Online Sports Content Sites

Reprinted with permission from BettingMarket.com

Sports content and the Internet had seemed a marriage made in heaven. Loyal sports fans would, we were told, flock to the Internet because of its convenience, its 24-hour accessibility and the fact that content could be customised to their needs.

And indeed, sports content sites have proved to be among the most popular of sites on the Internet, but what nobody managed to forecast, was that the site operators would not be able to monetise this traffic.

The killer application, that would drive cash generation for these sports content sites was to be the delivery of live and recorded sports events through high-speed broadband networks. Unfortunately, however, it seems that the notion of a broadband highway with 100 percent penetration may be further away than many had anticipated and that many of those that set out on the journey may not be still around when it finally arrives.

The first major casualty in the sector came about in the first week of May 2001, when QUOKKA Sports, the Nasdaq-listed Internet company filed for bankruptcy protection in the United States, reporting a net loss of $US149 million ($293 million) for the year to December 20 2000.

During its short life, the company had spent more than $US100 million developing an infrastructure to deliver real-time coverage of sporting events over the Internet and broadband, which included the acquisition of three rival Internet sports companies. The company's rights portfolio included the Sydney Olympics and Whitbread yacht race and at its peak, it had employed close to 700 staff.

The first cracks in the sports content business model had appeared when the high profile Disney-owned ESPN.Com and CBS's Sportsline failed to maintain subscription fees for their premium content or fantasy leagues. This had left them reliant upon three avenues for income; advertising, sponsorship and content syndication.

The fragility of these revenue sources was then highlighted, when Sportal, a leading supplier of online sports content announced in May 2001 that despite having attracted significant traffic flows and creating strong brand awareness, it was unable to generate sufficient revenue from banner advertisements, content syndication and marketing partnerships to survive, without a further major cash injection. To put it simply, the cost of generating revenue was too high.

Sportal had received £50 million start up funding from Bernard Arnault's investment vehicle Europatweb, 3i and Nomura and it's website had registered 130 million page impressions during the European Football championships. The company had also won the contract to produce the official website of the European Championships for which it had received £7 million of publicity throughout the duration of the tournament.

Sportal had also formed a partnership with Coral Eurobet to offer football betting alongside its coverage of the Euro 2000 championship, with 25 percent of profit from any new accounts reverting to Sportal. When the company recently passed around the begging bowl, one of its stakeholders BSkyB turned down an offer to buy it for a nominal £1. The company, is presently in talks with potential buyers to save itself from administration and requires £6 million to continue its operations.

Sports.Com, is owned by US-quoted Sportsline, a subsidiary of the media giant CBS. In December 1999 when the shares were trading at over $80, the company announced that it had received £49 million worth of investment from funds including IMG and the Soros Private Equity Partners. The company's shares were trading down at $3.16 on the morning of June 2001.

In an effort to monetise its web traffic, Sports.Com has migrated from building sport-specific sites for the European market into becoming a company which provides sports content and a betting service. This move into betting has come at a time when the trend amongst the betting sites themselves has been to encourage stickiness through the development of infotainment sites of their own.

Sports.Com has also embraced a strategy of delivering sports content via broadband, as with this year's NCAA Men's Basketball Championship and it recently announced a deal with IBeam, which will see the latter company becoming SportsLine.com's provider of hosting, streaming and encoding of sports-related audio and video content.

Teamtalk.com operates a sport-related Internet portal and also provides sports information via SMS messages and premium-rate telephone calls. The company also provides live Internet radio broadcasts, similar to those provided by the bookmakers William Hill and Ladbrokes. The IMC division of the company provides Internet and email information services principally to cruise liners and the company recently announced a strategic partnership with Ladbrokes, which it hopes will allow it to generate betting related revenue.

Announcing an adjusted pre-tax loss of £4.7 million ($6.6 million) for the year ended March 31 2001, the company said it anticipated reaching profitability in 2003-2004. The group claimed a three-fold increase in users of their services to 2.6 million and a 54 per cent increase in turnover to £9.7m. The company had cash reserves of £33.1 million at the end of March.

Teamtalk said that over the next year it would look at extending subscription services as well as leveraging its content onto other media; notably, digital TV, radio and third-generation mobile devices. The chief executive of the company, was quoted as saying:

"I remain optimistic on the prospects for the sports media marketplace.......And, with strong content, multiple delivery channels, diverse revenue streams and a good range of strategic partners, I believe the group will be able to monetise its content...to bring our group into profit for 2003/4."

Shares in 365.Corp a provider of premium telephone services and sports content sites, were trading at over £3.50 in March 2000. Following the departure of the company's Chief Executive and an announcement that David Rowland's Guernsey-based Cliquot Investments had sold its 8.8 percent stake in the company, the shares were trading at 15.5p on the morning of June 14 2001.

In May 2001 365 announced widening pre-tax losses of £45.1 million for the year ended March 31, compared with a loss of £12.7 million for the previous year. Group turnover more than doubled to £50.14 million for the year, from £22.42 million in 2000. The group reported that shortfalls in the online advertising sector had been offset by revenue growth in e-commerce, content sales, SMS service provision, subscription revenues and shares of access revenues.

365 also said that users of its digital services had increased from 1.8 million at the end of last year to 3 million and that the number of web-based users was now at a sufficient level to move Internet operations towards profitability. The company announced that it was set on becoming a leading provider of audio and interactive voice services with the launch of Eckoh, its mobile voice portal. The company has £26 million in cash from its flotation, down from £52 million at the beginning of the year.

The predicament facing all of the online sports content sites is whether they will be able to generate profits before their cash reserves are burnt up.

Enthusiasm over garnering revenues from strategic deals with online bookmakers, can be called into question. In the first instance, as the bookmakers own figures testify, the acquisition of new customers has proved more difficult than many at first thought. For example, when Coral bought Eurobet the company was reported as having around 25,000 customers. An alleged marketing spend of £30 million only managed to bump that figure up to 80,000. Second, the make up of the online bettor is such, that they are not going to exhibit loyalty to one particular online bookmaker - thus, their total spend is likely to be heavily fragmented across several bookmakers. Third, and perhaps most significant, many online bookmakers are themselves developing sports content for their own sites, without entering into syndication deals with sports content providers.

Stickiness has become the name of the game for those managing online betting sites - they need to turn their acquired customers into repeat customers. One of the ways in which they are seeking to do this is through the introduction of rich content onto their own websites. The Austrian betting operator Betandwin was the first company to embrace such a strategy, with Victor Chandler now going the same way through the introduction of race cards, form and results. William Hill customers also have free access to commentaries from Superform, whilst visitors to Cantor Index's spread betting site can choose from a number of games to play.

There is little to be gained from trying to forecast which of the sports content sites will win out - the simple answer is that no one can know for sure. What is certain, is that those that do survive, will have to have deep pockets, as they are going to have to hold out against a dramatic downturn in advertising, a dry-up in investment capital and a delay in the introduction of high-speed broadband access.

The online sports content sector emerged during the days of Internet madness, when many seemed to believe that Internet brands could eventually topple their bricks and mortar counterparts. That the sites have failed to realise their projected potential came about because the market in which they operated was characterised by a lack of barriers to entry coupled with little scope for product differentiation. Moreover, without high-speed broadband access, the offerings of all of the sites remain generic. Time to implement the exit strategies?