Fool.com: Sports Heroes Creating Online Store (Breakfast News) December 21, 1999

BREAKFAST WITH THE FOOL

Tuesday, December 21, 1999

"The best way out is always through."
-- Robert Frost

Sports Heroes Creating Online Store

By Richard McCaffery (TMF Gibson)

John Elway, Michael Jordan, and Wayne Gretzky, the triumvirate of recently retired sports heroes, are kicking off an online sporting goods business.

The three legends and their financial partners are buying the sporting goods business of sports news and information website SportsLine.com (Nasdaq: SPLN). It's a 10-year contract worth $120 million.

Under the plan, MVP.com, Elway's recently purchased website, will buy the sporting goods business. Elway initially planned to promote MVP.com as a sports and fitness news website, but he now plans to focus on selling merchandise. MVP.com will launch its website in January, which will offer tips and stories from sports figures and such. It will also sell a wide range of sports equipment and apparel.

Elway will seek other sports figures interested in buying ownership stakes in the venture to attract readers, shoppers, and advertisers. Elway said he plans to take the company public soon.

Elway will be chairman of the board while Jordan and Gretzky will have seats on the seven-member panel. All three invested an undisclosed amount in the business. CBS (NYSE: CBS), which owns about 16% of SportsLine, and SportsLine will take equity stakes in MVP, and venture capital firms Benchmark Capital and Freeman Spogli & Co. ponied up $65 million for the project.

Can you say "Planet Hollywood (OTC: PLHYA)"?

Maybe, maybe not. Elway used his name to create a chain of successful car dealerships in Colorado, and Michael Jordan has his own line of clothes in a deal with Nike (NYSE: NKE), as well as a best-selling cologne and marketing deals with Hanes and Gatorade, a division of The Quaker Oats Company (NYSE: OAT). In a 1998 article, Fortune magazine estimated that Jordan has added $10 billion to the economy by way of sneaker sales, endorsement deals, and advertising revenues.

Still, the question investors have to ask is how many autographed footballs can you sell, and why would Sportsline.com jettison its sporting goods unit if it's such a great business?

For the third quarter, $3.6 million of SportsLine.com's $15.1 million in revenue came from e-commerce, down from $3.7 million in the second quarter. Though sales have trended up, no one's going to be blown away by the company's $9.5 million in online sales for the first three quarters. Advertising is the company's biggest revenue source.

MVP.com will spend $85 million for a four-year marketing deal with CBS, and $120 million for a similar deal with SportsLine.com, so consumers can expect a full-court advertising press from the company.

Obviously, MVP.com will look to leverage the stars' names, but can you build a business on it? Investors will have to wait and see if these aging stars can bring investors a champion.

News to Go

General Motors (NYSE: GM), the world's biggest automaker, and Honda Motor (NYSE: HMC), Japan's number two automaker, reached an agreement to provide specialized engines for each other's cars and look for ways to collaborate in the future. The deal is one of many taking place globally in the consolidating world of auto manufacturing.

Data networking equipment company Cabletron Systems (NYSE: CS) reported pro-forma net income of $22 million, or $0.12 per diluted share, for its fiscal third quarter as efforts to streamline operations took hold. The mark represents a 71% sequential increase in earnings. Analysts expected earnings of $0.10 per diluted share. Sales increased 13% to $372 million.

Railroad operator CSX (NYSE: CSX) said it expects to report earnings well below expected levels for the fourth quarter because of congestion problems, Hurricane Floyd, and unexpected charges related to the sale of its Sea-Land container business to Danish carrier Maersk Line. CSX officials expect earnings in the $0.18 to $0.24 per share range, before one-time items.

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