Tuesday, January 31, 2012

BigLead Sports Blog Sold to USA Today

BigLead Sports, now a property of USA Today, published the top online sports property rankings per number of unique visitors, for December 2011. Which is nice for BigLead Sports, they rank at number 6, at 19.38 million uniques. Very nice. Separately reported by the Fantasy Sports Trade Association in its most recent newsletter, is that the USA Today/Big Lead transaction was valued at $30 million. That may or not be nice. Probably nice, though, for the shareholders of BigLead, which allow them to exit.

Let's look at the comScore ranking and then discuss the valuation of the BigLead property and why or why not the valuation may be reasonable:

Top 15 Online Sports Sites (December 2011)
Unique Users (USA) (000s)
Source: www.comScore.com

1. Yahoo 53,239
2. ESPN 43,252
3. Fox Sports 37,836
4. NFL 26,286
5. Sports Illustrated 20,132
6. BigLead Sports 19,384
7. CBS Sports 18,097
8. USA Today 15,646
9. NBC Sports 14,891
10. SB Nation 9,694
11. BleacherReport 9,178
12. Sporting News 8,798
13. MLB 7,132
14. Stack Media 5,832
15. JUMPTV 4,197

So, was the $30 million price for BigLead Sports a good one? Let's take a look. This site could be described as a blog and aggregator. It has some unique content, but it also pulls in selected material from other sites, to include other owned "partner" sites. It appears to rely on an advertising model as its primary revenue driver. Given the high number of monthly unique visitors, that isn't such a bad idea.

OK, so is the price fair? The assumed valuation for BigLead is $30,000,000 / 19,384,000 or $1.54 per unique visitor. If that is now the going rate for a sports website, that might put a downward bias on the value of similar properties. If the evaluated property had significant additional revenue streams, typical of pay-to-play fantasy sports websites, then $1.54 per unique visitor would have to be augmented by a more common metric associated with gaming sites, such as annual revenue per user or a multiple of gross gaming revenue. Overall, fairly well done by BigLead Sports as they started a blog in 2006 and just under 6 years later have a $30 million exit.

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Saturday, January 21, 2012

Zynga Exploring Online Gambling

Wall Street Journal's MarketWatch reports that the the Facebook-focused social games provider Zynga is talking to potential partners with regard to expanding into bona fide online gambling. This follows last month's reversal by the Department of Justice on its position regarding the Wire Act. Until this reversal, the government's position was that the Wire Act prohibited all online gambling. Now, their position is that the Wire Act prohibits only online sports betting, which is actually in line with how the law was written.

Zynga, which is now traded publicly under stock ticker (NASDAQ: ZNGA), does provide an online poker game, which players compete for virtual chips, rather than actual money. According to the story, 7 million play this game daily. Zynga is wise to at least look at this possibility, as it is possible that their social games may not have much consumer growth left. In addition, they may be looking to spread out and not be as dependent on Facebook as a customer channel.

As explained in an earlier blog post, the gaming spectrum can be broken down into three component areas: entertainment, skill and wagering. Zynga operates now primarily in the entertainment area, with their poker for fun offering moving into the skill area. If as a public company, they now need to keep Wall Street analysts' lust for growth satisfied, a move into the wagering area may be required.

The issue for Zynga is if their brand is too tightly coupled to fun, social gaming and they would not be successful competing against true gambling brands such as Caesar's, Wynn and Las Vegas Sands. In addition, online gambling is likely to be approved on a state by state basis, with each only offering a few licenses. Zynga would have to compete with established gaming brands as well as tribes, for these scarce licenses. These licenses quite possibly may fetch triple-digit millions each. Zynga may be well served to try and locate unique gaming opportunities that will allow them nationwide exposure quickly, without having to battle on a per state basis. Also, if such gaming opportunities can be independent of Facebook, that would allow Zynga a direct channel to customers without having to pay the expensive Facebook "toll."

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Thursday, January 19, 2012

New Jersey Governor Signs Sports Betting Bill

New Jersey Governor Chris Christie signed the recently passed sports betting bill into law. This does not mean that sports betting (the legal kind - I'm sure the Sopranos are still open for business) will be available at Atlantic City casinos and New Jersey racetracks anytime soon. It does mean that there is now a true controversy to allow a lawsuit challenging the constitutionality of the Professional and Amateur Sports Protection Act (PASPA) to proceed.

A similar lawsuit was filed by State Senator Ray Lesniak a couple of years back, but that was thrown out on procedural issues, namely sports betting wasn't currently allowed by law and the suit needed to be filed by the state. A November referendum, which passed by an almost 2-1 margin, the recent bill, and the governor's signature eliminate the procedural issues. The next step is for the Attorney General to file the revived challenge in federal court.

In my opinion, the federal government is going to have a very difficult time justifying a law which says that some states can engage in a particular economic activity, while others can't. And in addition, that prohibited activity has been historically within the rights of the states to control. Furthermore, this activity can be directly tied to how a state can raise revenue. All these factors are hugely in favor of the right of any state to decide how to control gambling within its borders and how to raise state tax revenues. Of course, highlighting the fact that the current prohibition basically ensures a monopoly for big Nevada casinos may have some impact on a federal judge who sits on the bench in New Jersey.

The CBS News article can be found here. Other posts regarding New Jersey sports betting can be found here, here and here.

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Tuesday, January 10, 2012

New Jersey Legislature Passes Sports Betting Bill

As expected, the New Jersey legislature passed a bill allowing betting on professional and college sports at casinos and racetracks. This was going to happen after the voters approved a non-binding vote wanting sports betting back in November by almost a 2-to-1 margin. The measure passed on the last day of the legislative session by wide margins, 73-0 in the Assembly and 35-2 in the Senate.

The next step in the process is for Governor Christie to sign the legislation, which is a given as he has made public statements in support of the bill. The hard work will then begin which is to revive the federal lawsuit challenging the constitutionality of the Professional and Amateur Sports Protection Act (PASPA). That suit could go either way, but on the surface, a law that allows 4 states to have sports betting but prohibiting the other 46 states doesn't seem logical.

If New Jersey can have sports betting, it will be a huge advantage for their state, at least until neighboring states do the same. There is a potential political maneuver that could extend New Jersey's advantage for a long time. That maneuver would be the federal government adds New Jersey to the allowed list of states, but keeps the law in place. Nevada may be in favor of this as it recognizes the writing on the wall, but limits the infringement on its de facto sports betting monopoly in the U.S.

The Press of Atlantic City article can be found here.

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Friday, January 6, 2012

Montana Horse Racing In Huge Trouble

Horse racing in Montana has been in trouble for quite a while. There have been efforts to revive the industry, most notably the passage of HB 616 in 2007, which authorized pari-mutuel wagering on fantasy sports. Unfortunately, the implementation of the fantasy sports game by the Montana Lottery (Montana Sports Action), can only be assessed as a huge disaster. There have been several posts on this topic, with the most recent here and here.

The last sentence of the October, 2009 post may have been extremely prophetic. It stated, "what is lost in this discussion is another loser - the Montana horse racing industry. By placing their trust in the Board of Horse Racing, they placed a bet that may have doomed live racing in the state." How true those words may have been. The Board of Horse Racing continued its cavalcade of errors by stripping the simulcast wagering license from Montana Simulcast Partners, an entity that had been profitable and providing needed revenue for approximately 20 years, with a new provider, which didn't even last 2 years before being shut down amongst a torrent of complaints. The Board then doubled down on stupid by not only NOT trying to revive Montana Simulcast Partners last year, but took over the simulcast wagering operation itself!

It did not turn out well. Barely a year later, the Board of Horse Racing, due to its mismanagement of its operations, to include the simulcast wagering operation, had generated a budget deficit of over $500,000. Those that looked into the Board's operation noted that the Board even lost money running the wagering operation. As a "closing the barn door after the horse has left" move, the Executive Secretary of the Board was fired. More details of this fiasco committed by the incompetent Montana Board of Horse Racing is contained in the story from the AP in this article published by the Washington Examiner.

What is being attempted is to try and figure out a way to revive the simulcast wagering operation within the next couple of months, in addition to implementing other fixes to the obviously disfunctional and inept Montana Board of Horse Racing. Will it be enough to save live racing in Montana, or is it too late to save the patient and the only thing to do is pull the plug?

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