Breaking Views

Web is the winner in March Madness

On the road to revenue, we could see some surprising upsets from online video and gambling.

By Jeff Segal, breakingviews.com

(breakingviews.com) -- The annual March Madness U.S. college basketball tournament, which starts on Thursday, is a pressure cooker for the 65 teams involved.

Bricks-and-mortar casinos and media group CBS, which owns the television rights, also have plenty at stake. But the online video and gambling businesses may turn out to be the up-and-coming teams to watch.

Las Vegas casinos, for instance, expect nearly $100 million of bets on the event, not to mention what gamblers will spend on hotel rooms and food. Some debt-laden casino operators like MGM Mirage (MGM, Fortune 500) are barely keeping going, so extra boosts to revenue are more important than usual.

Troubled CBS (CBS, Fortune 500) also has a lot riding on the event. It bought 11 years of video rights to the tournament for $6 billion in 1999. It made $643 million from advertisements last year, and expects a similar take this year.

Yet traditional casinos and TV both face rising online rivals. Online gambling for March Madness already exceeds the Las Vegas take, according to casino representatives. And Web sites like Gambling911.com expect this year's tournament-related traffic to be double last year's. That's good for the online business - but potentially bad for Las Vegas and other gambling centers.

The growth of online video is similarly problematic for CBS. True, it owns the Internet rights to March Madness. And it expects online video revenues to increase 20% this year to $30 million. If the company can make extra money from online video while keeping its TV revenues steady, its not-very-lucrative rights contract could yet turn into a money-spinner.

Unfortunately, though, online revenue could come at the expense of the company's cash cow TV business. Last year's tournament averaged 10% fewer TV viewers than 2004's, according to Nielsen.

Of course, business and sports dynasties alike can keep going longer than expected. And rising newcomers need time to season. But if online video and gambling do well in this tournament, it could point to winning years ahead. To top of page

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