year it was planning to cancel hundreds of millions of dollars from its marketing budget. Further, there is industry research that shows there is reason to be first to market. According to Betting Hero Research, the average bettor is only actively using between one and two apps to place bets. And, according to a McKinsey analyst, the first sportsbook app that anyone downloads gets twice as much action as other apps. A DraftKings investor deck says the company’s customer retention rate is higher than 80 percent after a year, and 96 percent by year three.

“It’s not necessarily specific to Fanatics,” said Chris Grove, a co-founding partner of Acies Investments, which focuses on gambling, sports and technology. “They have an interesting way to natively reward players, but the objective negative counterweight is the macro trends of the industry. You can look at a lot of folks who have not been able to make a dent in the market.”

Added Yaniv Sherman, CEO of Bragg Gaming Group: “It would be business suicide if anyone without the advantages Fanatics has were doing this.”

‘I want to make LeBron James money’

Back in the owner’s lounge at halftime, Rubin and Gardner-Johnson were deep in conversation. Rubin offered advice on how to gain leverage in a contract negotiation, and Gardner-Johnson shared with Rubin his journey to discovering his Black identity. Rubin later turned to his other side and kibitzed with Josh Harris, another 76ers owner.

He moves seamlessly from the C-suite, which is mostly White, to the power centers of sports and culture, which are mostly Black. At the NBA All-Star Game this year, Rubin made a presentation to the NBA Players Association about investing. Together with Jay-Z, Rubin also spearheaded a campaign that got Meek Mill released from prison in 2018 for a simple parole violation. The effort spawned a foundation that advocates for criminal justice reform around the country.

Asked about the way he plays up his friendships with players on social media, Rubin said, “I’m in the sports and entertainment business, operating a sports entertainment platform,” Rubin said. “Do you not think that if I sell lots of LeBron James jerseys, he’s not strategic to me? So I want to make LeBron James money.”

Perhaps the best case for Fanatics’ gambling strategy is that the company has so many other ways to make money from its customers. Rubin doesn’t necessarily need his sportsbook to overtake FanDuel or DraftKings to help in its quest to become elemental to sports fans. Indeed, where the company is headed is a much-debated topic across sports. The ultimate goal is to take the company public, but the road map and timeline remain undetermined. Some wonder if Fanatics will one day have aspirations in media. Rubin said Fanatics did look at the Regional Sports Networks group that was for sale a few years ago but decided against bidding. For now, he said, Fanatics is focused on its three core businesses: merchandise, collectibles and gambling.

Before the second half started, the 76ers owners delivered a gift to Rubin, a farewell for selling his shares. Rubin opened the box to find an action figure of himself in a 76ers jersey. It came with his own trading card.

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Michael Rubin’s next gamble: Turning Fanatics into a sportsbook

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