Does SportsLine Risk Its Future with Gambling Link?

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If Wall Streeters follow anything more religiously than the markets, it's sports. But devotion to sports hasn't spurred extensive coverage of the financial side of the game. And yet every day sports business is becoming more and more important.

Fortune

argues that Michael Jordan is worth $10 billion to the economy. Long-term football contracts look like small national budgets. Companies such as Walt Disney (DIS) - Get Report try to "leverage" their sports teams (in this case, baseball's Anaheim Angels and hockey's Mighty Ducks) and TV networks (ESPN and ABC) as they would any other corporate asset in trying to gain market share. In sum, sports is not just sports anymore -- it's part of a larger picture, the same as Coca-Cola's (KO) - Get Report battles with cola rival Pepsi (PEP) - Get Report. That's where

TheStreet.com

comes in.

TSC

is starting a regular beat that digs into the business side of sports: the deals, the contracts, the IPOs -- the Cleveland Indians' recent IPO is just the tip of the iceberg -- and how they will affect the markets they inhabit. The emphasis will be on publicly traded stocks, but we'll be hunting for all things interesting on the sports biz beat.

***

Sports gambling may be legal in Las Vegas, but it takes place from sea to shining sea over the Web. According to the

American Gaming Association

, illegal sports gambling rakes in around $88 billion each year. And the Internet, where gambling's legal status is hotly debated, is becoming a large market for those with the gaming itch. "All of this is so new that no one knows what to do about it," says Christine Reilly, executive director of the

National Center for Responsible Gaming

One online sports outfit trying to benefit from the obsession is

SportsLine USA

(SPLN)

, a Web publishing company that offers a cornucopia of sports betting information and analysis at its

Vegas Insider

site. Vegas Insider, which according to

BancAmerica Robertson Stephens

analyst Keith Benjamin is projected to generate $1.7 million of SportsLine's estimated $32 million in 1998 revenue, is a key to the firm's path to profitability: But some on the Street now wonder if SportsLine's link to gambling will keep it from landing coveted and highly profitable deals with the

National Football League

, the

National Basketball Association

,

Major League Baseball

and other pro sports leagues. A handful of people familiar with the situation indicate that SportsLine's ownership of the Vegas Insider site contributed to SportsLine's recent failure to win a contract to run the NFL Web site. SportsLine CEO Michael Levy says Vegas Insider doesn't have anything to do with gambling, but he also

told an audience at a

Hambrecht & Quist

conference earlier this year that gambling would be a huge driver for the company. "You can get instant odds for $79.95, so we know who the gamblers are and who the bookies are," said Levy. "We also have a $50

cost-per-thousand readers for ads on those pages -- and one of the rules is that we collect the money up front from all these guys."

The Story

When SportsLine began its online operations, Vegas Insider was a large part of the original site and helped bring in much-needed capital. But now that it's a publicly traded company with a market cap over $700 million, does SportsLine need Vegas Insider anymore?

While every newspaper in America offers readers a daily dose of betting lines, sport news publishers understand that more open references to gambling are a no-no. "Sports publications all the time are offered gambling advertising, and it's very appealing," says Gary Levy (no relation to Michael Levy), a former SportsLine executive and current vice president of business development of

CDM

, a fantasy sports operator. "But to keep the Budweisers and

Coca-Colas

(KO) - Get Report

, they have to turn away the sports handicapping and gambling ads."

SportsLine is not just a sports information publisher -- it's beloved on the Street. Since its November 1997 IPO at 8 a share, SportsLine's stock has more than quadrupled and each of the eight analysts who cover the stock give it a buy rating. Benjamin, whose firm helped bring SportsLine public, just upgraded the company to strong buy, telling clients earlier this month that "SportsLine will become the clear leader through its combination of traffic supply from

CBS

(CBS) - Get Report

and its focus on building the best sports content site."

For these analysts to be correct, however, SportsLine needs to become profitable, thus far an elusive goal for many Internet companies. "We expect to be cash-flow positive by 1999 and profitable by the year 2000," says SportsLine's Levy. The Fort Lauderdale, Fla.-based company lost $26.5 million last year on sales of just $10.3 million. In its first quarter, the company lost 56 cents a share, though revenue jumped to $6.8 million from $1.5 million a year earlier. Before SportsLine can turn a profit it will need to increase revenue, two-thirds of which comes from advertisers and the rest from subscribers and sports merchandise. SportsLine already has a number of "major league" ad sponsorship deals from the likes of

CBS Sports

and -- well,

Michael Jordan

, who is one of a number of top-flight athletes with SportsLine-produced pages on the site. Other SportsLine athletes include

Tiger Woods

,

Wayne Gretzky

and

Shaquille O'Neal

.

The Link

That's where the link with gambling comes into play. With all these mainstream athletes, is it right to have a link to a site that dispenses information to gamblers? Originally, Vegas Insider was a big part of SportsLine's operations, says Gary Levy of CDM, but early last year CBS took an 12% stake in the company and SportsLine abruptly changed focus. SportsLine moved Vegas Insider -- with links to such sponsors' gambling sites as BettorsWorld.com and BettheNet.com -- to another URL, www.vegasinsider.com. The site still offers a number of pay tiers, including a deluxe model that provides readers with live odds and betting analysis for $79.95 a month or $599.95 a year. Along with updated injury reports and expert handicapper chats, you can even get current weather conditions and forecasts for every city.

"Our SportsLine service has nothing to do with our gambling service," says SportsLine's Levy, the founder and chairman. "There is a complete separation." On the company's income statement, however, Vegas Insider revenues are right next to advertising and merchandise. In other words, Vegas Insider is one of a handful of core revenue streams administered by Levy and chief financial officer Kenneth Sanders. Sanders says, "Vegas Insider is integral to our business plan," but in the same breath insists that Vegas Insider isn't really about gambling: "We provide statistics and information to serious sports fans and we are not associated with gambling in any way."

But the ties between the sports information and the gambling-related services may grow stronger.

TheStreet.com

has learned that half of Vegas Insider's eight-person staff was "let go," according to a well-placed source who wished to remain anonymous, after SportsLine decided to bring Vegas Insider more into the fold in terms of resources.

SportsLine vs. ESPN

With sports gambling just coming onto the radar screen of the government -- which is currently considering a ban on Internet gaming -- is the separation between the two sites enough? Geoff Reiss, senior vice president of

ESPN's

Internet group, says no. "Can a site like that create a safe state between the two?" asks Reiss, who works on ESPN SportsZone, a unit of Disney and the leading online sports service based on daily page views, according to

Media Metrix

. SportsLine, however, has been making significant inroads into this online market, and is chasing ESPN in daily page views. ESPN also offers gambling odds, points out Reiss, but it doesn't link to sites where viewers can gamble and it does not have people pay premiums for live or regularly updated odds, as does SportsLine: "There is a big difference there." (Starwave, which operates the ESPN web site, also hosts

TheStreet.com

.)

It turns out that it's relatively easy to move from SportsLine to Vegas Insider. All you have to do is do a search for "Vegas Insider" on the SportsLine site and you are suddenly whisked to a subscription page for gambling information and live odds. So much for a complete separation.