punctuative! by Matt Winn

For those of us keenly watching digital media businesses unfold, Yahoo!’s purchase of Rivals.com deserves attention.  First announced in April, the deal was reportedly signed today. 

We’ll get to valuation and deal metrics in a minute.  Let’s start by delving into Rivals’ business.  The Brentwood, TN-based company offers collegiate and high school sports specific content under a “freemium” model which allows casual fans to surf the site(s) gratis but charges those interested in more detailed coverage such as scouting news and ”local expert” message board posts.  Rivals also syndicates content, according to PaidContent, to USAToday.com, AOL Sports, SportingNews.com, MSNBC.com and SI.com.  So revenue comes from three sources: (1) subscriptions, (2) advertising, and (3) syndication fees (presumably, though Rivals may use syndication for lead generation purposes only).

Today, subscriptions (185,000 of them at $100/year, or $18.5 million in broad strokes - must be somewhat less due to monthly accounts and churn) account for more than half of the company’s revenue.  That’s a nice base from which to build a substantial business and representative of value in truly unique content, even online.  One has to imagine the hardcore fan subscribers represent a limited market, though (i.e., not a lot of upside subscriber opportunity despite the useful recurring revenue base), and so the opportunity to build a $50-100+ million revenue run rate business lies in advertising (site-based or syndicated).

Here it’s worth understanding the company’s readership.  As Yahoo!’s Scott Moore puts it, “College sports fans are a very desirable demographic.”  They are indeed; not only for advertisers, but for content creators.  After all, Rivals’ readership pulls a lot of weight for the company, generating massive amounts of content in the company’s message boards (the proverbial user-generated content).  And they’re engaged; so engaged, in fact, that the company’s monthly unique visitors - 2.57 million last September according to comScore Media Metrix - belie much more significant usage - 10-75 million page views per day according to CEO Shannon Terry at the 7th Annual Technology! Nashville conference which I attended last month.  The high page view/unique visitor ratio is typical of social networks and a little more difficult to monetize on a cost per impression basis (the advertiser is hitting the same folks over and over again).  Nevertheless, the targeted demographic means decent advertising rates.  For the sake of discussion, let’s assume the low end of Terry’s page view range, which indicates the company delivers 300 million page views/month.   At $5/thousand impressions, that’s an $18 million/year revenue opportunity.  At the Technology! Nashville conference, Terry placed his business in the $5 - 50 million revenue run rate range (broad, yes), and the above math puts him at $36.5 million.  My guess is that’s generous, but who knows.

So what did Yahoo! pay?  The party line is “undisclosed” but tech media sites are claiming approximately $100 million.  That sounds reasonable to me given the frothy exit environment and Yahoo!’s immediate ability to impact the business via its existing traffic and ad network, perhaps tempered somewhat by Rivals’ checkered exit history.   

To wrap up:

First, kudos to a digital media success story out of Nashville.  A number of others are percolating there, but it’s great to see a decent hit come out of the south, which is oft overlooked Internet territory.   

Second, content creators, aggregators, and distributors, take note of the capacity to build real, sustainable businesses in a hybrid model online.  Rivals is notable not only for unique, professionally-driven content but its readership leverage and community development, a hallmark of the emerging medium.

And lastly, a few additional thoughts:  

Interestingly, I haven’t seen anyone covering the connection between chief competitor Scout.com and Rivals.  Scout, bought by News Corp in late 2005 for $60 million, was led by Jim Heckman, who actually founded Rivals.com (in its first life) before a 2001 meltdown.  Bill Burnham offers some good insider info, though, regarding Rivals’ “past life” and lessons therein. 

And a funny note from Shannon Terry’s panel discussion at Technology! Nashville on the downside of such an engaged user base: customer support call times, which should average 1 - 1.5 minutes according to Terry, “stretch to 3 or 4 as fans talk about their teams.”  Sounds like an up-sell opportunity to me.