Sunday, November 14th, 2010...10:59 pm
Digital Sports: Level The Playing Field For Startups
The wide world of sports should be a great sector for digital startups to build innovative products, services and businesses. Sports are one of the few places in media that continues to experience growth in consumers, programming and advertising. The audience for sports is passionate, engaged, affluent and aggregated. Fans are demanding new and better ways to enjoy their sports entertainments experiences. An ideal example is the growth of fantasy sports, estimated to now have an economic impact over a $4 billion, which is directly attributable to the rise of the web over the last generation.
Unfortunately, the startup ecosystem for sports is nowhere near what it should be. There are a handful of companies that have been funded and two significant exits this year (Citizen Sports and Yardbarker). But there is much more room for digital innovation. Part of the issue is that the current conditions for a startup to gain traction and grow revenues in sports media are more difficult than it should be. Here are some of the reasons why.
The top sports websites are good. Really good. ESPN, Yahoo Sports and CBS Sports all have big name journalists, comprehensive coverage and huge budgets to cover major sports events live. Combine that with the major digital upgrades by the official professional sport leagues and there is little room for an upstart to break through to the mainstream. Even when a clever blog or website is able to carve out a niche (recruiting, free agency, etc.) they often have trouble monetizing since their niche is not a large enough audience for major advertisers.
The established digital sports properties are the barometer that sports fans judge other digital experiences. Personally, I’ll try new products but if it’s not better than ESPN there’s no chance it’s going into my lineup of sports sites. (In comparison it’s not hard for a new news site to beat out the experience on Yahoo or Time). Sports fans are a digitally savvy audience with extremely high expectations. Unlike most early web adopters, sports fans have little to no tolerance to spend their time helping to develop an unfinished product. Even the biggest sports fanatics only have so much time to spend feeding their sports addiction. A new website has to replace an existing website for a sports fan. There’s too many good options for the consumer to commit to a digital product that’s not better than the status quo.
Sports media is driven by live games and events. Just look at the billion dollar rights deals that sports properties sign with big media companies. Most of the major stakeholders in sports are inclined to protect the value and exclusivity of these rights. Any sports startup that needs to rely on broadcast rights must come to pay with a war chest of cash to dole out. More often than not, they don’t have the capital or ability to secure the rights necessary for their web application to scale.
If a startup can’t obtain official media rights the next most valuable asset would be to work with the leagues, teams and organizations that have access to the best content. Ideally, new technology and applications could better distribute, leverage and monetize sports. But sports leagues and teams are notoriously difficult for startups to partner with (especially in digital media). The top sports leagues are often more concerned about protecting their existing relationships and investments than to take on risk or upset the current business models. The top business drivers for sports teams are media rights, advertising/sponsorship and stadium/game revenues. New digital opportunities are not always viewed as a core business unit. Teams and leagues often take the view that a company must pay their prices upfront for the right to access the value they bring in distribution, audience and brand value.
Advertising Business Model
Advertising and sponsorship is the dominant business model for sports media properties. Sports fans are used to the concept of sharing their time and attention with brands in exchange for a better or free experience. VC funded companies such as Fantasy Sports Ventures, SB Nation, Bleacher Report and Weplay all are trying to capture dollars (and thereby compete with big media) from sports marketers. Brands want aggregation, reach and confidence that they can make an impression on their targeted male audience. Traditional media companies are in better position to sell large advertising deals because of their scale and relationships. Until a startup can establish its brand and hit a critical mass, it’s difficult to consistently capture sports marketing budgets.
There are ways to knock down these barriers and there are some promising signs in the market that this is already happening.
Professional sports teams and even the athletes themselves are getting more involved in early stage funding and development. Silver Chalice (backed by Jerry Reinsdorf), Fenway Sports Group and Steve Nash have all formed independent ventures to leverage their access, rights and relationships to invest in sports companies. These groups can help superb technology or digital products accelerate their business by giving them the inside track on promotion, access or relationships. For example, Steve Nash can help get a company a meeting with the NBA, connect them with professional athletes for PR and marketing and introduce a company to his brand sponsors.
Hopefully, more of the major organizations in sports (pro leagues, teams, rights holders) will consider adding a digital venture arm to help stimulate digital innovation. Most sports entrepreneurs would probably agree that working with leagues, teams and rights holders is challenging. These organizations view digital startups as just another vendor, licensee or potential threat. Instead, it would be interesting to see the NBA, NFL or MLBAM develop a program to support and work with digital companies to enhance the sports fan experience. Creating a more favorable environment would be welcome by the tech community as there’s no shortage of ideas, sports-crazed entrepreneurs, and potential in sports.
Right now sports startups are still the underdog. But the spread is shrinking. As any sports fan knows, if a team is hungry, tenacious and executes on a brilliant game plan the underdog can and does pull the upset.