When is a great product not a great business? Maybe, just maybe, in the case of SportsBand Network
What no one disputes about SportsBand Network, an in-your-ear audio program for fans at golf tournaments, is the sheer intuitive appeal of the idea: no one who hears about it doesn't love it. Combining play-by-play commentary and features, SportsBand provides spectators on the course with as much information and entertainment as television coverage offers couch campers at home. Now, fans watching Tom Kite make birdie on 15 can at the same time hear, through a special Walkman-like receiver and earpiece, about Lee Trevino eagling the ninth. SportsBand erases the single biggest frustration of anyone who's ever attended a golf tournament: it tells you what's going on.
What's more, no one who's actually listened to SportsBand argues that it's anything but a top-rate production. The technical quality is superb. The 30-member crew of engineers and broadcasters are pros and put on a clean, exhilarating show.
So: a good idea; a well-executed production. Then why has it been so tough to turn SportsBand the Product into SportsBand the Business?
Credit the $2.3-million question: who's going to pick up the check? Between production costs and overhead, $2.3 million is what SportsBand must bring in just to break even. Do you ask individual spectators to shell out five bucks each to rent a receiver? Do you charge tournaments $100,000 to enhance their events and let them bundle the service into ticket packages? Do you seek a corporation willing to plunk down $1 million for the privilege of being the title sponsor (for example, "The INC. Magazine Broadcasting System coming to you on SportsBand")? Do you do a combination? Which do you do first?
Those are the questions Frank Mitchell, president and chief executive officer, and Theis Rice, chairman and chief financial officer, have struggled with over the past three years. Who's the real customer for a service that at first glance offers benefits to so many? Who should pay, and how do you convince them to do it?* * *
"When the Sportsband concept came to us, it was not a new idea," says Art West, director of promotions for the Professional Golfer's Association Tour. "But it was a buttoned-down, polished presentation." That was in the spring of 1986. Mitchell and Rice had been running an oil-and-gas-drilling business in Dallas since 1983, but having learned about past attempts at on-site tournament broadcasts, they approached the PGA Tour to see if it was interested in trying the idea again.
Mitchell had spent a few years playing professional tennis and knew a bit about the world of sports marketing (see "The Founders," page 6). He was intrigued by the idea of setting up a company that could serve three customers: the golf spectator, the tournament operator, and the corporate advertiser seeking to buff the company image. The obvious appeal of the product itself was so strong and so diversified that he didn't expect revenues to be a problem. "I'd been around sports sponsorship," says Mitchell. "I knew the kind of dollars that are spent."
The Tour was interested. In 1981 it had introduced electronic scoreboards to the courses, and since then had been investing heavily in building hilly "stadium" golf courses so spectators could see better. Developing a broadcast to make viewing still more enjoyable was something Tour officials had considered, and when Mitchell said he was willing to spend SportsBand's money to pursue the idea, they pledged not to sign other broadcast agreements while he went to work.
With $75,000 invested by Rice and his two sisters early in 1986, Mitchell consulted a radio engineer who suggested using an open portion of the FM band -- and by October 1986 SportsBand had secured special temporary authority from the Federal Commmunications Commission to send out low-level signals over golf courses via a mobile transmitter and antenna tower.
Next, Mitchell set out to put together a broadcast prototype. The lawyer who helped SportsBand approach the PGA Tour had spent several years working at National Public Radio, and he pointed Mitchell toward a former colleague there, Steve Rathe.
Rathe and his New York City-based production company had coordinated other multisite broadcasts, including the New Orleans Jazz and Heritage Festival, and he was game to see what would happen when he combined "the public-radio crew, the Dallas oil folk, and the golf crowd." He signed on for a $450 daily consulting fee.
By the fall of 1986 SportsBand had a system ready to test at an actual tournament. Rathe contracted with a group of 20 professionals -- including Carol Mann, a Ladies Professional Golf Association Hall-of-Famer and an NBC reporter -- and headed for the J. C. Penney Mixed Team Classic, in Largo, Fla.
The operation went beautifully. The tournament director wrote the Tour that SportsBand was exciting and would be welcome to return the next year.
The Tour liked SportsBand's demo tape and in early 1987 began negotiating a licensee contract, structured like its deal with network television: the Tour would deliver a group of tournaments at which SportsBand could broadcast, and SportsBand would pay a rights fee.
The agreement, however, had to be approved by the Tour's tournament policy board, and that's when SportsBand hit its first snag. At the June 1987 meeting of the 10-member committee of players, businesspeople, and officers of PGA of America, the players bluntly said they weren't sure this was such a good thing. What if a player was set to putt, and something dramatic was announced over the system? Would everyone listening gasp in unison? Or cheer? Just what kind of effect would this information have on the crowds and the game? Before they could approve it, they wanted to see three more tests in the fall -- and large-scale ones, too, with thousands of receivers at each course.
It was a reasonable request, but for Rice and Mitchell a daunting one. Here it was the middle of 1987, the point at which they'd presumed they'd get the final go-ahead. They'd been buying equipment, paying consultants, gearing up to start making money later that year. Instead, they were going to have to dig up more money for the test runs -- a good $200,000 since, as Rice remembers, "we were going to go into those tests loaded for bear. People three deep with equipment. I wanted to make sure that nothing went wrong at those tournaments."
The company's tab to date was close to $500,000 -- Rice had been regularly loaning personal funds on an as-needed basis -- and it had yet to bring in a dime. But they knew they could find more capital and agreed to the policy board's request.
Rice and his sisters continued borrowing against $328,000 in certificates of deposit that made up their savings; an uncle loaned him $300,000 to be paid back when it was convenient. The company got a bank loan of $138,000 against its hard assets. Mitchell sold some oil interests to kick in about $175,000 in cash and credit.
In the fall of 1987 SportsBand broadcast at three tournaments. "We saw firsthand," Mitchell says, "the future of this product." Contrary to the players' concerns, the audio play by play seemed to have a calming effect on the gallery, and in December 1987 the tournament policy board unanimously approved the system.
Mitchell and Rice went back to the Tour in January 1988, expecting to pick up the agreement negotiated a year before and simply put pen to paper. But its officials had become more intrigued with SportsBand. "The broadcast raises the value of a tournament ticket, which is important to us," says the Tour's West. The Tour offered a new proposal: why not rework our relationship as a joint-marketing venture? The Tour would sell SportsBand sponsorships to its stable of corporate partners and help with operations and advance work. In return, it would get $10,000 per event to split 50/50 with each tournament, and a percentage of SportsBand's revenues -- 15% to start, increasing to 30% over the life of the contract.
For Mitchell and Rice, it sounded perfect. The affiliation would lend them leverage and prestige in the world of big-bucks corporate sponsorship, which they envisioned SportsBand entering. And it would help them address the question that they'd been mostly avoiding: how to make SportsBand pay.* * *
At that point -- early 1988 -- Mitchell and Rice were counting on three sources of revenue: receiver rentals, sale of tournament updates to such radio networks as the Mutual Broadcasting System and NBC, and corporate sponsorship. Their business plan outlined a 1989 schedule of 20 tournaments and $4.2 million in revenues; receiver rentals at $5 each to 10% of the crowd would make up 35% of sales, updates 20%, and corporate sponsorship 45%.
Selling the receivers to spectators and developing relationships with radio networks seemed to Mitchell and Rice challenging yet doable marketing tasks; market research with listeners at one tournament showed interest among spectators to be high, and Mitchell had already begun talking with radio people. But they guessed that finding sponsorship through cold calling would be enormously difficult, and that the PGA Tour, which had so successfully sold itself, could prove invaluable. "The PGA," figured Mitchell, "is a 900-pound gorilla to do our marketing for us."
SportsBand's title sponsorship would be priced at $1 million, for which a company would be incorporated into the program's name and get its logo printed on the receivers and SportsBand trucks, uniforms, and promotional materials. Secondary, or "presenting," sponsorships for individual tournaments would go for tens of thousands of dollars, depending on the prestige of the event. There would be commercials, too, but only in conjunction with such features as health tips, and they'd be made to sound like part of the broadcast.
Were the prices realistic? Mitchell and Rice didn't know, and the Tour was guessing; mostly they were working on instinct and a sense of what the market would bear. SportsBand would ask corporations to be visionary. If you believe in the concept, they'd say, help us get launched -- and you'll have a lock on affiliation with this unique and eventually prestigious medium.
Most media buys, however, are not made on instinct alone. Advertising-placement decisions center on how many impressions are presented to how many people how many times; sports marketing usually works the same way. "When you don't put a calculation on it, it's harder to sell," says Bill Neff, director of sales at Advantage International, a Washington, D.C.-based firm that matches sponsors with events. "The sophisticated clients now ask the hard questions, although they didn't for years."
SportsBand, reaching maybe 30,000 fans a day, couldn't sell on the numbers, but Mitchell was convinced that "sports marketing is, has been, and always will be an emotional, impulse buy." And with some 3,900 businesses plowing $2.1 billion into events from golf tournaments to marathons, according to Special Events Report, a Chicago newsletter that tracks sponsorship; with major sponsorships for weeklong tournaments running $500,000 to more than $1 million; with companies already pouring tens of millions of dollars into golf; and with the Tour's assurances that the pricing was in line, Mitchell figured sponsors would take the lure. "There's nothing that's going to be closer to people at these events than my broadcast," he insists. "Wouldn't common sense tell you that if you give sponsors a talking sign, which can bring their affiliation to life, it would be of value? Much more so than hanging a banner."
SportsBand signed a five-year contract with the PGA Tour in the spring of 1988, and for the rest of the year Art West and another member of the Tour's promotion department made sponsorship introductions. Mitchell and Rice built a staff at their Dallas headquarters, planned a 1989 schedule, and raised additional capital through a private offering -- getting $1.15 million in $25,000 units from 35 limited partners for 35% of the company.
At the end of the year SportsBand broadcast at two tournaments, underwritten by RJR Nabisco for $50,000 each. Mickey Nutting, a vice-president at Sports Marketing Enterprises Inc., which advises RJR Nabisco, says that while he initially considered the idea "a gimmick" back in 1986, he'd come around to it by the end of 1988. "I was impressed by those two shows. The receivers were used extensively by people out there." SportsBand seemed to be a good thing to tie into hospitality packages, he says, and was a good forum for pitching individual brands of RJR Nabisco products.* * *
Entering 1989 SportsBand had 13 full-time employees, including engineers, operations coordinators, and marketers. Most of the on-air and production people remained contracted through Rathe's company, and Carol Mann had become the company spokesperson. Everybody connected with SportsBand had been given a portion of stock.
Twenty tournaments were scheduled. Eight sponsors, including Nabisco and Gatorade, had signed on for packages of commercials at $36,000 to $65,000 each, about $400,000 collectively.
But for the most part the business plan wasn't falling into place. The title sponsorship was unsold, and by June only two presenting sponsors had signed on. SportsBand was fighting an uphill battle, says Mitchell, because "when people first hear of it, they think 'radio,' which translates into a tiny media buy. They don't initially understand the system."
In addition, no agreement had been reached with radio networks for update sales. And after a couple of tournaments, Mitchell and Rice even concluded that receivers were not going to be as easy to rent as anticipated. "We had to educate people," says Rice, "and the only thing that seems to sell SportsBand is SportsBand." They began offering free receivers on Fridays, and charging just $2 rental on Saturdays and Sundays.
By March Mitchell and Rice decided that revenues were not going to be anywhere near what they'd anticipated for the year, and began reevaluating their plans. First, they'd need to raise an additional $2.5 million to make up the 1989 shortfall and continue operations. Second, they began to look at alternate ways to market the receivers in the future. Could tournament directors be talked into including receivers in the price of their tickets? That would solve the rental problem and make the network more attractive to sponsors by ensuring spectator usage.
At a meeting that month of the American Golf Sponsors (the directors who work year-round to plan their tournaments), Mitchell, Rice, and the Tour made their proposal: here's a service that your attendees will love, they argued, but we need your help to get the receivers into their hands. Why not raise ticket prices $5 to incorporate SportsBand into the price of entry? We'll take the first $30,000, and split the rest with you. And we'll all be partners: you'll have this great service at your event, we'll have our service at least somewhat premarketed, and we'll all share the profits -- the PGA Tour will pass on part of its portion of SportsBand revenues to each tournament that signs on.
Some tournaments expressed skepticism at the plan. "I'm not receptive to raising prices," says Jim Lyle, tournament chairman for the 1990 Nissan Los Angeles Open. "Some companies buy 500 or 600 tickets, and if you raise them $5 each, you're talking about a substantial amount of money." Others seemed affronted that SportsBand assumed they'd raise prices just to pay for a radio program instead of to make capital improvements or increase their purse. Still others raised a different question: what if we like SportsBand enough to promote it and include it in our tickets, but want to pass on the cost to a corporate sponsor? How do we figure out how much to pay you?
By June Mitchell and Rice had revamped the plan again, and this time the difference was more dramatic. Go ahead and find the money however you want, SportsBand said, but we'll need a minimum of about $100,000 to broadcast at your events.
In a letter to tournament directors in late June, Mitchell explained that from each tournament, SportsBand would need $75,000 for production costs, $22,500 to help recover "a portion of the Network's general and administration expenses," and $1.50 for each receiver distributed. If, for example, the tournament wanted to incorporate receivers into 20,000 of its most expensive tickets, it would pay SportsBand $127,500. If the tournament got a sponsor to pick up the tab, SportsBand might offer the company airtime as part of the deal.
It was an abrupt switch, shifting the bill from sponsors to tournament directors and making SportsBand's presence contingent on tournaments' participation as marketers and partners. "Frank and I always dreamed of being part of the ticket. We always knew life would be easier that way," says Rice. But now, they'd decided that an arrangement they'd once thought would be nice had become necessary.
"We had thought that by hanging out our shingle and putting out a bunch of these receivers, we could develop, slowly but surely, a following of spectators," says Rice. "We thought that word of mouth and the press coupled together would generate some pretty good penetration. And we weren't really right about that."
What's more, he says, the company had found it couldn't afford to grow slowly. "We're in a market for three or four days," says Rice, "and we don't get to come back for a full year. So if you convince somebody to use it this time, it's not the same as convincing somebody to use it today and then 10 days from now. It's pretty critical to become part of the ticket."
Under the new strategy, SportsBand's break-even revenues would be virtually guaranteed up front by the tournament directors. All the sponsorships, at-the-door receiver rentals, and ancillary broadcast sales, though, would be gravy -- potentially a lot of it. Next year's projections call for the company to have expenses of $2.3 million against revenues of almost $5 million -- 37% of which, or the bulk of the margin, is still expected from sponsorships.
As of July Rice and Mitchell planned to spend the summer meeting with tournament directors and corporate sponsors, trying to sell them on the idea. Not until the tournaments fall into place will SportsBand go back to actively pursuing sponsors.
The SportsBand operation, meanwhile, went through a serious retrenchment as the new plan was being unveiled. Having done nine broadcasts between January and June, Mitchell and Rice decided to halt the rest that were scheduled and resume broadcasting only at tournaments accepting some variation of the proposal. "We've done enough broadcasts to demonstrate what this is, its reliability, its consistency," says Mitchell. "If SportsBand's going to be done, this is the level we insist it be done at, or else it's not worth doing. It's just hard to keep justifying losing money at tournaments." In negotiating, though, Mitchell says he's "not going to be hard-nosed about it," expecting to cut deals with each tournament to accommodate individual operations.
Mitchell and Rice loaned at least $200,000 more of personal funds to the company and continued talking with individual investors and an investment banking firm about selling equity in SportsBand. "There's a definite end to what we can personally bring to this company," hedges Mitchell, "although we're not at it." With the staff trimmed to eight people as of July, and monthly overhead down to about $33,000, Rice says they've got enough money to carry the company through 1989 while setting 1990 plans in place. If they get a half dozen tournaments signed on for next year, Rice says he's confident he could find a quarter-million dollars from private investors this fall.
This is not where Mitchell and Rice had expected to be, going through yet another year of sales and marketing. "Is it frustrating? You're damn right it is," says Rice. Would he do it all over again? "Today my answer would probably be no. Hell, I was 34 when we started this business, and now I'm 70. It's just tough. It is tough."
After a moment he reconsiders. "That's probably not true. I probably would do it again. But I know there are still a lot of hurdles to clear, and I know they're big ones. And at some point you want to be able to look back and see you've already cleared all the hurdles, and now you're just running straight."* * *
While they're mostly focused on making the idea work with the PGA Tour, Mitchell and Rice have been discussing a contract with the Ladies Professional Golf Association, and talking with Championship Auto Racing Teams and the United States Tennis Association about SportsBand broadcasts at their events. They've licensed a SportsBand organization in Canada to operate the service at sporting events. American golfing, they say, is just the start for their company.
But questions remain:
Will tournaments agree to become partners? SportsBand has to convince operators that the promotional value of the broadcast justifies raising ticket prices or shifting more costs to sponsors -- and that they don't have to lose money in the process. Tournament directors do seem enamored with having a broadcast at their events, but remain skeptical of the cost. Mitchell and Rice may have to settle for crafting a middle ground with each tournament.
Will sponsors see SportsBand as something worth buying into? MCI Communications special-promotions director Donald L. Campbell says that his company "has an awful lot of money invested in golf already, and whether it's worth putting out more money, I'm just not sure." On the other hand, Ernest J. Renzulli, publisher of Golf Illustrated and a sponsor this year, notes that companies buying SportsBand "may not be getting many people, but boy, you're getting the cream of the crop." And it's a captive audience. "Other buys may cost less," Renzulli says, "but with SportsBand you're getting five hours in someone's ear."
"We're still in a chameleon state," says Rice, "still trying to figure out how to sell and market this thing." Echoes Mitchell: "This just has never been a project that lent itself to absolute quantification. It's too new; it's going into such uncharted waters. You can guesstimate, you can intelligently propose how things are going to work, but until you get out and do them, you don't know. That's the way this project's always been. And continues to be."
For an update on this company, see Anatomy of a Start-Up Revisited: Missing the Cut
SportsBand Network, Dallas
Concept: A mobile audio broadcast for spectators at golf tournaments and other events, using Walkman-like receivers to deliver the sort of commentary and entertainment that TV viewers are used to
Projections: 1990 pretax net of $2.2 million on revenues of nearly $5 million; 1993 profits of $5.7 million on revenues of $11.9 million
Hurdles: Persuading tournament operators to underwrite SportsBand in order to have broadcasts at their events; persuading potential sponsors that buying a SportsBand affiliation makes sense for prestige and image, though it can't be justified by standard media-buy criteria
Frank Mitchell, president and CEO, 38
Theis Rice, chairman and CFO, 38
Friends since high school and fellow University of Texas alums, Frank Mitchell and Theis Rice have come to sports-broadcast production by unlikely routes.
After college Mitchell, who'd played competitive tennis all his life, "kicked around the pro-tennis circuit" from 1975 to 1979 and spent a few months at a firm that organized and sponsored an exhibition tour of the United States by John McEnroe.
Rice took a law degree from South Texas College of Law in 1976. In 1980 he was brought in to manage Cothrum Drilling Co., a contract oil driller, and in 1981 Mitchell joined the firm. In 1983 they decided to buy their own equipment and go out on their own, founding Kodiak Exploration to put together financing and provide equipment for drilling expeditions -- Mitchell's grandfather had made his money in oil and Mitchell hoped to do the same. No such luck. Using $400,000 for investing, they "did some good deals and some not-so-good ones" and from 1983 to 1988 broke about even. "In this business," says Mitchell, "that's not bad."
Mitchell and Rice are both married, and both have three children -- all girls for Mitchell and all boys for Rice.
Sportsband Projected Operating Statement, 1990 Gross profit from tournament broadcasts (15) 3,927,000
General and administrative 828,000
Inventory loss (8%) 324,000
Total operating expenses 1,297,000
Operating Income 2,630,000
PGA Tour's percentage of income 405,000
Net Profit Before Tax 2,225,000
Annual Revenues (above) are based on per-tournament projections (below). SportsBand anticipates netting about $250,000 at each event.
1990 P&L per tournament (based on 15-event schedule)
Title sponsorship (based on $1-million $66,700title divided by 15 tournaments)
Presenting/commercial sponsors 57,600
Tournament operator's fee (for cost of production) 75,000
Tournament fee (for share of corporate overhead) 22,500
Tournament receiver rentals (20,000 units 30,000@ $1.50, prepurchased by tournament) and bundled into tick ets)
Other receiver rentals (by attendees with 45,000unbundled tickets; 3,000 people x 3 days x $5)
Retained rental deposits (when customers 30,000trade $3 deposit for corporate premium)
Broadcast sales (updates to radio networks) 5,000
Total Tournament Revenues 331,800
Labor and production costs incurred by $47,380broadcast subcontractor, Murray Street Enterprise
Additional contract engineering staff 4,900
Receiver distribution 8,520
Expenses of Dallas personnel in attendance 4,200
Fee to PGA Tour 5,000
Total Tournament Production Costs 70,000
Net Income from Tournament Broadcast 261,800
WHAT THE EXPERTS SAY
Director of sales, Sponsors Report, a sports market-research firm specializing in media analysis, Ann Arbor, Mich.
A million dollars for their title sponsorship, I don't see happening. For that kind of dollar investment, a company could sponsor an event and have it all to themselves. They could entertain clients, get television exposure -- the most important thing for almost all corporate sponsors -- and get print exposure. If you sponsor an event, you're bound to get covered across the country, if not with articles, then at least with box scores. Well, with SportsBand, you're going to get no print exposure.
Given the average attendance for SportsBand's events and using a formula where we put a value on the impressions that are generated, there's no way a company's going to get $1 million worth of exposure. SportsBand would reach 450,000 people, and I'd value it at $138,600 -- obviously, not even close to $1 million. Now say SportsBand included its title sponsor's name in every piece of print advertising and radio advertising it did, then it would improve the impressions count and maybe take the value up to $500,000. But $1 million is just too high a number to be attractive to sponsors.
Founder and editor, Special Events Report , an international newsletter that tracks events, Chicago
What's happened is these guys have put all their resources behind their product, but spent no time or money on creating demand for it. They say fan interest -- unit rentals -- has been low not because of the idea but because "we haven't educated them." I agree. They should have launched a publicity campaign at the same time SportsBand was being introduced, even though it was only a test, so people going to the event could have anticipated it and understood its benefits.
Until there's audience demand, there's nothing there for sponsors. Even then, SportsBand has to think about offering far more than just on-site spectators. Sponsors aren't using golf just to reach the ticket holders. They can reach a much larger audience through TV broadcasts of the events. What you can do, once SportsBand is a proven attraction, is tie it into sales promotions: test-drive a Cadillac and receive a coupon for a free SportsBand. One could argue that a Cadillac dealer can already do that with tickets to the tournament, but maybe SportsBand will become really hot -- it's new and sexier than the tickets. So it's an attraction. Maybe you propose to American Express that card holders get a free SportsBand; that's a way for Am Ex to create a sense of privilege. SportsBand has got to go to sponsors with these kinds of thought-out packages, but it has to create fan demand first.
I think asking tournaments to package SportsBand with tickets is totally absurd and unrealistic. There's no reason for the tournaments to do it; they're not going to sell more tickets because SportsBand is there. So asking tournament organizers to mark up their tickets $5 with no guarantee of return doesn't seem to me an enlightened proposition.
Tournament directors are used to people paying them a fee to be affiliated with the event. SportsBand is not only unwilling to pay them a fee and unwilling to say, "this is a great service, let us go out there for free and rent our units to your fans," they're saying: "underwrite a portion of our costs." They've gone three steps the other way.
If the SportsBand folks depend on tournament directors as the main revenue source, I don't think they'll succeed. But if they can market the service to the audience and then bring it to sponsors as part of a tournament-sponsorship package, there's a good reason for hope. But doing that will take a year or two more of start-up cost and time.
Tournament director, MCI Heritage Classic, Hilton Head, S.C.; currently considering SportsBand's pitch for bringing the service to next April's Heritage
I'm sold on the idea, but you have to look at the financial side of what SportsBand is offering. It's hard to seriously consider its current proposal. There will have to be some compromise on the company's side to make it more attractive, at least to this tournament. I don't want to negotiate in the magazines, but by "compromise" I mean that these guys might be off by at least a factor of two.
Right now we're looking to make SportsBand a revenue source for us. I might make a counterproposal by going back to SportsBand and asking for comme