Welcome to BIG, a newsletter on the politics of monopoly power. If you’d like to sign up to receive issues over email, you can do so here.

Today’s issue is about a company called Fanatics, which has quietly, or not so quietly depending on your perspective, attempted to monopolize the business of baseball, football, and basketball cards collected by children and hobbyists. It’s written by Nathaniel Otto. Otto is a third year law student at the University of Florida Levin College of Law, a veteran U.S. Naval Officer, and a sports card collector, as well as an incoming Associate Attorney at Burr & Forman LLP.

Fanatics is not the most important monopoly. It’s not the worst monopoly. But I like this story because it’s a monopoly, or aspiring monopoly, over culture, like the dominant firms that organize cheerleading (Varsity Brands), music events (Ticketmaster), mixed martial arts (Ultimate Fighting Championships), or recently, college football, which is in a radical upending of its traditional conference structure due to Fox and Disney/ESPN. Indeed, while there’s a lot of anger in politics over the culture wars, we very rarely hear about the true threat to American culture, which are the financiers attempting to monopolize every nook and cranny of it.

But before I get to Otto’s article on Fanatics, I want to offer an announcement, and some good news. Today, I’ll be interviewing Federal Trade Commission Chair Lina Khan and Assistant Attorney General for Antitrust Jonathan Kanter at 2pm ET about the new merger guidelines. You can sign up to watch on Zoom.

Now the good news. And it’s about the monopoly mentioned above, the Ultimate Fighting Championship, achieved when the UFC bought all of its rivals and then forced fighters to to sign long-term contracts. As a result, wages of fighters are much lower than in similar sports, working conditions are poor, and some combatants have been prohibited them from speaking out about safety problems. In 2015, lawyers filed a class action antitrust suit against the UFC. Yesterday, judge Richard Boulware made a key ruling that fighters can band together in a class and sue. This case could lead to up to $5 billion of damages, plus structural changes in the industry to foster competition and let fighters join rival leagues for more money. The class certification is a big deal, and could force the UFC to settle.

So that’s good. Slowly but surely we’re making progress.

And now…

For much of the 20th century, sports trading cards were an iconic part of the American childhood, like comic books, marbles, and cartoons. There’s a thriving adult community of trading card collectors, such that they are even something of a financial asset, with rookie cards for different sports players having substantial value. There are also sports card trading platforms, verification services, and speculative fervor at auctions.

Since many of the lines of business in America have been consolidated, you might ask yourself – why not trading cards? And the answer is, they have been, by a company called Fanatics, Inc. And there’s even an antitrust suit on the matter.

Let’s dive in.

Fanatics, Inc., is a sports giant that focuses on signing exclusive deals with professional and college sports leagues, and according to enthusiastic investors, a “monopoly of sorts.” Its CEO, Michael Rubin, figured out how to roll-up this space, and is seeking to create a firm with a $100 billion market capitalization through an aggressive set of moves to exclude rivals.

The key to Fanatics’ business plan are its long-term exclusive deals with different sports properties, such as the NFL, NBA, MLB, NHL, MLS, and Formula 1. To reach these deals, it will give stakes of its businesses to the leagues themselves, as well as players unions, creating a sort of quasi-cartel that excludes rival merchandising firms.

Just two years ago, it entered sports trading cards in a similar manner, going from zero involvement to complete domination of the hobby in areas of licensing, manufacturing, distribution, and, most recently, resale. Here’s a quick timeline:

Aug. 19, 2021: Fanatics strikes a deal with MLB and MLBPA to replace Topps as the league's official trading card partner in a deal which began in 2023.

Aug. 23-25, 2021: Fanatics replaces Panini, the company’s main competitor, as the official trading card partner of NBA, NBAPA, and NFLPA in a deal set to start in 2026.

Sept. 29, 2021: Fanatics’ Trading Cards division is valued at $10.4 billion, over half of the company's overall valuation of $18 billion following a $350 million funding round from Silver Lake, Insight Partners, and Endeavor, the owner of the UFC. (Panini maintains licensing rights to the UFC.)

Jan. 3, 2022: Fanatics, not content with waiting for its MLB and MLBPA deals to go into effect, buys historic trading card manufacturer Topps in an acquisition worth approximately $500 million.

Feb. 2, 2023: Fanatics announces its plans to create a live streaming platform for shopping trading cards and collectibles to rival platforms like Whatnot, TikTok, and Instagram Live.

June 21, 2023: Fanatics sends local card shop (LCS) owners a contract with terms and conditions outlining requirements and restrictions regarding the resale of Topps products.

July 26, 2023: Fanatics launches its live auction selling platform, Fanatics Live, during the MLB All-Star Game to compete with Whatnot, Drip, Cardshop Live, and others.

Over that same two-year period, Fanatics' memorabilia arm, Fanatics Authentic, penned exclusive licensing agreements with superstars across professional sports including Tom Brady, Jayson Tatum, Auston Matthews, Shohei Ohtani, and several others. The strategy here is to control all aspects of the business, including the secondary financial market for trading cards. Here’s the Wall Street Journal on the business:

Although the existing agreements involving Topps and Panini remain in place for a number of years, until as late as 2026, Fanatics Trading Cards will soon have nearly all of the most lucrative rights for trading cards in American sports at a time when the value of those cards, especially in baseball, has boomed.Now, Fanatics plans to take its newfound hold on the trading-card world and further expand its reach—in part by seeking to become not just the initial seller of cards but also the destination in the lucrative resale market…People familiar with Fanatics Trading Cards say the new venture will angle to become the one-stop shop for all things in the trading card industry—including primary sales, secondary-marketplace deals, grading of cards and even storage. 

Surprisingly, the hobbyist community reaction to Fanatics slowly gobbling up competitors has been generally positive. The sentiment is that Fanatics brings more investment and marketing dollars into the business, drawing more eyeballs and interest to the space, and in turn, growing the hobby to the benefit of both dealers and collectors alike. However, that continued growth now comes with demands and stipulations for sellers of Fanatics products that, by 2026, will include exclusive rights to three of the four major U.S. sports.

In the terms and conditions contract sent to local card shop owners in late June, Fanatics included its ability to issue “suggested” minimum price policies for certain products sold in the future. Should a dealer fail to comply with the “suggested” price policies, Fanatics reserved the right to suspend individual accounts, likely halting all distribution to the offending dealer. In the same subsection, Fanatics qualifies the demand by claiming that the “retailer shall, at all times and in its sole discretion, determine and control the price at which Topps products are sold by the retailer to its customers.”

Despite the qualification, these “suggestions” feel a lot like Fanatics strong arming store owners into submission for fear of losing access to football, baseball, and basketball product which likely makes up nearly 95% of total in-store sales. The merchandising mogul also requires certain signage posted in-store, resale/breaking restrictions, hours of operation parameters, and quarterly sales reporting metrics. If Fanatics cannot currently be considered a monopoly, by 2026 there will be no doubt.

Other rising concerns amongst hobbyists include several what-if’s. Specifically, concerns that further demands made by Fanatics could require live streaming sales done exclusively on their coming Fanatics Live platform. Basically, the secondary market for trading cards is now likely to be monopolized by Fanatics.

Last week, a rival finally hit back. Panini America filed an antitrust suit against Fanatics, charging Fanatics with separate counts of Attempted Monopolization, Monopolization, and Unreasonable Restraint of Trade under the Sherman Act; two additional counts under the Clayton Act for lessening competition within a market; several counts of Tortious Interference; and, finally, allegations of Business Defamation and Disparagement.

The gist of the complaint that by 2026, Fanatics will have secured exclusive rights deals with each of the three major American sports leagues—the National Football League (NFL), National Basketball Association (NBA), and Major League Baseball (MLB)—and their respective player associations.

The problem for Panini isn’t the exclusive nature of the contract; indeed, Panini itself currently holds the exclusive rights to produce licensed NFL and NBA trading cards. The issue is the length of time of the Fanatics contract. The exclusive deals with Fanatics will span a decade or more, chilling the competitive market for the licensing and production of sports trading cards in the U.S.  

The case law is pretty good for Panini. Within the 11th Circuit, where the case will be heard, exclusive dealings in and of themselves are only illegal if you can prove they cause competitive harm. An injury in fact is required for proving violations of both the Sherman Act and Clayton Act. Panini is likely familiar with this requirement based on the routine nature of exclusive deals within the sports trading card hobby. Of note, Panini continues to use exclusive rights deals, but it doesn’t own a significant enough sector of the market to cause injury to rivals like Fanatics (Topps), Upper Deck, and/or Leaf Trading Cards. It follows the law.

Proving actual competitive injury in the present case should not be difficult for Panini’s legal team. In ZF Meritor, LLC v. Eaton Corp., a case about heavy duty truck transmissions, the 3rd Circuit emphasized that the suspect nature of an exclusive contract’s duration was how much of the market they covered, and for how long. The court went on to admonish the agreements in ZF Meritor which locked up over 85% of the relevant market for at least five years. And this brings us straight to the Fanatics situation. NFL, NBA, and MLB trading card sales make up greater than 90% of the several-hundred-million-dollar U.S. market. Once Fanatics owns exclusive rights to produce these cards, Panini’s lawyers allege that a “monopolistic outcome is not just probable absent an antitrust remedy; it is locked down and assured by contract.”

Panini is asking the court for a number of things. They want to stop Fanatics from signing any more exclusive contracts or imposing anti-competitive conditions on retailers They go on to request an order requiring Fanatics to divest itself of the assets associated with Topps and any control over GC Packing (GCP)—the critical, high-tech, custom trading card manufacturer for Panini—to “restore competition.” Any litigation is likely in the distant future, but Panini now has a three-year window to prove their case against Fanatics in a final effort to remain relevant in the sports card business.

And just a few days ago, Fanatics has hit back with a countersuit, alleging fraud and other forms of wrongdoing. But in all likelihood, the firm is trying to make it so costly to Panini to pursue litigation that it ends up selling itself to Fanatics, as Topps did after losing its MLB contract. If that happens, then sports trading cards, once the province of childhood and adult hobbyists, will become just another monopoly.

UPDATE: I want to highlight this note in the comments by subscriber BD:

“Similar licensing monopolies have totally destroyed sports video games. In the late 90's through about 2005, sports video games were incredibly dynamic, with 4-5 games coming out in basketball/football and sometimes 10 in baseball, and came with incredible innovation nearly every year (though to be fair, plenty of duds).Now there's essentially one or two for every sport. And of the actual games that still get released, they're outrageously predatory and frankly, fairly poorly made in terms of quality. Innovation often goes backwards too, as the developers focus on more predatory ways to suck money out of "whale" customers. Meanwhile the actual products are worse than ever.”

Thanks for reading! Your tips make this newsletter what it is, so please send me tips on weird monopolies, stories I’ve missed, or other thoughts. And if you liked this issue of BIG, you can sign up here for more issues, a newsletter on how to restore fair commerce, innovation and democracy. And consider becoming a paying subscriber to support this work, or if you are a paying subscriber, giving a gift subscription to a friend, colleague, or family member.

cheers,

Matt Stoller

P.S. I’m thinking of hiring a reporter in D.C. to cover the Google antitrust trial for BIG. It’ll be eight weeks in September and October, and requires you to go to the court every day and write up what happened, as well as comb through legal filings. If interested, send me your resume and cover letter.