Mint Condition - June 5, 2023
Breaking down Fanatics' acquisition of PWCC
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Leading Off
Just a few weeks after PWCC announced employee layoffs, the company was acquired by Fanatics on May 22 to the shock of everyone across the industry. This was just the latest ball to drop in a hobby that has come to expect that change is occurring and there are many unknowns around what the future hobby looks like.
There’s a lot to break down here so let’s get into it…
Mint Condition’s Take:
Let’s cover why this sale happened. Per my understanding, PWCC was running into trouble over the past several months. First, it is clear the overall hobby has seen a slowdown in demand and price declines, which impacted PWCC as a marketplace. The company was making investments in people and technology, and when the industry slowed down, these moves were not appropriately impacting growth. This is why we saw the company lay off 30 employees in late April. Second, and more importantly, the loans that PWCC were making against cards turned sour and impacted the company’s cash / liquidity, per The Action Network. PWCC allowed users who had cards in its vault to borrow money by using their cards as collateral. When card prices decreased, instead of paying back the loan and re-obtaining their cards, customers decided to move on — they didn’t pay back the loan, while PWCC was stuck with cards that were now worth 50 cents on the dollar or less.
To say that this was a “fire sale” would be accurate. PWCC was clearly in a cash crunch and looking for (1) an investor to put more money into the company to help it continue to operate or (2) an acquirer who would take it over. I’d imagine Fanatics was one of if not the only buyer at the table with perhaps Collectors also taking a look. Ultimately, Fanatics swooped in, like it did with acquiring PointsBet earlier in May to build out its sport betting operation. While the price paid for PWCC is unknown, it is clear Fanatics acquired the company’s assets, including its user base, marketplace, brand, and more, for much less than they are actually worth. It is a great deal from a valuation and business perspective for Fanatics.
For Fanatics, I view this as another buy vs. build decision that the company was already evaluating. Do they build out their own marketplace and vault or look to buy an existing company with these offerings? The decision was made for them when PWCC fell into their lap, accelerating the company’s entry into additional parts of the hobby that it didn’t touch before. It will take time to integrate PWCC. Rebranding, syncing up everything on the tech side to allow for a seamless user experience across all of Fanatics’ and PWCC’s offerings, and figuring out the right staffing levels (e.g., which employees are needed vs. not?) will all take a bit to think through and implement. I wouldn’t expect any major announcements from Fanatics as it relates to the integration of PWCC for at least a few months as it works through all of this.
Now, is Fanatics acquiring PWCC good or bad for the hobby? This is the million dollar question people inside and outside the industry are debating. Here are a few arguments for either side:
Good:
Fanatics is executing on its vision to be a “one stop shop” for collectors, which will ultimately make the collecting experience much easier, simpler, and more efficient. Rather than going from one app to the next for each hobby need, Fanatics will eventually be the go-to place for all collectors. This will make managing collections and buying, selling, and trading cards more seamless and tech-enabled and less disparate and manual.
It is encouraging to see companies / investors still wanting to invest into the hobby even though we are in a time where demand / prices are declining and some startups are winding down. Without the likes of Fanatics and Collectors continuing to go all-in on the hobby, where would this industry be right now and where could it be in a year from now? Propping up businesses during a slowdown provides a buffer for the entire industry. It allows companies to work through the current difficulties and still be operating when things turn around and the hobby gets healthier.
Bad:
The hobby is changing with Fanatics continuing to assert its presence and there are a lot of unknowns about what collecting will look like in the future. With the acquisition of Topps and now PWCC, Fanatics has its hands in manufacturing, marketplace, auctions, and vaulting while also developing its own breaking service. It seems like the hobby of tomorrow will look nothing like it does today. To promote a healthy industry, shouldn’t there be a number of different players across the various offerings rather than the power being concentrated in only a few?
Is this where Fanatics stops or does the company continue to expand into other services, like grading? If you think about it, having one company both manufacture and grade cards presents inherent conflict of interest. To maintain the integrity of the hobby, there should be regulation around what parts of the ecosystem one company can be involved in or there should be an independent body to report to in order to prove that a company’s activities, specifically those that might conflict with one another, are done properly.
Ultimately, a lot of the discussion over the last few weeks has been speculation as Fanatics hasn’t been outspoken since the acquisition. Time will tell exactly how the market looks in one, six, or twelve months time…I just hope that that the “hobby” part of the sports card industry isn’t forgotten about.
As always, I would love to hear your thoughts. You can reach me at jbmintcondition@gmail.com or on Twitter @jbmintcondition
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