Sports betting: How Fanatics plans to revolutionize the industry despite its late entry

It has been nearly a year since Michael Rubin sold his minority share of the 76ers, ending an 11-year run that saw Rubin, who grew up in Lafayette Hill, go from a wealthy e-commerce executive to one of the more powerful CEOs in sports.

His company, Fanatics, hit a $31 billion valuation in 2022, and its ambitions had outgrown his minority investment in a pro sports team. Conflicts of interest had arrived in multiple forms. Fanatics was no longer just the leading sports apparel company, it was making moves in trading cards and other collectibles and had an opportunity to do what Rubin couldn’t have possibly envisioned when he bought into the Sixers in 2011: build what the company thinks is the sportsbook of the future.

Sports betting has boomed in the five-plus years since the Professional and Amateur Sports Protection Act of 1992 was repealed, paving the way for expanded legalization.

Fanatics has largely been on the sidelines. Even now, with 33 states plus the District of Columbia having passed some form of legalized sports wagering — and more than two dozen allowing mobile betting — Fanatics has still not entered the market in a real, meaningful way.

And in a way, that’s the point.

Fanatics wasn’t around for what Matt King — CEO of Fanatics’ betting and gaming arm — called the “land-grab” phase of legalization, when companies rushed to get to market and invested loads of money acquiring customers in hopes of making it back later.

Five years after legalization, the two giants in the industry, FanDuel and DraftKings, which combined for nearly 75% of the market share in the fourth quarter of 2022, have yet to turn a profitable year. FanDuel expects to turn a profit in 2023. DraftKings is hopeful it can be profitable in 2024.

More than $93 billion was legally wagered on sports in the U.S. last year, and Fanatics was on the sideline.

It still mostly is, too. The company is beta testing its sports betting app in four states: Tennessee and Ohio had it first, and now it’s in Massachusetts and Maryland.

entered into an agreement to purchase the U.S. business of Australian-based PointsBet for $150 million, the companies announced in mid-May. Once that deal is ratified, Fanatics would have a route into multiple major markets, including Pennsylvania and New Jersey.

The company has some advantages at its disposal, mainly its rewards programming and large existing database of customers. But some industry skeptics have wondered how Fanatics, which has had its share of customer concerns in the merchandise business, can reach its lofty goals in sports betting.

“I don’t really see this,” Oklahoma State University professor John Holden, who focuses on sports betting, told PlayUSA in December. “It’s a highly competitive market and the market is pretty saturated.”

Both King and chief product officer Scot McClintic said the time is now for disruption to cut through the saturation.

“The next wave of growth in this industry really comes from innovation and how you think about doing it better,” King said last month at a major sports betting conference in New Jersey. “If we’re real with ourselves, how satisfied are you with your sports betting app?

“We have a satisfaction gap to close if we want to be viewed as a category that’s on par with the best consumer technology.”

The new currency of sports

To understand how Fanatics plans to revolutionize the sports betting experience, it’s important to point out that the company isn’t only measuring its technology against FanDuel and DraftKings. It thinks of itself more like Spotify, Uber and others, and has executives in the betting arm with experience from companies like Doordash, Amazon, the electric scooter and bike company Lime, and other non-casino brands.

McClintic showed what that attitude toward tech means during a product demonstration with The Inquirer last week, Philadelphia’s City Hall over his shoulder from inside a Fanatics office in the Wanamaker Building.

The Fanatics sports betting app greets users with a discover page, similar to one you might find on Spotify and other popular apps. McClintic, a New Jersey native who helped launch Barstool’s sportsbook before leaving for Fanatics, said Fanatics uses contextual data — either using geography or user-provided information — to give bettors what they want without making them go on a clicking endeavor.

Fanatics, McClintic said, is laser focused on speed of bet placement and speed of navigation. The company already has a base of customers at its disposal. King, who was CEO at FanDuel before joining Fanatics, said FanDuel was sitting on “maybe 8 million customers” when PAPSA was repealed in 2018. Fanatics, meanwhile, has a database of 95 million sports fans.

King was asked how many of those 95 million fans were convertible to sports bettors. That number was probably less than 50%, he guessed, but said there was a better way to frame the question: “What percent of sports bettors are in our database?” That percentage, King said, is much higher.

Why does that matter? While most companies to date have invested millions of dollars trying to acquire customers, Fanatics can reach its audience with little cost. It also has the ability to reward customers with promotions its competitors can’t.

While McClintic demonstrated the Fanatics app, he pointed to the corner of the screen, where under a sportsbook wallet balance, another dollar figure, what Fanatics calls FanCash, was visible.

Fanatics thinks of FanCash as the new currency of sports. Customers will earn 5% cash back on every same-game parlay, 3% for every regular parlay, and 1% for every straight bet. Those rewards can be used to buy merchandise and collectibles or traded in for other experiences — as well as converted into bonus bets. There’s a flow in the reverse, too. Buying a team jersey at Fanatics also results in a FanCash reward that can be turned into bonus bets.

As the sports betting market became saturated, McClintic said Fanatics faced a bit of a crossroads and a question: “Do we want to take a major, risk-adjusted bet that we could build a [user experience] that customers have always been looking for, they just never knew that they wanted?

“We’re given the opportunity to really try to reinvent the category,” McClintic said. “It’s taking a fresh perspective on: What do customers want out of their sports betting and gaming up? What are they getting from other apps they use in their day-to-day life and what are some of those things that really move the needle for them that we could draw into the sports betting category?”

‘Make being a fan better’

All of this, of course, is a big bet. Especially for a company that has a Twitter account with a relatively small following dedicated to its merchandising failures and one that drew ire from some hockey fans when it was announced that Fanatics would replace Adidas as the outfitter of the league’s jerseys beginning with the 2024-25 season.

Merchandising complaints aside, can Fanatics really become what Rubin has said in the past he wants it to? (Rubin was not made available for this story.)

“I’m going to create the greatest cross-loyalty program in sports,” Rubin told the Washington Post last year.

But when? The company is taking the long view. It says publicly that it isn’t focused on immediate results.

“We can be the No. 1 player in the world in that business in 10 years,” Rubin told Sports Business Journal in February 2022.

While that expectation hasn’t publicly been tempered, others have. Rubin once said Fanatics would be live in 15 to 20 states by the 2023 NFL season. Fanatics doesn’t have a specific timeline for any further launches, but Rubin said in April that the number would be closer to 12. The PointsBet acquisition paves the way for more states, but these things take time.

Then there’s the question of market share. Take Pennsylvania, for example. In April, FanDuel and DraftKings combined for 67% of the market share.

No surprise here: Those two companies were among the first movers, and consumers, especially bettors, are creatures of habit. How many sports bettors are looking for another app to bet on?

“The way we think about the world within sports betting is we’re not necessarily in the pursuit of market share,” King said. “What we’re focused on is two things: Build a product people love, and activate the Fanatics ecosystem.”

The “ecosystem” approach can be seen just by looking right now at Maryland, McClintic said.

Fanatics launched the first sportsbook physically inside an NFL stadium when it opened inside FedEx Field, the home of the Washington Commanders, in January. It wasn’t allowed to take any bets on game day, according to league rules, but an NFL owners vote this past March paved the way for betting inside stadiums to launch in 2023.

Inside FedEx Field, Commanders fans can buy team merchandise from Fanatics. They can go to the sportsbook and bet on the Commanders. They can order some wings and have a beer inside the sportsbook.

“It feels, from a customer point of view, very different from a hyper-transactional [relationship],” McClintic said.

It’s the physical manifestation of Rubin’s big bet: that Fanatics is well-situated to be and will eventually become the one-stop sports company of the future.

“Fanatics exists to make being a fan better, and we think we’re uniquely positioned to do that,” King said. “If we can do that, we’ve done something good for every sports fan in America, regardless if they’re a sports bettor or not.”