Sports E-tailers Face Ultimate Endgame

The news this week that isclosing its site and selling the remaining assets to rival came as no surprise to those familiar with the rash ofconsolidations sweeping through the online sporting goods arena.

Industry observers watched Global Sports, which operates Web sites for companies including Kmart-backed and the Sports Authority, pick up sports e-tailer for US$38.4 million in stock late last year. That move came on the heels of Quokka Sports acquiring a stake in from Total Sportslast June.

With, Quokka Sports, Global Sports and a handful of other sites still slugging it out on the Web, every business in the sector is looking for an endgame strategy.

Five Easy Pieces

According to Paul Ritter, an online retail analyst with The YankeeGroup, there are five elements sports e-tailers must haveto succeed on the Web: deep pockets, a TV network tie-in, partnerships with major suppliers, multiple revenue streams, and a Web site that continually provides new, compelling reasons for customers to come back.

“In the sports business, it’s not about getting a lot of base hits,” Ritter said. “It’s allabout the final score at the end of the game, and in this case, that meansprofitability,” Ritter said.

Crowded Field

Where did game plans go wrong for so many sporting goods stores? Jupiter Research analyst Ken Cassar believes that the answerlies within the crowded marketplace itself.

“Fogdog and may have delivered on value proposition, but there werea number of others doing the same thing that were already established,” Cassar told the E-Commerce Times. “Both companies were heavily reliant on athletic footwear, but you cant shake adead cat in any mall in America without hitting a Foot Locker.”

According to Cassar, there is little need for an online-only player in the sporting goods market because the market is already well-served.

Pure plays in the online sporting goods market have suffered because they are not able to offer what any local sporting goods store can easily provide: the ability to test sports equipment hands-on, including such basic products as golf clubs and baseball bats.

Paper and Brick

Moreover, analysts say, sports e-tailers with ties to a brick-and-mortar store and/or catalog sales, and those that provide both online content and e-commerce, have the upperhand.

“Pure-play sports e-tailers are fighting an uphill battle,” Ritter said. “The reason isthey face formidable competition from the firms who have a better businessmodel — the sports news and content sites that offer far more than justsporting goods.”

Added Ritter: “For example, and CBS have a hugeadvantage. It’s always better to have a business model built on multiple,sustainable revenue streams such as advertising, content licensing, ande-commerce.”

Just Do It?

Still, more than one dot-com has fallen on hard times trying to be both a content and an e-tail site.

“It’s really hard to develop content that people will desire to come back totime and again,” Cassar said. “It’s also difficult to be a retailer. It’s presumptuous forany dot-com to believe they can do both well — so far all have failedmiserably. But that’s not to say there isn’t a very valuable role as content aggregators to bring an audience together.”

Global Sports has taken itself out of the trenches and into the sky box with its business model, developing and operating e-commerce sporting goods businesses for retailers, Internet companies, and media companies under exclusive long-term agreements.

Versatile Player

“Global Sports is really just a communications service provider,” Cassar said. “They provide infrastructures, site building, basically do everything for a brick-and-mortar that already has abrand name. The brick-and-mortar just has to deliver traffic to the site.”

According to Cassar, the Global Sports model works because “it has so much leverage.” The company announced last month that it will end the year with $93 million in cash and short-term investments, and said it expects to meet or exceed analyst expectations in 2001.

Stumbling Blocks

Like Global Sports, a company such as, which runs a digital sports network, haspotential to win the e-commerce game.

Quokka operates “more on an affiliate program model for e-commerce, whereby they funnel visitors to other sites who sell the products and in return they get a commission or referral fee,” Ritter said. “If the percentages are decent, then it can be a winning proposition for both parties.”

Even so, Ritter sees major stumbling blocks ahead for Quokka. The analyst said that the other part of Quokka’s business model — building the infrastructure and the digitalcontent — has huge operating expenses that have been running at two to three times revenues. Additionally, Quokka’s net operating losses have been “skyrocketing overthe past three quarters, to almost $100 million for the period.”

“I have difficulty seeing the light at the end of the tunnel,” Ritter said, “The busier you get when you operate on negative gross margins,the quicker you go out of business.”

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