SBJ/November 7 - 13, 2005/SBJ In Depth

Who Will Net The NFL

The NFL’s new media division is about to get the ball again.

Months after signing a historic five-year, $600 million deal with Sprint for the mobile phone category, the league is about to start renewal talks for its Internet deals.

Back in the summer of 2001, CBS SportsLine and AOL signed a five-year joint agreement with the NFL for $120 million, stratospheric numbers then. AOL provided about three quarters of the investment, primarily for promotion and marketing assets. SportsLine picked up rights to produce NFL.com and sell advertising on the site.

Times have changed in the last half-decade, and so have some of the fundamentals behind those deals.

Online advertising jumped 33 percent last year, to a record $9.63 billion, 40 percent higher than in 2001 (according to the Internet Advertising Bureau). Consumers now spend $29 billion each year for Internet service, with much of the market controlled by local cable and telephone companies. Broadband has gone from a luxury to representing half of the overall Internet service market, which in turn makes video valuable online content.

Plus, major media companies like News Corp. are pouring millions of dollars into online plays, while portals and search engines like Yahoo! and Google have become highly profitable.

That means the next round of NFL Internet deals will probably be richer, more robust in terms of content rights, and likely involve new players and new rules.

“I think you’ll find more people at the table this time than last time,” said David Card, senior analyst at JupiterResearch. “The NFL is in the catbird position. I think the jockeying amongst the portals, AOL, MSN, Yahoo! and maybe Google, with Fox getting back into sports, SportsLine firmly in the womb of CBS, all of these things just make it that much better for the NFL.”

Patience, patience … pounce

The NFL’s modus operandi, when it comes to interactive media over the years, has been a “delayed blitz.”

The league is seldom the first to do a deal in a category, and generally won’t do business with companies that aren’t established players, no matter how much cash a suitor waves around. But once a marketplace gains just a bit of maturity, the NFL pounces, and generally walks away with record dollar amounts.

The first major Internet deal was one example.

Next up was satellite radio. XM launched in 2001, Sirius a year later. In their early days, they paid little for content, with more of an emphasis on music and original programming. XM paid NASCAR $2 million to run an official NASCAR channel. But things were relatively quiet on the sports rights front.

That was, until the NFL signed a seven-year, $220 million deal with Sirius in December 2003.

“That was like the AOL deal, a breakthrough in the sense that satellite radio companies had not spent a lot of money for content up to that time,” said Chris Russo, the NFL’s head of new media from 2001 until he left to form his own investment firm in September. “That was the first major content deal that was done. And then after that was the Howard Stern deal, the baseball deal, a whole bunch of deals.”

The mobile category developed in the same way. The league kept the wireless service category vacant until this year, waiting until content became just as valuable as marketing rights with the advent of video-enabled phones.

Last spring, NFL owners voted to manage wireless rights much like they do television, centrally controlling rights to all live video, but letting clubs market their own trademarks and non-game programming on a local basis. Quickly, the league parlayed that into a $600 million national deal with Sprint.

Cha-cha-changes

With Internet rights up again and negotiations expected to begin by the end of the season, the league is considering many changes.

One possibility is creating an enhanced fantasy sports license that will include rights to video and simulations, so a fantasy player can watch a highlights package for his or her particular fantasy team.

Exclusive video clips have been the centerpiece
of AOL’s relationship with the NFL.

And the league might change the very parameters of the Internet category itself. Right now, clubs are not allowed to do any sponsorship deals with Internet service providers, as the league controls that centrally, with AOL as an exclusive sponsor.

Some clubs want to get those rights back and tap into the massive local marketing budgets of communications companies like Comcast and Verizon Communications that sell broadband Internet service.

“I know every team would like to take a run at it,” Jamey Rootes, Houston Texans president of business operations, said of the Internet service category. “I think it makes sense to evaluate it. … If the league is not able to collectively monetize that on a national basis, it definitely makes sense for it to fall back to teams.”

Another possibility the league acknowledges, albeit a remote one, is operating
NFL.com in-house, just like the NBA, NHL and Major League Baseball do.

“You’ve got everything on a continuum,” said Brian Rolapp, NFL vice president of new media. “Someone else producing [the league Web site] who maybe controls the ad inventory is one end of things. Then again, we could get a bunch of engineers together and do it ourselves, something like what MLB does. I think we’re considering all of it.” He added, though, “At the end of the day we’re not a technology company.”

The Internet deals are also sure to change because AOL and SportsLine went through transformations of their own during the last five years, ones that led to the NFL contract being amended on the fly.

Adjusting the game plan

Trends in sports Web traffic

The NFL is a dominant force on the World Wide Web among league and sports Web sites. NFL rights holder SportsLine generates far less traffic through its own branded site than it does through NFL.com, which SportsLine operates.

Sept. 2004 (000s)
Sept. 2005 (000s)
% change
Total Internet audience
158,042
169,232
7
Total sports audience
56,982
63,480
11
ESPN
15,449
18,763
21
NFL Internet Group
14,450
16,010
11
Yahoo! Sports
12,189
13,731
13
Fox Sports on MSN
10,411
12,901
24
MLB.com
7,749
9,574
24
AOL Sports
7,997
7,930
-1
CSTV: College Sports TV
4,166
7,554
81
SportsLine.com sites
6,256
6,900
10
SI.com
4,184
5,357
28
NASCAR.com
4,835
4,358
-10
Source: comScore Media Metrix

Early on in the five-year deal, AOL traded back some of the marketing assets for rights to video highlights, central to its subscription-based broadband strategy. Then the company’s objectives changed once again when it shifted from a paid content model to making most things free on AOL.com.

Carlos Silva, senior vice president of AOL News and Sports, said he still believes in the value of exclusive NFL video clips and content, and that AOL hopes to renew with the NFL.

“We think the great library, all the inside-the-ropes, behind-the-scenes [elements] is the kind of content we can exploit better than anybody else,” Silva said.

But AOL faces difficult questions about whether it needs to pay the NFL all that money for marketing and video rights, or can it get by with a more modest commitment, or even no league deal at all.

Yahoo! Sports, which has no NFL rights, had nearly 75 percent more traffic in September than AOL Sports. AOL was one of only two top-10 sports Web sites to see traffic decline in September, compared to September 2004. AOL reports it has had 43 million visitors to its text and data-based NFL content this year, but that figure does not include traffic for NFL highlight videos, the content it pays all the money for. The largest driver of traffic for many sports Web sites is fantasy leagues, and the primary rights for those come primarily from the NFLPA and Players Inc, not the league.

At SportsLine, the company has helped the NFL Internet Group (including all team sites) become the second-most-trafficked sports Web site. But the agreement has hardly sent SportsLine into the upper echelon of new media. If anything, by directing most of its football traffic to NFL.com and away from its own home page, SportsLine has gone from being a prominent sports news destination in 2001 to a benchwarmer, eighth overall among sports sites in September.

Only recently did new 100 percent owner CBS announce a complete overhaul of SportsLine, one that aims to make Sports-Line less reliant on “rented” users through deals with the NFL and similar arrangements with the PGA Tour and NCAA.

“We have not made any policy decisions to not do one and just do the other,” said Larry Kramer, president of CBS Digital Media, “but it’s absolutely true we have made a decision to invest in content on our destination site.”

He said that, ideally, SportsLine will continue to produce NFL.com, but only at the right price. “If there are good deals, we’ll do them,” Kramer said.

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