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Wednesday, February 06, 2008
 
Potential Sale of Yahoo may have Huge Implications in the Market for Hosting Fantasy Sports Games

On Friday Febuary 1, Microsoft Corporation made a $44.6 billion hostile bid to take over Yahoo. Since the bid was announced, Yahoo bankers have begun to seek rival bids to acquire the Yahoo business either in its entirety or in subparts.

While most antitrust experts have discussed potential hurdles to either a Microsoft or Google acquisition of Yahoo based on purported anticompetitive effects in search engine markets, it is also worth noting the potential hurdles to such a transaction in fantasy-sports hosting markets.

Speaking purely from industry expertise, it seems that Yahoo and CBS Sports (Sportsline) share category leadership in hosting fantasy sports games, with ESPN.com a close third in the category. Amongst these three main competitors, only Yahoo has regularly offered free hosting services for private leagues (with additional features available at an add-on cost). CBS Sports offers a private-league hosting feature through its Fantasy Baseball Commissioner product for $129.95. Meanwhile, ESPN.com has varied its strategy from year-to-year based on marketplace trends.

A potential Microsoft or Google acquisition of Yahoo, while most problematic from an antitrust perspective in the search engine market, would in itself present little-to-no concern in the market for hosting fantasy sports. However, should Yahoo instead divest its fantasy sports business to ESPN.com (as suggested by a recent New York Times article), this would likely harm consumers by signaling an end to free fantasy-sports hosting. In addition, should either Microsoft or Google seek to acquire Yahoo and then immediately divest of Yahoo's fantasy sports business to either ESPN.com or CBS Sports, substantial antitrust concerns would rightfully follow.

With that said, it is beginning to look plausible that the Federal Trade Commission and Department of Justice are not far away from looking at the unilateral and concerted effects of a horizontal merger in the fantasy sports marketplace. Who ever said Hart-Scott-Rodino compliance was boring?





6 Comments:

CBSsports.com is offering $50 off registration this year for fantasy baseball.

Check out the link here:

http://baseball.sportsline.com/splash/baseball/spln/referral?refcode=BBCA08_atpr

Blogger Michael Hayes -- 2/06/2008 10:44 AM  


It's shocking -shocking!- that a company that's bleeding money and laying people off might start charging for a service that consumers might otherwise pay for and is costly to provide.

What's next, paying for cable and satellite delivery of television signals? Pay per view movies? Subscription based access to legal databases? The nerve!

All said with tongue in cheek, of course... :) I routinely use free Yahoo services that I would hate to start paying for.

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Blogger tutekx -- 2/07/2008 4:01 AM  


This is a strange post coming from you guys. It sounds to me like you are rumor-mongering. Why do you have any reason to think Yahoo! will divest itself of this portion of its business? If anything maybe it'll improve Yahoo! fantasy sports as Microsoft developers - and marketers - get involved.

Anonymous Amos -- 2/07/2008 8:32 AM  


Amos:

It was this quote from the Febuary 4, 2008 New York Times that spurred the post: "one person involved in Yahoo’s deliberations suggested that 'the sum of the parts are worth more than the whole,' arguing that its various pieces like Yahoo Finance, for example, could be sold to a company like the News Corporation for a huge premium while Yahoo Sports could be sold to a company like ESPN."

In addition, Yahoo is a unique company is that it is involved in a wide conglomerate of businesses. While the trend in the 1980s was for private equity firms to buy several small companies and then sell them all together for more than the cost of their parts, the trend today has become for private equity shops to buy large companies, break them apart, and then sell off their pieces to where they best fit, at a great profit.

If you think from a business perspective based on core competencies, what the New York Times article seems to say makes sense -- Yahoo Sports may have its greatest value to a sports business. Because this quote comes from one of America's most highly respected papers, and cites directly to "one person involved in the Yahoo's deliberations," I feel it has to be given some weight.

Blogger Marc Edelman -- 2/07/2008 9:52 AM  


Marc, I don't doubt that the NY Times' source is at least authoritative enough to give rise to speculation. I guess it was flip of me to accuse you of rumor-mongering so I take back the accusation!

With that said, I keep reading or hearing about how many of Yahoo!'s properties might supposedly be divested. I heard on MPR that Yahoo might even outsource its search function (to Google) which would be the height of irony given that Yahoo! essentially invented search. I just wonder why Microsoft would pay so much for a stripped down Yahoo! but I guess that's an issue for another blog to cover.

Anonymous Amos -- 2/07/2008 3:50 PM  


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