Fireside Chat with Michael Rubin (Fanatics) | Disrupt SF (Day 2)
2:38AM Sep 7, 2018
criminal justice system
This company has raised enormous amounts of money and is basically taking the fan world by storm. It'll be involved Michael Rubin of Fanatics. And he's going to be in conversation with Lucas Matney who's a writer with TechCrunch, big round of applause. Come on. See you later.
Michael. Thanks for joining us for a little chat here. Good to be here. Cool. I mean, so this is an interesting week to have you on stage. Amazon just hit a trillion dollar market cap like when you see that kind of success that they have really, you know, as its accelerated over the past year. Like, do you see fanatics as something that's going to grow alongside them or directly, you kind of take them on and challenge them.
Yeah. So for me, I think I give a lot of credit to where Fanatics is going to the success of Amazon. And the reason I say that is when I bought Fanatics back from from eBay, six years ago, seven years ago, we knew from day one, that Amazon was going to be this incredibly successful company. I believe that 15 years ago, 20 years ago, and really, my belief it just kind of cut through it is there's no way to win in e commerce against Amazon earn in China against Alibaba if you're not completely differentiated. So the whole Fanatics models all about designing, developing selling directly to the consumer own products, and it's really what we call V commerce or vertical commerce. So for me, Amazon success is a huge benefit to us. We built a differentiated model to make sure that Amazon is going to continue to kill it and go from a trillion dollars to a much bigger business over time from a value perspective and also from a retail perspective, but that we're going to continue to have huge growth because of the differentiation that we have.
So going back a little bit earlier for people who aren't familiar. Can you talk a little bit about the origin behind Fanatics and how you came Yeah, you know, it's, it's a cool story.
Sure. So I started a company called GSI commerce in 1999, it became really the largest provider of e commerce services and infrastructure to big retailers. big brands around the world to come is like Ralph, Lauren Dick's Sporting Goods. GNC worked with my own company that to own and operate and to really run their e commerce business and do the digital marketing services so Fanatics was part of GSI commerce. In 2011 GSI was acquired by eBay for $2.4 billion they really want the services business because they wanted the big merchants to come to join the eBay marketplace and to really work together and so they didn't want to have the other businesses that inventory or business so we bought back Fanatics and Rue LA LA and Shop Runner from eBay 2011 and the business in the year before is only a $250 million business. So Fanatics in 2010 was a $250 million business today, it's a $2.3 billion business. We think it's going to be a $10 billion business over the next decade. Because the differentiation of the business, it's all about V commerce and vertical commerce.
So SoftBank invested was part of let around for a billion dollars a year ago, valued at 4.5 billion like was that you know, I understand that the sports market is huge, but our partnerships with sports leagues, you know, going to help you realize a billion dollar investment or do you kind of have to expand beyond sports merchandise
As I said we think the sports market is enormous. And we think there's a bunch of potential beyond the sports market. So just in the sports industry alone, we've already gone from a quarter of a billion dollars, $2.3 billion, we see a very clear path to $10 billion and we think that will be one of the most valuable consumer companies in the world as we take this as a vertical model, which is again, very differentiated from Amazon, what people don't really get is when you go to Amazon, it's an incredible business. They're selling other people's products. That's what Amazon's all about. That's what Alibaba is all about. If you're trying to do the same thing as Amazon, or Alibaba, so you're selling other people's merchandise, you're gonna die, you have no chance to be successful. For me. It's all about having this completely differentiated business. And that's why we have so much potential within the sports vertical in overtime. We think we can take this to other verticals as well.
So what's what's revolutionary about that concept, though, because, you know, say, say j crew is a billion dollar business, they're selling their own products online. Like what what is the vertical commerce platform really matter? Is it is it just leveraging the advantages of the web that, you know, the the legacy businesses having?
Yeah, so I'd say the biggest thing is the exclusivity of what you're selling. So you told me you grew up in Indianapolis, if you're a big Colts fan, and you want to go out and buy jersey from that team, or are you you're a patient fan, you want to buy a hoodie for the patient you're not going to go buy something else. So if you have exclusive unique merchandise, then consumers and fans come to you to buy that merchandise. And that's very different from Hamlet to choose between a Nike and Adidas pair of sneakers. So you know when football consult tonight and I'm back in Philadelphia for the Eagles playing the Atlanta Falcons. If you want to buy a Carson Wentz, Jersey, then you're going to come to buy that Carson Wentz, jersey and everything we do is about delivering to the fan. You know, whatever product they want, you know, every size, color, gender, whatever you may want for a fan.
So if I go to Amazon and search for Colts jersey, I'll probably see some stuff. So what what's the what's the unique
you see a lot less than you think, to be honest. Yeah, I'd say most of the products that we sell are not available at other marketplaces like an Amazon. I'd say when we measure our assortment we look they carry a very small percentage of the products that we have that we carry. And that's why fans come just by the products. If it was commonly available at Amazon, there'd be no reason for us to be we offer an incredible selection.
We have the speed and joy because we're vertical. Something happens tonight and great. And, you know, a great play happens the game, we can make a T shirt around like great play and selling immediately because we're manufacturing and on demand. So our whole business is about taking the content of sports and using that to program the merchandise really on a minute by minute basis based on what happens in a game. what's hot, what's not hot.
Okay, so when you when you bought fanatics and the other properties back from from eBay, was there this idea that, you know, like, how soon after, where you're like, Okay, we're gonna get into manufacturing,
To be honest, the idea was before we bought the business back, okay, so what we really bought from eBay was a completely different business than then then today, I think fanatics in 2011 was really the Zappos or the licensed sports industry. And what that means is we were selling other people's merchandise. Today, the biggest thing we sell is our own product. And if it's not on product than its merchandising is mostly exclusive and not made available through other online marketplaces.
Alright, so we have a strategy to be clear from day you know from day one that was kind of where we started from.
Okay but for like in terms of, you know, growing to that $10 billion business is that tapping the partnerships more than that you already have or is that you're grabbing you know, football leagues across the world
Yeah so we have great growth in our existing business so if you look at how's the NFL growing, Major League Baseball growing, how's the NBA growing, we have incredible growth with it within the sports are in. In addition, we're now growing the business globally, we're growing, you know, throughout the world. Soccer is a very big business for us and growing very fast. And, you know, we just launched with Formula One recently. So, I mean, we're growing in in many geographies throughout the world, but there's also incredible growth. I mean, I looked at this morning our NFL business year to date is up 35%. Okay. Okay. So in our biggest business, most mature business business people like to talk about negative headlines were up 35% year to date.
So no one's burning they're not buying them just to burn the jersey.
But if they if they want that's fine no they are not.
What do you What do you think about this, this stuff happening with Nike does does it, you know, does them kind of taking a stand on an issue like, you know, seem like a good business decision for them, you think.
Look like us a really smart company and they know their consumers really well. And they made a decision that said that they may alienate a small percentage of older customers that don't spend a lot of money to endear themselves to a younger customer, which is who their target demographic is. And I think it was a bold, aggressive and smart move. I mean to me, like much respect
why why isn't Nike approaching, you know, a model similar, more similar to Fanatics?
Yeah, we have incredible business partnership with Nike. We work very closely together. So we've now and this week we announced this a few months ago, Nike used to do everything in the NFL and then we together created a better business model with the NFL ourselves and Nike were Nike's really the marketing and exposure partner. So you see them on the field. They're kind of the marketing partner if gives them a great halo effect of somewhere Nike product. But for us, we make everything Nike in the NFL. So when you buy a Nike jersey from Fanatics you buy from Dick's Sporting Goods that jersey starting 2020 will be manufactured by Fanatics. Of course, under the Nike brand, okay, so we make Nike merchandise we make Under Armour merchandise. We make merchandise under most brands, but it still has the verticality, the allows us to to best service the fan and it'd be the best model for everybody involved.
Is there is there any dream of pumping a bunch of money into marketing and branding and having Fanatics be a tough
So really the way we think about Nike, Adidas, Under Armour this sort of performance brands, they're the brand you know, that's, that's what they are their performance brand for us, we're really the brand of the fan. So Fanatics brand number one is a very well known site. It's also we make 10s of millions of pieces of apparel, but we're really a fan company we think of ourselves as the brand for the fan.
Okay, so Fanatics isn't the only property that's part of kinetic Rue La La, Shop runner, you know, I think I was watching an interview that you've done. And what's interesting about shop runner is that you said it was, you know, one of the one of the few alternatives on the web for Amazon Prime. Can you talk a little bit about that?
Sure. So shop runner is a business that we started at GSI in 2009 it really started because we were good listeners. What we heard from our retailers is like Hey, how you gonna help me deal with this amazon prime problem and after maybe the hundred person asked me like wow, we got a deal with this thing. And you know, we built this started in 2009 Today it's got millions of members spending billions of dollars that really concentrate their spend around Amazon I'm sorry around shop runner merchants. We've got more than 150 merchants. You get unlimited two day shipping from shop runner and it's a great service for a consumer because you get an unlimited two day shipping and no incremental cost and it's a great benefit to the merchants because it's really driving billions of dollars of business who these members construct or spend through shop where merchants
And then are they they're turning to you just because it's you're taking like a more conservative revenue slice
we take we the way our model works is the merchant pays the cost of the two day shipping. Okay, then we generally take depends on the category between four and 5% of revenue.
Okay. Would you say that for now. So fanatics has been growing incredibly quickly
10 X say that when we bought it seven years ago, and we think it's going to, you know, we think that growth is just starting to things so exciting about fanatics. For us, it's gone from 250 million to $2.3 billion, and we feel like we're just getting started. We think there's so much growth and we think there's so much growth in sports, we think we can service the fans so much better with a direct to consumer model we always have what the fan wants, so we there's incredible growth there and we think there's incredible growth for shop runner as well, which is also gone from a few hundred million dollar business to billions of dollars in GMV,
do you think that there's a point where they kind of converge and you can take your own v commerce part but you're just a part of a network of sites that you know alongside very like well known brands already are shop runner and fanatics always going to be independent entities you think
yeah, we look are three companies very independent. Okay, um, fanatics has its own set of investors, it's got its own CEO. It's run separately. Same story for shop runner, and same story for Rue la la. And gilt, which is a separate company as well.
Okay. Okay. You also own guilt? Yes. Okay. Talk a little bit about rue la la and gilt like, what those are obviously serving different audiences, then fanatics is absolutely how do you how do you maintain kind of a unified vision of the e commerce world?
You know, for me, I we, what we've really learned is to have three separate teams with three separate CEOs is the most effective way to run the business because each business is completely different. So I think where I have is, I think, a common perspective that there's, you know, two incredibly commerce company selling physical merchandise in the world, which is really Amazon and and Alibaba. And so I think the perspective that I have from my respect for those companies allows us to make sure we have a strategy that's very insulated and differentiated from what they do again, you know, I've had the core belief I sat up in 2004, 2005
when Amazon was a 20 or $30 billion business. And I told our merchants at my old company that Amazon would be the biggest company in retail over time people setting that was nuts at that point. Now, it's clear, even a Walmart still bigger in GMV, it's it's clear that you know, Amazon will be the, you know, the biggest, certainly in North America, the biggest retail company and many places in the world. So I think the respect and understanding for how good Amazon and Alibaba are, let you say, How am I going to do something that's very different because if you don't, you have no chance of being successful.
It's interesting when you talk about the vertical commerce model because you know, when I when I hear it, it's it seems like the same thing that a small business would say and obviously small businesses aren't raising a billion dollars from SoftBank so like
so here's what I think vertical commerce is when I look at a company like Lulu lemon Okay, they own their own brand it's a direct to consumer brand the differences 80% of their sales go through physical retail stores for us, 80% of our sales go through e commerce. So if you could start a new brand today, you'd say, hey, I want to be vertical, because I want to control the relationship directly with the consumer. And at the same time, I want to do it through e commerce because that's the most efficient vehicle so all we've done is taken the model of an h&m, Zara or a or Lulu lemon and said, we're gonna take that same vertical model, but we're going to do it primarily through e commerce.
So do you think for, you know, maybe for startup founders who are looking to get in the e commerce space and already have a product? Do you think that your success your successful model can translate to them? Or is it something that you kind of already have to have a pretty heavy infrastructure?
Well, one thing about e commerce is scale is very important. So if you don't have scale, you can't be successful. So I'd say what I always say to someone in e commerce is How big can it be and what are the order economics if it can't be a big enough business and the order economics don't show you that you can make a lot of you know, contribution more. from it, you should again give up and not waste your time. Okay? All right. I mean, I'm pretty, you know, straightforward to say, I think I see people come to me with e commerce ideas all the time. Like, this won't work. It's not, you know, the order economics aren't there, or it can't be big enough. You have to be able to answer those questions.
Okay. It's crazy the scale because, you know, sitting at $4.5 billion valuation and still Amazon at a trillion like it, you know, when you when you look at that, are you are you just do you feel like Amazon could decide to make a play in this direction? Or would that just completely be out of character for them or Alibaba to do?
You know, I think what's very unique about our business, it's all about the partnerships in the acquisitions that we have. These are very the acquisition of rights that we have. These are very long term partnerships. So our average partnership with the league is probably 15 years long. And we have tons of exclusivity and the rights and we have tremendous scale, so I don't, so I think we are very differentiated again. I have incredible respect, admiration for Amazon. Same thing for Alibaba. But again, we're selling different merchandise. It's not commonly available. So I think, you know, Amazon's got a big, big business. And they're growing by, you know, I mean, there's probably growing by like an entire target per year. Sure. So I don't think they're looking and saying, hey, in 15 years from now, how do we try to get all the rights that fanatics has today and build the scale that we don't have in this category is very specialized.
Okay. Okay. All right now switching gears entirely caught you on Jimmy Fallon a couple days ago you're sitting next to a rapper Meek Mill and you're talking about criminal justice reform. And that's very different from what you know,
that's not like the same thing is like selling a jersey
Yeah, not not quite, not quite that don't worry about how you got involved with criminal justice reform and how that moment on stage happened.
Yeah, so for me, it was completely by accident. I never thought it would happen. But Meek Mill you know, was before any of this happened was one of my closest friends we'd met four or five years ago with NBA All Star game You know, I'm one of the owners of the Sixers. He started coming to our games. And I remember maybe a year and a note and maybe we'd hung out 10 times mostly our games I said hey I'm going to this place called the Bugatti was a casino in in New Jersey. I said, you want to come with me? He said, I can't go. I looked at him. Like, like, What do you mean? You can't go? He's like, I don't have permission. Like, do you need permission from your mother to come with me? He's like, he's like, bro, I'm on probation. I'm like, okay, so how's that work? You can't You can't go from Philadelphia across the bridge to guys know I need to get permission from the court. I'll never forget that. So that was like my first kind of understand the situation and then we'd become you know, much better friends over the next couple years. You know, we've you know, been on you know, you know, dozens of trips together, you know, coming our games all the time, you know, at my house a lot doing stuff together, you know, kind of, you know, he become friendly with many of my friends. And then last year, he was around all the time.
I was like, like, like, bro, what are you doing? Like, you know, kind of like, you know, like, like, get a job. Just like Mike. This is a funny, like, I'm not leaving, like, well, how you perform. He's like, that's why I'm around all the time. They won't let me leave Philadelphia like, Okay, this now I'm like, this makes no sense. So long story short, he had last year, two very minor incidents, what you could say please contact one was he popped a Willy on a motorcycle and he put it on Instagram. And a day and a half later, 21 police officers came in the rest of them for reckless endangerment. And that alone was enough to give them a probation violation. So the judge in Philadelphia called him in for probation violation and, you know, I wrote a letter on his behalf and I believe I was like this can't possibly be an issue Sure. A long story short
I was he was going to court he was worried about said, I'm going to come with you and I went to the courtroom and this is my first time kind of in a courtroom for anything like this. Yeah, I don't even think I've been for a traffic ticket.
And I watched a probation officer get up and say Meek Mill's you know his real name is Rob Williams. He's incredible citizen. He's done everything. We asked recommend no sentence than I watched the district attorney get up and say we recommend no sentence. I turn over the lawyers and Like, why are we here? And the lawyers said, I don't know. But in zero percent of cases, you get sentenced when the probation officer in District Attorney recommend no sentence. An hour later, the judge sentenced him to two to four years and State Penitentiary, and that for me was a life changing event. I saw one of my closest friends being taken away from his family and his friends. Right to jail. Yeah, and he called me that night. He called me an hour later from Jail he's like I told you I'm like you told me what you say always told you there were two Americans always told me that I was wrong. He said he's always said to me, Michael there's there's America and there's black American I say like Dude, what are you talking about? Like That is great. Like, you're wrong. Like, look, you kill it. And that's when I realized he was completely
He was completely right and I was completely wrong and at that point I said to him I'm going to do everything I can at any cost it no matter what it takes to get you out of prison and then Jay Z who was his management company his partner Deseret Perez was coincidentally sitting next to me and we kind of said like, look we're going to do this together we're not going to stop and and fortunately the Supreme Court released him on bail about six months later.
So how did you translate that whole situation into you know something where you can actually help people in that same situation and what are what are your company's doing specifically?
Yes. So for me the first thing was I understood the problem that I never understood before because I 0.0 awareness of the promise of criminal justice system before that happened
once we knew that he was getting out of prison soon because we knew you know, we've proven that he didn't do the original client who's charged of and you can we knew that this was going to get resolved or you know, partially resolved. We start saying every day we we got to help the other people that are stuck in the similar situation who aren't famous who don't have friends.
We have a lot of power Martin. And so, you know, within a couple months of his situation, we start socializing. Let's start a criminal justice foundation that can really help the 6.7 million people today. They're stuck within the criminal justice system. I think if any of us took a logical approach to what we think makes sense, you know, we want murders in jail. We want, you know, violent criminals in jail. We want people to do really bad things. Oh, yeah. But we don't want someone who was on probation, smoked weed to go back to prison. No, he was late for his meeting with his probation officer to go back to prison. And I think the number should probably be half so what we've done is we're putting together an incredible group of people will announce it later this fall. But it you know, minimal, it's myself it's me it's Robert Kraft to some other really big and important, you know,
contributors to this who are going to put not only a lot of capital into this but really care deeply about reforming the criminal justice system Sure, who have a real platform to help reform and so, you know, our goal is really simple. We want to get a million people out of the criminal justice system in the next five years and over time we
like to see it cut in half. And by in America, we have a rate of incarceration of five times higher than the entire rest of the world together. So this system is completely broken, it needs to be fixed.
So we talked a little a little bit about reentry, what's fanatics doing? Particularly.
So it's one of the great things that, you know, we have 8000 employees at our company is I called the CEO of Rue la guilt last week, and I said, Hey, I got an idea. I just talked to the CEO of fanatics. I said, you know, we've got, you know, between the two companies, 8000 collective employees, there are 750,000 people who get out of prison and get out of jail each year. And how do we create a pilot for how do we help people transition from prison jail to work in a company's I've challenged each of our companies to start creating great opportunities for people coming out of prison and jail and help them kind of reaction. What I've learned through my research is in many times you some of your best associates they grow they're incredibly loyal. So I think it's a big opportunity for me. One of things I want to the foundation is how do we help hundreds of thousands of people
get jobs coming out of prison and jail each year. I think fanatics and Rue LA LA and gilt are great place to start to create some of those opportunities and do it on a pilot basis.
Very cool. Well, it's fantastic work and a lot of success. It seems like also great to have you on stage.
My pleasure. Thank you. All right.