Tim_Armstrong_UFL

How AOL Botched Sports and Cost Writers Their Jobs

Update: Well I took a stab in the dark and the folks at SBN are saying they didn’t make a play at FanHouse. At least the ghetto photoshops (you don’t even want to know what I use), are going over well.

Screen_shot_2011-01-20_at_8.02.12_AM 

 My apologies for the shoot first stab and what unfolded. Its hard to imagine Brooks labeling any other company such as Big Lead Sports or Sports Fan Live as a “prominent sports blog network”, or for either to really have an opprtunity at this. Both aren’t fresh off of funding nor warrant a AOL drunk dial. 

 Maybe I’m wrong there, maybe Brooks whiffed on that detail,maybe SBN flirted with AOL but didn’t ultimately put in a bid, or maybe AOL just faked that the whole situation was competitive when it was just Sporting News bidding against themselves. That would make the most sense, but for now its a mystery.

 Original post:

Very rarely does anything blow my mind in this space but I’ve literally been rocked by the Sporting News – AOL/Fanhouse partnership twice now. Coming from a guy who predicted or was privy to events like Bleacher Report’s funding, SB Nation’s funding, Fox buying Yardbarker, and Bleacher Report’s new CEO hire, it says a lot when you blow my mind in regards to the business side of online sports media. Somehow….someway AOL seems to have done it twice now in regards to the same deal with the Sporting News.

SINKINGSHIP

On Tuesday I blogged about my thoughts on the deal and they seemed to go over well with a lot of folks both in and out of the business. But things have changed as Brooks from Sports By Brooks has uncovered some juicy details about what happened behind the scenes of this partnership. This includes:

- Sporting News will be paying/guaranteeing $5 million a year to AOL to fill AOL’S Fanhouse brand

- AOL will retain ~10 of the 100 employees/contractors affiliated with FanHouse which mostly includes big name journalists who they maybe contractually obligated to retain. Sporting News is still evaluating if they want any of the other 90 although it sounds like most will be let adrift. 

- The Sporting News partnership was apparently chosen over another proposal to AOL from a “prominent sports blog network”

- The mystery prominent sports blog network (kidding) was likely to retain the majority of the FanHouse staff if chosen over Sporting News.

Brooks summarizes his thoughts well in this bit below.

“Throwing Fanhouse, a brand in which AOL invested heavily, overboard for what essentially amounts to a nominal bottom line bump is the kind of hasty deck-chair rearrangement that often signals the end of once-relevant companies.”

Major credit goes to Brooks for breaking the story and I am going to write the rest of this blog post assuming the details he’s uncovered are factual as Brooks has a good track record and this seems to make sense to me from many angles.

That said, I’m literally stunned on a couple of fronts and will give you my thoughts on what likely unfolded. Again, a lot of this is conjecture, but I feel comfortable giving it with a good track record in this space as well as some good investigative work in place via Brooks where I can connect some dots that are already in place. 

First and foremost though, I wanted to give you a feel for how these competing bids unfolded. Its now clear that AOL was the one who decided to kill sports and that they didn’t decide to make the move only when a good proposal found its way onto their desk. FanHouse was losing money and they reached out to people to try to save face as they weren’t comfortable with the status quo.

This wasn’t really partnership outreach but more like an auction. The winner was going to acquire not only AOL’s portal promotion (a device that funnels millions of visitors to your site), the usage of FanHouse’s brand, access to FanHouse’s editorial talent pool, and most importantly AOL’s Comscore number in the sports category which is a HUGE deal.

Sporting News allegedly won out over mystery prominent sports blog network that you’d have to assume is SB Nation (provided this detail is accurate from Brook’s report). What’s disappointing is that apparently the SB Nation proposal would have been a lot more favorable to AOL employees who are now in the process of being let go although AOL is being really coy about it. Just man up and say “Yes, this deal will probably lead to some job losses with our current employees, but the impact remains to be seen.”

You can’t expect a company like Sporting News to invest in editorial talent if they’re already on the hook for $5 million a year. You’d have to assume SBN’s proposal was much different if they also expected to retain the talent.

We know they’ve got at least $10 million in the bank and at last check-in they were still not profitable (not a big deal….to be expected when you are in growth mode and backed by vcs). For them to partner with AOL and retain the talent, they would have likely had to have at least $20-30 million in the bank to be comfortable enough to do it. The would have also likely have to sacrifice their relationship with promotional partner Yahoo who has been a tremendous partner for them and one that has potential to buy SB Nation.

My guess and I think its a good one, is that SB Nation offered AOL a very nice rev share on advertising sales as well a sizable stake in SB Nation which is now valued somewhere near $80 million.

This is actually a very common dilemma.. Going with the sure thing from a traditional partner or rolling the dice with a young startup.

Going the safe route doesn’t get you fired though where rolling the dice and losing can cost decision makers their jobs. Also cash is still king, especially for a company in the last thrones of dialup subscription revenue. Rather than trying to do something “big” and maybe better “long term”, AOL went the safe route. More traditional content from Sporting News and guranteed big checks. 

But one wonders what they passed up. A FanHouse/SB Nation editorial and promotional marriage would have likely been huge. Maybe even IPO huge and then there is the content powerhouse that would have been. Its scary to think where that could have gone.

One thing that sticks out though is if down the road SBN sold to someone (say to Comcast or Yahoo) who would see conflict with the AOL relationship and end it. In that case AOL would have some money in their back pocket from the deal, but would be back to square one with finding someone to carry on the FanHouse brand.

All that said, AOL in my opinion has just made a mess of its sports strategy over the years. Below is the photo essay recap…

AOL Decides to Build FanHouse around Jamie Mottram’s vision of an All Star team of bloggers under one banner

Mottram_chilling 

The group assembled was elite. FanHouse grew and made inroads with sports fans.

But Mottram left as did some of the bloggers when he went to Yahoo. His replacements fled as well and the higher ups began to merge AOL Sports with FanHouse while also implementing a stinker of a strategy.

AOL_retarded 

After 2-3 years of pumping this strategy, AOL’s new CEO probably had an epiphany that went like this.

 

Nobody at AOL wanted to touch this one and draw attention to the fact that they nixed a good thing that Mottram had built. Plus Mottram and Yahoo has essentially dwarfed what was in place with FanHouse when he left. FanHouse was broken and they didn’t want to fix it or innovate in the category. AOL decided to get what they could to get in the black asap by offering their Comscore number and AOL.com promotion both of which are just massive accelerators to any sports media entity. 

Sporting News and SBN were tapped for proposals. Leading Sporting News was their head of digital who was formally of SI. Leading SBN was their CEO, Jim Bankoff, who was in charge of AOL’s programming in it’s infancy. This is what their pitches probably looked like.

Pitches_by_Bankoff_Jeff_Price 

Now again this is a good deal of conjecture here. All we know at this point is that its likely SBN made a bid. But for the SECOND time, AOL had a decision. High quality content from cheaper new media Internet types or going with expensive talent originally from print. 

They put their brand in the hands of Sporting News and decided thinking long term and big was not what they wanted to do. I mean let’s say this deal lasts 2-3 years and AOL gets $15 million…maybe more because I’d assume they split some revenue on top if there are profits. 

I think the upside of the SBN deal would have far outweighed that amount and it could have been a consistent profitable revenue stream.

I already went on a rant in my last post about how AOL has money, is profitable, and spends tons elsewhere. Shouldn’t they be looking for good long term investments and revenue streams and not just cashing checks in the short term? 

Everyone likes to beat up on AOL and yes its easy to when you bought Bebo for nearly a billion dollars and sold it for ten million. Its also not hard to do when they were worth nearly $200 billion and are now worth under $3 billion.

But for awhile though, I’ve actually been kind of attracted to AOL. The dialup money brings in a lot of money that they can invest in new businesses and revenue streams. In many ways the clock was ticking on them to find new ways to be relevant and profitable. Almost a startup like challenge. 

They’ve been extremely aggressive the last year on multiple fronts to the tune of 9 figures in acquisitions, poaching lots of higher ups from Google, and ramping up hiring in a lot of areas.

Somehow though they just lost their stomach for sports and executed what seems to be a cash only auction to stop the bleeding at FanHouse.

In the end, a lot of my fascination with AOL has eroded after this move. Where’s the innovation? Where is the confidence? People barely know what AOL does anymore (even tech people) and now they’ve given up on one of your most relevant and far reaching brands. 

Who knows what the future brings for all parties involved. Maybe I’ll be dead wrong, but for now I’d like to think that Armstrong made his second big mistake in sports (the first being investing/founding the now broke UFL).

Time will tell if Sporting News can make their money back on this deal and if AOL finds a long term strategy and partner that keeps them relevant. At the same token this one wreaks of “What could have been.”

Ben Koo

About Ben Koo

Copying and pasting my Twitter bio. I'm also refusing (for now) to write this in the third person. This is me - CEO of @Bloguin, GM at @AwfulAnnouncing, world's greatest chinese jew, proud Buckeye, funny dude, and sports and digital media zealot.

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