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Sports Retailer Fanatics Growth Game Plan

Fanatics, the private spin-off that GSI Commerce founder Michael Rubin took back from his sale of the company to eBay, is quickly emerging as one of the biggest brands in sports.

On Wednesday, the company's $183 million acquisition of Dreams Inc., which has a big sports autograph business, is expected to close.

Fanatics
Source: Fanatics.com
Fanatics

The autograph business makes up a small part of the hard goods segment of the sports gear space, which accounts for about 25 percent of the overall fan market. The infrastructure that Dreams built up is also appealing to Fanatics, which has plans to grow its fulfillment centers from the two it currently has to four spread around the country to allow the company to get almost any item to a customer within a day.

After Rubin sold GSI Commerce to eBay for $2.4 billion last year, he bought back the company's sports business for $330 million and put it under the Fanatics umbrella.

Fanatics was Rubin's college merchandise e-commerce business, which he combined with the services GSI previously provided to the major sports leagues running their online shops.

But in a short period of time, Rubin's Fanatics has already more than tripled its value. A 10 percent stake in the company purchased by Insight Venture Partners and Andreessen Horowitz is said to value the company at around $1.5 billion.

At that price, Fanatics becomes one of the largest e-commerce operations that, like Amazon, actually holds the inventory itself.

As the rest of the business world used the dot com opportunity to reduce its physical inventory, Rubin did the exact opposite. Taking the risk of holding jerseys and other sports gear in warehouses allowed him to score the businesses of the leagues which cared about turnaround time.

"Almost all categories have been disrupted by the Internet," Rubin told CNBC. "It has shrunk books, music, video and electronic sales and commoditized the marketplace. But the sports licensed category has only grown."

The reason? It's still a mostly regional business and the displaced fan always needs a jersey or hat to buy that he or she can't find locally.

Today, Fanatics carries a million different sports items at any given time and is expected to sell $1 billion worth of gear next year, Compare that to a local sporting goods store, which typically sells 500 to 1,000 different items.

Rubin said that he will continue to be aggressive, especially with the new infusion of cash that has come in through the investment made by the two venture capital companies.

Since the company relies so much on personalization, when a hot market situation precludes them from being able to order much from overseas, one has to wonder if the company's next acquisition would be the Adidas Sports Licensed Division in Indianapolis. For years, they have customized blank NFL jerseys, and although Adidas still has the NBA business, one has to wonder of losing the NFL business to Nike would make it a good sell for the shoe and apparel maker and a good pickup for Rubin.

Questions? Comments? SportsBiz@cnbc.com