Investors Overlook Tech Issues, Pump Another $47 Million Into FloSports

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FloSports has dropped the broadcast feed during a D.C. United match three times already this season, there were log-in issues during the team’s debut on the platform and bars in The District have consistently reported an inability to show games on more than one screen, but the negative publicity associated with the technical difficulties experienced during MLS matches (the highest profile league on the streaming service) has done little to dampen investor interest. Back on June 3rd, Flo announced a $47 million Series C round of funding (total raised: $79.2 million) led by Discovery Inc. and WWE. The company will use the money to “grow coverage of new and existing sports.”

Howie Long-Short: The technological struggles Flo has experienced are not unusual in the streaming space. As one well-respected industry veteran explained, “FloSports, Deltatre, FuboTV, DAZN, Endeavor – name any OTT provider you want – they’ve all had problems at one time or another because streaming live video at high concurrency, with live ad insertion and geo-fencing is really hard. When you start syncing together multiple partners and technologies, something is bound to go wrong.” The companies that will ultimately be successful long-term will fail small and fast and quickly work to solve those issues.

The investors that participated in Flo’s Series C round – including Discovery, which is all-in on building niche sports communities (see: GolfTV) – are all aware of the technical issues that exist, so it’s reasonable to believe that the company has identified the root cause of the breakdowns and has a plan to address them. It also seems likely that the group, which also includes Causeway Media Partners LP, Fertitta Capital and DCM Ventures, understands that sports rights are increasing in value and that companies capable of building an audience are well-positioned for the long-haul. Flo has proven capable of acquiring rights (see: the primary media partnership it inked with the Colonial Athletic Association) and its subscribers have an affinity for the service (remember, many of these sports lacked a home before OTT came along).

With annual recurring revenues and subscribers both up at least +50% YoY and the number of net subs. added in Q1 ’19 having exceeded all new registrations in 2018, Flo’s business model seems to be working. Detractors say there is no audience for much of their content and that they’re overpaying for tier 3 and 4 rights, but as the industry stalwart referenced explained “when the number of subscribers [for each niche sport] are rolled up in aggregate, they’re significant in volume; and the company has shown an ability to acquire and retain subs. FloSports’ valuation is going to be higher in a year or two than it is right now.” While we’re making predictions, look for Flo to make a play for more mainstream sports rights as they become available starting in ’21.

It’s reasonable to believe that United leadership is less than pleased thus far with its OTT partner, but there’s little reason to suspect they’ll look to void the deal. The club opted to work with FloSports because of the money available was too good to pass up. Content they had been giving away, is now bringing $13 million over the next 4 years. Flo can also provide the team with data about its fan base that it couldn’t get from linear television – insights it can use to then target those individuals.

Fan Marino: United fans upset with Flo have a valid bone to pick. Blackouts aside, the streaming service has failed to provide the “behind-the-scenes access” and Spanish language commentary it promised. Both Flo and the team say they are committed to both endeavors, but that’s unlikely to placate fans paying $8.99/mo. Remember, just about every other MLS team makes its games (and should programming) available to fans on basic cable.

The problem for United fans is that there is no alternative. If they want to watch the teams’ full slate of games, they need to subscribe to the service. Flo is the exclusive broadcast home for 21/34 matches.

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Author: John Wall Street

At the intersection of sports & finance.

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