We welcome 65 new subscribers to the Sporting Crypto Newsletter who have joined us over the last week! You’re part of a 2.85% week-on-week increase in Sporting Crypto subscribers!

Join 2,348 readers who are interested in exploring where Sports meets Web3. If you're reading this and still haven't signed up, click the 'Subscribe' button below to join sports industry leaders and fans learning about Web3!

If you’re already subbed - thank you very much. Please be sure to share the newsletter with your friends and colleagues!

Intro Notes, Plugs & Amendments 🔌🔧

This time, I thought I’d write about something that was big news in the Sports Web3 world at the start of 2023, that I thought would get more coverage.

It’s about Fanatics divesting their 60% majority stake in Candy Digital.

I’ve had a few weeks to reflect on the news and the quotes that came out from it and now is the right time to put pen to paper!

🔌 If you’d like to work together in a consultancy or workshop capacity, please respond to this email!

🔌 If you’d like to partner or sponsor the newsletter, email back at this address or reach out on Twitter or LinkedIn.

🔌 I’m in North America until April, so if you’re this side of the Atlantic and doing something interesting I’d love to connect!

This Week’s Deep Dive: Fanatics sells 60% stake in NFT company Candy Digital

In June 2021, Michael Rubin, Gary Vaynerchuk and Mike Novogratz joined forces to co-found Candy Digital, an NFT platform that aimed to help brands leverage their IP in the digital world.

On paper, the mix of Rubin’s expertise and relationships in the sports industry, Vaynerchuk’s marketing prowess and brand building, and Novogratz’s profile in the crypto industry made this feel like it was a sure thing.

Rubin’s company Fanatics, who specialise in sports memorabilia like trading cards, were the majority stakeholder when Candy Digital were founded. It signalled ‘future-proofing’ on the Fanatics business front.

Vaynerchuk, an investor in Sorare — had already seen first hand the power of leveraging sports IP on the NFT front — and had already established himself as one of the biggest names ‘learning in public’ via investments (both professional and for leisure), content and his own project VeeFriends.

Novogratz is the crypto native partner in this trio. His fund Galaxy Digital, has been hurt badly by the latest crypto bear market, especially after the collapse of cryptocurrency Luna.

This had all the ingredients to be a success.

Candy Digital launched with this in their press release:

Sorare and Top Shot were (and are?) crushing the NFT sports market with their models, and Candy Digital wanted in on the action.

They launched with an exclusive deal with the MLB, creating digital trading cards leveraging the league’s IP. Most people you asked in the industry thought this was going to be a home run (I’m sorry!).

In October 2021, Candy Digital raised a $100 million Series A, valuing the business at $1.5 billion. Investors in that round included giants like SoftBank.

But sometimes, things just don’t work out. And 18 months after their launch, Michael Rubin’s company Fanatics announced they would be divesting their 60% stake in Candy Digital.

Here were some of Rubin’s quotes explaining the decision:

Some more context to this situation is that Fanatics themselves raised $700 million in December 2022, aiming to use that new money to focus on potential merger and acquisition opportunities across its collectibles, betting and gaming businesses. It also pushed the company’s valuation to $31 billion.

Let’s summarise where we are so far:

1. Candy Digital were co-founded by a stellar trio on paper, with rich experience across various industry, in June 2021

2. They raised $100m at a $1.5bn valuation in October 2021

3. Rubin (Fantatics) decides to divest his majority stake in Candy Digital in December 2022

So let’s look between the lines on some of Rubin’s comments, and think deeper about why exactly he and Fanatics made this decision.

Whether or not Fanatics and Rubin will get all the money they invested back is unknown but, we can guess that on paper they’re selling for a loss.

Good gamblers know when to quit, and Rubin is exactly that.

This is where Rubin starts to go wrong.

RTFKT was a standalone NFT business until Nike bought them. Sorare are a stand alone NFT business with a fantasy game. Top Shot are a stand alone NFT business. Yuga Labs, are a $4bn stand alone NFT business.

On the sustainability point, he’s absolutely correct — very few sustainable models have been seen in the NFT market. But we’re starting to see them emerge.

The market is telling us Rubin is wrong, and the space he was trying to play in, was one that actually had examples that prove this. The sport NFT market has seen examples where standalone NFT businesses, or NFT businesses without physical counterparts, do work and are profitable.

Again, this is just wrong.

NFTs that have physical twins or that are linked to physical collectables are cool, but they are a subset of the digital collectible market.

In fact, one could argue that the digital twin has more utility. I don’t have to package it up, maintain it, be scared of ripping or burning it. It doesn’t take up closet space. If I want to sell it, I don’t have to take it to the post office.

There is just no evidence that physically connected NFTs will be more valuable than standalone digital collectables.

Rubin is doubling down on his already very successful business, which is why they raised fresh capital in December 2022. That’s absolutely fair , I would do the same if I was him. The reality of the situation is however is that Candy have so far failed to gain enough traction through the IP they’ve leveraged. Blaming market conditions is fine, but as I’ve always said in this newsletter there’s an arrogance from people who ‘come into’ Web3 that they surely must succeed due to previous successes, their name in their industry etc. The reality is most of them fail, and Rubin is no different here.

Rubin was seen by many I spoke to in the industry after their big raise as the guy who would ‘get the deals done’ that would allow for Candy Digital to drive enough volume to their marketplaces. But that hasn’t really materialised.

Rubin was right and wrong in the reasoning he gave behind the divestion.

He’s right in that sustainability is hard in the NFT world and he’s right to double down on the world he has the biggest edge on — and that’s with Fanatics.

He’s completely wrong however, and that’s not an opinion, just what markets are telling us, that NFTs have to be linked to physical goods. That’s an opinion that is provably wrong and will continue to be so over the years to come.

It’ll be incredibly interesting to see what the Fanatics Web3 strategy will look like in the future.

More sports crypto stories & things to put on your radar

• Real Fevr and Liga Portugal have partnered to create football moments from the Allianz Cup.

• Courtside Ventures has raised a $100m fund for sports, collectibles, wellness and gaming. Interesting to see how much of this capital is deployed on Web3 projects.

• Cadiz FC have been given an award for using blockchain to implement a digital identity solution. 

• Tero Labs were featured in Cointelegraph talking about their ‘rough diamonds’ project, allowing people to buy limited edition collectibles that are officially licensed by young stars. 

• Dubai hosts world’s first-ever metaverse horse racing event.

• An article here from Blockworks on the slowing, but not completely diminished, world of partnerships from crypto entities with sports brands. 

• FISU (International University Sports Federation) are creating digital trophies with Leverade. 

Great reads, great tweeting and more general ‘stuff’ that could impact you

• Coinbase NFT has not done as well as they’d have hoped.

• National Geographic launched an NFT. And apparently the photographs were created using DALL E the AI tool. How not to do NFTs.

Thank you!

Thanks for reading the latest edition of the Sporting Crypto newsletter. I’m happy to see so many people enjoying and sharing it with their networks. If you enjoyed this, please tell your friends who might be interested - and share it on social :)

This newsletter is for informational purposes only and is not financial or business advice.These are my thoughts & opinions and do not represent the opinions of any other person, business, entity or sponsor.

The contents of this newsletter should not be used in any public or private domain without the express permission of the author.

The contents of this newsletter should not be used for any commercial activity, for example - research report. consultancy activity, paywalled article without the express permission of the author.