Sat. Nov 23rd, 2024

On the Saturday before Thanksgiving, thousands of people filed into a dated convention center near O’Hare Airport to participate in the very American pastime of buying and selling sports trading cards.

The Chicago Sports Spectacular, one of the country’s biggest and oldest card shows, is like a rummage sale from the days before eBay, but with way more money involved. The 400 or so collectibles dealers set up well-worn cardboard boxes packed with cards of various players past and present from various sports, their prices handwritten on Post-it notes: $45 for a Luka Doncic card, $100 for Zion Williamson and so on.

To get inside, collectors paid a $15 cash-only admission fee, then spent hours lugging briefcases and wheelies through the maze of tables stacked high with cards. They rifled through boxes and piles of merchandise looking for rare finds like signed Mickey Mantle baseballs and Michael Jordan rookie-year cards as they tried to cross items off their wish lists.

The eclectic — some could argue eccentric — dealers kibitzed about business trends and marveled about how quickly kids’ interests were changing as groups of boys sat on the floor showing off their favorite cards.

These very analog shows have been the backbone of the multibillion-dollar hobby, as people involved call it, for decades. But this musty corner of the sports retail world may soon be completely upended.

Fanatics, which already dominates the sports merchandise world through its deals with professional leagues and its sales of replica jerseys, has entered the fray with big money, sharp elbows and Hollywood gloss, signing stars like Tom Brady and LeBron James to exclusive deals. Its aim is to entirely revamp the sports collectibles universe.

Two years ago, Fanatics reached a deal to become the exclusive trading card partner of Major League Baseball and the baseball players’ union. It then bought Topps, the iconic trading card maker, for roughly $500 million, becoming a kingpin in an industry worth an estimated $44 billion, according to Verified Market Research, a data firm.

“This is an industry that’s lived in the shadows for all intents and purposes, and now we’re bringing a degree of prominence and relevance to it, and making it cool, fun and exciting,” Mike Mahan, who leads Fanatics’ Collectibles, the company’s trading card division, and has been traveling to shows like the one outside Chicago, said in an interview. “We want this to be something that everyone’s excited to be a part of, whether you’re a collector, whether an athlete, whether you’re a shop owner.”

Fanatics’ entry has unnerved many in the trading card universe. But Chris Keller, a longtime collector and shopkeeper in Elgin, Ill., who has attended the Chicago show for the past decade, said he had long thought the memorabilia world was ripe for disrupting.

“I said someday, somebody, an entity, a person, Mark Cuban, Elon is going to come into this hobby space and they’re going to turn it upside down,” he said. “And as I look around here, it’s freaking me out a little bit. It’s kind of surreal, to be honest.

To achieve pre-eminence in collectibles, Fanatics is using the same playbook it did to dominate the sports apparel world: purchasing key pieces of the industry ecosystem; flexing its connections with athletes, leagues and influencers; and pushing aside those it sees as impeding growth.

Fanatics works closely with sports leagues, which invested hundreds of millions of dollars in the company. It created new products with the leagues and became more of a just-in-time supplier of licensed gear, allowing it to react quickly when players emerge as stars. Growth in this merchandising business has slowed, though, one reason Fanatics is pushing into the collectibles industry, as well as sports gambling.

In the collecting world, Fanatics has tried to cut out middlemen to reduce costs. Topps now sells directly to almost 700 hobby shops, up from 180 before Fanatics bought it. Fanatics also purchased a leading card printer, GC Packaging, it says to improve quality and reliability, and bought the second-largest online marketplace for cards, PWCC.

As Fanatics consolidated the merchandise industry, scores of small shopkeepers were boxed out. Now hobby shop owners, distributors and competing card companies wonder if Fanatics will try to corner a swath of the card market so it can drive up prices. Lawsuits have ensued.

The most prominent involves Fanatics’ main competitor, Panini, which has deals with the National Basketball Association and the National Football League that expire in 2025 and 2026. Before those agreements could be renewed, Fanatics swooped in to sign its own long-term deals with the leagues.

In August, Panini sued Fanatics. It claimed that having exclusive deals with the three biggest leagues — Major League Baseball, the N.B.A. and the N.F.L. — would stifle competition and innovation and violate antitrust laws. The Fanatics’ deals mean Panini won’t be able to sell cards that feature league or team logos, which could make the cards look more generic and less attractive for collectors.

“I think that in combination with everything else going on, it shows the way that Fanatics is trying to avoid competition on the merits,” said David Boies, the high-profile lawyer who represents Panini and whose other clients have included Al Gore and Harvey Weinstein. Though the long-term deals involve multiple parties, Boies said, Panini chose not to sue the leagues because they remain partners with the company.

Panini also claimed that Fanatics poached its top executives in violation of their contracts and bought GC Packaging, the printer based in Allen, Texas, that Panini uses, to strangle its supply.

“Fanatics’ acquisition of control over GCP has given Fanatics control of Panini’s lifeblood — the production of nearly all its trading cards,” Panini said.

Fanatics denied the claim and said delivery times had improved since it bought the printer.

Fanatics countersued, accusing Panini of fraud, shoddy production and poor customer service. Fanatics said that signing long-term exclusive deals with leagues was precisely what Panini had done.

“They sued us for the very things they succeeded in doing over 15 years ago — present a more compelling model for sports properties and win rights from the incumbents,” Michael Rubin, Fanatics’ founder and chief executive officer, said in a statement regarding the suit. “The industry needed significant change and innovation, and they are now viewed as antiquated.”

The trash talking in court has turned into a battle of competing visions for the sports memorabilia industry, and forced everyone from manufacturers to card stores to collectors to pick a side.

“Fanatics is going to take over the world,” said Michael Osacky, who appraises the condition of cards, a niche that for now is insulated from the showdown. “Some people would say maybe that’s not a good thing. I think it’s a good thing. I think this hobby needs innovation, new ideas. For too long, it’s the same old, same old.”

Card collecting may be a hobby, but it is also a fragmented industry punctuated by booms and busts. In the 1990s, manufacturers flooded the market with cards, prompting prices to collapse. In the early part of the pandemic, prices surged as collectors had more time to chase wish-list cards. The market has cooled some, but remains strong.

Some shopkeepers view Fanatics suspiciously because of its potential power, but Mr. Keller, a former radio disc jockey, has embraced the upheaval. Early to explore the digital possibilities for his trade, he’s been promoting and selling cards on YouTube since 2011. Live breaking, as the practice is known, involves sellers opening cases, boxes and packs of cards online while people watch to see what’s inside and perhaps purchase them during the stream. In 2020 and 2021, when many stores were shut, it became a lucrative way for entrepreneurs and card shop owners to generate revenue.

Live breaking is also among the ways Mr. Rubin hopes to transform what he sees as a staid industry. Last summer, he unveiled Fanatics Live, an online platform to compete with live breaking on YouTube, Facebook, Whatnot and others. Unlike those on other sites, breakers on Fanatics Live get boxes of cards directly from Fanatics, which also handles billing and shipping when the cards are sold, in return for a 6 percent fee from the breakers.

“The thing that I’m most excited about is the idea is three years old,” Mr. Rubin, 51, said, adding that Fanatics’ Collectibles generates north of $1 billion in revenue. “We took our first sale in ’22, and we’ve done so much in less than two years. But I think we’re like 10 percent of this journey, 20 percent of this journey. So there’s so much innovation coming.”

Panini’s executives said some of Fanatics’ contracts would last up to 20 years, long enough to freeze out competitors and leave the leagues with few alternatives. They also dispute claims that they are a tired brand unable to innovate, and claim Fanatics is benefiting from the market Panini helped build.

“We are the leaders in this space and have grown this category into what it is today,” said Jason Howarth, the senior vice president of marketing at Panini, whose global revenue from trading cards topped $1 billion in 2022, up from $200 million in 2010. “We were the first trading card company to embrace case breaking when no one wanted them, and we have over 2,000 athletes, including N.B.A. M.V.P.s and Super Bowl M.V.P.s, who sign our cards.”

Mr. Rubin is also creating buzz by using his extensive connections with athletes and sports leagues to promote one-of-a-kind cards that shoppers will hunt for as if they were Willy Wonka golden tickets. To that end, he hired Mr. Mahan about 18 months ago to lead Fanatics Collectibles, which includes Fanatics Live. Mr. Mahan, 47, stepped into this newly created role after running Dick Clark Productions, which produces TV award shows like the Golden Globes. An avid card collector who once weighed buying Topps or Panini himself, Mr. Mahan wants to provide cards more reliably and cheaply, and make collecting a form of entertainment that wins over newer generations.

For instance, last month, Bowman, a Topps company that Fanatics now owns, released 81 Tom Brady rookie baseball cards signed by the quarterback, who was drafted by the Montreal Expos in 1995, though he never played for the organization. (One anonymous collector has offered $500,000 for one of the cards.) Mr. Brady appeared in a spoof advertisement commemorating his phantom baseball career.

“This is what the industry really needed, you know?” Mr. Brady said. “There’s new product innovation, getting all the Fanatics athletes involved. All the other athletes talk to me about what Fanatics is doing, and they’re excited about working with them.”

Fanatics also used its connections with Major League Baseball to get rookies to wear small patches on their uniforms during their debut games last season. The patches were then included in one-of-a-kind trading cards, the first 91 of which were put into packs in November.

The promotion is partly why Major League Baseball has vaulted ahead of the N.B.A. and N.F.L. in the licensed trading card market. According to one industry executive, sales of baseball cards this season are expected to hit about $640 million, up from $370 million two seasons ago, when Fanatics purchased Topps. Sales of N.B.A. and N.F.L. trading cards are expected to fall to about $350 million, from about $550 million two seasons ago.

“When you think about it, fans want a piece of players,” M.L.B. Commissioner Rob Manfred said, referring to the rookie patches. “It just seemed like an idea that could really help invigorate the business.”

The league and union split royalties of about 25 percent on the sale of baseball cards. That fee has been based on the first sale of the cards, either to distributors or directly to stores. Fanatics, though, now gives the league and the union a slice of sales from live breaks, a new revenue stream.

For decades, card manufacturers have worked with independent distributors who pay them upfront for the cards. Distributors make money by reselling them at a premium to hobby shops, but athletes see none of that. Mr. Rubin wants to sell directly to stores to save them money and also have a better sense of his customers.

“Distributors have zero purpose,” he said. “Can you imagine Nike and LVMH selling their merchandise to a distributor and wondering how it gets to a retail store?”

In November, Stephen Abbondandolo, who is known as Filthbomb, was the first breaker to open boxes of cards from the series that included the rookie patches. To start the two-hour-long break, Mr. Abbondandolo and his partner, John Yohe, spun a digital roulette wheel with the names of all 30 major league teams. Participants paid $100 or more for a team, which enabled them to get all the cards of players from that team. The person who bought the Angels, for instance, had a shot at receiving a valuable Shohei Ohtani card.

Mr. Abbondandolo hawked the last few teams while joking with collectors on the show’s chat. Once every team was spoken for, he and Mr. Yohe opened packs and commented on the finds. Some cards were notable for their colorful borders. A few were signed by the player — which enhances their value — including one by the Yankees pitcher Gerrit Cole. Mr. Abbondandolo handed each card to Mr. Yohe, who put them in plastic protective sheaths.

The bro-like banter, accompanied by background music from AC/DC and Meek Mill, was loose and familiar, a sign that a lot of the collectors were regulars at the Filthbomb breaks. When Mr. Abbondandolo finished the break, he signed off by saying, “Sayonara, Brotanis, see you on the flip side.”

Mr. Abbondandolo, 38, is among a growing group of people who turned to live breaking to stay in the hobby. Unexpectedly, the technology led him to open a hobby shop. He closed his first card shop after less than a year and in 2018 began live breaking on Facebook from his home. Mr. Abbondandolo’s following steadily grew to about 3,000 collectors.

Business boomed in 2020 and 2021 when collectors were stuck at home, so he rented an office for his company, Filthbomb Breaks & Collectibles, in Glen Cove, N.Y. So many collectors started banging on his door asking to look at cards that Mr. Abbondandolo opened a showroom in front.

“So it actually turned into a store without wanting it to turn into a store,” he said.

These days, he and his staff of 25 do roughly 30 breaks a day, which add up to 18 hours of streaming. In July, Filthbomb was one of the first breakers to join Fanatics Live where, Mr. Abbondandolo said, customers spend more time and money because they feel more confident that they’ll receive their cards on time and in quality condition. (In his first live show, he made $70,000 in sales within five hours.)

He also buys regular shipments of cards directly from Fanatics, which is faster, less expensive and more reliable. It also allows him to more predictably plan his breaks. One of about 60 breakers on Fanatics Live, Mr. Abbondandolo expected to exceed $15 million in sales in 2023, up 25 percent from the previous year, with about 20 percent of that revenue coming from Fanatics Live.

“All of a sudden our brand equity went through the roof,” he said.

Hobby shops, though, remain the core of the card world, and shopkeepers are adjusting to Fanatics in different ways. Mike Calvanico, who has owned a shop in Lyndhurst, N.J., for 40 years, focuses on selling boxes and cases of cards, not single cards. Success to him are card series that have high resale value. Lately, he said, Panini, not Fanatics, has issued more cards that have been a hit with his customers.

“Panini could have rolled over when Fanatics came in, but they care about the stores, the public,” he said. “The guys in the production development at Panini are the ones putting food on my table.”

The resale values of cards issued by Topps, he said, haven’t performed as well, leaving him with smaller profits. He also was perturbed that Fanatics was signing exclusive deals with star players like Victor Wembanyama, the rookie center on the San Antonio Spurs, even though its license with the N.B.A. doesn’t start for a few years. In the interim, Fanatics has issued cards with Mr. Wembanyama in street clothes, while Panini has issued unsigned Wembanyama cards.

Mr. Calvanico added that Fanatics hadn’t provided enough information about its upcoming releases, which makes it hard for him to gauge customer demand.

“We’re all worried about what’s going to happen when they’re in control of all three big leagues,” he said. “Are they going to raise prices?”

Rob Veres, who owns Burbank Sports Cards, is more focused on single cards, roughly 8,000 of which are on display in his shop. Every day, three employees buy about 175 new cards and for nearly a year, he has hosted nightly livestreams with several hundred people buying cards priced from $10 to $8,000. Mr. Veres does not do live breaks, but he has sold about six million cards on eBay.

Mr. Veres, who is known as the Card Father and who plays drums in a rock band called the Cardboard Junkies, likes Fanatics’ promotions that drive traffic to his store. For instance, Fanatics gave stores $20 for every customer who turned in cards of the current baseball M.V.P.s. The credit could then be redeemed in stores like Veres’s. Fanatics has also hosted “Trade Nights,” where celebrities like Brady and Kevin Hart visit stores to swap cards with customers.

“We were afraid the industry was going to age out,” Mr. Veres said. “Ten, 12 years ago, for $60, what would a kid want, a box of cards or a video game? We were losing.”

He added: “When Fanatics announced it was buying Topps, there was all kinds of dread. But they’re bringing in new customers to shops.”

Back in Chicago at the trading card show, many hobby shop owners told Mr. Mahan that they looked forward to seeing Fanatics bring celebrities and athletes in their doors to help draw more customers. It’s one of several refrains Mr. Mahan hears while on his listening tours around the country.

At the shows, Fanatics executives have also become familiar to avid collectors like Sean Doroudian, a the founder and former chief executive of a financial services company who has spent more than $1 million on trading cards in the past few years. Mr. Doroudian said he started buying cards again once the pandemic started. Initially he was focused on Panini’s cards because he was most interested in basketball, but stopped buying from the company after a disappointing customer service encounter.

Mr. Doroudian told Mr. Mahan that he looked forward to when Fanatics would release more basketball cards. “I can’t wait and I hope for one day you guys have the licensing deal,” he said.

Mr. Mahan quickly cut in.

“It’s not a hope,” he said.

By NAIS

THE NAIS IS OFFICIAL EDITOR ON NAIS NEWS

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