Forrester to Sports Websites: Look to Advertising, Not Wagering

17 May 2001
Like many Internet businesses, sports content websites in the United Kingdom are searching for guaranteed revenue streams. Today most are relying on advertising, which generates around £40 million or 64 percent of their total income, according to a newly released study from Forrester Research. An additional 10 percent of income comes from syndication, while other revenue streams generate another 10 percent in revenues. Yet, only 13 percent of the sites Forrester interviewed for the report, "The Online Sports Survival Guide," are considered profitable.

One remedy, Forrester suggests, would be to offer sports betting. In fact, the research group found that various Internet sports sites are expecting betting services to be a godsend, generating significant new revenues. Of the 31 sports sites surveyed, analysts found that half of them already offer betting, while many more plan to introduce such services.

And off the 16 companies developing betting services, more than half expect their revenues to increase once the services are available. Another 19 percent are unsure how betting will affect their revenues, while 6 percent see their income levels staying the same and 13 percent worry that their revenues will decrease after offering betting services.

"The minute we have an online bookmaker is when we'll break even due to the increased income. We're a bride waiting for a groom," one of the subjects told Forrester.

Forrester analysts, however, suggest that betting won't be a winning proposition for sports sites and that, by 2006, only 15 percent of sports sites' revenues will come from betting.

"U.K. sports sites believe that betting will generate significant income going forward. They're wrong," analyst Rebecca Ulph explained.

Ulph says that technologies like interactive TV are attracting the betting money.

"Although more than £700 million of bets will flow through sports sites annually by 2006," she said, "the retained income will only reach £70 million. Bookmakers will return much of the money placed as bets to the bettors in the form of winnings, and 10 percent will go in various taxes.

"Those sites developing in-house betting capabilities will retain all the accrued revenue but will also bear the burden of a higher level of cost. Without this new revenue stream to rely on, the sports site market will still be over-supplied and, despite recent closures, more casualties should be expected."

Since betting isn't a guaranteed revenue stream, says Ulph, sports sites need to look elsewhere. Her recommendation is to re-evaluate promotional offerings.

"Advertising remains sports sites' key revenue stream," she said. "It will contribute 58 percent of income in 2006, but half of this will come from performance-based deals, up from 7 percent in 2000. To ensure that they attract advertisers, winning sports sites must offer online replication of offline sponsorship models, develop performance-based pricing and exploit cross-promotional capability."