It's official. Fanatics to buy Topps

Triple B said:
They’ll probably be used as outlets.

The ones being demolished will be distributors and breakers. Those guys are likely done. I can’t wait to see HOW Fanatics plan on handling it when it comes to limited products in a direct-to-consumer method of distribution. My concern is what I’ve seen with Topps and that’s having a product sell out in minutes and see one guy selling case after case of what should have been something allocated to buyers.
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Could you explain a bit why breakers would be losers? I get why distributors would lose in this scenario but I'm not too clear on breakers.
 
Arkhive said:
Could you explain a bit why breakers would be losers? I get why distributors would lose in this scenario but I'm not too clear on breakers.
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I won't speak for Ryan but I agree with him and here's how I see this potentially playing out:

Historically, GTS/Southern Hobby retain in their inventory (and/or some of the CDDs/AIRs retain in their inventory) a chunky portion of a newly released product for resale to other stores/breakers shortly after release, noting that in most cases for the CDDs/AIRs, this is inconsistent with the terms of their CDD agreement.

Breakers, in general, are not price sensitive in the way that collectors are on the basis that any marginal increase in cost that they have on sealed product is diluted by 32 times (assuming a team random or team select break) to each of the spots in the break. So for a $1000 price hike on a box or sealed case, that means ~$32 (per spot) and proportionately for team select.

In a Cup break, people generally are not that price sensitive so don't care that much about marginal price increases like this. Scale that down for lower-end products and same point to an even greater extent. Who's going to flinch if the team random cost on an OPC box break goes up by $5-10 per spot?

That's, in some respects, why your $1600 US SPA case went from $1600 to $2600 with no change in underlying value.

In short, so the theory goes: the distributors held back inventory/allocated it to breakers/stores that were willing to pay up (and I already mentioned that the breakers aren't price sensitive because their customers generally aren't). The distributors don't care who gets the product, they just want to maximize their margin, in part by not selling everything and holding it back to be sold after release at even higher prices.

Consequently, much less products gets through to the collector public at reasonable rates as you have artificially stoked demand (via held back inventory), competition with buyers who aren't price sensitive (i.e., breakers buying direct and stores buying for resale to breakers), and generally greater demand overall.

I heard, somewhat apocryphally perhaps, that at least one of the distributors was changing prices on a "hot" product intra-day in the way that a securities broker/dealer or market-maker would do for financial instruments - that's killer when you've done pre-sales at a fixed price if you're a mom & pop card store. That's going to make you push back hard on the distributor to honor pre-order pricing so the mom & pop can keep their slim margins.

Not sure you have any of the same concerns about price movements if you're a breaker; you have no fixed costs like rent, salaries, benefits, taxes, etc. - you just want as much product as possible to sell breaks and you can adjust prices daily in your discretion based on what you're able to get from the distributor without worrying about what you're going to be able to sell in months or years down the road.

On that basis, more and more of "hot" products get allocated to the people that pay the most. It's perfectly economically rational behavior.

That said, the manufacturers are generally not capturing any of that $1000 premium (using our SPA master example). Much of it is being retained by the distributors and to the CDDs who have sealed product reselling it to breakers.

So, if Fanatics goes straight to consumer, then they can make more money by: (a) capturing all of the spread, (b) reducing their distribution costs by cutting out distributors, and (c) perhaps most valuable to them, have much better data on who is buying their product by e.g., requiring you to log and maintain all of your information in connection with every purchase of "sealed" material that you make from them (or that you do electronically on whatever ToppsNow/ePack equivalent that they create).

In a straight to consumer market, not clear why you'd buy from a breaker. Better off just buying sealed product and trading what you don't want through their platform and will be very difficult for breakers to compete on price and/or even get inventory.

I don't think breakers are evil or really even bad, and many of them are actually pretty great people - it's just that the ones who don't follow the rules (or buy from people who don't follow the rules) have made it almost cost prohibitive to buy sealed wax and break it yourself.

Hopefully that's relatively cogent!
 
BrookIsland said:
I won't speak for Ryan but I agree with him and here's how I see this potentially playing out:

Historically, GTS/Southern Hobby retain in their inventory (and/or some of the CDDs/AIRs retain in their inventory) a chunky portion of a newly released product for resale to other stores/breakers shortly after release, noting that in most cases for the CDDs/AIRs, this is inconsistent with the terms of their CDD agreement.

Breakers, in general, are not price sensitive in the way that collectors are on the basis that any marginal increase in cost that they have on sealed product is diluted by 32 times (assuming a team random or team select break) to each of the spots in the break. So for a $1000 price hike on a box or sealed case, that means ~$32 (per spot) and proportionately for team select.

In a Cup break, people generally are not that price sensitive so don't care that much about marginal price increases like this. Scale that down for lower-end products and same point to an even greater extent. Who's going to flinch if the team random cost on an OPC box break goes up by $5-10 per spot?

That's, in some respects, why your $1600 US SPA case went from $1600 to $2600 with no change in underlying value.

In short, so the theory goes: the distributors held back inventory/allocated it to breakers/stores that were willing to pay up (and I already mentioned that the breakers aren't price sensitive because their customers generally aren't). The distributors don't care who gets the product, they just want to maximize their margin, in part by not selling everything and holding it back to be sold after release at even higher prices.

Consequently, much less products gets through to the collector public at reasonable rates as you have artificially stoked demand (via held back inventory), competition with buyers who aren't price sensitive (i.e., breakers buying direct and stores buying for resale to breakers), and generally greater demand overall.

I heard, somewhat apocryphally perhaps, that at least one of the distributors was changing prices on a "hot" product intra-day in the way that a securities broker/dealer or market-maker would do for financial instruments - that's killer when you've done pre-sales at a fixed price if you're a mom & pop card store. That's going to make you push back hard on the distributor to honor pre-order pricing so the mom & pop can keep their slim margins.

Not sure you have any of the same concerns about price movements if you're a breaker; you have no fixed costs like rent, salaries, benefits, taxes, etc. - you just want as much product as possible to sell breaks and you can adjust prices daily in your discretion based on what you're able to get from the distributor without worrying about what you're going to be able to sell in months or years down the road.

On that basis, more and more of "hot" products get allocated to the people that pay the most. It's perfectly economically rational behavior.

That said, the manufacturers are generally not capturing any of that $1000 premium (using our SPA master example). Much of it is being retained by the distributors and to the CDDs who have sealed product reselling it to breakers.

So, if Fanatics goes straight to consumer, then they can make more money by: (a) capturing all of the spread, (b) reducing their distribution costs by cutting out distributors, and (c) perhaps most valuable to them, have much better data on who is buying their product by e.g., requiring you to log and maintain all of your information in connection with every purchase of "sealed" material that you make from them (or that you do electronically on whatever ToppsNow/ePack equivalent that they create).

In a straight to consumer market, not clear why you'd buy from a breaker. Better off just buying sealed product and trading what you don't want through their platform and will be very difficult for breakers to compete on price and/or even get inventory.

I don't think breakers are evil or really even bad, and many of them are actually pretty great people - it's just that the ones who don't follow the rules (or buy from people who don't follow the rules) have made it almost cost prohibitive to buy sealed wax and break it yourself.

Hopefully that's relatively cogent!
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LOL…ALL OF THIS.

Going one step further, I’ve heard some speculation of them running their own breaks. There’s nothing behind that, but Fanatics seems bent on squeezing every dime out of their investment and it wouldn’t surprise me in the very least if they decided to do that.
 
Triple B said:
LOL…ALL OF THIS.

Going one step further, I’ve heard some speculation of them running their own breaks. There’s nothing behind that, but Fanatics seems bent on squeezing every dime out of their investment and it wouldn’t surprise me in the very least if they decided to do that.
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I would be very surprised if they didn't. One can't blame them when others are making bank on tearing through their products in group breaks night after night in literally a spare room. When you see the volume of some of the HIGH end products some of the larger group breakers go through, the manufacturer is absolutely wanting to capture that.

In my head I see it heading heavy towards E-everything too. E-pack online group breaks then cards are stored, graded, and traded on their platform and very little physical anything. I'm sure there can be incentive for collectors to follow that model too. Discount on product? Simple.

As soon as it was mentioned about "storing" your cards and them offering grading etc I felt like the plan was pretty clear in that they want to control all aspects and channels as much as possible. And if you can NOT print physical cards and people will still buy them? Why not.
 
ChuckNorrisFearsSid said:
I would be very surprised if they didn't. One can't blame them when others are making bank on tearing through their products in group breaks night after night in literally a spare room. When you see the volume of some of the HIGH end products some of the larger group breakers go through, the manufacturer is absolutely wanting to capture that.

In my head I see it heading heavy towards E-everything too. E-pack online group breaks then cards are stored, graded, and traded on their platform and very little physical anything. I'm sure there can be incentive for collectors to follow that model too. Discount on product? Simple.

As soon as it was mentioned about "storing" your cards and them offering grading etc I felt like the plan was pretty clear in that they want to control all aspects and channels as much as possible. And if you can NOT print physical cards and people will still buy them? Why not.
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Grading, storing, selling, auctioning...FEES, FEES, FEES, FEES.

These guys are geniuses. They also have players contracted to sell their own signed game used equipment (Fanatics acts as consignor), so the next part of this will be no need for redemptions or if they do have them, no long waits for returns.

Fanatics will reshape the entire industry and all of the industries that are connected to it.
 
BrookIsland said:
Hopefully that's relatively cogent!
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That was incredibly detailed and absolutely cogent. I learned a lot from that post haha so thank you for that! Honestly, very eye-opening about what is going on behind the scenes that I didn't know anything about and that's something I've loved about HI, I learn so much from just browsing and reading people's comments/replies. Thank you!

All-in-all it definitely seems like some massive changes are coming and it'll be interesting to see how things play out.
 
Triple B said:
Grading, storing, selling, auctioning...FEES, FEES, FEES, FEES.

These guys are geniuses. They also have players contracted to sell their own signed game used equipment (Fanatics acts as consignor), so the next part of this will be no need for redemptions or if they do have them, no long waits for returns.

Fanatics will reshape the entire industry and all of the industries that are connected to it.
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I think you're 100% correct on all accounts. The game used aspect has me stumped though. They have a stranglehold on that so they really could pump out memorabilia cards left and right...but I also see the NFT and E-card thing being a major push as it's crazy lucrative.

It's a lot of fun to speculate when it's not the sport I collect! If I was collecting one of the sports they just locked up licensing on it might be a different feeling.
 
Excellent breakdown. I want to make a point here though:

Distributors have been getting stuck for YEARS by the manufacturers. The purchase agreements have required distributors to take absolute garbage products by the shovelful as a necessary prerequisite to access to anything better. Right now, they're recouping years of capital tied up in bad inventory.

This is not to excuse behaviour, so much as to contextualize it.
 
Triple B said:
LOL…ALL OF THIS.

Going one step further, I’ve heard some speculation of them running their own breaks. There’s nothing behind that, but Fanatics seems bent on squeezing every dime out of their investment and it wouldn’t surprise me in the very least if they decided to do that.
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It was mentioned on Burbanks instagram a few weeks back that Fanatics do intend on doing their own break/epack type platform.

Darren
 
Triple B said:
LOL…ALL OF THIS.

Going one step further, I’ve heard some speculation of them running their own breaks. There’s nothing behind that, but Fanatics seems bent on squeezing every dime out of their investment and it wouldn’t surprise me in the very least if they decided to do that.
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Man, that’s a conspiracy waiting to happen. What would stop Fanatics from loading up the cases going into their own breaks to make it look like the product is amazing then send out the scraps to the general public.
 
FrozenInferno said:
Man, that’s a conspiracy waiting to happen. What would stop Fanatics from loading up the cases going into their own breaks to make it look like the product is amazing then send out the scraps to the general public.
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You can only pull something like that so many times before people catch on and lose confidence/interest. HOPEFULLY these guys are thinking long haul.
 
Triple B said:
You can only pull something like that so many times before people catch on and lose confidence/interest. HOPEFULLY these guys are thinking long haul.
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One hopes. Except that Private Equity and VC both are not renowned for their long term profit-taking.
 
quincy said:
One hopes. Except that Private Equity and VC both are not renowned for their long term profit-taking.
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This was exactly what I was trying to articulate earlier in the thread (in the context of research and development which was already at a nadir at Topps based on the Mudrick SPAC proxy statement).

PE/VC generally have funds with 3-4 year investment periods after which they are going to look to find an exit and maximize the IRR for the fund and the carry for the manager - that's a very different objective to a players' association, much less a league, both of whom in theory have equity but likely very little to no veto/control rights, but would generally look to maximize value over a much, much longer time horizon.

TBD on the scale of alignment of interests across those sets of interested parties, much less the consuming public.
 
That is one way of getting into the card making market. Steal the licensing by outpricing everyone else, eventually forcing out a company, and purchase that company for cheap. Make cards under their brand. Topps has the name and following. It was a good strategy. Topps a few years ago was probably worth over $2-3 billion. Getting the company for a fraction of that…smart move. Now they can keep the name Topps as a marketing leverage and a foothold in industry. Topps will be the brand, you get the Fanatics logo on the back of the packs as ownership, but expect many of the same products and quality…maybe a better internet interaction (website, checklist, e-based commerce, including ecards).
 
Could they be planning to announce it at the industry summit at the beginning of October? I kinda hope so cuz I’ll be there to see it first hand if so.
 

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