SAN FRANCISCO (04/24/2000) - Fantasy sports games began in the 1980s as a hobby for avid sports fans. Today, the Internet has transformed it into big - potentially huge - business.
The most recent proof: CNNSI.com has nabbed an 8 percent stake in fantasy-sports game developer Sandbox.com in a deal valued at $15 million. No money will exchange hands. Instead, Sandbox will get $15 million worth of ads and promotion on CNN's cable channels, including CNNSI, CNN Headline News and CNN. Also, the Web startup, based in Reston, Virginia, will be promoted in the pages of Sports Illustrated. Sandbox will create 30 games over the course of two years for CNNSI.com and get ample plugs on air and in the magazine.
The ad-for-equity deal underscores the demand by TV executives for Internet content that will make viewers - and, in the case of their Web sites, users - more loyal. For network sports executives, the answer might be fantasy sports: games in which fans assemble teams of real-life athletes and ride their statistical successes and failures.
The Internet has transformed fantasy sports from a hobby to a pastime. Numerous companies have popped up to provide software for managing fantasy sports leagues. A smaller number of companies have launched sites that host such leagues. They run the gamut from major sports media powers - ESPN.com, CBS (CBS) ' SportsLine.com (SPLN) and CNNSI - to Net startups Sandbox, SmallWorld.com and USFantasy411.com. The cottage industry has grown from there.
A crop of sites including RotoNews.com, run by Broadband Sports, handicaps the ball players to watch and the players to avoid.
"Fantasy sports is a huge growth area for us," says David Payne, senior VP and general manager of CNN Sports Illustrated Interactive. "I'm very bullish on this deal. We are estimating that with an enhanced fantasy offering we will have over a million-and-a-half registered fantasy users and over a billion annual page views."
The difference between the fantasy sports fans and the typical fan is that they are loyal to the site where they register to play. They come back multiple times per week and sift through page after page of statistics, making for abundant opportunities to market products to the predominantly male audience.
Larry Cotter, CEO of Sandbox, says the company generates 70 percent of its revenue by direct marketing to its audience. Advertisers such as National Geographic and IBM pay Sandbox for access to users who indicate they want ads e-mailed to them based on their interests and preferences. The direct-mail component of the business is so prominent that Cotter and cofounder Bill Carey label their company a direct-marketing firm that happens to be "building up a membership base through providing fantasy sports games," says Cotter.
And describing your company as a direct-marketing firm, as opposed to a fantasy-sports game provider, makes it easier to attract investors, Cotter admits. The direct-marketing industry, according to the Direct Marketing Association, will grow to $53 billion by 2003. Nobody knows for sure how big the fantasy sports market is.
Sandbox intends to roll out a variety of games for wireless handheld devices, and still more for the traditional telephone user in the coming months. In the fall, Cotter says, the company will pursue an initial public offering of stock.
Because Sandbox's games are free, unlike the fantasy games of ESPN.com and SportsLine, they tend to draw bigger numbers. The bigger numbers are what interested CNNSI in Sandbox, as it races to pull even with market leaders ESPN.com and SportsLine.
But competition abounds with online fantasy sports. Over the weekend, fantasy sports developer SmallWorld, based in New York, launched a pro hoops game geared toward the National Basketball Association playoffs. SmallWorld has enlisted New York Knick Marcus Camby to promote Small World Hoops Playoff, plus provide commentary.
The fantasy sports phenomenon is turning into a dog fight on the Web. And the impact isn't lost on the media executives. "If the games are good, you get loyal fans," says Payne of CNNSI.