It’s a hot June afternoon. In the temporary office of Major League Baseball Advanced Media (MLBAM), the company in charge of Major League Baseball’s 31 websites, electric fans shoo tepid air around bunkers of cardboard boxes, struggling with a decidedly minor league air-conditioning system. Dozens of twentysomethings crawl over one another, scurrying to prepare for tonight’s games and to post the latest news. Cal Ripken Jr. announces that he will retire at the end of this season. The office buzz spikes with whispers of a trade: Ugueth Urbina, ace reliever for the Montreal Expos, might be moving to the Bronx as part of a trade to bolster the Yankees bullpen. (Six weeks later, he’s traded to the Boston Red Sox instead.)
Here, on the ground floor of New York City’s Chelsea Market, two dozen writers, editors, designers and producers show up seven days a week to stage an instant replay of what working at a dotcom used to be like?hopeful young people burning through a reported $50 million faster than you can say Doug Mientkiewicz.
This is the heart of what Major League Baseball wanted and believed it needed: a centralized, integrated website that would replace the individual team sites that had sprung up over the past few years. A website that would be all things baseball to all baseball fans. A website that had features that worked as advertised and had the potential to generate revenue for its 30 member teams. Now, as the World Series
approaches, it’s clear that MLBAM has done much more than put baseball online. It has changed the way baseball does business, replacing winner-take-all with a more cooperative model, one that might never have been born if not for the opportunities presented by Internet technology. The only question left is, Will that new business model work?
It all started in spring 1999, when Major League Baseball signed a three-year agreement with SportsLine.com, a Fort Lauderdale, Fla.-based Internet company that produces its own sports news site as well as sites for other pro teams and leagues. For its part of the deal, SportsLine agreed to develop and maintain the league’s site (www.majorleaguebaseball.com), sell the advertising, and handle the site’s functions for moving merchandise. In exchange, Major League Baseball and SportsLine would share the revenues generated through sponsorships, advertising and e-commerce. The arrangement was like many that Bob DuPuy, MLB’s executive vice president for administration and general counsel, had seen before. And DuPuy believed that Major League Baseball was selling itself short.
The way DuPuy saw it, baseball had to make a choice: Sell out or shell out. It could work with SportsLine, share the take and potentially collect tens of millions. Or it could negotiate its way out of that arrangement, start from scratch and keep everything for itself. At the end of the 1999 season, just a few months after signing the deal with SportsLine, MLB Commissioner Allan H. “Bud” Selig called a meeting with DuPuy, Paul Beeston, the league’s president and COO, and Jerry Reinsdorf, owner of the Chicago White Sox. Selig asked them directly, “What’s our Internet strategy?”
“We all looked at each other and said, ’Well, we have a site that does OK that’s hosted by SportsLine.com,’” recalls DuPuy. “’The clubs have sites, and they’re OK. And we’re sort of chugging along. We made about $1.5 million on it last year . We’re gonna make a little more than that this year .’”
But baseball is a $3 billion industry. And everyone in the meeting knew that $1.5 million wouldn’t be enough to sign a journeyman infielder with a .225 career batting average, let alone fuel a critical piece of baseball’s new economic order. DuPuy knew there had to be a better way. So he and a group of owners?Jerry Colangelo of the Arizona Diamondbacks, Thomas Hicks of the Texas Rangers, Drayton McClain of the Houston Astros, David Glass of the Kansas City Royals and Reinsdorf?set out to find a better answer to Selig’s question.
After three months of research and debate, the group concluded that baseball’s best option would be to create a spinoff business to run the league’s Web arm. The outfit would be equally funded by the teams, which would share the startup’s revenues, estimated to be much more than the million-plus it had generated in previous years. Most important, the plan put baseball in control, a condition that DuPuy believed would appeal to the owners.
“It has always been [the owners’] desire to protect the asset,” says DuPuy. “They know they have to be prepared for the future, to be prepared for wherever the Internet ends up taking us.”
There was, however, one problem that was apparent to DuPuy: The plan required those teams in larger markets?teams with the clout to negotiate their own Web production and sponsorship deals (worth millions to the New York Yankees and San Francisco Giants, for example)?to cede those rights and revenues to the league. DuPuy knew that part of it wouldn’t be an easy sell. The business of baseball was every bit as competitive as the sport itself.
“Baseball started not only before the Internet and cable TV, not only before broadcast TV, but before radio,” says DuPuy. “There were 16 markets and they made all of their money locally. They made it on local ticket sales; they made money on local sponsorships and eventually local broadcast rights?unlike some of the other leagues that sprung up and grew as national broadcast media became more prevalent. We have an ingrained history of local rights. That was a very sensitive issue.”
In January 2000, DuPuy presented the plan at the owners’ meeting in Phoenix, with help from consultancies McKinsey & Co. and Morgan Stanley Dean Witter & Co. They outlined a strategy for the Web, then talked about another looming issue: the lack of competitive balance in the league. It was well-known that during the 1990s, baseball had settled into a league of haves and have-nots. The haves had the highest-paid players and the World Series titles, and the have-nots had low payrolls and mounting losses?games, fans, cash, you name it.
“The commissioner [Selig, who was also the owner of the small-market Milwaukee Brewers from 1970 to 1998] was bound and determined to restore more competitive balance,” DuPuy says. “No one knew where the Internet was going to take us, but for once we were poised to take advantage of this opportunity for ourselves. No one said, ’Gee, this is a bad idea.’”
In fact, the owners decided that it was not a bad idea. In an unprecedented show of cooperation, the owners voted 30-0 in favor of the plan for completely revamping the league’s Web properties. In doing so, they cast a yea for competitive balance as teams would equally share in all of MLBAM’s net profits. It was a nifty double play for DuPuy.
Doing the Work
By February 2000, the MLBAM roster was taking shape. DuPuy himself was chairman. The Web consultancy Scient won the bid to design the sites and develop the Web publishing system, and McKinsey & Co. helped put together MLBAM’s business staff. Meanwhile, DuPuy went looking for a president and CEO?someone who could turn MLBAM into a winner. In November 2000, he hired 46-year-old Bob Bowman, former president of ITT and ex-CEO of dotcom Cyberian Outpost, which sold home computers and office technology and was recently acquired by PC Connection. Bowman didn’t have a lot of time to get comfortable?MLB.com was scheduled to launch on Jan. 31 and gradually ramp up its editorial content, advertising and sponsorships, technology partnerships, and staff as spring training approached in mid-February.
The mission of MLB.com was clear: To become the most comprehensive baseball resource on the Web for fans and create a viable source of revenue for the league’s owners. The keystone of the site was its database of statistics, which was designed to spoon-feed every possible crumb of baseball minutiae. Virtually all game statistics were synced with MLB.com’s real-time game-scoring graphics so that fans could watch games that they could not attend or see on TV. By midseason, the database was tied to a searchable, indexed archive of video clips of every game?for example, a search of Barry Bonds’s home runs against left-handed pitchers during May afternoon games at Pacific Bell Park would return a clip of a May 27 two-run dinger off the Colorado Rockies’ Denny Neagle in the bottom of the first inning, which came on a 3-1 pitch. Bowman planned to complement the stats with in-depth coverage of baseball news, feature stories and columns written by professional baseball writers, as well as fantasy games and other gimmicky odds and ends.
For the owners, Bowman promised three sources of revenue: e-commerce (online ticket and merchandise sales and auctions), subscriptions for exclusive content (for example, audio and video), and sponsorships and advertising.
By opening day, Bowman had 175 people working for him, 71 of whom worked offsite with individual clubs. Every team’s site was up and running, and as expected, there were some grumblings from fans of last year’s independent sites. Bowman had known that MLBAM’s use of a common template for every team would rub many fans the wrong way, but he believed that the gains?a high standard of quality for each site?outweighed the losses. Not everyone agreed. (See “Lost in the Translation,” this page.)
“The navigation and design feels very much like the Internet circa 1997,” says Patrick Keane, a Jupiter Media Metrix senior analyst who studies sports media and online advertising. “I can appreciate the need for a network model and a place to accumulate all of that content, but I think it becomes very sterile when all of the sites have the exact same look and feel.”
Critics of the one-size-fits-all strategy had warned that it might anger fans, which is one reason the National Hockey League lets its teams manage their websites locally?as baseball used to do?with more editorial and design freedom.
“Under our guidelines, team websites can be distinct in terms of look, feel and coverage. It gives you the opportunity to go out and do some unique things,” says Rich Libero, vice president of editorial and production for NHL.com. “But if you’re not doing it the baseball way, you run into consistency problems from site to site. One-third of your sites may be really good, another third is OK, and there’s a third that isn’t putting out the effort that it needs to put out.”
For teams such as the San Francisco Giants and the Seattle Mariners, clubs that were setting the pace for baseball on the Web, the design scheme represented a step backward. But as Giants Vice President and CIO Bill Schlough concedes, it will allow teams to offer more features that would have been too expensive under the old model?even though the Giants had an enviable site.
“The changes that we went through were pretty dramatic,” Schlough says. “For the past five years our fans had really built the site. The new site didn’t reflect direct feedback from Giants’ fans. But long term, it’s the best move for baseball and the Giants as well, just for the economies of scale.”
Online, all-in-one branding was hardly a novel idea. It had been put to work by some of the biggest media companies on the planet and has gone down in flames more than once. For several years, from 1994 to 1999, Time magazines housed all of its publications online under the Pathfinder brand and portal, Pathfinder.com. And the Walt Disney Internet Group pulled ESPN.com, ABCNews.com, Disney.com and others into the Go.com portal, with hopes of making the users of one site the users of another. Neither effort won the audience they had hoped for. The individual brands were too strong, and the new overarching brands were too weak to change user habits. Dan Okrent, former AOL Time Warner editor of new media and author of three baseball books, says that MLBAM’s strategy is different from the “wrong-headed” effort he led at Pathfinder. “I don’t see anything inherently wrong with [MLB.com’s plan],” Okrent says. “If you’re a Red Sox fan and look at the American League East standings, then you’ve bought into the concept of the league and Major League Baseball. With Pathfinder, we were trying to force consumer behavior, which you already know is something that you cannot do.”
Sharing the Shillings
Baseball’s great experiment is, in fact, winning over fans?and that traffic is an important measure of its success. According to Nielsen/NetRatings, MLB.com has ranked among the top 10 sports sites since April and is drawing about 1 million unique visitors per week. According to MLBAM, MLB.com registered more than 108 million page views in June. But a better measure, the one that Major League Baseball owners are most interested in, is revenue. And that is coming along too. Bowman expects to sell about 1 million tickets online this season, generating between $5 million to $10 million in revenue. And merchandise through its shop and auction sites should generate another $5 million and $10 million this year as well. MLBAM has also signed a deal with RealNetworks, making it the exclusive format of audio for the site, in return for a minimum of $20 million over the next three years. Sponsorships have been signed with MasterCard and the Marriott Vacation Club.
“E-commerce and sponsorships will ramp up very quickly and then settle into a more normalized growth pattern,” says Bowman. “Once you create a new entity with immediate opportunities for sponsorships, it should ramp up very quickly. The same with e-commerce. With subscriptions, it will start slower and eventually grow more.”
Subscriptions, Bowman says, will someday be the main source of revenue for MLBAM. By midsummer, MLB.com had approximately 110,000 subscribers to real-time audio reportage of games, which at $9.95 a head adds up to more than $1 million in fees. Bowman figures that in five years, as more fans become accustomed to paying for Internet content and MLB.com enhances its product, subscribers will grow to 1 million.
“The notion that the Internet is free was never true, and it is dying a quick death,” says Bowman. “People will start to understand that to get content on the Internet, you’ve got to pay for it?just like every other medium.”
He predicts that the site will see a profit on an operating basis by next season. In three years, he says, the site will generate revenues nearing $200 million.
Others are less optimistic. Andrew Zimbalist, a professor of economics at Smith College and author of Baseball and Billions: A Probing Look Inside the Big Business of Our National Pastime, doubts that the startup can generate enough revenue to save some of the cash-starved teams in the league’s smaller markets. Zimbalist calls Bowman’s estimates “fanciful.”
“I don’t see a lot of potential to generate revenue with the website,” he says. “You might get a modest increase in total revenue, but they’re going to have to do other things. The Web won’t do the trick.”
Bowman is having none of it. His resolve to make MLB.com work, both for the owners and the fans, is unflinching.
“We feel a lot of pressure,” he says. “Between the commissioner and the club owners, there’s an economic incentive to succeed. But we also have to deliver the right content to our fans. Baseball is the kind of thing that keeps coming at you. It’s a six-month march to Bataan that even the most avid fans can’t get to every game, or watch every game on TV. They just can’t. And so the Internet is an alternative, albeit a third alternative to TV and the ballpark. But there’s so much baseball that it becomes a viable alternative.”