entrepreneurship at the intersection of sports media and the social graph

Why crowdfunding is important to the content industry...

-          The real-time web is killing the traditional content business model on the web. We now live in a world of Twitter and Facebook where just a few seconds after content is created, it’s replaced in your “News Feed” by another article, video, or status update. The diminished lifetime value of content online prevents a profitable business from built—no matter how premium or great the content is. The days of generating profits around selling large, guaranteed online audiences to brand advertisers (same model used by traditional media like newspapers and TV) for local and niche content are coming to an end. The entire content industry is changing before our eyes. It needs a new business model.

-          Crowdfunding, fan-funded content paid for by a small number of supporters before the content is even created, can be that model. Not just for sports, but for all types of niche, vertical content categories including news, movies, and music.  

-          It’s essentially a reverse engineering of the real-time web so new content creation can guarantee profits to the producer or creator. Instead of trying to make money on the backside of content creation (CPM ads or pay-per-view sales which involves guessing if enough viewers will watch and/or pay), crowdfunding shifts the pay-per-view transaction and the promotion of the content to before it’s even created (to the “front”). If enough viewers pledge to buy access to content before it’s created (covering production costs and margin), it’s “unlocked” and produced. If not, then it’s “blacked out” (not created) and all crowdfunding supporters pay nothing. The real-time web can quickly replace it once published online, but it’s already been paid for and promoted to the most likely viewers. It’s already profitable, even before it’s published.

 -          In an age of niche, local, and passionate fan bases increasingly connected on Facebook, it’s logical to foresee crowdfunding playing a major role in how new content is created in the future. YourSports is pioneering it for sports broadcasting.

…And the story of how YourSports got here

 -          While building the YourSports brand and truly being a student of online business models and sports broadcasting, I’ve often asked myself “How is any new media business supposed to stay profitable by churning out content with diminished lifetime value due to the influx of the real-time and social web?” It took me three years and about eight iterations to the company for the light bulb to turn on to crowdfunding (during this time I often considered myself more of a “business engineer” than an entrepreneur after our first big switch from social networking to online video).

 -          Only once we started negotiating the price to acquire online streaming rights for classic NCAA Championship games did I realize the content business model was fundamentally broken: these licensing agencies wanted $5,000+ per game and weren’t able to provide demand-side traffic data. We had no idea how many viewers would watch these games online! Compared to TV where the major networks like ABC paid hundreds and thousands of dollars (in the 70s, now it’s in the millions) because they could offer brand advertisers a guaranteed audience, $5,000 per game without offering us traffic data didn’t pass the “smell test”. I knew something was off about their pricing model. So I’d studied online traffic patterns like how many people searched for words closely related to the 1978 Rose Bowl Game (just a few hundred on YouTube and Google). Just a few hundred each month. It was then I realized we’d never make our money back on a suite of 10-12 games, and the pricing model for sports media rights online was inefficient, even at the highest levels of content.  So I travelled the nation (Miami, SF, LA, NYC in 45 days) negotiating revenue share deals for these rights. The licensing agencies wouldn’t budge.

 -          While negotiating, we ended up acquiring two games and tried to sell both pay-per-view access and brand advertising for both. In one year, we only sold $50 worth of pay-per-views. Additionally, all brand advertisers (Coke, Nike, etc.) told us the same thing: “We need a guaranteed audience of at least five million unique viewers before we’ll do a media buy”. Five million unique viewers for mid-level and local content is near impossible. Even if we networked together the Sports-sections of all major newspaper websites on the West Coast to create a regional network of games, we wouldn’t be at five million unique’s. Something was wrong. 

 -          Without audience guarantees, if you create content or acquire rights to distribute a game, you’re just guessing and hoping you’ll make your money back. You might as well go to Vegas! Our other option was to outsource sales to an ad network and make $0.60 of every dollar. To break-even on a classic NCAA game, at a $10 CPM, we’d need one million views per game. Possible but not a very exciting, repeatable, or scalable business to be in.

 -          After dipping our toes in the world of big network sports media rights, it was clear the business model for premium sports content online was fundamentally broken. Back to the drawing board. After a week of research and more business engineering the light bulb went on: I thought, “What if we could get fans to pay for access to watch these classic NCAA games in advance…and if they did then we could acquire the rights?” “Hmmm”, I told myself. “That’s it, this is the future!” This is how fan-funded sports broadcasts—aka crowdfunding—was born. 

 -          I scheduled a meeting with our Board of Directors, Clay Loges and Drake Pruitt. I was really dejected going in, at least more so than ever before. Selling advertising to brand advertisers around these classic NCAA games was a long and frustrating process that ended in discovering the crowdfunding business model but without any signed revenue deals. After this, I honestly think I was at the end of the rope with YourSports. If they didn’t like my “crowdfunding” model, I was ready to hang ‘em up and write the dreaded post-mortem letter to all of my investors.   

-          Clay and Drake showed up at YourSports World Headquarters -- at the time, it was my basement garage adjacent to my bedroom in Wallingford -- a far cry from our glory days of having amazing office space on University Avenue and a full-time staff of ten. We sat down. I said, “I’m getting straight to the point. I’ve tried evvvvverything. I know every game can be online. I know there’s a huge business there when this world exists. It should exist! The world would be a better place. We’ve unlocked a few pieces of the puzzle including newspaper syndication. We know what won’t work. But we haven’t cracked the business model code yet.”  

 -          “I’m running out of steam. I’m not ready to give up because I believe in this vision. But I might not have any more opportunities (investor dollars)... I have one more idea in me. It’s a bit radical. There’s barely anything like it out there. But it’s logical to me, it makes sense. If you don’t like it, please be brutally honest. I’ll have to close the company down because we only have a few thousand dollars left in the bank and I’m not confident in going back to our core investor group for more money without light at the end of the tunnel. If you do like it, well, then I’m on board. I’ll go back to our investors with enthusiasm and with a plan. If they continue to fund the company, I’ll move this down to Silicon Valley to give us the best chance at Series A Success.” I told them of my vision for crowdfunding. “This is in your hands”, I said. 

-          I didn’t know what to expect but I was genuinely prepared for them to advise me to close the company down. But they didn’t. They said crowdfunding was the best business model idea we’ve ever had. They said go back to our investors for the money we’ll need to execute this in Silicon Valley. So I did. The same loyal and brave group of investors that have put in money more than five different times since 2007 invested again. YourSports, crowdfunding, and I had another lease on life!  This all happened a little more than one year ago. No matter what happens with our company, I’ll never forget that meeting with Clay and Drake. It was our moment of truth and we prevailed.

-          A year later, we’re one of the early pioneers of the crowdfunded business model for premium online content, and we are definitely the “Lewis & Clark” when it relates to the sports broadcasting industry. In this industry, each year, the major networks like ESPN spend over $9 billion for the media rights to tier 1 programming like NCAA football and the NBA. Yet still 99.9% of the games played in America aren’t legally broadcast. This un-monetized inventory, once profitably captured so networks can cross-promote its Tier 1 games to, is the huge market opportunity we’re after. At the end of the day, YourSports is about capturing a hard-to-reach audience. Crowdfunding enables that relationship to be profitable.  

Notable YourSports + crowdfunding highlights

-          Instead of paying the iTunes standard fee of $3.99 to watch games online, our fans—motivated by a deadline, the desire to watch their loved ones play, and social pressure from other fans—are paying an average of $25 to “unlock” games before they’re even played. This represents a significant change in consumer behavior dominated by pay-per-view and ad-supported free viewing. It’s such a major change in consumer behavior online I’m writing it again: fans are paying an average of $25 to unlock game campaigns. $25 is five and a half times more than the iTunes “competitive” price of $3.99. Fans are paying with their hearts and not their wallets—crowdfunding and the unlocking of games previously not available to watch online is a powerful new approach to sports broadcasting.

-          Multi-game campaigns are being funded entirely through e-mail and Facebook sharing—sometimes in less than 24 hours.

-          Teams and leagues with no chance of scoring a TV rights deal from ESPN or other major outlets are generating $50 or more per game in media rights revenue from YourSports and crowdfunding. Videographers are generating $150 per game in new revenue from crowdfunding. By shifting who pays for the media rights and production costs (from the ESPN's and Comcast's of the world) to the viewers themselves, we’ve opened an entirely new market with the fan-funded content model.

-          Nate Higgins, a swimmer paralyzed from a roof fall at age 18, had the goal of being one of the first (we couldn’t officially verify) paraplegic athlete to swim from Alcatraz to the San Francisco shores. He crowdfunded his amazing feat and donated his percentage of the revenues to the Swim with Mike Foundation. Although his swim was cancelled at the last minute, he completed the alternate route from the shores to near the island. You can watch this inspiring story and see this fancast here. 

Conclusion

When I say I haven’t been as excited about the future of our company since I started it as a student working out of coffee shops and libraries on the UW campus, I mean it. We are on to something, and it’s a big deal. We just need a little more time to prove our customer acquisition model before we can start to sprint. Proving a bottoms-up approach to customer acquisition this Fall will be our next major milestone.

Chris McCoy, Founder

YourSports