If you believe everything you read about Michael Rubin, you might think he’s on top of the world. At 51, the serial entrepreneur—Rubin sold his company Global Sports Incorporated to eBay for $2.4 billion in 2011, making $150 million for himself, and is now the founder and C.E.O. of Fanatics, one of the largest sports-merchandising companies in the world—is fresh off his annual Fourth of July White Party at his $50 million oceanfront mansion in Water Mill, a hamlet within the town of Southampton.
The blowout attracted a wildly diverse, star-studded crowd, including captains of industry, such as David Zaslav and Robert Kraft, and performers, like Beyoncé, Drake, and Leonardo DiCaprio. The 400 or so invitees received lithographed invitations designed by the artist George Condo. And according to The New York Times, several would-be crashers tried to buy their way into the party, offering as much as $5 million for a coveted ticket. “Unfortunately for desperate partygoers, no one can buy their way in,” the newspaper reported.
An attendee of the party who has a house in East Hampton says that Rubin is a “self-made guy” who is “very generous” and “likes to have fun.” He also credits the party’s success to the fact that, through Fanatics, Rubin is very plugged in to the sports world and can attract athletes, who in turn attract actors, businessmen, and other well-known guests. “And there’s a view that he’s not going to embarrass anybody,” he says.
But a different cohort of people, the more analytical types on Wall Street, are wondering if Fanatics is past its peak, a fact that could start to diminish the company’s already dubious cachet. A spokesman for the company tells me that the Wall Street view couldn’t be further from the truth. He says that Fanatics is in a “materially better position” today than it was more than two years ago, when it was valued in the private market at $31 billion.
Fanatics was once part of Global Sports Incorporated, but Rubin bought Fanatics back from eBay because eBay wanted only the order-fulfillment business of G.S.I. He was able to buy it back at “a fire sale price,” according to his corporate biography. That is, roughly $75 million, according to Forbes.
The company’s various business interests include online sports betting, sports-team-branded apparel, and sports-related trading cards and collectibles. (Rubin bought the Topps baseball-card company for $500 million in January 2022, just months after Fanatics swiped Topps’s long-term contract with Major League Baseball. He also paid $225 million for the U.S. business of PointsBet Holdings Limited, an Australian-based online-betting company.)
Fanatics, which does not share its financial information publicly, had revenue of around $7 billion in 2023, according to the company spokesman, and it may or may not be profitable. It certainly has no difficulty attracting well-known investors. It was last valued, in December 2022, at $31 billion, thanks to a $700 million equity investment from the likes of Clearlake Capital, Aryeh Bourkoff’s LionTree, Silver Lake, Fidelity, and SoftBank.
Just nine months earlier, in March 2022, Fanatics had raised $1.5 billion in equity from a variety of prestigious investors, including Michael Dell’s BDT & MSD Partners and Larry Fink’s BlackRock, at a valuation of $27 billion, a cool 15 percent increase in a short time. The equity round also included the N.F.L., which kicked in $320 million at the $27 billion valuation, as well as the N.F.L. Players Association, Major League Baseball and its players’ association, and the N.H.L. Only a few years before that, the company was valued at $4.5 billion. In other words, Fanatics’ rise has been nearly exponential and an investor bonanza—to a surprising degree for a business that deals in sports apparel and collectibles.
There have been murmurings that Fanatics will go public in an I.P.O. around the end of 2024. The windfall from that would presumably be gravy for Rubin, who dropped out of Villanova after just a few weeks and is a self-described non-athlete who “actually sucks at sports,” he told sports commentator Dan Patrick this week. Bloomberg pegs his net worth at $10 billion, and according to Moody’s, the big credit-rating agency, Rubin owns a majority of the voting stock of Fanatics.
A spokesman for Fanatics told me Rubin was not available to be interviewed, but that the I.P.O. is off the table for 2024. “There will be a moment in time where it will make sense,” he said. “Right now, we’re heads-down on building our business.”
But sources who buy and sell the private stock of company founders say that with a Fanatics I.P.O. no longer imminent, Rubin has been testing the market in recent months to see whether there’s interest in buying some $250 million of his stock as part of a larger sale of his ownership in the company—he could be looking to sell up to $1 billion of his stake, sources say. (Not true, the company spokesman says, adding that Rubin is not looking to sell any stock.)
Regardless of whether an I.P.O. happens, the company appears to be having a rougher go of it in 2024 so far. People who have seen Fanatics’ financials believe the revenue for the year is projected to come in at $6 billion, 14 percent less than the $7 billion in revenue the company generated in 2023. (Not true, either, the company spokesman tells me. He said Fanatics expects to generate $8 billion in revenue this year, a 14 percent increase.)
One Wall Street trader tells me that while Fanatics may have been profitable on the EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) line in 2023, less revenue—if that’s the outcome—could mean that that’s no longer the case in 2024. He compares a business that generated profits and then stopped to someone who had, then lost, a mistress. “Here’s all these great companies, they’re growing into $8 billion revenue, top-line companies, and when they want to turn off spending, they’re hugely profitable.… But in a case like this, where you see a huge drop-off in the top line [revenue], well, all of a sudden, you just potentially lost the mistress and now you got to be worried about what she’s going to say.” (The spokesman also denied this. Fanatics’ EBITDA margins in 2024 will be higher than in 2023 and will be even better in 2025.)
The credit-rating agencies also seem to be skeptical about Fanatics. Last September, after Fanatics reported “meaningful margin deterioration” through the first half of 2023, S&P Global, the big credit-rating agency, wrote that it expected the company to face “challenging operating conditions” for the coming year. The ratings agency noted that parts of the Fanatics business were barely profitable during the second quarter of 2023 and that, overall, the company’s “Adjusted EBITDA” margins fell to 2.5 percent, from 8 percent. S&P Global affirmed the company’s debt ratings but put them on “negative” watch, meaning they could soon be downgraded. (The company spokesman did not dispute that margins had fallen in 2023 but declined to discuss the specifics of the EBITDA margins other than to say the company has chosen to invest in its three business lines rather than focus on profitability.)
In December 2023, Fitch, another ratings agency, also lowered the credit ratings of the parent company, Fanatics, and its collectibles subsidiary, warning that if Fanatics was unable to stem the losses at its gaming and online-betting division, “it could lead to a deterioration of its liquidity and put pressure on the company’s credit profile.”
In November, Moody’s joined in by downgrading the credit rating of the senior secured debt at the Fanatics subsidiary that sells officially licensed sports merchandise due to “significantly weaker than expected earnings and cash flow and the risk that the increasingly difficult operating environment will challenge its ability to achieve the appropriate level of returns on its current investments.”
“In a case like this, where you see a huge drop-off in the top line [revenue], well, all of a sudden, you just potentially lost the mistress and now you got to be worried about what she’s going to say.”
Moody’s noted that the merchandise subsidiary’s free cash flow was “highly negative” and that its seasonal borrowing had “spiked” so that its debt-to-EBITDA ratio increased to a multiple of nine. But it also pointed out that, overall, Fanatics had $1.7 billion in cash that could be used to reduce debt levels at its subsidiaries, as needed. (In February 2024, the subsidiary cut more than 100 employees—less than 1 percent of its 22,000-person workforce—as part of a “restructuring” initiated by new management.)
In March 2024, S&P lowered the credit ratings on a different Fanatics subsidiary—its collectibles and trading-card business—after the business increased its secured debt to nearly $550 million. On the other hand, a few weeks later, Moody’s was much more sanguine about the prospects for this subsidiary, claiming it had “low financial leverage” and “exclusive” long-term contracts with Major League Baseball, and upcoming contracts with both the N.F.L. and the N.H.L. Essentially, Fanatics has a stranglehold on the sports-trading-card market through its acquisition of Topps.
With scant financial information available to the public and Rubin talking exclusively about his White Party, it’s difficult to figure out precisely how Fanatics is doing. There are certainly red flags emanating from the rating agencies. But could it be just a bunch of sound and fury, signifying nothing? That’s the Fanatics party line. “There’s so much opportunity ahead,” the spokesman said. “Everyone’s focused on building a great business.”
It’s not unusual for founders with a net worth of $10 billion or so to want to diversify their holdings by selling a portion of their stock in the private markets, especially if an I.P.O. or some other form of public offering is off the table. However, there is clearly growing concern among the credit-ratings agencies that Fanatics is facing rougher seas.
According to one Wall Street trader familiar with Fanatics’ secured debt, after the ratings agencies issued their warnings last fall, investors started demanding a higher yield—they wanted to be better compensated for the risk of owning the Fanatics debt—than they have been demanding for loans of comparable companies. He also said that the demand for that better compensation has faded in recent weeks, suggesting credit concern about Fanatics in the market is reducing.
But this trader is staying vigilant. He said that he’s surprised that Rubin has not tried to refinance the Fanatics debt at a lower interest rate. “That Fanatics has not attempted to do so, I suspect, indicates that the business may be experiencing continuing margin pressure/other challenges,” he wrote me. (More bunk, according to the company spokesman, who says Fanatics has $200 million of debt in one business and $250 million of debt in another business and the debt is trading at par, or near 100 cents on the dollar. “We have virtually no debt across our platform,” he said.)
In any event, maybe next year the guests at Rubin’s White Party will be required to wear their favorite Fanatics jersey and trade their favorite Topps baseball cards—all in service of their smiling host.
William D. Cohan is a Writer at Large at AIR MAIL and the author of such best-selling books as The Last Tycoons, House of Cards, and The Price of Silence. He is a founding partner of Puck. His latest book, Power Failure, is out now
