That Championship Start-up
A celebrity investor, a hot technology, a seasoned founder: Home Team Advantage looks as if it has everything going for it -- except customers
Some start-ups are predicated on simple ideas. Not long ago Home Team Advantage Inc. was one of them. Then reality took hold.
Three-year-old HTA, based in Los Altos Hills, Calif., is serial entrepreneur Glenn DeKraker's newest and fifth company. He founded it with a two-part plan for creating and then exploiting an opportunity. First, HTA would equip college athletic departments with the technology they needed to digitize videotapes of their sports events. (Digitizing the tapes makes it easier for coaches who are reviewing games to jump from play to play or from player to player, and for a college's development department to create highlight tapes to sell to alumni or to use to impress potential donors.) Then, once HTA had a sufficient number of schools digitizing their sports tapes, DeKraker planned to help them sell the material in the on-line world -- ultimately to fans who wanted to customize their own sports programming. HTA would give them access to huge data banks of material such as nontelevised college football games, last season's Final Four basketball play-offs, and small-audience events like college volleyball meets and tennis matches that are difficult or impossible to find on TV.
That was the idea, and HTA is gambling that some day such a market will exist.
However, in the short term, there are hurdles to get over. The first is that HTA needs money. It has already burned through more than $2 million in capital invested by DeKraker and others, losing $1.1 million on revenues of $82,000 in 1994 and another $1 million on sales of $175,000 in 1995.
The losses are a consequence of hurdle number two: greater-than-anticipated technical challenges. DeKraker's dream was to equip schools with the college market's first networked digital storage system and to do it for as little as $45,000. The system he envisioned would allow coaches to call up, from coaching stations all across campus, video replays of any part of any game. But storing and retrieving hours of digital video images inexpensively has turned out to be more difficult than DeKraker imagined.
As a result, the company's still-evolving products are as yet unnetworked. One, called Touch 'n Go, was scheduled to be delivered during the last month of 1995. It combines HTA's software with off-the-shelf microcomputer hardware to give coaches the ability to use a touch screen at their desks to view recorded material. The second product, called At the Game, is ready for market. It lets coaches record and replay practice-session segments while the session is still happening.
"This is an industry where the rate of change is incredible," says Richard Miller, an HTA board member and former vice-president of software company General Magic. "In five years this may be an extremely different company."
Glenn DeKraker must be hoping so, because at the moment this company is not performing as he hoped it would.* * *
HTA began the way a lot of young companies do. DeKraker, 69, saw what he thought was a long-term market potential, wrapped his mind around the idea that someone was going to make money on it, and figured he might as well be the one. As DeKraker himself puts it, "There's unmined entertainment out there, and we want to structure it."
He's done something similar before. His first two businesses, which he started in the 1970s, never succeeded, but the third and fourth flourished. Media Management Plus (MMP) and AIM 21 both brought personal-computer-based technology into the advertising industry. They gave small firms inexpensive access to market analysis and helped them convert their commercials to digital format for easier archiving and retrieval. Written up as a case study for Stanford Business School, MMP was bought by U.S. West in 1988 for $31 million. AIM 21 is currently being acquired by Reuters NewMedia, which paid $2 million for a minority share just last spring. DeKraker also sits on the boards of eight start-ups, including Chicago-based Peapod, a grocery home-delivery company, and Instill, a developer of restaurant inventory technology.
While technology has been DeKraker's career, Stanford University sports have been his passion. He played football for Stanford in the 1940s and has been a major financial contributor and athletic-board member for years. It was that connection that gave him the kernel of the idea for HTA. In 1992 DeKraker and his wife, Pauline, attended a board luncheon at which they heard football coaches complain about how labor-intensive and time-consuming it was to prepare and use videotapes to scout out other teams. The coaches would get another team's game tapes and then search for every, say, fourth-and-goal play and dub it onto a separate tape. They'd make another tape containing, for instance, just passing plays. Once they got the play tapes made, there was a lot of fast-forwarding and rewinding as they went through them. In other words, conventional videotape was a cumbersome medium.
DeKraker immediately imagined a technical solution to the coaches' gripes. If they could convert their videotapes to a digital medium, they could "tag" each play; then user-friendly software could find plays according to their tags almost immediately. The change for coaches would resemble the difference between playing recorded music on a tape deck and on a compact-disc machine. A number of companies already made digital conversion systems for the sports market, but they started at $100,000 and were targeted at pro teams and rich college programs. DeKraker thought he could make a system that cost a lot less. He figured the whole college market would open up to him, and even part of the pro market, as well.
Coach Bill Walsh, a three-time Super Bowl winner and, in 1992, head of Stanford's football staff, bought the idea. He signed on as an investor and chairman of HTA's advisory board. Stanford's athletic department agreed to team up with HTA as a beta site for the product DeKraker envisioned. Coaches for the football, tennis, volleyball, and basketball teams consented to work with the software programmers DeKraker would hire.
Soon, DeKraker's original idea of selling digitizing equipment to schools expanded into another dimension: why not sell the digitized content? The people who had become involved with HTA began to imagine all kinds of commercial applications. Schools could install interactive screens at stadiums to show digital sports clips, and they could sell advertising around the miniprograms. Pregame shows incorporating video clips from schools across the country could be beamed to coin-operated kiosks in sports bars where fans would pay to see exactly what they wanted. As Walsh puts it, "Fans are more and more sophisticated in the world of sports and athletics, and are expecting and demanding more and more information and analyses. This is just going to be an ever-growing and ever-prospering opportunity." And at the center of that web of connected opportunities lay the possibility of selling the material over the information superhighway, or I-way -- whatever that turns out to be.* * *
Launched with $250,000 of DeKraker's money in 1993, HTA raised $1.1 million from investors in 1994. For a time the company operated in offices on the Stanford campus and on a quiet Palo Alto street a short drive away. A couple of months ago it relocated to DeKraker's expansive home, in nearby Los Altos Hills. The potential product lineup has expanded and contracted through trial and error since 1994, and today HTA is focusing on two ways to pull in customers. The first is to sell the coaching systems -- Touch 'n Go and At the Game -- to college and professional sports teams. The second is to show schools how they can use their existing film and tape archives to create a digitized program of sports highlights that athletic directors can show to alumni and potential contributors on a dedicated portable computer that HTA will lease them. In other words, DeKraker is trying to show schools how they can make money from the sports video material they've already got.
As tangible as those products and services are, DeKraker sees them as Trojan horses. What he really wants is to get the company into schools and establish HTA as an adviser and partner on all things video. Then he hopes the company can secure commitments from the schools to cede comanagement rights of the video to HTA and to share the proceeds from future digital sales. "We will explain to schools what our objective is and that we want them to have a year to understand the significance of managing their video," says DeKraker. "And then in that year we'll work to close a deal to manage their content."
So far, Stanford's athletic director, for one, is still intrigued. Ted Leland, who oversees a $26-million budget, says he thinks HTA's coaching stations will allow his staff to do more, more easily. And he likes the company's long-term goal of sending sports video over cable and telephone lines to fans across the country. "Right now," says Leland, "our fan in New York City may have to wait until Monday morning to find out who won a Saturday game. I think HTA may let that guy see not only the game later that evening but a 20-minute highlight show as well." Developing that commercial market is something he's happy to leave to a third party. "It would be very, very hard to do this on our own," Leland says. "For me to take the precious dollars we have away from our, say, softball team, to generate enough cash to somehow get this thing going would have just been impossible."
The reaction outside Stanford, where HTA doesn't have built-in relationships with decision makers, has been more tentative. In early 1994 HTA showed a prototype of the Touch 'n Go system at a coaching convention, and it seemed to be a hit. High on that feedback, three HTA staffers hit the road. They visited some 25 schools in 1994, pitching the advantages of digitizing. But they were, they concede, too cocky for HTA's good. When schools hesitated over the proposed system's $45,000 base cost -- or over the need to make the digital conversion at all -- the salespeople wasted no time; they moved right on to the next prospect. As a result of grossly underestimating the financial pressures on athletic directors and the length of its selling cycle, HTA ended 1994 with practically no sales.
The challenge looks formidable. HTA estimates that 60% of its target college customers already own $100,000 worth of analog video equipment produced by one competitor, Sports-Tech. That means HTA may have to wait years before many schools will be in a position to invest in a Touch 'n Go system.
Furthermore, the time and financial pressures on coaches, many of whom are technology shy to begin with, are huge. "I get brochures I can't understand or don't want to take the time to understand every week," says Mike Montgomery, head coach of Stanford's men's basketball team, who used an early prototype of the HTA system last year. "A lot of them probably have value, but in the long run, does it really have value versus what its cost is?"
When DeKraker reworked HTA's business plan in 1995 to bring its video consultancy front and center, he also began talking about forming partnerships with existing video management companies that provide clips of major-league sports to television-news clients. "We probably need to overcome the 'HTA who?' hurdle," says DeKraker. "I think we need a relationship with someone bigger." No such partner has yet materialized, however.
Last year was an expensive one for HTA. While DeKraker was shifting the company's gears, development work continued on its two products. So he spent much of 1995 seeking cash to fund the deficit. During the summer HTA borrowed $500,000 from DeKraker and others in a bridge loan. At the end of the year the founder was still looking for equity investors with $1.8 million. And significantly, he had split the company up.
In October, DeKraker created a division tentatively called Power Wave, which will investigate the possibility of adapting HTA's digital callback technology to uses in medical, legal, and other nonsports applications. The existing sports-oriented operation is now HTA Marketing, and both divisions share the same eight staffers.
Eleven schools -- comprising 20 programs in all -- so far have said they will contract with HTA Marketing to help the company develop "Heritage" programs -- the name HTA gave to the sports-highlights shows schools will use to impress alumni and potential contributors. Those same schools have said they'll try the At the Game systems. Instead of selling them at $35,000 each (the original plan), the company is leasing them to customers for five years beginning at $500 a month and at an increasing rate in subsequent years. Likewise, the more sophisticated Touch 'n Go systems will lease for $500 a month initially for "tier one" sports like basketball, and for $200 to $300 a month for "tier-two" sports like volleyball and tennis.
In light of all those changes, DeKraker's existing revenue forecasts, by his own admission, are little more than hopeful guesses. "There's no question that when you run the projections out, they get fuzzy, especially with the question of when the information highway will be here," he says. "But in any case, we can be cash break-even by the second quarter of 1996, and then we'll grow in profitability pretty handsomely." Even if the on-line market never materializes, DeKraker thinks HTA can still be viable with revenues earned from leasing equipment to schools and other users. Just don't press him for specific breakdowns right now.
Advisory-board chairman Bill Walsh, who is now a consultant to the National Football League, continues to be sanguine. "It takes a complete organization and a complete person to handle a start-up company. Glenn is a class person, a dignified, established, reputable, credible person, and I think that gives him a real edge. Over the years I've invested in a lot of companies, with mixed results. But they didn't have a Glenn DeKraker heading them." HTA has shifted gears several times in the past three years, but that kind of experimentation may be the only way for the company to find the product mix that will sustain it for the long run.
"When Glenn came up with this idea, I had absolutely no idea what the technology was or what it could do," says Stanford's Leland. "Still, I know he felt good about it. The company is probably going in a different direction than he anticipated on that day when the light first went on in his head, but the folklore around here is about Hewlett-Packard. Their first five inventions didn't work, but Hewlett-Packard, the company, did. They kept trying things and trying things; finally they hit, and away it went."
Company: Home Team Advantage Inc., in Los Altos Hills, Calif., founded by serial entrepreneur Glenn DeKraker
Concept: Develop digital video-editing systems and sell them to college athletic departments, making it easier for them to use and edit tapes of their sports events -- and eventually, to sell the digital content, possibly over the information superhighway. The company began marketing to college and pro teams last fall.
Projections: Revenues of $2.9 million in 1996 and $34 million in 1999, up from $175,000 last year
Competitive Advantage: (1) Products the company says are easier to use -- and cheaper -- than competitors' and (2) the potential HTA offers schools for selling their recorded sports images on-line
Hurdles: Raising the capital to fund up-front development costs, locking in contracts with schools before better-funded competitors do, convincing athletic directors that digital technology can help fund the sports budget
Glenn DeKraker, age 69
Family: Married 49 years to Pauline, "my wife, my partner, my lover"; five children, nine grandchildren
Entrepreneurial History: On his fifth start-up. Media Management Plus, founded in 1982, sold to U.S. West in 1988 for $31 million. (DeKraker family's share: more than $18 million.) AIM 21, founded 1991, sale to Reuters NewMedia pending; DeKraker is (inactive) chairman. Investor or board member of eight other start-ups.
Computer: PowerBook, at work and at home
Sign on office wall: "The only thing more overrated than natural childbirth is the joy of owning your own business."
1994 1995 1996 1999
Leasing/schools $64,000 $155,000 $1,400,000 $11,575,000
Heritage/schools 17,000 20,000 319,000 2,775,000
Leasing/pros 1,000 0 1,198,000 14,480,000
"Info highway" 0 0 0 5,500,000
Total Rveenues* 82,000 175,000 2,917,000 34,330,000
Profit (loss) (1,099,000) (1,000,000) 321,000 9,600,000
*Balance from installation fees and commercial sponsorship
DIGITAL VERSUS ANALOG
A New Way to Look at Sports
Analog sports videos are awkward for coaches, requiring them to fast-forward and reverse through many tapes to produce a tape containing only the plays they want.
HTA's digitized recording makes it easier for coaches to see just the plays they want and makes it easier to distribute sports images to fans anywhere along the I-way.
WHAT THE EXPERTS SAY
Product manager and manager of market research in the sports division of Starwave, a multimedia company in Seattle
Is there a market for HTA's equipment? Absolutely. Coaching staffs face a nightmare when they're trying to assemble game film, and an affordable system with the proprietary technology HTA has developed will win them over. But whether there's a market for schools' on-line sales is another matter. Yes, the displaced fan is a key market, but the schools with the largest alumni bases and best athletic programs tend to get great coverage from ESPN, CBS, NBC, ABC, and other networks. What's more, those networks have broadcast rights, and many of them are beginning to put that content on-line.
For athletic departments, a major network brings in a lot more revenues than HTA might for on-line distribution; a quick look at the CBS billion-dollar buy for March Madness tells you whom the athletic departments will listen to first. An athletic department might give HTA the on-line digital rights for gymnastics, but the displaced-fan market will not be large enough to be viable. My advice for the company is to stay within its niche, which is the equipment.
Associate director of athletics, Duke University
HTA spent time at Duke in the summer of 1994, and we came close to buying a system from it. Its technology was good, and Glenn is one of the nicest guys you'll meet. The problem for us was that its product really wasn't ready for the market back then. We bought from another company and got a system that is used by a lot of NFL teams. It's not quite as sophisticated as HTA's, but it does a lot of the same things.
Director and principal analyst of multimedia services for Dataquest, a research firm in San Jose, Calif.
One of the problems of this group is that they're trying to reach the moon before they know whether the spaceship works. In situations in which you need very quick turnaround on tight deadlines, which is the case with these college-sports customers, the product has to be really, really stable. HTA's competitors took more conservative approaches early on. They didn't try to push the technology too far.
HTA may need to find a product that's very simple, something it can offer that no one else offers, at a price point that would be affordable for more sports departments. It needs to go back and research its customer base; Stanford is just not a typical college-sports customer.
Associate athletic director at the University of Wisconsin
HTA is putting too many eggs in the collegiate basket. These are high-cost purchases, and it will be difficult for many schools to invest in these items. HTA should identify and target the small group of schools that can afford these things.
I agree that selling video on-line is an untapped market. On the other hand, all the Big 10 conference schools, for instance, turned over their television rights to the conference so it can shop for a television contract as a combined unit. In essence, the University of Wisconsin and other college video rights are pretty much diminished. I see pro teams as a more fertile market, and HTA should go after them and then parlay that experience in the collegiate market.
President of Sports-Tech International, a nine-year-old provider of video-editing tools for college and professional teams, which has annual revenues of $500,000 and was acquired by Dainichi Corp., of Japan, in early 1995
Our products now are mostly analog, but we're developing a product that will allow coaches to access video clips through a digital system and local area networks. We started developing it in early 1995 and expect to have the product out in 1996.
I think this market will grow much more slowly than HTA is projecting. Many potential customers will wait to see who chooses which system and then make their decision. I don't foresee 200 or 300 customers spending $100,000 anytime soon -- maybe over two or three years, but not in 1996.