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In online sports world, it’s independents’ day
Published October 10, 2011, Page 1
“What’s your favorite slideshow?” is a common refrain from competitors, mocking the picture-heavy features found on the site.
“Nothing but an online traffic game built around search-engine optimization,” goes an oft-heard insult. “Lots of unpaid writers because that’s all their content is worth,” goes another.
Such a transaction would easily eclipse the 2007 sale of college sports outpost Rivals.com to Yahoo! Sports for $98 million, still the standing record for an acquisition of a pure-play online sports destination.
“There is no online content category more influenced by the social graph and the need to be in the moment than sports,” said Fred Harman, Oak Investment Partners managing partner. The firm was an early backer of independent news and political blog The Huffington Post, and helped lead that site earlier this year to a high-profile $315 million sale to AOL. Harman now also sits on the Bleacher Report board of directors.
“This is a high-stakes, high-capital game, particularly with regard to setting up the kind of advertising sales infrastructure you need to drive revenue. Scale really matters. But we’ve got a real shot to do some special and innovative things with Bleacher Report. We’re convinced this is a huge opportunity,” Harman said.
Bleacher Report is not alone. SB Nation, whose backbone is formed from a network of hundreds of individual blogs, late last year closed on its own $10.5 million round of funding, its third such round, and also is a regular in monthly traffic rankings of American sports sites. That last round of financing, according to industry sources, valued the company at $70 million. But since then, traffic, advertising sales and overall revenue have each more than doubled, pegging SB Nation’s estimated value at $150 million.
Fellow independent Big Lead Sports, rebranded from Fantasy Sports Ventures after the 2010 purchase of popular sports blog TheBigLead.com, now ranks among the top five of all sports destinations in raw traffic, well ahead of not only its independent competitors but also key players such as CBSSports.com, NBCSports.com and the Sports Illustrated/Turner Sports collective.
In short, executives around the industry describe a new golden age for sports websites not controlled by a league, TV network or online portal. Traffic, advertising sales, overall revenue, venture capital investments and overall relevance for each of the key independent players in the category are all up dramatically.
The independent sites, in most cases, are fully profitable enterprises with annual revenue in the low to mid-eight figures, according to several industry sources.
Though privately run and still smaller than key competitors such as Yahoo! and ESPN, the independents are nonetheless showing themselves fully capable of competing with their more established rivals.
“Before, big brand-name content was sort of the name of the game, and that was it. And I was part of it,” said Brian Grey, Bleacher Report chief executive and former head of FoxSports.com, and before that Yahoo! Sports. “Now, people like having additional alternatives to ESPN and the like. But more importantly, the digital business in general is a very real thing now, and is so much more capital-efficient now. So the result is a lot more interesting and sustainable activity from independent voices.”
Advertiser interest has followed that rise in traffic and relevance.
“The league sites, the big sites like ESPN and Yahoo!, are always going to serve a purpose. But there’s no doubt that the depth of content on some of these independent sites far exceeds what you’ll see on those traditional sites,” said Doug Brodman, associate digital media director at MediaVest. The firm has bought advertising inventory for clients on Bleacher Report and SB Nation, among others. “We’re definitely seeing a shift in how marketing budgets are being allocated.”
None of the major online sports independents right now is formally for sale. But the growth curve of the last two years, as well as acquisitions such as The Huffington Post deal and Fox Sports’ 2010 purchase of blog network Yardbarker, is accelerating crucial strategic decisions, and heightened inquiries into potential deals. Among insiders in the space, talk of potential sales is a constant topic.
“The [merger-and-acquisition] market is definitely getting frothier now,” said Chris Russo, chief executives of Big Lead Sports, which is backed in part by media company Gannett. “There is still some trepidation out there, but there is no question the volume of inbound calls and inquiries that we’ve received has gone up.”
Other venture capital executives described the independent online sports space right now as a “land grab,” with at least one or two of the market leaders perhaps poised ultimately for a major exit.
“I do think there is a potential eventually for somebody here for an exit in that $400 million, $500 million range,” said Brent Jones, managing director of Silicon Valley venture capital firm Northgate Capital and an individual investor in SB Nation. “You show a venture capital guy a large market like this with no defined winner yet, and they’re drooling.”
Go it alone?
Amid all that interest, growth and venture capital activity, there are bigger questions facing each of the independents: Do they even need to merge with a larger entity? Is it possible to achieve far greater size and reach without taking the first possible exit?
Shannon Terry, former Rivals.com chief executive and now founder and chief executive of 247Sports.com, struck that record-setting $98 million deal with Yahoo!, a sale preceded by a more conventional content-sharing and distribution deal with the portal.
After leaving Yahoo! and Rivals.com in early 2009, Terry took more than a year off and saw market dynamics change significantly, particularly with regard to social media and the exponential rise in popularity of Facebook and Twitter. Now running a somewhat similar outfit in the same Brentwood, Tenn., office park as Rivals.com, Terry is focused heavily on subscription-based content, unlike most of his key competitors who are make their money from advertising. And he sees no reason to strike any sort of equity or distribution deal right now for the 15-month-old 247Sports.com.
“Social media is now our pipe deal,” said Terry of his fast-growing company. “We can put content on Twitter and Facebook that is just as powerful in reach, and more so, than any kind of distribution [we had] at Rivals.
Grey, who spent time between his Fox Sports and Bleacher Report jobs working for venture capital shop Polaris Venture Partners and who remains close to many of the Silicon Valley insiders who fund online ventures, sees huge valuations now being assigned to online companies, such as $7 billion for Twitter.
But the dot-com bubble of the late 1990s, the recent global economic meltdown, and the growing specter of a possible double-dip recession has investors operating with more scrutiny than ever.
“I’ve seen this story play out multiple times,” Grey said. “The numbers out there are getting big again, but if you get caught up in it, you will miss out on creating a real business, and that’s where our focus is right now. I don’t feel pressure to get a big exit, and my job is to build value and scale for the company.”
Adds Terry, “The days of fooling people are over. You’ve got to show and prove more [to investors] than you ever had to before.”
Even before a potential merger, some independent operators believe there is also such a thing as taking too much money and heightening investor expectations for a pot-of-gold company sale that may never arrive. And in the fast-moving digital media industry, tastes change very quickly and a once-hot company can quickly become yesterday’s news.
“If you run out of money for your business, it’s sort of like running out of gas in a car. But it’s just as bad to be grossly overcapitalized,” said David Katz, chief executive of Sports Media Ventures Inc., parent company of several ventures, including ThePostGame.com, SportsFanLive.com, and AthleteTweets.com. The company has taken only “a few million dollars” thus far in funding, a tiny fraction of what has been invested in Bleacher Report, SB Nation, Big Lead Sports and others.
“It’s all about finding the right balance between running a business and creating reasonable long-term expectations for that business,” Katz said. “It’s a frothy time, for certain, but it only makes sense to take cash if you know how to deploy it.”
Since most of the independents have based their businesses heavily, or in some cases entirely, on an advertising-based revenue model, some industry executives said they stand vulnerable to market shifts or economic downturns.
“The competition out there is extreme. On the content side, the fan has certainly benefited from their presence. And for us, expectations on ESPN have certainly been raised too,” said John Kosner, ESPN Digital Media senior vice president and general manager. “But these companies are still going to have to prove themselves on the revenue side. It’s not clear what their models are, in most cases, beyond just advertising. That’s something that can be heavily impacted by the economy, by competition, by a whole host of factors.”
The major online sports independents are all aligned on one core principle: There remains more of a need than ever for alternative sports content, and perspectives and voices well beyond those provided by the name-brand sites. But from there, the editorial strategies diverge significantly. And behind the scenes, the sniping among many of the outlets toward their competitors is frequently intense.
Bleacher Report started strictly as a user-generated, Wikipedia-style outpost for sports journalism, essentially inviting all comers to post their work and have a global platform. But amid submissions rife with errors, questionable content and generally poor taste, the site over the past year has tightened its editorial standards considerably and brought on several paid professional writers to serve as content flagships for the brand.
Several major traditional media outlets, including the Los Angeles Times and USA Today, have struck deals with Bleacher Report to syndicate the site’s content.
Still, first impressions are often hard to shake. And provocative photo montages featuring so-called rankings of the “hottest” and “sexiest” women in sports still appear regularly on Bleacher Report.
“It’s fair to say we’ve got a very different value proposition for both the reader and the advertiser than those guys,” said an executive with a competing site.
Several of the other major independent sites operate with a somewhat more conventional approach, essentially seeking to take the place of a local newspaper with extensive coverage on specific teams.
Big Lead Sports, after a pair of prior iterations in which the company was more focused on fantasy sports content and large-scale digital marketing to men ages 18-34, is pursuing a variety of high-profile content and sales partnerships, including ones with the ex-athlete-driven The Experts Network, New York Knicks forward Amar’e Stoudemire, and SiriusXM Radio.
SB Nation began eight years ago as a collection of team-specific blogs, and has since expanded considerably with market-specific and national sport-specific coverage. But the company is putting as much energy into its digital publishing platform, now being expanded into a forthcoming technology blog called The Verge, as the content itself.
“We’re as much a tech company now as we are a media company,” said Jim Bankoff, SB Nation chairman and chief executive. “That’s what makes us not limited to sports, and is going to open up a whole range of additional opportunities.”
But such is the combativeness of the space that behind closed doors, there are frequent and caustic shots taken by executives at not only the others’ content but also engagement and traffic statistics, content, and brand position.
“It has been a bit surprising to me, frankly, to see how intensely competitive this segment is,” Harman said.
That competitiveness arrives from a couple of key areas, industry executives say. There is almost certainly some consolidation coming in this segment, and a finite number of major exits. And unlike the network and league sites, the independents are usually operated by their founding executives.
“They’re definitely watching each other very closely, and there might be a bit of a musical-chairs component to this, with only so many big exits out there,” said Doug Perlman, founder and chief executive for industry consultancy Sports Media Advisors, which has worked with both Big Lead Sports and SB Nation, and sits on the latter’s board of advisers. “But beyond that, this is a deeply entrepreneurial space, where these guys are all really personally invested and passionate about what they’ve built.”
The race among the independents is now one of stature and size. Big Lead Sports thinks it can be a top-three online sports property by late next year, moving into traffic levels occupied only by Yahoo! and ESPN. Several others are aiming for significant run-ups in traffic, reach and revenue.
“There’s still a lot of room for growth and additional scale,” Russo said. “So we’re still focused on building the business. If we get big enough, the rest is going to take care of itself.”