THE START UP TAK­ING ON ESPN

HOW THE BROTH­ERS BE­HIND THE SCRAPPY STARTUP FLOS­PORTS ARE GO­ING BIG BY GO­ING SMALL. FOR NOW, AT LEAST

Inc. (USA) - - FRONT PAGE - BY TOM FOSTER

At least, that’s the look in his eyes, a barely con­tained an­i­mal fe­roc­ity. It’s not clear whether he combed his hair this morn­ing, he cer­tainly didn’t shave, and he has the kind of fixed stare and clenched jaw that you see on box­ers when they meet in the mid­dle of the ring be­fore the open­ing bell. This, it turns out, is his de­fault ex­pres­sion.

What has Martin so fired up be­gan in May 2006, when he burst into his lit­tle brother Mark’s apart­ment in Austin at 2 a.m., af­ter driv­ing 1,100 miles, bran­dish­ing a pro­to­type of a web­site that would cover wrestling and run­ning—the broth­ers’ re­spec­tive col­le­giate sports—with the same ob­ses­sive de­tail and drama that ESPN be­stows on the NFL and NBA. Eight months later, they had their first glim­mer of suc­cess, when Mark cap­tured on video, in early-morn­ing fog from the back of a noisy pickup truck, the record-break­ing half-marathon in Houston by a run­ner named Ryan Hall, who be­came a star that day thanks to that video. Despite the de­cid­edly lo-fi footage—big blocks of dig­i­tal fuzz, over­whelm­ing en­gine noise— within an hour of pub­lish­ing, the Flore­a­nis had to scram­ble to add more band­width to han­dle all the traf­fic. Die-hard track geeks, says Mark, “never had any­thing like that.”

Wider suc­cess came slowly, but to­day the broth­ers’ Austin­based com­pany, FloS­ports, is one of the most sur­pris­ing suc­cesses in the rapidly shift­ing sports-me­dia land­scape. The com­pany—Martin is CEO; Mark, who’s lankier and eas­ier with a smile, is COO—now has 256 em­ploy­ees and runs

25 web video chan­nels. There’s FloTrack, FloWrestling, FloCheer, FloGrap­pling (for Brazil­ian jiu jitsu)— even FloMarch­ing and FloDance. In­dus­try gi­ant ESPN is bleed­ing sub­scribers at an alarm­ing rate (re­port­edly av­er­ag­ing more than 300,000 per month); FloS­ports’ sub­scrip­tions (which cur­rently cost $150 an­nu­ally) dou­bled in the past year, and it’s cur­rently adding 30,000 sub­scribers each month. Its back­ers in­clude Ber­tels­mann, Dis­cov­ery Com­mu­ni­ca­tions, and World Wrestling En­ter­tain­ment.

FloS­ports, of course, is nowhere near the size of ESPN— the $12 bil­lion gi­ant has sev­eral hun­dred times more sub­scribers. But while ESPN has long made most of its money from the fees that ca­ble com­pa­nies pay it, FloS­ports sells di­rectly to con­sumers over the in­ter­net, giv­ing it a trove of rich user data that TV net­works, which don’t broad­cast di­rectly to their cus­tomers, can’t match.

Net­flix and Ama­zon have made great head­way trans­form­ing tele­vi­sion’s scripted shows. But in sports, the bat­tle is just be­gin­ning, largely be­cause the TV rights to most of the ma­jor league sports are tied up in long-term deals. As Martin sees it, Flo is con­duct­ing a sneak at­tack on the in­dus­try from be­low. In the next decade, as the likes of ESPN pro­tect their ex­ist­ing con­tracts with ma­jor league sports, Flo aims to get ever stronger at do­ing things the new way and, the Flore­a­nis hope, to ul­ti­mately com­pete for those rights. “ESPN’s not do­ing enough to dis­rupt them­selves,” Martin says. “I don’t think they’re go­ing to be around in 20 years.”

That’s de­bat­able, to put it mildly, and ESPN is now in­vest­ing big in stream­ing tech­nol­ogy. Martin can come off as laugh­ably over­con­fi­dent (though you might not want to say that to his face). But there’s no de­bat­ing that he and his brother are on to some­thing big.

MARTIN, WHO’S 37, wres­tled at Cal Poly San Luis Obispo, and his brother was an All-Amer­ica dis­tance run­ner at the Univer­sity of Texas at Austin—their sports of choice apt re­flec­tions of their per­son­al­i­ties. Ac­cord­ing to David Al­tou­nian, an early ad­viser to FloS­ports, “Mark will be like, ‘We’re go­ing to take it long and slow,’ and Martin is like, ‘No! I’m break­ing down the build­ing!’ ”

The broth­ers have been this way since their days as the youngest of five chil­dren in the Chicago sub­urb of Park Ridge. Their fa­ther, a hard-nosed Ital­ian im­mi­grant, owned a com­pany that man­u­fac­tured can­dy­mak­ing equip­ment, and the boys grew up work­ing in the fam­ily busi­ness. Mark dis­cov­ered run­ning early—it was one of the only ways he could com­pete with his hy­per­com­pet­i­tive older brother—but Martin didn’t dis­cover wrestling un­til high school. “I fell in love with the sport,” he says, “when I lost my very first match. I could see there were cer­tain times in the match where I had made progress—lit­tle bits of suc­cess within the loss.” So he came away em­pow­ered. “Wrestling,” he says, “is a sport that ex­poses all your weak­nesses”—which is painful at first but helps you win in the long run. While Martin never be­came an elite wres-

tler, he was good enough to start for his Di­vi­sion I univer­sity.

Mark walked on to the track team at UT and earned a full ride af­ter two years of im­press­ing the coaches with his stamina. “I wasn’t as good as ev­ery­one else on the team,” he says, “so I fig­ured I’d just train harder. The coach was like, ‘If this guy doesn’t break, he might be good.’ And I fig­ured, if I break, at least I tried.” He ran 80 to 100 miles ev­ery week and built strict sleep­ing, eat­ing, and stretch­ing sched­ules, in­tent on win­ning a na­tional cham­pi­onship. But he didn’t, and needed some way to chan­nel his en­ergy. Luck­ily, this was right around the time Martin showed up at 2 a.m.

Martin had gone back to Chicago af­ter col­lege to work for their fa­ther’s busi­ness, with the idea that he’d one day take it over. But he tried to force through big changes quickly, and didn’t do nearly enough to bring peo­ple around to his ideas. Even­tu­ally, his dad had a sug­ges­tion: “Why don’t you just go do your own thing?”

That was all Martin needed to hear. He’d pre­vi­ously spent a cou­ple of months on the road with a friend who was writ­ing a book about wrestling, and he’d helped in­ter­view some leg­ends of the sport. They’d turned up the sort of sto­ries that you might see dur­ing the Olympics, when Bob Costas cuts to a stir­ring pro­file of sac­ri­fice and hard­ship in some ob­scure ru­ral ham­let. Come to think of it, Martin mused, the Olympics were pretty much the only time any­one saw such sto­ries about his fa­vorite sport—or many other sports. What if kids could be ex­posed to more of these sto­ries? What if they could fol­low such sports more closely—not just the hand­ful of key matches that got the full ESPN treat­ment?

“There was no rea­son, to me, that wrestling should be any less of a sport than foot­ball,” Martin says. “It’s an ex­cit­ing sport when you know the story lines, know who’s who in the matchups, un­der­stand the un­der­ly­ing as­pects of what’s go­ing on.” He knew Mark felt the same way about track, so he per­suaded a young engi­neer at his dad’s com­pany to help cre­ate the web­site. As soon as he had a pro­to­type, he climbed in his old Mazda and headed south.

“It was 2 in the morn­ing when he got to my apart­ment. My room­mates and I were all asleep. He stunk like B.O.,” Mark re­mem­bers. But Martin was on fire and couldn’t wait for day­light to make the pitch. “Hey, man, I’m do­ing this for wrestling, and I want you to do it for track,” he barked af­ter he’d shown Mark a video of a fa­mous wrestling coach on his cheap web­site. “This ap­plies to a whole bunch of ver­ti­cals, and we can do this and re­ally change the sports me­dia world.”

“OK, I’ll do it,” Mark grum­bled. “But right now I’m tired and you’re em­bar­rass­ing me. Go to bed!”

They raised $10,000 from friends and fam­ily, bought a used Ford Econo­line van they found on Craigslist for $3,000, nick­named it the White Pearl—and saw it break down, with smoke bil­low­ing out of its en­gine com­part­ment, half­way through its in­au­gu­ral trip. Af­ter sink­ing $1,000 into re­pairs, they lived a scrappy, hand-to-mouth ex­is­tence for the next few years, tak­ing turns driv­ing the White Pearl around the coun­try to film wrestling and track events, teach­ing them­selves play-by-play, edit­ing, mar­ket­ing— ev­ery­thing, re­ally. When Hall set his half-marathon record and traf­fic soared on Mark’s janky video, it proved the the­sis. But the hard part wasn’t over. It wouldn’t be for a long time.

SPORTS, AS EVEN THE MOST CA­SUAL FAN KNOWS, is best con­sumed live, ab­sorb­ing view­ers’ real-time at­ten­tion in a way that lit­tle else does. That’s why the ma­jor leagues keep rais­ing their fees to broad­cast their big­gest games—ESPN pays $1.9 bil­lion per year for Mon­day Night Foot­ball— and why ESPN keeps rais­ing the fees ca­ble com­pa­nies must pay to carry it. In turn, the roughly 90 mil­lion ca­ble sub­scribers who get ESPN pay around $8 per month for it—five or 10 times higher than what most other chan­nels charge. Those fees bring ESPN an es­ti­mated $8 bil­lion per year in rev­enue.

But ESPN, which de­clined to com­ment on the record, has shed more than 12 mil­lion sub­scribers since its peak in 2011— and a re­cent sur­vey by BTIG Re­search showed that 56 per­cent of sub­scribers would drop ESPN if it meant sav­ing that $8 per month. Mean­while, ca­ble com­pa­nies now of­fer “skinny bun­dles” of far fewer net­works, for cheaper prices. And the costs of ESPN’s hard-won broad­cast rights aren’t fall­ing: Ama­zon, Face­book, and Twit­ter are all ex­per­i­ment­ing with stream­ing sports, and more bid­ders can mean the leagues could keep push­ing up prices. ESPN’s big­gest bul­wark is that many of its most im­por­tant TV con­tracts don’t ex­pire for sev­eral years. But that could be a trap. In those years, the world will con­tinue to tilt away from ca­ble TV—but the net­work’s deals with the ca­ble and satel­lite com­pa­nies pre­vent it from stream­ing its big­gest games.

Mean­while, a TV chan­nel has only 24 hours a day to fill, so it has to fo­cus on the big­gest events—ma­jor sports, and maybe the cham­pi­onships in smaller sports. FloS­ports can air as

much as it can film, and thus al­low view­ers to dive deep. The au­di­ences are smaller, of course, but the broth­ers bet that all those niches would add up to a sig­nif­i­cant busi­ness.

In the com­pany’s first years, though, it didn’t. “Mavens in the sports loved us,” Martin re­mem­bers, an old ag­i­ta­tion still sim­mer­ing, “but we were just sell­ing ads against the videos, and it be­came a small lifestyle busi­ness.” In 2011, the Flore­a­nis hired an ex­pe­ri­enced ex­ec­u­tive to be CEO, who dou­bled down on the ad strat­egy. They’d ex­panded into swim­ming and gym­nas­tics, but didn’t make enough money to grow fur­ther and even shut down swim­ming for a few years.

In 2012—six years in—rev­enue barely topped $1 mil­lion, and Martin was frus­trated. “We were starv­ing to fund growth, pour­ing ev­ery dol­lar back into the com­pany, and it just wasn’t what we’d set out to cre­ate,” he says. He set a mod­est goal of cov­er­ing pay­roll through sub­scrip­tions. For 18 months, Martin worked alone— on what would sell, what to charge, en­tic­ing peo­ple to take the leap. “No­body was do­ing sub­scrip­tions on­line at the time,” he re­calls. “It was re­ally dis­missed in­ter­nally.”

By mid-2012, sub­scrip­tions were bring­ing in 20 per­cent of the com­pany’s rev­enue—promis­ing, but the dol­lars were still tiny. The broth­ers hud­dled and de­cided to ei­ther fold or go all-in on sub­scrip­tions. They cut their CEO loose. “It was like get­ting on the mat with the big guy when you don’t know how to wres­tle,” Martin says. “You’re go­ing to get your ass kicked, but then you’re go­ing to get bet­ter.”

Rev­enue dou­bled each of the next two years. In mid-2014, they raised $8 mil­lion. Whereas the com­pany had stalled out at three chan­nels for years, it now be­gan adding new ver­ti­cals ag­gres­sively. Flo says it will bring in tens of mil­lions in rev­enue this year and dou­ble its sub­scrip­tion rev­enue. Mean­while, in­vestors poured in another $21 mil­lion last year. Its over­all monthly au­di­ence is about eight mil­lion, and 80 per­cent of its con­tent is free for ev­ery­one. Live events are be­hind the pay­wall, along with tech­nique tu­to­ri­als and longer-form doc­u­men­taries. Its fast-grow­ing sub­scrip­tions make up about two-thirds of rev­enue, and, iron­i­cally, the com­pany now sees ads as a ma­jor op­por­tu­nity; Quicken Loans and T-Mobile have signed on. THIS JUNE 11, IN A 7,900-SEAT arena in Lin­coln, Ne­braska, the lights went down, a cloud of smoke bil­lowed up, dra­matic walk­out mu­sic swelled, and an an­nouncer bel­lowed the names of Jor­dan Bur­roughs and Kyle Dake. Two chis­eled ath­letes emerged onto a wrestling mat for the third of a best- of-three se­ries that had been hyped for weeks on FloWrestling as one of the big­gest and most dra­matic matchups of this year’s USA Wrestling Freestyle World Team Tri­als, which de­ter­mines which eight Amer­i­can wrestlers will rep­re­sent their coun­try in the world cham­pi­onships. Bur­roughs was the sto­ry­line’s veteran champ—but had he aged out of his prime?—and Dake the hun­gry chal­lenger. Af­ter two matches, Bur­roughs and Dake were tied. Would this fi­nal match pass the torch?

Around the arena, a FloWrestling crew of 17 peo­ple pro­duced live video and news sto­ries, with two on-air com­men­ta­tors, five cam­eras, and an 18-foot jib crane for bird’s-eye footage. Flo won’t share view­er­ship data but says this year’s cover­age racked up four times as many views as the last one. And the in-per­son au­di­ence was well over twice as large.

“When Flo en­tered the mar­ket and made a le­git­i­mate com­mit­ment to cre­ate this plat­form that pro­moted ath­letes and events, it re­ally started to change the cul­ture, to draw at­ten­tion to wrestling and de­velop a fol­low­ing,” says Rich Ben­der, the ex­ec­u­tive di­rec­tor of USA Wrestling, the sport’s gov­ern­ing body. “Peo­ple could see matches, know what [for­mer Olympic cham­pion] John Smith had for break­fast, how [leg­endary Penn State coach] Cael Sander­son or­ga­nizes his prac­tices.” That added vis­i­bil­ity and pol­ish—what Ben­der calls its “for-real ESPN-level pro­duc­tion qual­ity”—has di­rectly af­fected USA Wrestling’s for­tunes. Stu­dent ath­letes are in­creas­ingly be­ing pushed to spe­cial­ize in one sport, and wrestling’s high school par­tic­i­pa­tion rate has flat­tened or even dipped—yet USA Wrestling’s bud­get has more than tripled since 2000, and last year it signed its first spon­sor­ship deal with Nike.

Flo, thanks to the viewer data it col­lects, can con­tin­u­ally tweak its ap­proach—even in real time dur­ing an event. “That’s one of the coolest things,” says Ben­der. “Our de­ci­sions with Flo re­volve around real hard data: how long peo­ple watch, what they’re most in­ter­ested in, what they’re most will­ing to pay for. We use that in­for­ma­tion to help shape our events.”

Ca­ble and broad­cast net­works, hav­ing lit­tle data be­sides Nielsen rat­ings and au­di­ence sur­veys, can’t of­fer that kind of pre­cise mea­sure­ment and rapid re­sponse. But, Martin says, “with each live event, we get more data, we un­der­stand more how to pro­duce the right con­tent and ef­fec­tively mon­e­tize the event.” As the com­pany gets bet­ter at that, and users get com-

fort­able stream­ing sports, Martin hopes, Flo will be well-po­si­tioned as a me­dia part­ner when big­ger rights deals come up.

“If we do those things bet­ter than any­one else, yeah, we can do an NFL game,” Martin says. “It’s not go­ing to be next year, but it could be hap­pen­ing in three years.” Mark, seated next to his sib­ling, flashes a know­ing smile. “Maybe five years,” he of­fers help­fully.

MARTIN FLOREANI sits on­stage at the Times Cen­ter, a con­fer­ence venue at the Man­hat­tan head­quar­ters of The New York Times, for this sum­mer’s Hash­tag Sports, an an­nual con­fer­ence about the fu­ture of sports me­dia. For three days, hundreds of ex­ec­u­tives from ESPN, NBC, the NFL, the NHL, the NBA, and ev­ery other league and me­dia out­let and sports in­vest­ment group mill around, puz­zling over the changes rip­pling through­out the in­dus­try. This year the buzz term is OTT, in­dus­try short­hand for “over the top,” which means video de­liv­ered di­rectly to con­sumers over the in­ter­net—FloS­ports, in other words.

Floreani, stone­faced and wear­ing jeans and a T-shirt in a room full of shiny TV tal­ent, is about as sub­tle as you’d ex­pect: “Let’s say [ESPN] had the DNA and they said, ‘You know what? We want to dis­rupt our­selves. We’re gonna eat shit for three or four years, but we’re gonna be around 10 to 15 years from now’—I don’t even know if they would be able to do it.”

It’s no won­der that OTT is on ev­ery­one’s mind. In 2016, Ma­jor League Base­ball’s stream­ing ser­vice, MLB.TV, was the fourth-most pop­u­lar stream­ing ser­vice in the U.S., af­ter Net­flix, Hulu, and Ama­zon Prime Video, ac­cord­ing to re­search firm Parks As­so­ciates. Flo in­vestor World Wrestling En­ter­tain­ment is fifth. Last year, Twit­ter streamed 10 NFL games that also aired on TV; this year, Ama­zon will. Those deals are lit­tle more than toes in the wa­ter, but the thought of Ama­zon or Face­book get­ting se­ri­ous about sports keeps com­ing up among con­fer­ence go­ers.

Or, as Floreani de­clares to his Hash­tag au­di­ence, “when I think about our com­peti­tors in five, 10, 15 years, I don’t think about ESPN or any of the tra­di­tional broad­cast­ers. I’m think­ing about Ama­zon, I’m think­ing about Face­book, I’m think­ing about Google. Why? Be­cause those com­pa­nies know how to use and drive their busi­nesses from data.”

Ei­ther way, it’s one thing to give cheer com­pe­ti­tions and wrestling tour­na­ments a big boost, and quite another to de­liver the au­di­ence and ex­pe­ri­ence that the NFL de­mands— not to men­tion have the dol­lars re­quired to com­pete in that realm. The Flore­a­nis ar­gue that they’re “eat­ing their way up” to larger and larger events, and that the re­ally ex­pen­sive games won’t be­come avail­able for a nearly a decade, by which time, they say, Flo will be a much more pow­er­ful chal­lenger— the Kyle Dake to ESPN’s Jor­dan Bur­roughs.

Of course, ESPN isn’t sit­ting still. Its par­ent com­pany, Dis­ney, re­cently spent more than $2.5 bil­lion for a con­trol­ling stake in BAMTech, a stream­ing-me­dia com­pany that spun out of Ma­jor League Base­ball, with the in­ten­tion of us­ing it to start an ESPN of­fer­ing next year. CBS also an­nounced this sum­mer that it plans to launch a sports-stream­ing ser­vice. “FloS­ports will likely never beat ESPN,” ad­mits Al­tou­nian, FloS­ports’ early ad­viser. “But can they own [niche] sports? Ab­so­lutely. I think they can be the 800-pound go­rilla in that mar­ket, which is a big niche. Not only are those fans pas­sion­ate, but they re­gen­er­ate. Ev­ery year, more kids come up into those sports.”

Still, one week af­ter the Hash­tag con­fer­ence, FloS­ports an­nounced the launch­ing of FloFoot­ball, which will air mostly semipro and high school games, seek­ing to build cred­i­bil­ity and even­tu­ally get the big games. And one week af­ter that, Flo an­nounced that its 18-month- old bas­ket­ball chan­nel, FloHoops, had nabbed the rights to the over­seas tours of last sea­son’s top two NCAA bas­ket­ball teams, the Ari­zona Wild­cats and the Kansas Jay­hawks, and sev­eral pre­sea­son NCAA games. It wrested those rights from CBS.

Small steps? Sure. But they re­call a dif­fer­ent up­start’s rise. In 1979, a slow-pitch soft­ball game aired on a ca­ble chan­nel’s first night of pro­gram­ming. Years of bowl­ing tour­na­ments and high­light reels fol­lowed. It hardly added up to some­thing that looked like a rev­o­lu­tion. Un­til it did. Per­haps you’ve heard of that quixotic lit­tle com­pany. It’s called ESPN.

“WE WERE STARV­ING TO FUND GROWTH, AND IT WASN’T WHAT WE’D SET OUT TO CRE­ATE.” SO THE COM­PANY TOOK A HUGE RISK.

IL­LUS­TRA­TION BY YANN KEBBI

Among FloS­ports’ 25 chan­nels are (from left) FloWrestling, FloCheer (cheer­lead­ing), FloTrack, and FloElite (com­pet­i­tive weightlift­ing).

BOUNC­ING SOME IDEAS AROUND A fairly typ­i­cal scene at FloS­ports’ head­quar­ters, which is lo­cated in a still-funky East Austin neigh­bor­hood in what was formerly an au­to­mo­tive air-con­di­tion­ing re­pair shop.

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