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[intro jingle] So number one, parcels should never be owned by a public company because they create too much volatility every single day, and public companies want less noise, not more.

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And I actually do think the regulator piece was a real thing- Yeah...

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because it's too important to be in certain states, and if certain states are saying they won't approve because of X, Y, and Z, you have to pivot off of that right away.

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[music playing] This week's episode of the Rebooting show is brought to you by Permutive.

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Find out more at permutive.com. That is P-E-R-M-U-T-I-V-E dot com. Thank you, Permutive. [music playing] Welcome to the Rebooting show. I'm Brian Morrissey. This week I'm speaking to Rich Rautman, CEO of Sporting News.

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I grew up reading the Sporting News. It's been around since the nineteenth century, although I was reading it in the nineteen-eighties. And in a sign of the times, it just raised fifteen million dollars.

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Now, raising money these days isn't as easy as it once was, and it is particularly difficult for digital media businesses. As Rich says, investors are not dummies.

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They're going to look at what the market cap of BuzzFeed is, the bankruptcy of Vice, the difficulties run into by Vox, and so on.

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And you don't go to investors these days and say you're gonna build the next BuzzFeed of sports. It's just not happening.

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But there are different pockets of media that are doing well, and one of them is the growth in sports media that is able to drive transactions, particularly for sports books now that gambling is legalized in many US states.

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The Sporting News now derives forty percent of its revenue from what it terms affiliate, which is often taking cuts on the full value of customers it sends out to its partners.

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And now with its investment in fantasy gaming app SuperDraft directing people to its own products. Rich and I talk about this shift in mindset and operations from CPMs to LTVs. I really enjoyed this conversation.

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Hope you do too. Please send me feedback on it. My email is brian@therebooting.com. And if you like this episode, please leave it a rating or review on Apple, Spotify, or wherever you get your podcasts.

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Now let's get to the conversation. [music playing] Cool.

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You know, when I was, like, growing up, I had three basic, like, sports publications, and it was Sports Illustrated that I read religiously from cover to cover until the swimsuit edition caused my mom to cancel my subscription.

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Yep. Uh, then Sports Magazine. Do you remember Sports Magazine? It was a monthly- Yep... magazine. And then Sporting News. And I, I wanted Sporting News because it got into the statistics.

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I was really into the statistics before everyone got into gambling. I just was into the numbers. So Sporting News was in my rotation. Okay, that's good to hear.

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Hopefully, we can get back into that rotation with you if we're not already in it. [laughs] Well, I wanna talk about it 'cause I'm not a gambler, and I don't believe in fantasy, so I'm, like, a weird sports fan.

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But I am also a fan and professionally inclined about the direction of the media business, and I think sports media is actually a really fascinating area right now because it's on the front end of a lot of shifts for a lot of different reasons that, that are gonna happen, maybe not as acutely in other areas, but I think that it's more interesting than it's been, honestly, in a long time.

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Oh, it's changed so much. I mean, much like you, when I was growing up, those are the same publications that I read.

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You know, I remember reading Faces in the Crowd in the Sports Illustrated magazine, and it always seemed that I recognized somebody and that they grew up in my town and that whole bit.

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And then obviously from the professional side, I mean, when I, you know, years and years ago, worked at the NFL, you know, CBS Sportsline, I believe, powered NFL.com, right?

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You know, the NFL didn't even power its own website, right? So I think- Yeah... clearly a lot has changed since then. Crazy.

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I guess, I guess through all that, you know, I mean, when you're, you know, obviously and I'm with Sporting News now and, but the business has been around since eighteen eighty-six. I- Yeah, I know...

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and I think there's not a lot of sports businesses that can actually say that they, A, have that type of longevity, and I think the willingness to be able to pivot the business into different directions as the market has changed.

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I can't speak to what was going on in the 1920s or '30s or '40s, but- Yeah... you know, certainly the last twenty-five years. It was less competitive, Rich. I'll be honest with you. [laughs] Yeah. It probably was.

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But- I wasn't around...

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so but no, I think our willingness and our agility to, to pivot into the direction that we think the industry is going, you know, I think is, uh, probably our, our best characteristic for how you take advantage of the world today.

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Yeah. So you've, you've been in the, in the market for a while, and so I just...

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I always like to ask people, and then we'll get into the specifics, but give me your theory of the case about, like, where digital media overall is going.

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I, I keep talking to this podcast, I feel like we're between eras, and I think a lot of the people I talk to in different fields of the publishing industry are facing unique stressors, and this industry has been a mess since I started [laughs] in it, so nothing is new.Things like existential challenges come on a, like a quarterly basis.

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So at the very least, people are like, you know, with all the stuff with generative AI, it's like, okay, yeah, another existential challenge. It's like- Yeah, there's quite a lot of them... like The Last of Us.

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Oh, another zombie army. Okay, we'll deal with the zombie- Yeah. Are you really still interested in doing this? Is, you know, the question you have to ask yourself because it continues to change. Yeah. You know?

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But I think to your question- But you know what? A lot of us are in too deep, and so- [laughs] I think they'll turn it back for me at this point. You know- But give me a theory of the case.

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Where are we right now and what are the big shifts? Yeah. Some of them are still ongoing, obviously. Yeah. But if you think back, I mean, I kinda look at everything in waves, as I'm sure you have as well.

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There was this wave of everybody moving into video, and publishers needing to have video on their site if they wanna be able to make money because display became a challenging business to monetize, you know.

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They used to be able to sell display at these great rates, at takeovers, and all this kind of stuff. That business obviously changed.

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And video monetization just went crazy, and banners were showing video, and there was video with no sound, and there was just, you know, people taking advantage of the market density around video.

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Then social became the huge thing, where it was like build audience on third-party platforms, and Facebook, and Twitter, and Snapchat, and Instagram, and multi-channel networks on YouTube.

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How can you acquire a lot of real estate at once? And at the end of the day, those became lower margin areas for most publishers 'cause you have to share a share of a share, right?

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And again, not to go through every single phase because there's still multiple ones between then and now.

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I think the phase that the industry is going through right now, which is a challenging one, is regardless of category, I mean, if you...

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Five years ago, and, or f- I mean, I was with Native Media for quite some time, right? The, we always were in a position that we could continue to raise capital because we were moving the business in the right direction.

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And, you know, we had the global side covered, we moved into the ad technology side, we had content curators around the world, we proved out the sponsorship revenue stream. But I will say now it's gotten quite hard.

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Right? I think when you talk to most investors about digital media and they see the industry unic- the, the ones that everybody thought was gonna surpass the entirety of the industry, right?

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When you think about the Voxes, the Vices, you know, and, and there's obviously a ton of others. If these businesses cannot perform well as public businesses, it made people very cautious. Yeah.

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Because, A, there's not a ton of digital media businesses that while they've grown revenue and they've grown audience, they haven't been able to pave a path to becoming really profitable businesses.

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Because I believe, and a big thesis that we have is there's not a s- a significant secondary revenue stream that is not ad funded. Every part of the business, you know...

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Subscription businesses are tough, as I'm sure you know very well. Mm-hmm. But it's a different type of advertising. It's an advertising of written content, or in social, or it's ad tech.

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Everything has reliance on a singular part of the market. So I think the shift that's going on in our space right now is more fundamentally about what the P&L needs to look like for a digital media business to thrive.

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And there's a number of different ways you can skin a cat, but I think a big part of the reason why these digital media businesses have grown, the big ones in our space, is because they've had the right capital structure to them.

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They've been able to invest ahead into the opportunities they see. And I would say on the investment side, digital media has gotten soft. Yeah.

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And so a lot of people are just doing the same things and trying to trim cost structure right now, and you're... I would say the last couple of years has been a lack of innovation as a result of it. Yeah.

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And I think when you think about that last prop, 'cause I think that's a good point, that if you're gonna be raising money and you guys just closed a $15 million round, just took... When was it founded? 1866?

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So like, um- 1886. Yeah. It's, uh... I thought [laughs] Okay. It's younger than I thought [laughs] it was. Yeah. It's like, uh, Sporting News raises capital 100 years later. Yeah.

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I was like, that actually is a good tagline. Yeah. You know, it's a good story and stuff, and there's been like a trillion owners.

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We will do an entire different podcast on the different corporate structures that Sporting News has had. Yeah, no, I, I wouldn't even be able to probably even speak to half of them. But, no, I agree with you.

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[laughs] Exactly. But I think, like when you think about like those businesses and if you're going out to raise, inevitably you do not want a story that is like the other people's stories. You know?

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And ultimately, I always go back to, 'cause people say, "Hey, they, they made this dumb mistake at," we'll just say Buzzfeed, or, "Vice should have done that."

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And I'm like, okay, but there's five or six different one of these.

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I was like, each one of them was making uniquely bad decisions, or is this possibly just that these models and the assumptions underpinning these models turned out to not be correct?

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I mean, I don't know, maybe some of the decisions were not optimal in the rear view, and you can make that case for anything.

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But I don't know, zero for six, you start to wonder if maybe it was just the entire assumption.

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And a lot of those assumptions, these businesses were different, come to being, like you're saying, overly dependent on a particular type of advertising really. Yeah, and I agree with everything you said.

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I think that digital media, in my opinion, and I think for a lot of businesses, is less about being rewarded for the bets that you make. It's more about being penalized for the ones you don't. Mm.

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And even some of the businesses you mentioned previously, it's like, of course, they're doing that, but it's why aren't they... I can't believe that they're not doing this.

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And as a result, there's this huge market opportunity that's created from this. And then digital media business have a propensity to then try to play catch up, and I think that it is a copycat world. Yeah.

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I mean, if you think about all the big media companies in digital, obviously the big media companies have pivoted to streaming, right? I mean, that's just matter of fact.

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Every big media company that is in our space that's not exclusively digital has become a streaming business.

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The digital media standalone businesses, I don't think they get a lot of the credit for they made this smart strategic decision around going in this area.They-- What you hear more about is, "I cannot believe that they chose to go into this one."

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It's also easy to point to, right? Can't believe they didn't get into podcasting or they got into it too late. Yeah. You know, I can't believe they didn't get to this or they got into it too late. Yes.

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But I, I think that's more trend setting than it is actually business focus. So when we kinda look at-- obviously, if you want to, A, raise capital, you have to have a differentiated business plan right now.

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You can't go in and just say, "We're gonna do this better, harder, faster."

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No one will believe you, unless you're just people that have pulled this off to the tune of public company exits in the past, maybe have built up huge credibility.

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But I think at the end of the day, you have to be able to not just say how you're going to be different, you actually have to prove it in the numbers. And if you can do those two things combined, you have a chance.

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But if you're trying to go after the same thing that everybody else is, I will say there's, there is no capital in our space other than debt, perhaps if you're taking the same approach you did a few years ago. Yeah.

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So what was the pitch that you used?

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'Cause then I wanna f- I wanted you to frame this with the s- where the sports media industry is, because I think being in sports media right now is way more interesting than it was five-plus years ago.

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Like, just because of the gamble- Yeah, and the market has changed for me, I've been doing this for a long time now, right? Yeah. And so there's a lot of changes going on in sports media.

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But as a category, sports media still significantly performs on the advertising side.

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So what you're finding is there's a lot of changes on products that are being delivered direct to consumer, but there hasn't been a big change in terms of how advertising has been transacted.

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Still, the lion's share of the money that's put into the market is either sponsorship or on a cost per point basis, and sports is very effective in that regard.

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So businesses in our space haven't had to make the pivot that you've seen in other categories that don't have that density in terms of demand that you traditionally would see from sports, right?

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So it's been a little bit of a slower-moving object.

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You know, our focus as a business, as I was thinking this thing through, I guess now a couple of years back, everybody comes to the market and they talk about the number of users they have, and we have this massive reach or we have these type of millennials, or we're number one in something, right?

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Everybody is number one in something. And at the end of the day, you know, you want brands to invest with you because you can deliver that audience segment or you do content better or whatever it may be.

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And that's generally been how you've sold your media assets, or we have these rights, right? In sports, that's also another big facet to it.

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So you're selling impressions or you're selling content based on those facts or your version of those facts, right?

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And at the end of the day, you know, as we look at the business, you know, for me it's more about we have these users that come to our platform that trust us.

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The money that we can get from advertisers because they wanna market to those users is one thing, and we will always be able to continue to do that, and the industry's moving programmatic and so on and so forth, right?

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However, what is a user worth now? No one can really tell you in digital media, outside of a subscription business, what user value is.

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They can tell you the cost for every thousand users that they serve impressions to, but they can't tell you what LTV truly is going to look like. Well, let, let me see, let me just jump in there.

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[gentle music] Maybe they know internally, but a lot of people, at least externally and coming on podcasts perhaps like this, talk about how many users they have, and they do not have those users.

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They pay users to- Or that's just a totally fake number, right? So- Yeah...

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I think, you know, so when we've thought all this through, and obviously I try to keep my mind set on- Like, particularly in a world you can buy distribution anywhere- Distribution's cheap...

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I mean, Carlos Watson was never on my podcast, but like Carlos would've come on and been like, "Wow, we reached like a hundred million," like- Of course.

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And, you know, through social, through media buying, whatever you choose to do- I think-... there's ways for you to make a, a number into something, but that's not what we're doing. Yeah. But you're talking about LTV.

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I mean- I'm talking about LTV... at the end of the day- At the end of the day, I think- When you talk with publishers, they're, and they're in the ad business, they talk CPMs. I'm not talking CPMs.

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They don't talk GMV, they don't talk LTV. We are running our business through the singular lens of LTV. We wanna understand what actual user value pencils out to mean.

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And the only way to do that is there are-- obviously advertising sits at the center of a portion of your business, but now in sports- Mm-hmm...

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I mean, five years ago, I'm not so sure that you could build an LTV-focused sports digital publishing business. I think to your point, the sports media industry has changed.

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Sports betting is now becoming- But what were you gonna transact on? Were you gonna transact on- Yeah, so I think that's the-... little pennants? Remember the pennants in the room? You, you, you could have never done it.

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I think I had those, my copies of Sporting News. You could have never done it. I think maybe- Maybe- But if you think about it now-... Masters. It's true. But if you think about it now,

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sports betting is becoming a regulated, effectively business model all around the world. Everybody talks about the US and PASPA, but it's not just the US. Yeah.

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It's Canada, it's what's going on in Brazil, it's the fact that Japan is a couple, in a couple of years. You have big markets like Australia and most part of Europe- Right... that already do regulated sports betting.

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And all of those platforms are looking for customers, and you can provide customers to those platforms on a cost per customer basis, first time depositors or otherwise, or you can get a revenue share on their losses.

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My preference is the latter more than the former.

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You know, if we drive customers to a sportsbook, why would I take a two hundred dollar bounty when the person that we drove over the next five years is gonna lose X, Y, and Z?

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I'd rather be aligned with that customer value. No, no [laughs]. No, I was trying to get latter and former that could always...

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I was like, wait, are you-- you want to be, like, your audience to lose a lot of money or you wanna- No, I don't want the audience to lose a lot of money- Okay...

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but I think that there's not an adequate- It's a little tricky. It's-- But there needs to be- You know-... an adequate exchange in value. That's the most important thing. Yeah. If I send customers to- Right...

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sportsbook A, and we do it pretty well. Sportsbook A builds this huge base of customers and becomes a multi-billion dollar business, and I get my two hundred dollar CPA fee.Am I doing a good job as a business owner?

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No, right?

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You know, we need to make sure that when we send customers to third parties, we are appropriately compensated for those customers, not on a one-time basis, but on a aggregated basis over an elongated period of time.

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Okay, so you're not just doing straight affiliate deals where it's, "Okay, if they sign up at DraftKings or something like this, you get, like, a hundred bucks." I have zero interest in those business models.

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We do some affiliate-related deals in certain markets. You know, in the US, it's been mainly affiliate because rev share has been challenging for a lot of reasons.

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But I guess just to kind of paint the picture for you, years ago, sports betting wasn't regulated, and you could not drive customers to sports betting operators, so that's a new revenue stream.

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The proliferation of rights that exists in the market today around live broadcast is something the industry has never seen before.

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You know, when you and I were growing up, you watched a live game on Channel Four or Channel Eight, right?

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Now, there are certain live sports you have no idea where the hell you actually are supposed to and can watch them. Yeah. Right?

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And each one of those platforms that has those live rights, whether it's Hulu or Pluto or Sling or ESPN+ or PGA Tour Live or, I mean, you name it, needs to develop new customers for their platform, number one, and people need to know where to watch, right?

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So you have this growth in the proliferation of rights, which has created a ton of new sports channels that all need customers. You have the sports betting operators all around the world now becoming regulated products.

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You have the traditional categories of merch and ticket sales, which are largely CPA. And then you have, uh, an area of the market that I think is gonna make a bit of a comeback in terms of digital collectibles.

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I think the NFT space kinda jumped up and then went right back down, and I think over time could prove to be interesting and significant. But the bottom line is, is that across that- Yeah.

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We'll, we'll get to NFTs in, in parts. Yeah. Yeah. It's, it's, it's definitely tertiary, but the bottom line is- Yeah...

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if you kinda think about those two categories, the, you know, the sports books and the OTT platforms, which is the lion's share of our revenues.

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You know, you are talking about catering your business model to a, a trillion-dollar industry. When you aggregate sports books- Yeah...

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around the world, when you aggregate the distribution of sports across other platforms around the world, it's a mega industry, and both of those industries need users.

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And as long as you come up with the right commercial model between you and that platform, you have the ability to build an LTV-focused business. Right.

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But this is also a little bit of catching a tiger by the tail though, right? Because picks and shovels is always a good strategy during gold rushes, right?

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Like, that's been a reliable way to, to make money off of gold rushes, but gold rushes never continue forever.

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I understand other geographies come online and stuff like this, but, like, how does the market look when it matures?

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Because, you know, there's always fighting and jockeying for position early on, and, like, you get while the getting is good.

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But then markets normalize and, you know, the people that were focused just on acquiring customers at all costs now are focused on, "Oh, by the way, you know, interest rates are not zero anymore, and we're gonna have to focus on making money off this 'cause our investors are, like, cramming us down, and so we're gonna be fighting on churn and stuff like this."

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So where is the market now, and is it still in that sort of land grab phase on, on gambling?

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On, on, on sports betting in the US, the land grab in the days of these big sports deals where publisher A is gonna get a category exclusive deal with this bookmaker for 10 million, number one, they have gotten extremely rare, and number two, most of them didn't work.

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What you're also seeing is that, you know, there's this huge convergence going on where sports betting operators wanna become media businesses, and media businesses wanna become sports betting operators.

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Most of the big sports betting operators in the States now have their own direct-to-consumer media channels. I mean, DraftKings has destinations. Yeah. They own content businesses. They have their own OTT business.

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They wanna figure out ways to drive customers into their platform without having to pay a third party for them. Yeah. Well, how much does DraftKings spend on acquisition a year?

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So I can see the, the case for- They're still spending plenty of money on acquisition. At the end of the day, they can under... If they can own the asset- Yeah...

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that's driving the acquisition, it's a, it's an advertised cost versus an ongoing P&L expense, right? So that's a smart way of looking at it.

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Obviously, every sportsbook is wanting to get into the direct-to-consumer media game because they can acquire customers at a fraction of the cost that it would cost them to get from third parties.

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Then, then they have to manage, like, media assets and- Yeah. Managing a media business is tough. But in a lot of the markets outside of the US, revenue share is not a unfamiliar territory, right?

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If you are successful- Mm-hmm... as a business in driving users into my platform and you're not looking for me to pay you to get that user, you should be able to share in the ongoing value of that user to me.

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That sounds like a fair compromise, right?

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So, you know, if you're gonna do all this work to get people into my product, I'm not saying it's 50/50 by any stretch of the imagination, but you should have an ongoing revenue stream that you'd be able to build on the back of that.

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Most digital media businesses start every month at zero. At the end of the day, September, you generated this five million, this 10 million.

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October starts, and it's based on how many paying users you drive, how many impressions you sell and what deals you have in the pipeline.

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And that volatility is something that a traditional, the investment community, it just struggles to wrap its head around, is that how do you not have some ongoing revenue stream that just continues every single month?

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How are you not getting paid for some part of your business, technology or otherwise, that you have a baseline to work from, right?

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It's one of the most frustrating parts of being in media, is that- You're stressing me out personally right now, Rich, to be honest with you. [laughs] This is the way it goes. This is the way it goes.

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You had a great month. It's like the car business. You sold 300 cars last month. The month starts over. This is where the volatility comes in, right? So- Y- yeah...

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the investment community wants to see businesses that have a stable part of their revenues. There's obviously always gonna be peaks and valleys in media. That's great, actually.

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You're gonna have the fourth quarter, which is always huge. Yeah. You're gonna have the summer months that are always kinda crappy.

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But, you know, at the end of the day, having an incremental stream that can underpin some of that activity is- Yeah... what digital media businesses need in order to be able to generate net income.Yeah.

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I mean, it's like any portfolio, right? Like, [chuckles] you can't just have volatile assets. I mean, I guess you could, but you'd have like a very stressful life.

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[laughs] Yeah, the market views media businesses right now in digital that are traffic-oriented to be more volatile than they did years ago, where every new startup idea for content was getting funded, right? So,

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you know, I agree with your sentiment, though. At some point, will this all come to an end, and will they, will not be willing to spend money on acquiring customers?

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Well, I guess I'm just, like, wondering, is the value assigned now lower?

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I'm guess anytime there's, like, a competitive land grab, people are gonna overpay, and then on top of it, a lot of it was based on trying to size a market where there weren't a lot of comps.

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Yeah, you're sizing a market where there isn't a lot of comps. You're, yeah, you're taking a industry that existed below the ground. Yeah. You know, I think we saw this a little bit with the cannabis market.

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The thing that people, I think, overlooked, so yes, it's thriving. There's a lot of money [chuckles] being spent on betting.

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You know, even if you look at the first NFL Sunday, the numbers are, are massive, but the state-by-state rollout is something that has a significant impact on that.

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You know, at the end of the day, if sports betting in the US was 100% national legalized, I think you would have a pretty interesting comp set to look at. When you look at a state like, you know, look at California.

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California were a country on a standalone basis, it is the sixth-biggest GDP in the world. Mm-hmm. Right now, sports betting is not legal in California. It's not legal in Florida.

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It's not legal in Texas, although Florida's changing. How could it not be legal in Florida? Everything is legal here. [chuckles] It's gonna be...

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Uh, there, it's coming in Florida, but it was legal for a little while, and- You can trade reptiles here.

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But I think that what you could look at is the amount of money that is being wagered on sports in the US as a proxy to the audience that currently has access to that product, right? Because if you look at it- Okay...

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in its totality, it doesn't tell you the right story because there's key markets that are not necessarily still sports betting markets. And so yes, it's been a windfall of revenue.

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There's been a windfall of cash in terms of taxation or otherwise. Canada's coming along quite significantly. You know, Brazil will also be massive. It just will be smaller bet sizes, right?

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So it really depends on the, the market, but for, for someone like us, where, you know, the US is 55, 60% of our business, it's not the totality of our business.

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If you're in a market, I mean, Sporting News is a good example, Sporting News in, in Thailand, okay?

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Not that this is an interesting fact for you because I know you're focused on the US domestic side for the most part, but if you think about Sporting News in Thailand, there's no multi-million dollar advertising deal to be sold, right?

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You know, at the end of the day, you better have the ability to generate revenue from other areas, or you have no business being in the market. Yeah. So you have to get really proficient at these other things. Yeah.

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And some of that proficiency has helped us in the US, but I think being global kind of plays a role in us being local as well.

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Yeah, and that's a great point 'cause I think a lot of times people in the US get super spoiled by being in the US. We're quite spoiled here.

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There's this huge market with huge advertising dollars, and, and it's not the same everywhere else. People don't understand.

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For all the complaints about America and the problems and stuff like this, like, look at the, like, advantages too. You're sitting in the biggest, richest, deepest market. It's a huge advantage. Think about Australia.

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I mean, we do it. We have a nice business in Australia. Sporting News has been there for years. At the end of the day, it's a country of, you know, say 30 million people. I'm sure that's not the exact right number.

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They are just as advanced around digital advertising we are. They do all the same deals that we do, but the reality is the deals are smaller because the audience is smaller, right? You know- Right...

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so every market is a little bit different.

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So there are a lot of it, but I think when, with these other markets, because the deals are smaller, and they're never gonna get, like, bigger just because of the realities of demographics and that, you're forced to have more diversified models, whereas yeah, I think you could argue that when advertising is good, I wouldn't say people get lazy, but it's a comfort zone, and, you know, that probably holds back looking for more stable, but, you know, more, quote unquote, incremental sources.

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It's definitely easier here than it is everywhere else. Yeah. I will say that with 100% certainty.

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And selling advertising in the US, it's-- I'm not saying it's easy at all, but I will tell you, when you compare it to selling it in other markets, it is...

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You cannot compare the two at all at any level, other than maybe how you would approach it.

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But I remember Digiday, one of the greatest, you know, the greatest, the good, the good things of, like, going in, like, for us taking subscriptions was could make money off of audiences in Sweden and stuff like this.

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Absolutely. That's the benefit of the secondary revenue stream. Otherwise, we just wouldn't.

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I mean, the only way we would make money is if we were [chuckles] taking an ad deal from someone who most likely they didn't sell in like Sweden, but they didn't, like, ask to, like, actually geo-target the ads.

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Um- Yeah, and then obviously, then the consumers are like, "Oh, I have to pay something to read this article that's been free to me for my entire life?" But yeah, yeah, yeah.

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There's, you know, there's puts and takes there, but I tend to agree with you. Gotta make money. So I read from a little interview you did at Digiday, so what is it, 40% is now affiliate?

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Explain the breakdown of affiliate versus, quote unquote, "advertising" for- Yeah, so I think advertising for us is branded content, programmatic.

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You know, the engagements that we do directly with brands are obviously utilizing the ad server.

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Something that hits the ad server, [chuckles] let's just say, is advertising, and then obviously all the content work in terms of what you do with brands and the content development end.

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I categorize that revenue as being advertising revenue, for right, wrong, or indifferent. Affiliate is transactionally focused revenues. It's, they're not all affiliate-based.

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Some of them are revenue sharing-based, some of them are based on LTV, some of them are CPA, but they're performance deals. You know, I'm not taking a $5 million investment from a brand.

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I'm earning it, and if I do really well, I expect to be compensated for it.

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You know, if you asked me five years ago, we walk in to go see a brand, and they say, "Man, well, we really don't have anything right now, but we could do some stuff with you guys on a CPA basis," the guys in sports run out of the room.

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Yeah, yeah. [chuckles] They don't necessarily... They don't walk out of the room. The entire sports community runs out of the room. Yeah. It's a good way to end a Zoom call. Yeah.

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There, that's a good way to end the conversation, right? And because no one in sports has ever had to do it.Right? And, you know, we just look at it differently and say, "You know what?

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Sports may be the best byproduct to actually do this through." In every other vertical in media, Brian, there are industry leaders in performance marketing, right?

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If you look at the travel industry, you would probably say Kayak is the industry leader, right? If you look at, you know, the mortgage industry, Rocket Mortgage is doing a pretty good job.

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You look at finance, it's Bankrate. You look at restaurants, it's OpenTable. Every category of media has a leader on the affiliate marketing side.

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In sports, there are guys who sell direct-to-consumer products, Fanatics, sports books, you know, OTT subscriptions and otherwise, but there's no great business in sports that caters to delivering audience at third parties.

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We deliver brand, we deliver upper funnel brand awareness. That's what sports businesses do, and we drive consideration, right? So- Yeah...

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I think it's a total change in philosophy for a sports business to actually say, "We wanna be on the hook for results," rather than, "We wanna be on the hook for awareness and great content and great rights."

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Obviously, we hope it's a combination of the two, but, um, when I think about forty percent of our business, it's around that portion of our business that is performance and marketing enabled, whether that's through a CPA relationship, an LTV relationship, a revenue sharing relationship, that's the revenue that we're receiving from that category.

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Yeah. So explain to me how that changes how you run the business as you shift from, let's just call it CPM to LTV. What is different? I mean, you're making money differently, but is...

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Do you need different types of people? How do you structure differently? Is the content then by necessity different? Because we all like to act like the content is sacrosanct. I'm sorry, no.

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I cannot listen to a sports podcast that is not basically a gambling podcast with some sports- Yep... thrown in these days. I do not think that's a coincidence. Business models affect the content, I'm sorry.

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They absolutely do. High beers and the children and stuff like that. That's- And your content people need to be aligned with your business model. Yeah.

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[laughs] So first and foremost, we have a great content team at Sporting News, a lot of people who've been here for a really long time.

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We have multiple people on our content team that have been here for twenty-plus years, and I think that they are vested in the success of the business.

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And that means w- if we ask them to pivot the content strategy for a certain portion of the content, 'cause you can't do for everything, into more of a performance marketing lens or a led initiative, and we believe that's an area where we can drive future results from the business, we actually have willing participants on our end, which as you know, is not something to overstate because content is art, and when you're trying to make content into both art and science, you could get pushback in that type of a model.

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Many companies have. Yeah. And I think it's, like, important. Th- that's, like, a management, 'cause, like, I've- They've always been separate.

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The content people and the commercial pool, they're not supposed to like each other. They're not supposed to get along. They're in different buildings. At SI, they were on different floors- [laughs]...

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and you guys are the enemy.

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I will say that Benson, who runs our global content, has been with the business twenty-plus years, and when we started to talk through, "Hey, Benson, this is where we think the future of the business is, and this is the kind of changes that we're gonna need to make on the content side in order to capitalize on where we think the industry is headed and how we could become one of those leaders in that space.

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Tell us the feedback that we're gonna get from your team around this potential pivot." And he's like, "I don't think you need to sell this in. This kind of sounds exciting."

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I think that if we knew that our content drove direct business results, we would get excited about that. We still wanna build great stuff.

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We still have writers that are in the Hall of Fame, whatever it may be, but I think the day of just wanting to build something beautiful that nobody sees or doesn't have a sponsor or that doesn't have any particular business leverage created on the back of it, in our business, I will tell you, it doesn't exist.

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At this stage, even on the recruitment side, as you can imagine, Brian, we're bringing in new people to the business. We are like, "Just to be clear, this is how we approach things." Well, that's the key.

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[gentle music] And I feel like the, quote, unquote, "content people," I can say this as a, quote, unquote, "content person" who is now also a, quote, unquote, "salesperson," so I, I can definitely have one foot in both, both worlds these days.

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I do think, you know, overall, it-- there's just been a generational shift in, in mostly, like- You just-- You wanna be part of something successful, you know? I think that, you know, really- Yeah...

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that's what it really comes down to.

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I think people that are here with us right now, they want the business to succeed, and they know that if we plan on doing the same thing and getting a different result, that it may not work, right?

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So I guess that's one element, you know? Yeah. It's just different. I think where I've heard of, like, challenges is, for instance, is in, like, the food category, right? If you're gonna be, like, moving product, right?

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It's a different skill set than creating the sort of, like, food essay and stuff like this. If you gotta sell pans, you gotta sell pans. Like, let's be real here.

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Yeah, and then there's gonna be sites that sell pans better than others.

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So I think to your original question, there are ways that you can enable affiliate and performance marketing through your core content operation, right?

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When you're previewing the game or when you're doing the live blog or when you're telling people where to watch and leveraging search, you know, there are ways to enable conversion within that particular piece of content if you're smart about it.

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It's not gonna be through the three hundred by two fifty, I can promise you that. It's gonna come through a layer of data science. It's gonna come from semantic tools and products within the page.

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It's gonna come from the recommendations that you can make to that individual if it's contextual, right? But I would say that's how you can impact performance marketing inside of your core content offering.

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Then you also have to leverage the strength of your URL, right? So for instance, I mean, Sporting News has the benefit of the fact that it's been around a long time.

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You know, we drive a ton of traffic through search-And you have to find other categories within search

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that you can be competitive in and utilize the competitiveness and the richness of your URL to drive content against that URL that also can work for performance, right?

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So I would say inside of our business, we're doing both right now.

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The content team is creating the type of content that they want to create to cover what's going on in sports, and we're integrating the right tools on a case-by-case basis to drive performance marketing inside of that business.

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However, at the end of the day, we're also driving traditional advertising a-associated with those pieces of content as well.

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There is also a content team that focuses on building content specifically for performance marketing, and the same guys that are looking at SEM rush and what's going on in search and figuring out how we program against this new trending injury for Mary Rogers are the same guys that are looking at the new TVs that are coming out that people can watch live sports on.

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What's a new betting service in Ohio? What's a new OTT service that's broadcasting Bundesliga in Germany? We have to be able to do both, and I'm not saying it's the same editor in each instance.

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So explain that a little bit more. So you have, like, different teams for different purposes.

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Like, so there's performance marketing content team versus- The, the traditional content team also has a performance marketing KPI, right? Yeah.

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And then we also have separate resources that we utilize for performance marketing on a content specific basis. Because there are certain elements like our NBA team, they gotta cover the NBA.

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You may or may not know this, right, but we run nba.com outside the US.

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So when you go to nba.com in Canada, Australia, Thailand, Latin America, you know, Spain, a, a ton of markets, that content is being created by our team.

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And when you actually go to nba.com, it redirects you to sportingnews.com NBA in most of those markets.

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So our NBA content team has to build the best possible content for everything that's going on around the NBA all day long, every day, sometimes with a Australian perspective, because they have players in the league, and sometimes just around the game as a whole.

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Now, should that team also be responsible for driving the business relationships that we have, whether it's a bookmaker in Australia who's the official partner of the NBA tab, how do we generate customers for them?

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The official broadcast partner for the NBA in a bunch of those markets needs subscribers, right?

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So there are elements inside of their content strategy that will indirectly impact the KPIs that we have for those business partners. And then you have a separate group.

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I'm not saying it's as robust, 'cause, you know, obviously in Sporting News we have about a hundred content people in the business. Not every single one of them works on performance marketing.

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But, you know, you ne-also need to supplement that team with people who are just focused on building performance marketing related content, uh, and taking advantage of the same trends and the same searches that we're doing for traditional sports, but doing it in a different way.

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If you're not willing to do both, you're only gonna capture a small amount of value. Got it.

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So that latter team, performance marketing focus, is-- that's a lot of, like, SEO optimized content or- It's SEO optimized content. It's definitely what you would argue may be more commercially focused content.

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I mean, you've gone to sites where the top ten restaurants in New York- Yeah, I- And the top ten of this- I know... and the top ten of that. We're not- Well, I'm not squeamish. I know. [chuckles] I'm a grown-up here.

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I know, I know. Yeah. I mean, there are elements of that, but for us it's- Look, I searched what-- who was, who was showing the, uh, Eagles Vikings game- There you go... and I, I saw. I, I was in the SEO fighting pit.

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That's right. And so- So I, I get how it goes. What's- I always like to see the brands that I don't expect- Huh... in those kind of search, like Rolling Stones.

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Whoever's doing, like- So we're, we're all, we're all doing it now... whoever's doing the Penske thing, they pop on, like, things that have- Penske, Penske is really good at search. They have a really good search team.

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But then I guess that's the point though, right?

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If I also think that the offers that we're going to surface to our users that are on the back of business relationships we've done with betting company X, Y, Z or with OTT partner ABC or with e-commerce partner JKL, have to be a byproduct of, A, where did that user come to us from, right?

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What did they come to the site for? What does their scroll depth traditionally look like if we've seen this person before? How long are they gonna spend-- Are they just gonna come one page in, one page out from social?

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Because I'll tell you, if they are, that's an ad deal. That's not a performance deal. I'm not getting that person to buy anything, right?

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So you have to really take a step back and actually understand the right way to do it. When someone comes in and they're actually, it's Brian, and he wants to know where to watch the game, well, guess what?

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We're not only gonna tell you where to watch it, we're gonna show you three different options of partners that we have lined up that you can subscribe to to be able to watch the game right now. We'd be foolish not to.

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Yeah, exactly. So sort of begs the obvious question, um- Let's hear it... I did a webinar on this the other day about generative AI and search. Well, I mean, look, eighty-two percent search to sportingnews.com.

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So search is obviously a big part of the model. I covered search from the earliest days, and honestly, it's been a fairly stable market. And, you know, publishers like to complain about it, but it worked real well.

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You know, Google took its piece off the back end with the ad serving [chuckles] and its different ad tech tools, but they directed traffic. It was reliable distribution. It was great margin.

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And now Microsoft's gotta screw it all up. Yeah. So, so what is... I mean, are-- just this, like, uh, eighty-two percent coming from search, maybe it's a little bit lower.

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You'll say it's like sixty percent, but like- No, it's, uh, you're, you're right around what we see. Okay. You know what I will say, I, I, I'll give you maybe something anecdotally. It's kind of a...

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I have a high school son, right?

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And he gets assigned a paper from his teacher, and he can easily now go to ChatGPT, and he could enter in all the information that his teacher is looking for, and basically it will spit out a paper that he can leverage and probably to a certain extent, maybe even submit.

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Now, there's downside in that. The content lacks originality. It's the same paper that the other twenty kids in the class [chuckles] are gonna submit because they're gonna use the same tools.

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It's always a numbered list, I noticed.

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[laughs] So when I think about, you know, I don't think search is going awayNumber one, I still think that organic search- You mean the search experience, ex-the search experience as we have it now, and like- The, yeah...

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search as- I think there's so much long tail value in search that I, I just don't see going away. But I do believe as much as AI is gonna change search, I think AI is gonna change the newsroom.

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And because if you're sitting in a newsroom working on a content team, and you are not leveraging tools like GPT and others for reference ability and data points, and you're not publishing a piece of content from ChatGPT, because if every piece of content on the internet all of a sudden becomes written by a robot, no one's gonna be all that interested to read content anymore.

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You know, so I think for us, it's leaning into taking advantage of those tools as much as possible. It's continuing to do what we do very well.

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If you ask the people at Google, they'll still tell you that if content lacks originality, and if it's...

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There will be categories that are gonna become totally vanilla, listings and various other things like you just mentioned. But we do 13 different languages.

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If you take the same article we did around the NBA in English, and you just republish it in Thai in another market, it don't work. Google penalizes you. It needs to be rewritten and reacclimated for that market.

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It won't even pop in search if you're doing duplicative content, just because you consider it a different language.

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So I think that the change in search and what's going on with Microsoft, and just generally what's going on with AI as a whole, to me, it's about how you take those changes and make them part of your business and your products going forward, more so than just get scared about it and worry about the traffic declining.

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We've actually seen search traffic grow rather than decline, right? So yeah, I, I believe that AI will change certain categories, categories where it's listing-based or data-driven or otherwise.

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But I still think that when you're providing an int- an interesting slant on a story or an interesting perspective, and you have a strong brand and that brand has strong URL density, you are still gonna significantly benefit from search.

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You still expect, like, as much search traffic, or you think it'll decline but it'll still be pretty, you know, you just manage around? I think it... You know, right now it's not declining.

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Maybe it's a by-product of the fact that we've- Yeah... launched a bunch of new additions and new markets, so search for us is still up as a whole, right?

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I think that you still need to have a diversified group of traffic partners. Yeah. I mean, the reality is, outside of a few publishers on the internet, the homepage is pretty much dead.

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I think we all agree on that, I hope. You know, the homepage is your app. Yeah. It's not your homepage anymore. People don't go to homepages.

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They come into the sites, most sites on the internet through some kinda side door. They read an interesting thing on Facebook or Instagram, or they saw something in search or Flipboard or otherwise.

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There's not a lot of digital media businesses that generate huge volumes of homepage traffic.

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So you have to find organic sources of traffic, not paid media on Facebook, that still bring the type of user that you're looking for.

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Obviously, for us, search plays a significant role in that, but I think that, you know, if we pick up another five, seven, ten percent from new areas that continue to grow, that's the risk mitigation.

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We're not talking about search dropping by 50%. I don't see that happening. So one other topic I wanted to discuss with you was the Penn-Barstool- Mm-hmm... arrangement that ended, right?

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And I think a lot of people looked at it as, you know, high fives for Portnoy. He traded the asset twice and stuff. One thing underneath that was that it didn't work, right?

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Like, the bet, quote-unquote bet, that Penn made on Barstool didn't work. And so I think the easiest thing is just to point at the fact that it led to problems with the regulators and stuff.

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Let's just leave that to a side, okay. But, like, is it possible also that a lot of the suppositions about this combining of sports media with being, like, just were misplaced?

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Because if it worked, they would, they would've put up with the headaches. Yeah. I have a bit of a different opinion- Okay... w- uh, the Penn and Barstool, you know, perspective.

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And obviously, the people at Barstool would be able to speak to it. This is just this's opinion. Yeah, yeah. It's a podcast. Okay. So number one, I don't think it didn't work.

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I actually think there were certain markets that worked pretty well. Okay.

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I don't think they would've stood up Barstool, you know, sports book and lounges and various other things where Barstool people get together if it totally didn't work.

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So I actually think that there was, number one, Penn's business doesn't work. At the end of the day, FanDuel and DraftKings have 50-plus percent of the market. Yeah. What do we define as actually working?

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If Penn got to 12%, does it work? They're not getting to 40, especially when you have two of the biggest businesses that are driving the largest share of volume actually working pretty well.

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So I think for what it was intended to do, it actually may have worked. However, there's a lot of caveats to that. Okay. The first one being Barstool should never be owned by a public company.

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That I think [chuckles] we can all agree on. [chuckles] Okay. And that is definitely- I don't know anyone who would disagree with that, including Barstool. [chuckles] Okay.

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So a big part of the reasons why you see the breakup happen there was not based on the business performance in Chicago. There are certain markets where that marketing tie-up actually worked pretty well.

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But when the New York regulators say, "We're not approving you in New York because of Barstool," the first thing you do is you find a different brand, because you cannot afford to not be in a market because they're worried about what they may say or what actually may happen or what may come out in the news.

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So A, I think ESPN is the safer play. I don't think that all of a sudden they're gonna generate a million customers because they put ESPN's brand on it. I don- I don't believe in that either.

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They're battling against guys with bigger market share than them right now, and there's a big part of Penn's business model that is being challenged by the fact that you have two much bigger organizations that have much bigger footprints than Penn does, so they have to make a move.

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So number one, I think there are certain markets it worked.

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Number two, Barstool should never be owned by a public company because they create too much volatility every single day, and public companies want less noise, not more.And the third thing is, I actually do think the regulator piece was a real thing.

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Yeah. Because it's too important to tend to be in certain states, and if certain states are saying they won't approve because of X, Y, and Z, you have to pivot off of that right away. So how do you break out the markets?

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'Cause you have the ESPNs and you have Yahoo Sports, they-- I think they just, I was seeing, like, putting their branding on some Vegas, you know, sports book, and they're straight branding deals, it seems like, that are going on.

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Like, how do you break it down?

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Because there's branding deals, there's people, it seems like you, who want to do more affiliate, but also maybe take, like, more of- We also have our own direct-to-consumer, you know, player props business, right?

320
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So we can get into that at a, at a later stage. Yeah. There's branding deals, which is the equivalent of white labeling a product and putting somebody else's brand on it, right? Yeah. I already own a sports book.

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No one knows what the hell PointsBet is, so instead of calling it PointsBet, I'm gonna call it SI Bet. Yeah.

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And maybe on a b- on the byproduct is that is, like, people are like, "Oh, that's pretty freaking credible, man. I know SI, you know, this must be a pretty good product."

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[laughs] I'm not so sure that any of that actually really works. There's marketing partnerships all over the board. CBS has a big one, Yahoo has a big one, ESPN still does, Bleacher has one, SB Nation has one.

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Every publishing partner has a myriad of marketing partnerships in the sports betting category. Some of them have gotten so big that they become naming rights deals.

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I don't look at ESPN Bet being any different than the Valley Sports Network, right? You know, it's-- they're putting their- Yeah.

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Now, again, they're attracting a lot of cash, and same as the RSMs did, to effectively take a distribution footprint and take users that they own and be able to put a brand front and center that people already respect.

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I will tell you, if I'm a FanDuel user, and I bet thousands of dollars with them, just because I like ESPN's content and I read it all the time, I'm actually one of the users, I'm not changing accounts because there's ESPN Bet.

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You kidding me? You know, the chances of that happening are not, they're not even ten percent, they're zero. Now, I'm an ESPN+ subscriber.

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When I renew my subscription, if I get a hundred dollars into my ESPN Bet account, I'll probably play around with that.

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It depends on what levers ESPN chooses to unlock to be able to drive customer acquisition will be the difference maker in that working or not.

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The pure slapping your logo on top of an already existing white label sports book is not gonna change their business. Got it.

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And final thing, and then I'll let you go, is just about Superdraft, because it was, like, part of this, there was an investment going in. It's not gambling exactly, but explain the Superdraft angle.

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I was interested by that. Yeah. So I'm a pretty financially motivated individual.

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I like to see things pencil out, and I wanna see how, if I generate customer A for XYZ sports book B, that's gonna generate the business this much money.

335
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And when you do the mechanics, and you look at it, you're like, "We actually are pretty good at driving traffic."

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I mean, obviously, if I'm talking about it as being our business going forward, we better be good at it, right? Yeah. So we're really good at bringing people from TSN into first-time depositors or into new customers.

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The value that we are extracting in the US sports book world was a certain amount of money per person that we drove. I'm doing the math, and this doesn't make sense anymore.

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There's no big marketing deal that underpins this, and if I do the best job possible, I'm gonna make X. What if I just drove those customers into my own product?

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The average customer plays this much, they spend this much, they win this much, they lose this much.

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If you're good at driving traffic and getting people to third-party experiences, a byproduct of that will be, in some areas, Brian, we're gonna choose to be the tip of the spear, too.

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I'm not saying Kayak should go launch their own airline. [laughs] But I do think that there are certain areas that if you become really proficient at this, you're gonna be like, "You know what?" Yeah.

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"Why don't we have our own OTT service in Brazil? Why don't we have our own, you know, DFS business in the US?" So I think that for us it was just a, it was an educated bet.

343
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So I think, I think Kayak actually closed it, but they, they did have a Kayak hotel. They had one in Miami. There you go. Yeah.

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I just think that we got good enough at providing a certain service to a third party, and the mechanics of the model in the US are, to your point from earlier, aren't quite broken at the moment in terms of the exchange in value, and we were just like, "You know what?

345
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We're probably better off just sending this traffic to ourselves." There's a number of great products out there. We got to know the Superdraft team. They have a nice footprint.

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They have a user base we felt like we could grow. We know the props business very well, and we know data. Let's go for this ourselves. Mm-hmm.

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I'd rather do that than just send traffic and not get commensurate value for it. Got it. Awesome. Rich, thank you so much for doing it. No, man. Great to see you. Thank you very much for your time as well.

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Glad to know that you're in Miami. We need to get together in a non-podcast setting. Exactly. Really appreciate you doing this. All right, man. Be well.

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[upbeat music] Thanks for listening, and thank you to Jay Sparks for producing the Rebooting show. If you have a podcast that you're considering making, you should check out Podhelp us and what Jay can do for you.

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Go to podhelp.us.

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