Feature: Making money from sports websites  

Following last month's article on what makes a sports website compelling in terms of content, Purple Interactive's founder and chief executive Nicole Morris explains the best ways of monetising a site successfully.

One regularly hears plans of sites that intend to invest heavily in e-commerce. But sometimes when you enquire about the level of traffic they have to their site, it seems obvious that they won't make much of a profit. It costs money to invest in stock for your own web store or to hire a sales person or to set up the appropriate systems. The web is littered with high profile corpses from Webvan to Boo, where huge sums of money were invested in infrastructure, but only a few people volunteered as customers.
Some of the business models outlined below may not be relevant for your site. For example, if your site has less than 50,000 unique visitors per month, it may not be worth your while to set up the infrastructure to run an ecommerce store in-house.
On the flipside, the more diversified the revenue base, the healthier it is - potentially when one source of revenue is doing well it can make up for another source of income that is going through a quiet patch. Electrical retailers are renowned for making the majority of their profits from selling warranties rather than the retail goods themselves.
There are two groups of business models: business-to-business (B-to-B) versus revenues that come from consumers.

Sponsorship and advertising

This falls into the B2B category. These usually involve the ubiquitous banners, pop up adverts and micro-sites. For the uninitiated, the price charged for pop ups is very significantly more than normal banner ads. This is because the click through rate is significantly higher and your audience will also complain loudly, for which you should be compensated! Something that our team has often considered doing, but never implemented, is a paid-for site which has no advertising. For example, punters use the site for free with ads, or can view an 'ad-free' site provided they pay a subscription. You would only ever have a tiny take up on this, we estimated something like 1% maximum, but it could be a nice little earner for very little work provided your site is heavily trafficked in the first place. With the level of sophistication of modern publishing systems, generating these two versions of the site is trivial.
A new variation of advertising is emerging at the moment - paid-for links. A clutch of companies led by Overture (recently acquired by Yahoo!) enable you to include a chunk of html in host pages (on your own website), which is a list of relevant advertising or sponsor links. These are much like you get in the side bar of the Google site. They are text links instead of graphic banner ads. This is seen as the next big thing in terms of internet revenue models.

Syndication and licensing

This can be a valuable source of revenue, depending on the quality of the content that you own. There is a large appetite for sports content, and you can earn decent money in this way. Syndication isn't limited to sports stories. You can syndicate photos, statistics and even games. For example, Purple produced fantasy games and Flash games for Formula1.com. Formula1,com and in turn syndicated these out to the BBC and Eurosport amongst others.
Rights holders often have access to more desirable content - whether that is more detailed live results / statistics, or images grabbed from TV pictures. The latter is a hidden goldmine, provided it is sold correctly. Grabbed TV images are not perfect quality, but they have two key advantages which photographers cannot compete with.
Firstly if used in small enough sizes, you can provide relevant timely pictures to other websites far faster than they can possibly get from a photographer on site. Every website would love to have that post-event celebration picture on their site within minutes of the end of the event, but it very rarely happens. Secondly, for certain sports (not stadium-based), they can provide the pictures no photographer could get. That might be the frame by frame pictures of a car accident or a mast breaking on a yacht.
Rights holders also have access to video content, and many sports websites are just beginning to exploit this as the broadband take up explodes. This invariably has to be charged to the user because the cost of the bandwidth to stream video is quite significant.

Betting

This can be regarded as both B2B and consumer-generated revenue, because the betting companies usually pay sports sites based on sign ups and/or a percentage of revenue. In the tail end of the dot com boom days, betting companies were willing to pay significant fixed fee sponsorships. Those days have gone, but if you have a high traffic site (500,000 users upwards) you should be able to demand some combination of fixed fee and success based fees from certain betting companies. In this area it is important to get advice because otherwise you could lock yourself into a deal and forfeit other opportunities. For example, there are numerous types of betting and gaming. Try to avoid signing a blanket exclusive deal when your intended betting partner may be willing to limit the contract to a 'fixed odds' betting deal which excludes lotteries, and a half a dozen other types of online betting. You then have the opportunity to sign a separate lottery deal if you wish. This goes back to the core principle of diversifying your revenue streams as much as possible.

E-commerce

The most common form of consumer driven revenue is e-commerce, which translates into merchandise and tickets or hospitality. Tickets can sell in large volumes on websites. Hospitality sales are as yet unproven. In terms of merchandise, the revenue potential will vary radically from sport to sport. The ideal scenario is a team sport with passionate fans, and ideally the merchandise isn't available in every high street store. Soccer matches the first criteria for passionate team oriented fans, but for domestic teams, it often doesn't match the second criteria in that soccer strips are so freely available that websites have to compete with stores on price rather than convenience.
There are two main methods of implementing e-commerce: either by setting up your own store and holding stock, or getting a third party to handle it for you. Most people prefer to subcontract the task, but if you have a very popular site, doing the e-commerce management and fulfilment in-house may be more profitable. You don't need to have a warehouse to start a web store, just some clever stock selection of the most popular items.
In terms of systems, with e-commerce people often think the only requirement is the shopping basket systems you see online. But you need to consider how you will manage the stock, despatch and customer service aspects. Initially you might use a spreadsheet, but it is not uncommon for sports merchandise companies to rely on this when they have a large stock, often with disastrous consequences. For formula1.com, Purple developed a backend system designed to handle these aspects and it drastically reduced the man-hour resources needed to manage the store and enabled formula1.com to keep close tabs on what product lines were popular and what stock needed to be ordered from suppliers.
Auctions are a variation on the e-commerce theme. Often site owners and particularly federations and teams have a significant advantage in that they have access to superb sports memorabilia. Auctions are not expensive to implement and are a 'must' for any sports site.
The revenue model that is often pursued after all the others have been implemented, is 'value added content' sold to fan-site users. This potentially includes a broad sweep of models. It could be anything from sending data to mobile phones, to subscriptions for fantasy or other games, online fan clubs, or providing a specialised e-mail address. Some sites have tried requiring a subscription for the entire site. The problem with this is that there are newspapers that compete and there are many sites out there offering similar content for free.
Online clubs can include significant value added content: exclusive editorial features, competitions with great prizes, access to chat sessions with the stars that are only available to members, access to exclusive audio and video content, the ability to play fantasy games with superb prizes. The success of the club will depend on the extent to which your content is sexy enough to persuade viewers to part with their money.
Fantasy games are the most popular form of value added content which fans are willing to pay for. The fact that English newspapers offer subscription based fantasy games, goes to prove that it is economically profitable. In 2002 the US sport site, Sportsline.com, earned more than $14m of revenue from 'subscription and premium products' which are mainly made up of fantasy games. That was 23% of the company's revenue that year. They had more than 5m fantasy teams signed up. Purple has implemented several fantasy sports and stock trading games, and they have all proved extremely popular.
In the last few years sports federations have been charging millions and tens of millions to games companies who are willing to pay for a licence to have rights to the 'official' game. Massively Multiplayer Online Games are a relatively new genre in which people buy packaged games which involve role playing (versus shoot-em-ups or racing games), and then play against thousands of other people online. The attractive business aspect is that in addition to paying the $50 package price, the player will also pay in the region of $10 a month subscription and could stay online for as much as a year. Going forward this will be a significant source of revenue in the sports arena.
In conclusion, there are a broad range of business models that can earn quite a bit of money. But until you have sufficient viewers, it may not be worth spending the money on developing the business models. And in order to get the viewers, you first need superb content.

Nicole Morris is founder and chief executive of website production company Purple Interactive. Her first large scale web development project via Purple was Wimbledon's original website in 1995 - the client was IBM. Her company went on to work on several high profile sports sites with IBM as client: the Masters, Ryder Cup, PGA Championship, US/French/Australian Opens, Paralympics and others. In 1998 Purple incubated www.formula1.com. With no external funding the site was built to a traffic level of 1.2m unique monthly visitors before being sold in early 2002 to Formula One Management.
For some examples of a few of the systems Purple has created, visit www.purplesport.com

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