Big business has come for your baseball cards

This story is part of Perspective a series called Rollups, looking at little-known markets that have been folded by unseen monopolies. If you know of such a rollup, please contact us at rollups(at)prospect.org.

While much has been made of social media innovation and data monetization, the fundamentals of monopolies haven’t really changed much since the Gilded Age, when the main antagonists were railroad barons, industrial titans, and meatpackers. Concentrated economic power is often based on exclusive contracts, which by their nature crowd out competition. Combined with market power, companies can use these contracts to outbid other lines of business through tactics such as tying and bundling and crushing fair competition, compromising product quality and driving higher prices. This is confirmed by a century of antitrust court rulings and precedents.

Old-school corporate giants like American Tobacco imposed deals on all of their existing producers. Western Union’s telegraph power pacts with news outlets like the Associated Press earned it the reputation of being the “lord” of news in the 19th century, said legal analyst Daniel Hanley written. These restrictive agreements are still in force today and can be found everywhere, including: John Deere tractor repair Down repairing McDonald’s ice cream machines. Google default contract with Apple locked in its search engine as a gateway to the Internet. Amazon forced terms with sellers and delivery service providers strengthen your control in e-commerce.

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The curse of exclusivity is so widespread and pernicious that it has even led to the complex merger of the entire sportswear and merchandise industry under one company.

Fanatics has been called the Amazon of sports due to its CEO Michael Rubin’s ambition to become the central e-commerce platform for all corners of the sports entertainment market. Its success is evident not only in its aspirations for a $100 billion market capitalization, but also in the fact that Fanatics’ main competitor in controlling clothing sales is now indeed Amazon. He secured the financial interests of large institutional investors such as SoftBank and celebrities such as Jay-Z.

But it was through a network of exclusive deals that Fanatics asserted its dominance in the sports industry.

FANATICS TAKE SOME STRONG POSITIONSbut the business starts with securing all kinds of legal licenses and promotional rights across all major sports leagues, individual teams and various players’ associations for intellectual property such as rights to branding, trademarks and other emblems.

One of Fanatics’ largest licenses covers the design and production of all jerseys and in-game equipment worn by players in several sports leagues, most notably Major League Baseball.

Fanatics won these deals even though the quality of their designs is often so low that it causes fan outrage. In the wake of the recent debacle, the new Fanatics and Nike uniforms released ahead of the start of the 2024 MLB season had a glaring design flaw: the pants were noticeably see-through. League plans to repair uniforms Next year.

Amid the backlash, Rubin gave an interview he complained that his company was unfairly blamed for the misfortune. Ultimately, however, market power outweighed the controversy; shortly after the MLB defeat, the National Hockey League signed a unified contract with Fanatics.

Providing the uniforms allowed fanatics to enter the leagues, which decide which companies they partner with.

Long-term contracts are much more likely to lead to poorer product quality and higher prices.

Fanatics also currently holds significant market share in the core segments of manufacturing, design and distribution for the merchandising industry, one of the most lucrative product markets in sports entertainment. Several other companies have a presence in the apparel industry, but Fanatics is increasingly invalidating these rivals by buying them out. In 2012, it acquired FansEdge and then in 2017 it acquired Majestic, an iconic jersey brand with deep ties to the MLB. Fanatics also took over minority shares in the hat manufacturer Lids.

Through 2022, Fanatics has secured exclusive licensing agreements with NFL, NHL, NBA, MLB and college sports programming, guaranteeing control over official professional sports products.

Fanatics Authentic’s memorabilia division has locked down superstar rights to autographs and other items, signing deals with Tom Brady, Jayson Tatum, Auston Matthews, Shohei Ohtani and many others.

Fanatics has also announced an expansion into sports betting and even has aspirations to sell tickets to sporting events, competing with the likes of Ticketmaster.

It wasn’t an easy path for the Fanatics. In 2022 A class action lawsuit accused the company of monopolizing NFL merchandise through an exclusive licensing agreement. And the fans do He complained about garbage charges when selling goods, low qualityAND shipping errors.

However, what has really enraged sports fans and collectors recently is Fanatics’ tactic of gaining exclusive trading card monopoly rights to most major sports leagues.

TRADING CARDS, AN ICONIC CULTURAL ARTIFACT 20th century, with a large subculture of collectors, they have a special sentimental value for many Americans. Many sports fans share the incredible, almost universal experience of their mothers, who at some point threw away their precious stash and with it something resembling a down payment on a mortgage, or so they claim.

Leagues are encouraged to partner with third-party companies for trading card memorabilia because they receive a significant portion of the profits. However, the important question is how they structure licensing agreements and whether they ultimately hand over too much power to one company at the expense of fans.

The best example is the collection arm of the Fanatic empire.

Trading cards have experienced a resurgence during the pandemic and have seen a surge in value that has attracted speculators and investments from non-fungible token (NFT) startups and other online trading platforms. Trading cards have become the perfect vector for this niche financialization endeavor.

During this period, Fanatics has invested heavily in capturing new value in this growing market. Now they not only produce cards, but also control the resale market and the platforms where most of the action takes place, both for new cards and old, rare collectibles.

They have secured exclusive trading card contracts, fully effective by 2026, with the National Football League (NFL), National Basketball Association (NBA) and Major League Baseball (MLB) along with their respective players’ associations. They also currently have deals with Major League Soccer and World Wrestling Entertainment for trading card expansions and other products.

In a major coup, Fanatics in 2022 also acquired Topps, a once-iconic sports card brand that pioneered the overall product market before it had any value by including sports cards in gum wrappers in the early 1950s.

In fact, Topps faced significant antitrust litigation beginning in the 1960s, which led to the termination of exclusivity agreements in the 1980s and a brief period of competitive alternatives. Topps’ breakup could have an impact on today’s ongoing lawsuit against Fanatics over its renewed industry monopolization, brought by trading card competitor Panini, which claims the leagues are conspiring with Fanatics and driving it out of business.

Summarizing the lawsuit, antitrust scholars Marc Edelman, Nathaniel Grow and John Holden write in a forthcoming law review article: “The sports trading card market – driven by volume licensing, long-term exclusivity agreements and industry mergers – has become extremely consolidated, with one company, Fanatics, becoming the dominant player in the industry.”

Leagues have the right to sign certain forms of exclusive licenses without anticompetitive effects, but the lawsuit specifically focuses on the durability of those agreements Fanatics entered into, spanning well over a decade. The agreements ensure that fanatics will enjoy an extended period of monopoly profits without competition.

Another aspect of the lawsuit is that Fanatics now also essentially controls upstream suppliers such as major card manufacturer GC Packaging.

Without league licensing rights, companies can still technically produce their own cards. However, they will not own any of the trademarks that actually make the cards valuable, and will face other limitations, such as not being able to actually display the player in his official attire. They are essentially worthless paper at this point.

According to the lawsuit, long-term contracts are more likely to result in lower product quality and higher prices while being isolated from competitors for longer periods of time.

One key sign of higher prices for collectors is the terms and conditions that Fanatics forces third-party card sellers to sign in order to sell any of their products. With the acquisition of Topps, these conditions may also apply to vintage collectibles, where third-party suppliers and brick-and-mortar retailers play a major role.

To sell Fanatics cards, sellers must agree to a provision giving Fanatics the ability to make “suggestions” about minimum prices for future card sales, according to a review by Nathaniel Otto, an associate attorney at Burr & Forman LLP. The deal also threatens that Fanatics could potentially punish any seller who does not comply with the terms by revoking their access to all Fanatics-affiliated products. Supplier terms also impose extensive requirements on store operations, such as certain resale/discontinuation restrictions, signage, hours of operation parameters, and even disclosure of quarterly sales reporting metrics.

However, Fanatics qualifies all this by asserting supplier independence: “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.”

These restrictive arrangements turn suppliers into subordinate contractors of the Fanatics. Part of the company’s long-term plan is to expand not only its licensing and card production, but also its distribution channels. This is already an area where Fanatics has turned the traditional trading card market on its head with its own online trading platforms and resale markets.

This is an almost identical strategy that Amazon used in e-commerce years before Fanatics was founded.

Trading cards are a niche market, so you may not see what the big deal is. But as Matt Stoller of the American Economic Liberties Project recently described in his Substack BIG, these forms of insidious “economic termites”S” make our lives just a little bit worse – not enough to cause great outrage, but enough to extract wealth. If you’re a sports fan in America, you can’t avoid Fanatics. This makes them worth paying attention to.