You've probably heard by now, Yahoo is buying Rivals for something close to $100 million. The first question you should ask me is, is it worth it?
That's such a hard question to answer, but let me tell you what you need to consider.
1. A lot of people are going to criticize the value of this deal. They're going to say, it would have cost Yahoo a whole lot less to get 200 local journalists in each of the markets and have them build sites. What's missing from that equation is time. This is a critical time for Yahoo. In their battle with Google on search and ESPN.com on sports, they simply don't have time to build an entire network of sites and to grow network loyalty. The value of the community that has been built is worth so much more than the individual reporters are. The question of course is, is it worth something close to $100 million? When Rivals started pitching around about 8-10 months ago they were throwing out north of $120 million for their acquisition price. Suitors other than Rivals were expecting to get the site for about half that.
2. I can't stress the value of the community. Check out this number. When it was clear that Kentucky was going to hire Billy Gillespie in April, 16,000 Kentucky fans were logged on at the same time. The bottom line is that in this era of the reader/fan, there are not that many sites that are as interactive as Rivals is. Smart athletic directors and coaches know that. They go on Rivals to check out the pulse of the fan base or to see what they're talking about. The caution to this is that Rivals consumers might not be strictly loyal to Rivals. So if a person is jumping from the Kentucky Rivals site to the Scout site to ESPN.com, the value of having them there in the first place is lessened.
3. Rivals operates like a cable network in that they have two revenue streams – advertising and the subscription model. The advertising only model didn't work in their first life and this one seems to work a little bit better. The thing that most Rivals visitors will pick up (including me) is that while advertising is there, space is clearly not being maxed out. Yahoo has a good sales force and will be good at selling this. And just think, even without devoting much resources to the advertising space, Rivals revenues were more than $20 million in 2006.
4. There is absolutely no slowdown in the interest of college/high school recruiting. The bottom line is that fans – especially in hard-core areas – can no longer afford to not know about the latest and greatest prospects their schools are recruiting. If they don't know the recruiting game, they'll lose at the water cooler. On National Football Signing Day, Rivals had 74 million page views. In the back of your head, you have to wonder if this was a pay whatever you have to deal for Yahoo. Fox bought Scout, CBS bought Maxpreps. Yahoo might have paid a premium here by being the last one to the party.
5. The single most important part of this deal and why this deal could be worth it is that Rivals smartly staggered the contracts of their Web operators and reporters. Sites with a huge alumni base that get massive hits have four or five licensed contractors. Why is this so important? Because if you only have one contractor or if the contracts come due at the same time, you could face defection, as in people who think they could do a better job on their own making more money. The negative on this front and a reason why some of the other suitors weren't too keen on the asking price, was that with the network of sites with independent contractors, you can never really say you safely own it. That's not true with some of the other sites some of the big boys have acquired in recent years.
Questions? Comments? SportsBiz@cnbc.com
