Fantasy 'rights' and wrong
With NFL union set to join the effort, MLB's battle to control who offers fantasy sports to fans isn't going away. But it should.
NEW YORK (CNNMoney.com) -- When a judge ruled earlier this week that Major League Baseball and its players' union can't demand licensing rights fees from fantasy sports services, this was viewed as a victory for both the fantasy sports providers and millions of fantasy sports players.
But the sports leagues themselves could be winners if they stopped being short-sighted and opened the door to a wider range of fantasy operators, rather than just their deep-pocketed media partners.
In fantasy sports, fans chose a group of players for their "team," and compete against other "owners" to see whose team compiles the best statistics, based upon the real-world results.
The popularity of the games has led to hundreds of services, and industrywide revenue estimated to be between $150 million to $200 million, according to the Fantasy Sports Trade Association. It's also the reason why baseball and other sports leagues want to be paid for use of their statistics.
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In 2005 Major League Baseball Advance Media, the operator of MLB.com, agreed to pay the players' union $50 million over five years for the exclusive fantasy sports rights. Then it started demanding rights fees from other fantasy sports providers, and denying some the chance to offer a game.
Because of this, some major media companies that had offered games in the past stopped doing so. And one of the services who had run games for other companies, CDM Sports, was among the firms denied a license.
CDM sued, arguing that even if the players' unions and leagues could demand a license for use of the player's pictures and team logos, the players' names and statistics are part of the public domain.
On Tuesday, CDM won that case in Federal District Court, with the judge ruling that the First Amendment protected the use of players' names and stats.
But the case is far from over. MLBAM and the Players Association said it intends to appeal and this time they'll be joined by the marketing arm of the National Football League Players Association -- Players Inc.
"We intend to do [support the appeal] with enthusiasm," said Doug Allen, president of Players Inc. "We believe upon reflection the appeals court will take a different view. It's the end of the first quarter, not the end of the game."
More room for the little guy
Baseball and football seem eager to exert more control over who is offering fantasy games, and to strike rights deals with big media partners such as Walt Disney (Charts) unit ESPN, Yahoo! (Charts) and CBS Sports line, a unit of CBS (Charts). Those companies declined to comment on the case.
Allen and Bob Bowman, the CEO of MLBAM, both deny that demanding rights agreements from providers will choke off growth in fantasy sports.
"We're interested in people who invest and innovate and promote fantasy baseball," Bowman told me before the decision, adding that some of the smaller sites with few customers don't fit this description.
But you never really know where innovation will come from. And some of the folks who are scared away from the business by this dispute could be the ones to create the features that help make the games even more popular.
Restricting who can offer fantasy sports will limit the growth of these games and I think that's a bad business strategy for professional sports leagues.
It is clear that fantasy sports services are better for baseball, football and other sports over the long-haul, because more fans are watching games on TV and going to games in person in order to track how their fantasy teams are doing. If coming up with a rights-fee structure that can include both large and small operators means fewer multi-million dollar deals in the short-term, so be it.
Glenn Colton, the attorney for the Fantasy Sports Trade Association, which filed a brief supporting CDM's suit, said legal uncertainty has been kept some would-be fantasy entrepreneurs on the sidelines.
"If you're about to take a second mortgage or borrow from your grandfather to start a new game and you find out that there are only going to be 12 rights holders, you've got to worry you're not going to be one of them," he said.
Fortunately, this might change. Colton said that the court decision now opens the way for the smaller providers to have more leverage in negotiations with the leagues about licenses, even if there is an appeal pending.
Charlie Wiegert, co-founder of CDM Sports, said he and other providers are eager to find a way to do business with the leagues, even if it means paying rights fees. He is paying a fee to the NFL Players Association for this year's game, although he wasn't happy to hear some of that money might now go to fight his lawsuit.
As to what happens with the legal case from here, Wiegert is confident the decision will be upheld.
"I think [the court decision] challenges the leagues to find a way to work with the fantasy operators," he said. "We have their best customers as our clients. This is a chance for all of us to find a way to work together."
Let's just hope for everyone's sake that such a truce in this dispute isn't the ultimate sports fantasy.