SBJ/July 26 - August 1, 2004/SBJ In Depth

Dot.com busts

Ross Levinsohn was enjoying lunch with his parents at a cafe in Boca Raton, Fla., as 1999 drew to a close, updating them on his latest adventure.

Eight months into his gig as one of the ranking executives at the burgeoning Internet portal Alta Vista, Levinsohn was drunk on dot.com wealth, or at least the promise of it.

He hated San Francisco. He missed the 26th floor, South Beach condo he’d left behind to take a job there. The launch had fried his nerves so badly that he was developing a twitch. He never once felt so stressed in three years as vice president of programming at SportsLine.com, one of the first of the sports dot.coms to take to the public markets.

Yet there, from a television tuned to CNBC, came the reminder of why he’d endured this misery. CMGI, the incubator that was backing Alta Vista, was trading at $270 a share, up $48 for the day. The IPO that they’d delayed a month earlier was now on schedule for April, and the analysts agreed that the company would be rewarded for the wait.

Alta Vista was expected to price at $15, climb to $40 on the first day and rage forward from there. After receiving a $400,000 signing bonus and 200,000 stock options to join Alta Vista, Levinsohn had elected to collect more options when the company was bought by CMGI.

“I’ve got $60 million right now,” Levinsohn said, smiling as he laid out the math for this father. “Like, 60 … million … dollars.

“Even if the stock plunges, I’ve got $15 million. I’m done. I’m done for life.”

Levinsohn
Four months later, on a Friday marked by the largest decline ever for the Nasdaq, at the end of a week that would cost U.S. investors $7 trillion, management at CMGI would decide, once more, to scuttle plans for a $300 million IPO for Alta Vista. With the company’s CEO in New York meeting with investment bankers, Levinsohn, who held the title of vice president and general manager, was left to inform employees that the IPO that they were expecting the following Monday would not come.

“Second toughest professional experience of my life,” Levinsohn said.

The toughest would come three months later; he would be told to cut almost 400 jobs. He would do it, and then he would leave.

“Brutal; everything about that experience was brutal,” Levinsohn said, leaning forward in a sofa in his office at Fox Sports Interactive Media, where he is senior vice president and general manager. “I didn’t get rich at SportsLine, but you’ll never hear me tell horror stories about it because I didn’t go there for the money. I went to SportsLine for the experience and I got rich in experience.

“I went to Alta Vista for the money. I chased the gold. And it didn’t work out.”

Nor did it work out for most executives at companies like Broadband Sports, Total Sports, Quokka Sports, The Action Sports Network, MVP.com, eFanshop, SeasonTicket.com, SportsPrize.com, American Cities Studios, Fogdog Sports, Greens.com and dozens and dozens of others that no longer exist or exist only as shadows of their former selves.

In the sports business world, one of the prevailing memories of that time is of executives from solid, established companies migrating in droves to Internet startups. With the memory comes shock at how ill-conceived the models were for many of those businesses — built on lousy projections of the growth of Internet use and audience habits, or on front-loaded schemes to show quick revenue for an IPO.

“I was at the beginning of what could have been a very promising career at the NBA, and I was happy there,” said Jeffrey Pollack, who in December 1999 left a job as vice president of marketing and corporate communications with the league to join Broadband Sports, a company that owned the Web sites of marquee athletes.

“What got me off track was the promise of a lot of money,” Pollack said. “I am not ashamed to say that my motivation was greed. At the time, I didn’t see it as pure greed. But in retrospect, that’s what it was about. And I wasn’t alone. A lot of people in terrific positions in the sports industry suspended their ability to think rationally, and that was the result of greed.

“Think of how many people left stable, secure, terrific positions to go chase Internet dollars. All the kids were doing it.”

Joining the rush

Who could blame them? Dot.coms and tech startups seemed to be minting 20-something millionaires by the hour. Equity and options were the currency of the cool.

Marketers at long-established brands saw the chance

Dot.com snapshots
 
to grow and show their skills outside of the buttoned-down, corporate world. Second-in-command types finally were getting the chance to run the show. Almost everyone genuinely believed they would be part of the first huge media revolution since television was invented, and their imaginations were stirred.

“The reason I made the change from cable to the Internet,” said Scott Ehrlich, who left a career in Fox’s sports and digital divisions for a vice presidency at Rivals.com, “was because I think that every generation of media executives has one really big opportunity to change the way people interact with the media, and clearly for our generation of executives that medium was the Internet. If you’re an entrepreneur at heart, which I consider myself to be, you naturally gravitate toward those opportunities.”

Financially? “It was the dumbest thing I ever did,” Ehrlich said. The company — which once filed for a $100 million IPO and was known for its liberal, and eventually worthless, stock options packages — flamed out in April 2001 after burning through $70 million operating team-specific Web sites.

Regrets? “Not in the least,” he said. “Television is a wonderful medium, and it provided an incredible training ground for me, but there’s nothing quite like the adrenaline rush of something that hasn’t been done before.”

SportsLine President Mark Mariani appears to be a similar case, with wiring right for the Internet world. He’d spent 10 years in the Turner television family, rising to executive vice president for sports sales. He jumped to SportsLine in 1996 and has been there ever since, through an IPO and soaring valuations to a penny stock price and, recently, an offer from Viacom to buy the company for $42 million — certainly less than the founders envisioned.

Before jumping to SportsLine, “I asked for advice from everyone,” Mariani said. “I asked the doorman in my building, I asked the head pro at my golf club. But the most influential sports executive was Dick Ebersol. He told me to take the risk, it fit my personality better.”

Billy Stone, now a coordinating producer at the College Sports Television network, remembers the pull.

“Smart professionals knew that there was something going on over there and you needed to be a part of it,” said Stone, who in 2000 jumped from his own television production company to join Myteam.com, a portal site for recreational sports teams. “AOL was growing by leaps and bounds. You saw the interest from the professional sports leagues. To not consider it was almost like a void in your career.”

Myteam.com never went public. After massive cutbacks, it merged with The Active Network in 2002.

Jen Rottenberg was running her own sports marketing firm in 1999 when she was lured by Eteamz.com, another of the portals that ended up being absorbed by Active. She was 27 years old, with an undergraduate degree from Princeton and an MBA from Harvard, when she signed on as vice president of marketing for Eteamz.

“People like me were jumping left and right,” said Rottenberg, who now works as senior vice president of business development for CC&C Management Group, a sports marketing firm based in South Carolina. “I remember thinking ‘I don’t know what this is all about, but I feel like I’m missing the boat here.’”

Jackie Woodward had spent 10 years at McDonald’s before moving to UltimateBid.com as vice president of marketing. “The context is as important as the activities as they played out,” she said. “If you were a smart and savvy person in the mix, you almost had to do it at the time. People are a little more conservative today.”

Even those who were aboard the larger boats were drawn in.

Alvaro Saralegui was general manager of Sports Illustrated and then group publisher of People

A couple look over computer equipment for sale at a bankruptcy auction for Quokka Sports, one of many dot.com firms that collapsed.
Magazine Group before he signed on with a sports dot.com. He knew the odds against success; the U.S. economic expansion was in its ninth year and would have to stretch to 12 for Quokka Sports, the company he joined as COO in April 1999, to make it. He knew he was going to have to make layoffs on his first day at Quokka, which billed itself as a digital sports network at a time when few consumers had broadband connections.

Quokka offered him a $275,000 salary and, more important, dangled 1 million stock options at a strike price of $8.50. In October 2000, it promoted him to CEO and raised his salary to $350,000.

“I had run divisions of large companies, but not a whole publicly held company,” Saralegui said. “That was in addition to the stated goal of running a big sports company.”

Quokka was big, and it was sports, but it wasn’t going to be a company for much longer. It managed to get its IPO out the door, but fell short of its offer price on the first day of trading. Quokka lost $272 million in 2000. Seven months after Saralegui took over as CEO, the company filed for bankruptcy relief.

See also:
Testing the tech waters:
A sampling of key executives in the sports business industry who were attracted to work in the tech industry.
Turnkey Sports Poll
The shudder of recognition that plans and companies were flawed was the same in almost every executive. Pollack said he feared for Broadband Sports’ future after about 30 days at the company. For Ehrlich, the moment came just two weeks into his tenure.

“I came back [home] to New York and said to my wife, ‘I think this is going to implode,’” Ehrlich said. “There’s nine reasons why this is so far off track it doesn’t make any sense. This is a really nice $40 million business, but it’s funded like it’s going to be a billion-dollar business. I kept asking myself if I was missing something. At the end of the day, I wasn’t missing anything.”

For Gary Gillette, a vice president at Total Sports, the realization came much earlier — and at a Christmas party, of all things. Employees were weary from the workload. “For an old fart like me who was married and thought there was a life outside the job, it was bad enough,” he said. “But it was even bad for the 20-something kids who had been happy as long as they got free Mountain Dew and pizza once a week.”

Offers they couldn’t refuse

John Brod’s story starts off similarly, early in the summer of 1999.

After working at the NBA for six years and rising to chief marketing officer at only 27, he was leaving the league to pursue an MBA at Wharton. Then he got a call from Bill Daugherty, a friend who earlier in the year had left his job as senior vice president of business development at the NBA.

“I am prepared to somewhat alter your life,” Daugherty told Brod. “I can’t tell you what I’m doing. All I can tell you is it’s an Internet portal backed by a major media company [Viacom]. Come work for me for the summer and if you love it, I think you’ll want to skip business school and do this venture with me.”

Brod deferred his B-school acceptance, signing on as employee No. 3 at iWon.com, where he soon would be joined by another former NBA executive, Michael Newman. He wondered whether he had made the right move two years later, when the Internet economy collapsed and the company cut staff from 230 to 143.

This is where Brod’s story veers from the rest.

In May, publicly traded Ask Jeeves Inc. purchased Interactive Search Holdings — the successor of iWon.com — for $501 million in stock and cash. Because Interactive Search was privately held, complete details of its founders’ profits were not available. However, Daugherty collected $23.2 million from the sale of Ask Jeeves stock in June.

“This, to me, was our generation’s equivalent of the gold rush,” said Brod, who wouldn’t reveal his profits. “It’s something I absolutely wanted to be a part of. If I had not been part of it, I would have killed myself for missing it.”

It’s a sentiment relayed by many. Even Levinsohn. You see, he has two dot.com stories. One revolves around stock options and a $400,000 signing bonus that led him to think he had to go. The other has as its centerpiece a room in a nondescript Fort Lauderdale hotel where the rattle of freight trains kept him up all night.

That’s where Mike Levy, CEO of the company then known as SportsLine USA, put Levinsohn up when he recruited him away from HBO in 1996. Levinsohn had recently returned from a business trip to Los Angeles, where he stayed in a suite at the Four Seasons.

UltimateBid closed in 2001, citing a lack of athletes who would commit to the project.
At HBO, Levinsohn had a spacious office with two TVs, a refrigerator and a couple of couches. He flew first class. At SportsLine, he would share a smaller office with three other senior executives. Yet SportsLine offered something that HBO couldn’t and Alta Vista wouldn’t. Something that would sustain him even if his stock options went under water.

“I met with Mike and he totally jazzed me,” Levinsohn said. “I saw what the future could be. I had to be a part of it.”

Eight years and two companies later, Levinsohn’s pulse still quickens when he talks about it. Numbers at FoxSports.com are up dramatically on the strength of a deal he has cut with MSNBC. There are no stock options, but there is still the Internet.

“All this technology is going to change the way we live,” he said. “I hope I’m still doing this business when it takes off.”

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