Panini Suing Fanatics For Antitrust Breach In Bombshell Lawsuit
Panini is filing another lawsuit against Fanatics. This time, the Texas-based sports card company alleges that since the sports apparel giant moved into the hobby, they have aggressively intended to monopolize the industry and violated the federal antitrust law. Panini is seeking damages. However, they have not specified an amount in the lawsuit. Four days later, Fanatics counter-sued Panini, claiming they were filing frivolous lawsuits and had hampered Fanatics business operation illegally. They also asked for compensation.
Why is Panini suing Fanatics for antitrust breach? Will they win? What does it all mean? We have the whole story.
Details on Panini suing Fanatics for antitrust breach
On Thursday, August 3, 2023, Panini filed a lawsuit in U.S. District Court in Florida. A significant plank of the lawsuit alleges that Fanatics has disparaged Panini repeatedly and systematically to industry actors and partners.
According to the case, “Fanatics has done all this Anticompetitive Conduct to monopolize the markets for Major U.S. Professional Sports Leagues trading cards (and others) even before its exclusives begin. In short, Fanatics seeks to cripple Panini both for the short term— the remaining years on Panini’s current exclusive license agreements—and the long term.”
The lawsuit also frames its allegations around another plank. They claim that Fanatics has tried to purchase Panini outright and has been rebuffed. However, upon receiving a negative answer, they did not accept it, and Fanatics CEO Michael Rubin stated that he would force a sale. Therefore, Panini alleges that Fanatics have used all the considerable leverage to force a sale. Both elements will be explained in detail below.
Panini suing Fanatics for anti-trust breach by locking up most major leagues
The lawsuit focuses on the earth-shattering deals Fanatics made to lock up the rights of the NBA, NFL, and MLB for 15 to 20 years.
According to the lawsuit: “By combining long-term exclusive licenses for every Major U.S. Professional Sports League, Fanatics positioned itself to drive Panini and other potential competitors out of the market, and erected barriers to entry blocking their return. A monopolistic outcome here will harm the public, consumers, and competition by allowing Fanatics complete control to set and raise prices for MLB player trading cards, NBA player trading cards, and NFL player trading cards.”
David Boies, the chairperson of Boies Schiller Flexner, the law firm representing Panini, said, “What Fanatics has done is essentially lock out competition for decades in all three major sports trading card markets. That hurts consumers. Fanatics’ behavior is the behavior of a typical monopolist.”
The lawsuit also noted what it believes was predatory behavior by Fanatics to force Topps to sell. According to the case, once the leagues were locked up.
“The reality was that Topps had almost no choice but to sell. This practical effect of its exclusive deals was what Fanatics intended all along, which was that not only would Topps give in, but Panini would also fall like a domino in the wake of Fanatics’ Anticompetitive Conduct.”
Paninis auing Fanatics for antitrust breach by not allowing Panini to bid
Panini also alleges that the entire process by which Topps purchased the exclusive rights to produce NBA, NFL, and MLB cards was exclusionary, unfair, and transparent.
Therefore, the suit alleges: “Panini was not allowed to bid or compete for the licenses Fanatics acquired. Panini only learned about Fanatics’ exclusive agreements after they were consummated, through reading about them in the media.”
Panini suing Fanatics by taking over the card printing company that Fanatics uses
The Panini company owns the rights to NBA and NFL cards right now. But it does not print them itself. It has long used GC Packaging to publish the vast majority of its cards. They are a company based in Allen, Texas (a 48-minute drive from the headquarters of Panini, located in Irving, Texas).
According to the GC Packaging website, the company has made cards for over 40 years. It has “a reputation among our clients as a partner that delivers superior work and unparalleled customer service.”
In the lawsuit, Panini revealed that Fanatics, through two separate transactions, has obtained a controlling stake in GC Packaging. According to the case, “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.”
By purchasing the card printer that Panini uses, they have put a good deal of pressure on the Texas-based card company. That means that, in theory, Fanatics can try to make GC Packaging work against the interests of Panini. Or as the lawsuit puts it: “Because Fanatics has control over GCP, Panini is now beholden to Fanatics for its lifeblood—the production of nearly all its trading cards.” Indeed, according to Panini, Fanatics has used this leverage to restrict the allocation of production GC Packaging considerably provides to Panini, violating their contractual obligations.
Panini suing Fanatics for antitrust breach by providing leagues and players with a piece of Fanatics
The MLB, NBA, and NFL deals included one essential element that needed more attention.
According to the Wall Street Journal: “When the dust settled, the leagues and unions were set to receive stakes in the new Fanatics company, which added up to about 14%, people familiar with the matter said. Fanatics, the sports-merchandising giant founded by Michael Rubin, owns more than 80%.” That is notable because neither Topps nor Panini had provided the players or the leagues with equity.
It is also worth noting that until June 2022, Fanatics CEO Michael Rubin was a partial owner of the Philadelphia 76ers of the NBA and the NHL’s New Jersey Devils. Therefore, Rubin and his company have a somewhat incestuous relationship with the major sports leagues.
Those terms give the leagues over a billion dollars of value in the company. More importantly, it incentivizes all the significant professional associations in the United States (and their players) to help cement Fanatics’ monopoly over the card business. As we will see, that is likely a violation of the Sherman Act, the fundamental law in the federal anti-trust regime.
Indeed, the Wall Street Journal reported at the time that Fanatics admitted to monopolistic goals: “Fanatics Trading Cards say the new venture will angle to become the one-stop shop for all things in the trading card industry—including primary sales, secondary-marketplace deals, grading of cards and even storage.
Defaming Panini to actors in the industry
The lawsuit also claims that Fanatics has used their advantageous position in the hobby to make Panini look unprofessional and by making derogatory comments that are not true. For example, they have pursued exclusive autographing contracts with athletes to shut them out of Panini products.
In so doing, the lawsuit alleges, “Fanatics has told these third parties that Panini is incapable of performing for them, will be out of business soon, and lacks the money to pay them. These statements are false.”
Panini suing Fanatics for antitrust breach by threatening not to provide Panini with patches
Many sports products today include patches from player jerseys and uniforms. In more high-end products, there are usually game-worn items. Meanwhile, lower-end products often have patches that the athlete has not used in the game but may have been worn by them in a controlled setting.
The most prestigious among these are Rookie Patch Autos (RPA’s), often the most valuable rookie cards for young players in the current hobby market.
Unfortunately for Panini, Fanatics controls the uniform and jersey market in all the major sports. Therefore, it has yet another source of leverage over the Texas-based company.
According to the lawsuit: “Fanatics’ CEO, Michael Rubin, approached Panini in May 2023 to threaten that Fanatics would no longer supply Panini with any jerseys for Panini to offer to consumers as elements of its trading cards. Rubin added that Fanatics would not stop its pressure campaign against Panini and would continue to sign exclusive deals with players that Panini could otherwise use to offer fully licensed trading cards to consumers.”
A recap of the monopolistic behavior of Fanatics in the hobby
The Fanatics’ foray into trading cards began with a massive bang in August 2021, when they purchased the exclusive rights to MLB, NBA, and NFL cards in one fell swoop. The agreements with the leagues are unprecedented in their length and comprehensiveness. In some cases, they will last for twenty years. That leaves very little of a future horizon for other card manufacturers, such as the plaintiff in this case, Panini America.
The sports apparel company leveraged its deep pockets (reportedly worth 51 billion dollars) and its long-standing ties with all three major sports organizations to get these unprecedented deals. That is something we will get further into below. But right now, that is the basis for many of the claims that Fanatics is in breach of anti-trust laws.
Then in January 2022, Fanatics purchased veteran cards producer Topps, the current beneficiary of an exclusive card production deal with MLB. In the process, the sports apparel giant acted in a cutthroat manner. As we reported here, Fanatics made “their announcement of a takeover of the rights to baseball, basketball, and football cards came on the eve of a significant investment in Topps.
Topps planned to go public and had reached a deal with Mudrick Capital to obtain a special purpose acquisition merger with the venture capital firm valued at $1.3 billion.” That essentially neutered the veteran card company and left them helpless.
Thus they fell into the hands of Fanatics like a ripe fruit. Or as I put it in a past article: “By removing their 70-year deal with the MLB on the eve of the agreement, Fanatics had left Topps for dead. It was only a matter of time before they returned to reanimate the corpse.
The Wall Street Journal reported that the dominant Fanatics trading cards division immediately received $350 million in Series A funding. It was worth an incredible 10.4 billion dollars after the takeover.
The previous Panini lawsuit against Fanatics
This is not the first time Panini has alleged illegal practices by Fanatics against their business interests. In June, just two months ago, Panini filed a lawsuit accusing the Florida-based sports apparel company of poaching key employees and using essential secrets in their possession to undermine their business practices.
The suit asked that the court “halt the illegal raiding of Panini’s employees by several former high-level and trusted Panini employees…and their new employer, Fanatics.”
By taking away these employees, Panini is concerned that “these individuals are or soon will be working in the exact 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.”
That lawsuit was also mentioned in the newer lawsuit. Panini claims that to obtain their employees, Fanatics has threatened them “with not working in the industry again once Panini’s licenses expired unless those employees committed immediately to join Fanatics.”
And in some cases, Fanatics went even further, telling Panini’s employees that it would soon take over Panini’s business before its (NFL and NBA) licenses expired and thus Panini—and with it these employees’ jobs—would no longer exist,” attorneys for Panini stated. “So if these employees wished to continue in the industry, Fanatics’ story went, they needed to join Fanatics immediately.”
A recap of the monopolistic behavior of Fanatics outside the hobby
This is not the first lawsuit against Fanatics alleging they have engaged in anti-trust violations. In March 2022, sports apparel distributors Saul Maldonado, Dean Santos, Lesia Dunn, Kimberly Ann Marckmann, and Louis Hibbs filed a claim that the NFL and Fanatics had an illegally exclusive agreement to sell officially licensed merchandise. The case is Maldonado et al. v. National Football League Inc., filed in the U.S. District Court for the Southern District of New York.
According to the lawsuit, Fanatics and the NFL have used this association to boycott smaller distributors on third-party seller platforms: “This boycott eliminated defendants’ competitors who would have charged lower prices for NFL licensed products sold online. In so doing, the boycott removed the downward pressure on prices and margins that, absent the conspiracy, would have otherwise flowed directly from enhanced competition.”
By cooperating in this manner to stifle competition, “The conspiracy as a whole, and each part, have allowed Defendants to charge supra-competitive prices for NFL Licensed Products and share the monopoly profits among themselves.”
Lawsuit between Casey’s Distributing
On June 9, 2022, Casey’s Distributing Inc. filed a complaint for injunctive and declaratory relief for violations of federal anti-trust laws in the southern district of New York jurisdiction. The company claimed that Fanatics and the MLB have agreements with licensees and retailers designed to restrict the ability of competitors to sell MLB-licensed products online.
The class action suit noted, “Fanatics’ appetite for growth cannot be overstated.” Casey’s Distributing Inc. claimed that Fanatics’ monopolistic impulses are expressed by their policy of moving to “buy up competing licensees of MLB products” and “slowly securing its dominance in the licensed sporting goods market.”
A telling element in this lawsuit was the role of MLB in promoting the monopoly created by Fanatics. Major League Baseball has invested “more than $50 million” to become a minority equity shareholder of Fanatics, according to the lawsuit. Therefore, they profit through their domination of the market. On the face of it, that certainly sounds like an unfair hindrance to competition.
What consequences could Fanatics face?
In some cases, breaking anti-trust laws can be a criminal offense.
According to the Federal Trade Commission: “The Sherman Act imposes criminal penalties of up to $100 million for a corporation and $1 million for an individual, along with up to 10 years in prison. Under federal law, the maximum fine may be increased to twice the amount the conspirators gained from the illegal acts or twice the money lost by the victims of the crime if either of those amounts is over $100 million.”
However, that is only enforced in extreme cases, and Fanatics is in no danger of that. Panini is filing this lawsuit as a civil case, seeking damages.
What laws are Fanatics allegedly violating?
The United States has always had its share of tycoons trying to lock up various markets to the disadvantage of consumers and entrepreneurs. Congress first took steps to limit this phenomenon in 1890 with the passing of the Sherman Act.
It was designed as a “comprehensive charter of economic liberty aimed at preserving free and unfettered competition as the rule of trade.” This was later followed by the Federal Trade Commission Act (1914) and the Clayton Act (1914). Although it has been over a century, that legislation remains the bedrock of federal anti-trust law today.
The FTC notes that these laws aim “to protect the process of competition for the benefit of consumers, making sure there are strong incentives for businesses to operate efficiently, keep prices down, and keep quality up.”
The Sherman Act calls to forbid: “every contract, combination, or conspiracy in restraint of trade.” There are grounds to believe that the strong ties (including stock investment) between Fanatics and the MLB, NFL, and NBA are in material breach of this act.
Is this lawsuit justified?
Our position at Cardlines has been reasonably apparent on this issue for a while. The business strategy of Fanatics is in material violation of both the spirit and substance of federal antitrust laws. I wrote back in 2021, “If you ask me (and no one has), the root of the problem is in exclusive deals between leagues and card manufacturers. There are anti-trust laws in the United States for a reason.
However, our institutions refuse to hold businesses accountable and break up exploitative monopolies.”
This publication (yes, it was also me) has warned consumers about the dangers the lack of enforcement of anti-trust laws poses: “We are concerned that when all opposition is dead and gone, PSA, Fanatics, and eBay will jack up prices and cut corners. After all, monopolies are not known for the high quality of their services. That is why we have anti-trust laws in the United States. Not that they are ever enforced.”
Fanatics are also engaging in anti-trust violations in other arenas, which the Panini lawsuit is unconcerned with. It has a long-standing monopoly on apparel for American sports. If you want a genuine Yankees cap or Lakers jersey, you have to get it through Fanatics. And the prices are notably high as a result.
How are Fanatics responding to the complaint?
We believe the complaint from Panini has some merit. But Fanatics still needs to address the meat of these complaints in its response.
The official company responded, “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.”
That was reasonably diplomatic. However, according to a spokesperson for Fanatics, this 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.”
In a particularly barbed comment, Fanatics added that “it’s hardly surprising that Panini received an “F” grade from the Better Business Bureau.”
These comments are amusing and not necessarily incorrect. However, Panini alleges that Fanatics has been unfairly besmirching them to anyone who would listen, so those comments may not strike the right tone legally.
The Fanatics countersuit
On August 7th, 2023, Fanatics countered with their own complaint in a federal court in Southern New York. Fanatics alleges that Panini has been trying to “block Fanatics’ hard-earned success through a series of tortious, unfair, and unlawful actions.” The main thrust of their case is that Panini lost the rights to the major leagues through their own incompetence. They also make similar claims regarding the alleged poaching of Panini executives by Fanatics. According to the complaint Panini “failed to capitalize on opportunities that stood to benefit collectors and business partners.” The lawsuits they say, are part of “a campaign of dirty tricks.”
Much of the complaint is a simply Fanatics trashing Panini. It even includes pages of negative social media comments about Panini. The complaint does not seem terribly legally sound, and Panini referred to it as “a press release masquerading as a lawsuit.” But whatever the merits of the complaint it gives us a clear idea of Fanatics will defend itself. By claiming they offer superior service to customers and to the leagues and won their market leverage fair and square.
The final word on Panini suing Fanatics for anti-trust breach
Notably, Fanatics has gone after Panini for their failings in their public response to the complaint. But they did not address the claims that they have adopted monopolistic practices. It is straightforward to trash Panini. Like, ridiculously easy.
There is little doubt that Fanatics is a very efficient and impressive company, and Panini cannot match that. But that is irrelevant to whether Fanatics is using its ties with the major sports leagues to suppress competition in the sports card space. It also does little to answer allegations that it has operated remarkably similarly in the sports apparel world.
From my perspective, one of the most disturbing elements in these allegations is how needless Fanatics’s alleged behavior is. Panini is about to lose the rights to football and basketball.
Once that happens, they will be a shell of their former selves. The way Fanatics is using every bit of leverage at its disposal to make Panini’s life miserable as it heads towards that milestone is needless.
Fanatics will have a monopoly by 2026. Is it really so much to ask that they allow Panini to operate generally until then? It reminds me of that famous Simpsons meme where Ralph cries, “Stop, stop, he’s already dead!”
It is quite possible that this needless alleged bullying on the part of Fanatics will cost them money. But it certainly will not dent the domination of the sports apparel company.