$0.00 0
Cart

No products in the cart.

Continue Shopping
$0.00 0
Cart

No products in the cart.

Continue Shopping

Fanatics Strikes Back With Panini Countersuit

countersuit panini vs fanatics

On August 3rd, we reported that Panini had sued Fanatics for what they claimed was an aggressive intent to monopolize the industry. Therefore, they sought damages for alleged violations of federal antitrust laws.

Then, on Monday, August 7th, Fanatics shot back with a lawsuit in a federal court in Southern New York. They allege that Panini uses cases frivolously to hinder Fanatics’ business success.

What does it all mean? We have the full story in our coverage of how Fanatics countersued Panini.

Why Fanatics countersued Panini

The Fanatics countersuit filed in the federal court in Southern New York is centered on the alleged frivolity of the Panini lawsuits on anti-trust laws and the poaching of workers. According to the case, Panini has been trying to “block Fanatics’ hard-earned success through a series of tortious, unfair, and unlawful actions.”

The Fanatics’ legal narrative is pretty straightforward. They say they won the rights to the NBA, NFL, and MLB fair and square. Panini has claimed that Fanatics unfairly used its connections with the major sports leagues through the apparel industry to entice them into exclusionary long-term licensing deals.

However, Fanatics claims that they have cornered Panini out of the market because Panini has failed to “invest in marketing or innovation” and also “failed to capitalize on opportunities that stood to benefit collectors and business partners.”

And Panini is using the legal system to try and reverse the natural course of free enterprise. The lawsuit states, “It was after Fanatic won deals with the players’ associations and leagues to make NBA and NFL cards that Panini “launched a campaign of dirty tricks.”

Fanatics also charges that Panini negotiated a “sham agreement” to “disrupt Fanatics Collectibles’ momentum.”

Background on Fanatics countersuing Panini

In 2021 Fanatics came into the hobby with an unprecedented show of force. They announced they had signed outstanding long-term deals to lock up exclusive rights to produce licensed NBA, NFL, and MLB cards.

Once that happened, Fanatics had both Topps and Panini in the wrong financial position. It seemed like a matter of time before one was sold to Fanatics. The purchase of rights seemed designed to torpedo the Topps’s plan to go public and came on the eve of a deal with Mudrick Capital valued at $1.3 billion. Not long after, Fanatics purchased Topps and based its new trading card empire, now valued at $10.4 billion, on the established baseball card company.

It appears that Fanatics also made moves to purchase Panini. However, since the Texas-based company had the rights to the NFL and NBA for a few more years, they refused. However, Panini claims that their rivals have not waited patiently for the agreements to run out. Some are also wondering if Fanatics may be behind WWE’s recent decision to abandon Panini.

But instead of purchasing Panini, they began to lure away Panini executives. So, the Texas-based company sued Fanatics to “halt the illegal raiding of Panini’s employees by several former high-level and trusted Panini employees…and their new employer, Fanatics.”

Poaching workers is not illegal in and of itself. However, the plaintiffs claimed that “these individuals are or soon will be working in the same position with Fanatics as they previously held with Panini, and will be necessarily using confidential information and trade secrets they learned at Panini to perform their jobs on behalf of Fanatics.” 

So, the latest flurry of lawsuits is not the beginning of the legal and professional struggles between the two companies. Indeed, it is the culmination of two years of extreme tensions and mutual agitation.

Fanatics came out punching from the start

Fanatics responded to the lawsuit with some immediate and very sharp criticism of Panini. They released two separate statements.

The first was somewhat diplomatic and read:

“At Fanatics, we remain focused on innovation and working to improve an industry that Panini has sleepily led for years. Our fresh approach – which finally enables players to better connect with their fans and to earn a fair share of the value they have created – is working, and our partnerships with leagues, teams, and players are proof of that. Panini’s meritless allegations won’t distract or slow us down, and we will vigorously defend the lawsuit. Fanatics remains committed to providing a better model for our partners and creating the best possible experience for collectors across the globe.”

But a spokesperson for the company also said that the lawsuit was a “baseless last-gasp, flailing effort by a company that has lost touch with its consumers, is failing in the marketplace, and has tried unsuccessfully for years to sell itself. At Fanatics, we remain focused on innovation and working to improve an industry that Panini has sleepily led for years.” They also added that “it’s hardly surprising that Panini received an “F” grade from the Better Business Bureau.”

After such a harsh response, no one was shocked to hear that a countersuit from Fanatics was in the works.

Fanatics negotiated to purchase Panini In 2022

One of the most interesting facts that came to light in this lawsuit was something we had long suspected. Fanatics and Panini had already negotiated a potential deal to terminate their licenses for the NBA and NFL before expiration.

They gave the specifics in the lawsuit: “In the spring of 2022, Fanatics and Panini agreed in principle (subject to licensors’ approval) to terminate certain of Panini’s licenses early, initially with a target effective date of July 31, 2022, thereby allowing Fanatics Collectibles to accelerate the licenses it had already been awarded.”

But Fanatics allege that these talks were not held in good faith. Instead, they say Panini was “trying to pass off knowingly-inflated earnings projections that translated to an unreasonably high deal price.” 

They allege that the talks were doomed from the start because “All the while, Panini knew early termination would never happen because Panini would never be willing to agree to a termination fee that matched its own accurate, real-world earnings projections.”

What did Panini CEO Mark Warsop Say?

Fanatics alleges that Mark Warsop, the Chief Executive Officer at Panini America Warsop, admitted to Fanatics privately that Panini was maintaining two sets of projections during negotiations with Fanatics: (1) an internal set that Panini used and relied on to properly budget and operate its business, and which had been approved by Panini’s Italian owners, and (2) a separate, much rosier set of falsified projections that were carefully and systematically fed to Fanatics for its consumption at the direction, and with the endorsement, of Panini’s Italian owners.”

As a result of this process, Fanatics claims it “lost valuable parallel business opportunities” and spent tens of millions on legal advice related to the negotiations. They allege that Panini had intentionally used inflated projections of the profits they were set to make off the licenses and used them to sabotage negotiations.

Panini may have an alternative explanation for varying evaluations

However, the Wall Street Journal has reported that Panini has an excellent counter to this claim. They note that “A person familiar with Panini’s thinking said Panini’s projections were lowered because Fanatics acquired control of Panini’s primary manufacturer and reduced its supply of trading cards, hurting its business.”

That fits with the narrative in the recent Panini lawsuit against Fanatics. According to that filing, Fanatics got a majority stake in GC Packaging, which prints 90% of Panini’s cards.

According to the lawsuit, “This acquisition—a direct violation of GCP’s contractual obligations to Panini—undermined Panini’s ability to perform even in the short run under Panini’s existing licenses, thereby hoping to force Panini into a sale.” That has allowed Fanatics to lower the production capabilities of Panini.

As they alleged in the lawsuit, “Because Fanatics has control over GCP, Panini is now beholden to Fanatics for its lifeblood—the production of nearly all its trading cards.” 

Fanatics countersuing Panini on GCP purchase

Panini has alleged that Fanatics purchased GCP, which produces most Panini cards, to disrupt its business. Fanatics object to this and claim to have done so to improve service.

According to their complaint, “Fanatics invested in GCP to improve an industry that problems with significant quality issues, capacity constraints, consistent delivery delays, numerous theft issues, and underinvestment have plagued. Fanatics’ investment benefits everyone, including Panini— which has seen its share of GCP’s capacity grow substantially since Fanatics’ investment, resulting in GCP producing significantly more packs for Panini.”

They also turned Panini’s complaint on its head, saying that Panini had harmed GCP by not printing enough cards “as the capacity that is reserved and not used is lost—and resulting in GCP recently in 2023 missing its budget and profit goals by tens of millions of dollars.” As a side note, this is probably the first time anyone accused Panini of under-printing.

However, Fanatics did not directly address claims that they used the GCP as leverage over Panini in negotiations.

Fanatics countersuing Panini on NBA, NFL, and MLB rights purchase

Fanatics’s complaint counters that the licensers didn’t even ask Panini to bid “clearly recognizing Panini’s value proposition paled in comparison to that presented by Fanatics Collectibles.” 

Instead, Fanatics claims that “As Panini’s licensing Case deals neared expiration, licensors unsurprisingly chose Fanatics Collectibles as their new licensee that would commit long-term to the business, quite different from Panini’s strategy of siphoning cash to its Italian owners.”

In their lawsuit, they turned Panini’s complaint that they had used their leverage in a manner counter to anti-trust laws; Fanatics claims that their rivals held all the cards.

If you will pardon the pun: “Like a sprinter benefiting from a head start, Panini had a sizable lead as the incumbent. Before Fanatics Collectibles’ entry, and for the last 14 years, Panini held exclusive licenses for sports and entertainment collectible cards in the U.S. pursuant to long-term agreements—and Panini has long touted itself, even today, as the ‘world’s largest sports and entertainment collectibles company’ as a result.”

According to Fanatics, the three significant leagues preferred to sign with them because of extra value-added; for example, they note that Panini did not “anticipate or participate in, much less allow its licensors to profit from, industry trends such as the explosion of secondary markets or the prevalent practice of card breaking.”

Fanatics countersuing Panini on poaching Panini employees

According to Panini, Fanatics aggressively pursued executives with access to trade secrets. Therefore, it sued Fanatics and received an order forbidding the new employees from sharing trade secrets and ordering them to preserve all communications.

However, according to the new lawsuit, the Fanatics’ version of events is quite different. They claim to have held off on hiring until after the negotiations over licensing, believing that “certain of Panini’s employees would naturally transition to Fanatics Collectibles as part of the early termination.”

But once talks fell apart, Fanatics claimed to have just published wanted advertisements, which Panini executives then answered.

Fanatics also denies that the 37 Panini executives hired by Fanatics revealed any trade secrets. According to the lawsuit, “Panini accuses Fanatics of trade secret misappropriation because former employees left with thumb drives.

However, neutral forensic evidence has confirmed that no former employee ever accessed Panini-related information on the thumb drives after leaving Panini. Meanwhile, Panini’s alleged “trade secrets” are a hodgepodge of public or valueless categories of information.”

The plaintiff also alleges that Panini is intimidating employees and thus preventing them from joining Fanatics: “Since the first wave of employee departures, Panini has initiated a campaign of intimidation, leveraging the threat of further litigation to stem the tide of further employee departures.”

Fanatics allegations regarding Panini’s treatment of workers

Fanatics continued its pattern of answering every Panini allegation with counterpunches. They addressed the accusations by Panini that they illegally poached executives and unscrupulously utilized trade secrets in their possession.

The countercase calls workers “the legitimate right to seek better opportunities, longer-term prospects, and a more modern, inclusive workforce at Fanatics Collectibles.”

Once again, the claim was that the damage to Panini was due to its incompetence.

According to the lawsuit, “In the ongoing litigation, Panini’s former employees have testified to the emotional turmoil, failures of transparency, and bleak trajectory that led them to seek a brighter future at Fanatics Collectibles.

They even accused Panini of racism, noting that “Panini also removed race as a protected class from its code of conduct. Most recently, Panini’s racially insensitive practices have drawn the attention of social activists, who have blasted the company for having no Black leadership in the United States despite employing hundreds of employees in the United States and deriving 75% of its business from selling depictions of Black and Brown athletes.”

How Panini responded after Fanatics countersued Panini

Panini responded in words that echo the Fanatics’ response to their initial lawsuit. The Texas-based company stated this was “a desperate attempt to avoid dealing with its serious antitrust liability.” They also opined that an “attempt to portray it somehow as a victim is absurd on the facts.”

Their head lawyer, David Boies, the chairman of Boies Schiller Flexner, claimed, “Fanatics’ attacks on Panini are flatly inconsistent with the undisputed facts, including Panini’s undisputed record of innovation, customer service, and financial success.

If Panini had been as unsuccessful as Fanatics pretends, Fanatic wouldn’t have had to use decades-long exclusive dealing arrangements to lock it out of the market, improperly cut off Panini’s supply, interfere with Panini’s production facilities, and raid its employees.”

The weak points of the Fanatics lawsuit

Panini released a statement calling the complaint “a press release masquerading as a lawsuit.” While that may be an excavation, we do see their point.

The complaint issued by Fanatics is 101 pages long and includes a deluge of allegations and complaints. Fanatics also (somewhat needlessly) padded the complaint with negative comments about Panini on social media.

But it is an open question about how many hold water. Some elements are fragile. For example, it does not correctly address Panini’s allegations in its deals with the major sports leagues.

Panini complained that the deals needed shorter to allow for fair competition. They allege, “The duration of Fanatics’ exclusive-dealing arrangements are well beyond anything necessary for any legitimate economic or other purpose.”

Fanatics answered that by saying that the leagues entered the agreement of their own volition and that the length will the company to “invest deeply in marketing, product development, and innovation; to build strong, lasting relationships with athletes; and to take a variety of steps to improve the industry and enhance collector experience.”

But anti-trust laws are about the unfair use of leverage to stifle competition. It is not about whether there is consent or whether it serves the partners’ interests in a monopolistic exercise.

Another element I found that could have been more convincing was why Fanatics bought up GCP. Was it really to improve the hobby experience?

One wonders what alternative companies they could have reached deals with. And if purchasing the company outright was necessary or an unfair use of leverage in a monopolistic manner.

Final word on why Fanatics countersued Panini

The Panini lawsuit repeated many charges against Panini. They continually repeated the mantra that the downfall of the company has been “poor marketing, nonresponsive customer service, pervasive underinvestment in product quality, and an overreliance on (and lack of fulfillment of) redemption cards.”

Indeed, the lawsuit includes various complaints from customers on social media. They also have articles on the failures of the Panini company.

But that is more an attempt to diss their rivals than actual grounds for a lawsuit. In my estimation, there are no teeth to Fanatics’ claim that Panini has done anything illegal.

It is quite possible that Panini’s claims that Fanatics violated anti-trust laws and poached workers illegally will be dismissed by the court. However, it’s hard to believe the courts will see the lawsuits as frivolous. Or as an unlawful attempt to hider Fanatics’ business practices.

Nonetheless, the underlying narrative of Fanatics’ defense is a compelling one. They claim that they are more efficient and innovative than Panini. Therefore, they deserved to win over Panini. We do not expect the counter-lawsuit to go far. Still, Fanatics has a strong defense against both of the lawsuits Panini filed.

Shaiel Ben-Ephraim

Shaiel Ben-Ephraim

Shaiel Ben-Ephraim is the emeritus editor of Cardlines. He continues to write for several hobby outlets, including this one and Cardbase. He collects primarily vintage baseball and soccer and has a weird obsession with 1971 Topps.

In his spare time, Shaiel is sobbing into his bourbon when the Mets lose and playing Dungeons and Dragons. In a past life, Dr. Ben-Ephraim was a political science professor, journalist, and diplomat. But cards are more fun.
When you click on links to various merchants on this site and make a purchase, this can result in this site earning a commission. Affiliate programs and affiliations include, but are not limited to, the eBay Partner Network.

CARDLINES NEWSLETTER

Keep up on CardLines articles, and receive exclusive content with expert analysis of hobby trends.

Related »

More in Stories »

© Copyright 2024 - All rights reserved Cardlines.com / Media Techs LLC

Important: When you click on links to various merchants on this site and make a purchase, this can result in this site earning a commission. Affiliate programs and affiliations include, but are not limited to, the eBay Partner Network.

YouTube Giveaway
  • Follow Cardlines on Instagram and Subscribe on YouTube @card_lines to be eligible to win a free blaster box of cards!
  • The winner will be notified each Friday
  • Must be located within the United States.