Panini, an established player in the trading card industry, and Fanatics, a fast-growing newcomer, have moved their rivalry from the market to the U.S. federal court system. In October, Panini America, Inc. (Panini), the American subsidiary of Panini Group, a global trading-card company based in Italy, filed an amended complaint in their lawsuit against Fanatics, Inc. and several affiliated entities (Fanatics) in the Middle District of Florida (subsequently transferred to the Southern District of New York), alleging violations of the Sherman Act and the Clayton Act, as well as tortious interference with prospective business and contract, business defamation, and disparagement. Panini alleges that Fanatics is engaging in anticompetitive conduct through: its acquisition of allegedly unprecedented long-term exclusive licensing deals with top professional leagues and players associations, such as the NBA, MLB, and NFL Players Association (NFLPA); its acquisition of competitor Topps and special manufacturer GC Packaging, LLC (GCP); and the “raiding” of key Panini employee groups. Panini alleges that this conduct is anticompetitive, demonstrates Fanatics’ goal of eliminating all competition in player trading cards for major U.S. professional sports leagues for the foreseeable future, and that these arrangements would not benefit consumers.
Four days after Panini filed its initial complaint, a Fanatics affiliate filed its own suit against Panini S.p.A in the Southern District of New York, arguing that Panini’s antitrust lawsuit is baseless and that Fanatics is simply a stronger and more innovative market player. Further, Fanatics alleges its own claims against Panini of unfair competition, tortious interference with business relations, and breach of the obligation to negotiate in good faith.
Exclusive long-term licensing deals
Panini alleges that Fanatics acquired key exclusive long-term licensing deals that effectively block competitors from the market. Two of these licenses are exclusive for ten years (with the NBA and its players association) and four are exclusive for twenty (the NFL, MLB, and their respective players associations), which Panini alleges is unprecedented in the industry. Further, Panini alleges that this is the first time ever that a single firm will hold all six major U.S. professional sports league licenses.
Panini also alleges, inter alia, that it was not able to bid on these licenses and that it only discovered they had been awarded to Fanatics after the fact, through news media; that Fanatics did not act consistently with the alleged industry practice of being awarded the long-term exclusive deals after proving it could perform through a short-term trial contract; and that Fanatics gave the leagues and players associations equity ownership in Fanatics to induce them to grant it the licenses on the premise that they would earn monopoly profits from them. Additionally, Panini argues that Fanatics used the alleged monopoly power derived from these exclusive deals to harm not only Panini, but also distributors, local card shops, and “case breakers,” i.e., individuals who livestream the opening of new trading card “cases.” Panini alleges that Fanatics is attempting to move all case breakers exclusively to its platform.
Fanatics countered in its suit that licensing organizations make the decision on whether to run a bidding process and that Panini itself previously acquired licenses without having to bid. Fanatics asserts that the licensors “independently decided not to solicit bids from Panini because Panini had made painfully clear throughout its long tenure that it lacked the vision, leadership team, and willingness to invest and deliver the way that Fanatics Collectibles is positioned and committed to do.” Further, Fanatics contends that the licensors choose the terms of these arrangements, and that long term agreements enable Fanatics to invest in marketing, product development, and innovation, thereby enhancing the consumer experience.
On the offensive, Fanatics alleges that Panini itself engaged in unfair competition and breached its obligation to negotiate in good faith. After the parties agreed in principle that Panini would prematurely terminate certain of its licenses to allow Fanatics to enter into them early, in exchange for Fanatics paying an early termination fee derived from what would have been Panini’s projected earnings for the licenses’ remaining years, Panini allegedly engaged in stalling tactics and tried to “pass off knowingly inflated earnings projections that translated to an unreasonably high early termination fee.”
Acquisition of Topps and GCP
Panini claims that Fanatics’ alleged anticompetitive conduct also includes its acquisition of Topps and a controlling stake in GCP. Panini alleges that Fanatics acquired Topps as part of an attempt to force competitors such as Topps, and eventually Panini, out of the market. Panini argues that Topps had no choice but to sell after Fanatics acquired exclusive deals with Topps’ key business partners, the MLB and MLB Players Association. GCP is Panini’s specialty manufacturer and, it alleges, one of the only U.S. manufacturers capable of producing custom, high-tech, high-quality trading cards. Panini alleges that Fanatics used its acquisition of GCP to undermine Panini’s existing business by significantly disrupting Panini’s requested production volume from GCP, which fell from over 90% between 2019 and 2021 to 58% and 61% in 2022 and 2023, respectively.
Fanatics argues that Panini is in the same position as Topps was prior to its acquisition, having lost important licenses to Fanatics, yet remaining independent, thus refuting the argument that Topps’ loss of licenses forced it to sell. Further, Fanatics points to Panini’s acquisition of competitor Donruss Playoff LP in 2009, which it asserts occurred under similar circumstances. In that instance, Panini acquired Donruss, allowing Panini to assume its NFL and NFLPA licenses.
“Raiding” of Panini employees
Panini also alleges that Fanatics “raided” Panini employees, arguing that Fanatics opened an office in Dallas, Texas, only miles away from Panini headquarters, and began heavily recruiting Panini employees. Panini argues that Fanatics threatened employees by claiming that they would never work in the industry again once Panini’s licenses expired, unless they committed to join Fanatics. Fanatics also allegedly enticed Panini employees with significant compensation packages, which Panini alleges would only make economic sense if Fanatics was intending to force Panini out of the NFL and NBA player trading cards market during the remainder of Panini’s licenses.
Panini also alleges that Fanatics raided Panini employees so that the NFLPA could rely on language in its agreement with Panini allowing them to terminate the contract if Panini suffers a material change in executive management, which the NFLPA allegedly attempted to do in August. Panini further alleges that if the NFLPA is successful in terminating its agreement with Panini, it would result in an immediate acceleration of Fanatics’ exclusive deal with the NFLPA. Additionally, Panini alleges that Fanatics used the same tactics discussed with respect to the NFLPA to induce the WWE to terminate its deal with Panini and begin working with Fanatics on an exclusive basis.
Fanatics refutes these claims by pointing out that Panini did not have non-compete clauses in place, and no agreement was in place stopping them from recruiting Panini employees. Additionally, Fanatics argued that many employees were looking for opportunities to leave Panini due to its lack of diversity, “outdated” work environment, and dim business prospects. Panini also allegedly interfered in potential departures, preventing more of its employees from joining Fanatics by threatening them with litigation if they chose to leave, and in fact filing suit against certain employees after they left.
In addition to its antitrust claims, Panini asserts claims of tortious interference with contract and prospective business based on Fanatics’ acquisition of a controlling stake in GCP, and alleged interference with Panini’s existing or prospective legal rights with respect to GCP, Panini’s employees, certain rookie players, and several leagues and players associations. Panini also claims business defamation and disparagement based on allegedly false and derogatory statements that Fanatics purportedly disseminated to certain players associations, Panini employees, and player agents and representatives.
For its part, Fanatics asserts that Panini tortiously interfered with prospective business relations by threatening legal action against certain of Panini’s current or former employees.
Competition or Exclusionary Conduct?
The battle between Fanatics and Panini can potentially be viewed as simply another instance of a familiar pattern across industries: a long-standing industry leader eventually faces substantial challenge from an upstart. While Panini has been a leader in the player trading card industry for many years, Fanatics has quickly risen to prominence in the last few years through what it describes as innovative disruption. These lawsuits will decide whether Fanatics’ actions are, as Panini claims, a calculated strategy to force competitors out of the market and impermissibly gain a monopoly in trading card licenses in the United States, or simply the mark of a strong competitor winning on the merits while the incumbent acts in bad faith to hamper its success. While the outcome of these lawsuits will undoubtedly have an impact on long-term exclusive licenses in the player trading card market, they may also affect the contours (and perhaps even the viability) of similar long-term licenses in sports.
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Richard Smith, Partner, Linklaters