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The Backwards Business Of The AAF

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Birmingham Iron v San Diego Fleet

SAN DIEGO, CALIFORNIA – MARCH 17: AAF co-founder Charlie Ebersol looks on during an Alliance of American Football game between the Birmingham Iron and the San Diego Fleet at SDCCU Stadium on March 17, 2019 in San Diego, California. (Photo by Denis

Getty Images

Big ideas require some element of hubris, but pride always comes before the fall. For Charlie Ebersol’s Alliance of American Football, that fall was both loud and abrupt. It takes some serious stones to endeavor to start a professional sports league, history and Wikipedia are littered with the postmortems of hearty souls (and even future Presidents) who flew too close to the sun on wings of organized sports.

However, unlike its predecessors, the AAF staked their long-term existence, not on football but on developing what they believed to be a revolutionary gambling/wagering technology. For as much as Ebsersol and long-time NFL front office staple, Bill Polian espoused how the brand of football the AAF was developing would address all of the pitfalls of the current NFL game, the playing of actual football games was merely a vehicle to showcase this supposedly game-changing technology. While the media and Twitter-sphere enjoy tossing another fistful of dirt on the AAF with each new piece of news that emerges from the now-defunct league’s bankruptcy proceedings, the one thing that keeps getting lost a midst the jokes and the jabs is the fact that the AAF was destined to fail, not because of the fact that starting a football league is prohibitively expensive and statistically likely to fail, but because they were a technology company who decided to start a football league.

The “Trojan Horse” model of company building, whereby a company develops an initial novelty or niche product without any clear path to revenue or profitability in the near-term for the sake of establishing a foothold in the space, is by no means a new phenomenon in the startup world. In fact, Silicon Valley churns out hundreds of companies who chart this same path every month, many of which go on to be Uber successful (meant both literally and figuratively) and scores of others that ultimately meet the same fate as that of the AAF. Ebersol himself described the company as an “ice berg”, explaining “The real place where we make revenue is in the back-end technology and how it can be sold to other partners, a lot of what this business is about is being an iceberg. You see about 10 percent of what the company is above water publicly.”

The underpinnings of Ebersol’s rationale were actually pretty sound for the most part. Legalized sports gambling is becoming a massive profit center for state governments and private sector entities as more states adopt legislation enabling bettors to wager legally. Football is the biggest sport in terms of wagering volume and popularity for gamblers and though some leagues like the NBA have been ahead of the curve in terms of creating technology and products for a sports betting-hungry public, the NFL’s response has largely been reactive and slow compared to its peers in major professional sports. The opportunity was and still is there but the methodology was fundamentally flawed.

When you think about it, professional sports leagues are merely TV producers and licensors of intellectual property. Sure, they sell some tickets for fans to attend their games, a couple hot dogs, some beer, merchandise, etc but the real value in major professional sports is through licensing of their broadcast rights. Just as Wellington Mara and Art Rooney had the foresight to predict the impact broadcast television would have on their business, so too did Ebersol see an emerging market in legalized sports betting, unfortunately he picked the wrong vehicle through which to capitalize upon this opportunity.

In choosing to start a professional football league, Ebersol built himself one of the biggest and most expensive Trojan Horses, in essence starting his business upside down and creating an identity crisis from the jump. Successful startups (both in and outside sports) hone their core competencies first before branching out into something more ambitious. The AAF attempted to establish their core competency, technology, while taking on a wildly expensive and exceedingly difficult second one. Based upon the reporting that has been done in the wake of the AAF’s demise, the league burned so much capital attempting to become competent at the money-losing component of their business, it hindered their ability to accomplish what they set out to do in the first place: i.e. create a revolutionary wagering technology it could license to other leagues.

In Connor Orr’s piece for Sports Illustrated on the inside story behind the fall of the AAF, it was noted that the technology, which was just sold to MGM as part of a bankruptcy settlement for $125,000, was constantly broken due in no small part to the amount of capital being diverted to the on-field product. It may seem simple but it’s difficult enough to get good at one thing, let alone two simultaneously. In that same article, anonymous AAF players were quoted jokingly compared the collapse of the league to the now infamous Fyre Fest. All jokes aside, the comparison is actually pretty accurate. Fyre Fest was originally intended to be a launching pad for Founder Billy McFarland and rapper, Ja Rule’s namesake artist booking platform, Fyre. The team ultimately dedicated the lion’s share of their bandwidth and resources to making this overly ambitious destination music festival happen, which ultimately overshadowed the technology sending the company into a death knell.

Ebersol and McFarland also shared that same hubris and confidence in their respective plans, falling into the classic misconception of feeling “pot-committed,” intent on fighting their way through a losing battle. However, this confidence when deployed correctly is what turns people with crazy ideas into success stories. Its’ a fine-line that founders constantly toe between vindication and oblivion. While it’s easy to sit here and play armchair quarterback with the benefit of hindsight, with the “pennies on the dollar sale” of the AAF’s purported core competency, one is left to wonder what could have become of Ebersol’s experiment if they had simply stuck to software.

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Birmingham Iron v San Diego Fleet

SAN DIEGO, CALIFORNIA – MARCH 17: AAF co-founder Charlie Ebersol looks on during an Alliance of American Football game between the Birmingham Iron and the San Diego Fleet at SDCCU Stadium on March 17, 2019 in San Diego, California. (Photo by Denis

Getty Images

Big ideas require some element of hubris, but pride always comes before the fall. For Charlie Ebersol’s Alliance of American Football, that fall was both loud and abrupt. It takes some serious stones to endeavor to start a professional sports league, history and Wikipedia are littered with the postmortems of hearty souls (and even future Presidents) who flew too close to the sun on wings of organized sports.

However, unlike its predecessors, the AAF staked their long-term existence, not on football but on developing what they believed to be a revolutionary gambling/wagering technology. For as much as Ebsersol and long-time NFL front office staple, Bill Polian espoused how the brand of football the AAF was developing would address all of the pitfalls of the current NFL game, the playing of actual football games was merely a vehicle to showcase this supposedly game-changing technology. While the media and Twitter-sphere enjoy tossing another fistful of dirt on the AAF with each new piece of news that emerges from the now-defunct league’s bankruptcy proceedings, the one thing that keeps getting lost a midst the jokes and the jabs is the fact that the AAF was destined to fail, not because of the fact that starting a football league is prohibitively expensive and statistically likely to fail, but because they were a technology company who decided to start a football league.

The “Trojan Horse” model of company building, whereby a company develops an initial novelty or niche product without any clear path to revenue or profitability in the near-term for the sake of establishing a foothold in the space, is by no means a new phenomenon in the startup world. In fact, Silicon Valley churns out hundreds of companies who chart this same path every month, many of which go on to be Uber successful (meant both literally and figuratively) and scores of others that ultimately meet the same fate as that of the AAF. Ebersol himself described the company as an “ice berg”, explaining “The real place where we make revenue is in the back-end technology and how it can be sold to other partners, a lot of what this business is about is being an iceberg. You see about 10 percent of what the company is above water publicly.”

The underpinnings of Ebersol’s rationale were actually pretty sound for the most part. Legalized sports gambling is becoming a massive profit center for state governments and private sector entities as more states adopt legislation enabling bettors to wager legally. Football is the biggest sport in terms of wagering volume and popularity for gamblers and though some leagues like the NBA have been ahead of the curve in terms of creating technology and products for a sports betting-hungry public, the NFL’s response has largely been reactive and slow compared to its peers in major professional sports. The opportunity was and still is there but the methodology was fundamentally flawed.

When you think about it, professional sports leagues are merely TV producers and licensors of intellectual property. Sure, they sell some tickets for fans to attend their games, a couple hot dogs, some beer, merchandise, etc but the real value in major professional sports is through licensing of their broadcast rights. Just as Wellington Mara and Art Rooney had the foresight to predict the impact broadcast television would have on their business, so too did Ebersol see an emerging market in legalized sports betting, unfortunately he picked the wrong vehicle through which to capitalize upon this opportunity.

In choosing to start a professional football league, Ebersol built himself one of the biggest and most expensive Trojan Horses, in essence starting his business upside down and creating an identity crisis from the jump. Successful startups (both in and outside sports) hone their core competencies first before branching out into something more ambitious. The AAF attempted to establish their core competency, technology, while taking on a wildly expensive and exceedingly difficult second one. Based upon the reporting that has been done in the wake of the AAF’s demise, the league burned so much capital attempting to become competent at the money-losing component of their business, it hindered their ability to accomplish what they set out to do in the first place: i.e. create a revolutionary wagering technology it could license to other leagues.

In Connor Orr’s piece for Sports Illustrated on the inside story behind the fall of the AAF, it was noted that the technology, which was just sold to MGM as part of a bankruptcy settlement for $125,000, was constantly broken due in no small part to the amount of capital being diverted to the on-field product. It may seem simple but it’s difficult enough to get good at one thing, let alone two simultaneously. In that same article, anonymous AAF players were quoted jokingly compared the collapse of the league to the now infamous Fyre Fest. All jokes aside, the comparison is actually pretty accurate. Fyre Fest was originally intended to be a launching pad for Founder Billy McFarland and rapper, Ja Rule’s namesake artist booking platform, Fyre. The team ultimately dedicated the lion’s share of their bandwidth and resources to making this overly ambitious destination music festival happen, which ultimately overshadowed the technology sending the company into a death knell.

Ebersol and McFarland also shared that same hubris and confidence in their respective plans, falling into the classic misconception of feeling “pot-committed,” intent on fighting their way through a losing battle. However, this confidence when deployed correctly is what turns people with crazy ideas into success stories. Its’ a fine-line that founders constantly toe between vindication and oblivion. While it’s easy to sit here and play armchair quarterback with the benefit of hindsight, with the “pennies on the dollar sale” of the AAF’s purported core competency, one is left to wonder what could have become of Ebersol’s experiment if they had simply stuck to software.

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