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NFL Handing Off Online Operations in $100-Million Deal

Internet: Scope of partnership suggests a growing confidence that Web and sports will be a winning combination.

July 12, 2001|GREG JOHNSON | TIMES STAFF WRITER

In a deal valued at more than $100 million, the National Football League on Wednesday turned its online operations over to a powerful team that includes AOL Time Warner Inc., Viacom Inc.'s CBS network and sports site Sportsline.com Inc.

The partnership underscores the media world's belief that online sports will prove to be a profitable business.

The NFL will receive more than $100 million in cash during the five-year deal, according to sources familiar with negotiations. In-kind services, largely in the form of cross-marketing and promotion done by the four partners, could push the package's total value to more than $300 million.

Sportsline.com will operate various league Web sites, including NFL.com and SuperBowl.com, and AOL has signed on as the NFL's official Internet service provider.

AOL and Viacom will use their various platforms to promote professional football and NFL Web sites. In addition, AOL and Sportsline.com hope to build traffic by providing online audio coverage of NFL games and NFL video clips previously restricted to league sites.

That two giant media companies would join forces with the NFL in an online venture "shows that the Internet is for real," said Rick Burton, director of the Warsaw School of Sports Marketing at the University of Oregon. "The NFL being able to extract this kind of money from these media companies proves that."

The NFL deal also illustrates the mercurial nature of online sports marketing deals. Walt Disney Co.'s ESPN Internet Group has operated the NFL Web site for three years in a deal with an estimated value of $10 million. Wednesday's deal also marks the end of a one-year agreement Yahoo Inc. had signed to provide Web-based audio streams of NFL games.

Sports marketers note that the five-year deal includes an escape clause after two years, giving the NFL a possible opportunity to put the online package back up for bid--just as the league has done when its lucrative television contracts expire.

"As long as there's an ESPN, a Yahoo or maybe a Microsoft out there, you've got the same situation with broadcast package," Burton said.

Despite the hefty price tag of the deal, the NFL's online business has yet to turn a profit. What's more, the uncertain online advertising environment could slow the partnership's plan to grow increase revenue.

NFL Executive Vice President Tom Spock said the league's online operations will move into the black during the five-year deal.

"This is a big bet on the future," Spock said. "The most important thing about the deal is that it gives us the reach needed to reach all of our fans so we can get our product out there."

The NFL's online deal "clearly shows that online sports is a growing business, but it also shows that it's a consolidating business," said Scott Doniger, a San Francisco-based analyst with market research firm Forrester & Co. "There isn't much room for small guys out there anymore, and there aren't many small online sports players left."

Doniger questioned the NFL's reluctance to let AOL and Sportsline.com stream live video coverage of games. Despite the $100-million price tag, the NFL's new partners won't get real-time game pictures.

"The NFL shouldn't fear streaming on the Internet," Doniger said. "Protecting intellectual property is admirable, but there's a sense of being too protective. . . . It seems they had an opportunity to take a leap forward instead of just taking a small step."

Sportsline.com and AOL have agreed to pay fees to the NFL, but the four business partners envision new revenue streams driven by advertising built around the NFL's wealth of game- and player-related content.

Sportsline.com anticipates revenue growth in the burgeoning business of running fantasy sports leagues, in which fans pick and manage dream teams.

"Fantasy is growing very rapidly," said Sportsline.com Chairman Michael Levy. "We believe we can really monetize it, particularly because we'll also be selling the advertising."

AOL Time Warner shares closed down $1.68 on Wednesday at $48.50 on the New York Stock Exchange. Viacom shares closed up 15 cents at $49.60 on the NYSE, and Sportsline.com shares closed up 27 cents at $1.75 on Nasdaq.

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