Sports as a Startup: The XFL

This past February, millions of fans waited eagerly for a historic football game to kickoff. No, I’m not talking about the Super Bowl but the inaugural game of the XFL, a brand new American football league. Scheduled to run from February through April 2020 during the NFL’s offseason, the XFL is a new startup sports league trying to overcome the odds of a previous failure.

The 2020 XFL is a remake, the second attempt of an original XFL football league created in 2001 as a joint venture between NBC and the WWE (World Wrestling Entertainment), which shut down after one season. Dick Ebersol, former head of NBC Sports and Vince McMahon, CEO of the WWE were the two people leading the original project. Their approach was flawed and focused too much on delivering hip entertainment gimmicks rather than professional sport. The league shut down for several reasons that included poor planning, low quality football, and terrible TV ratings.

Famous WWE wrestlers like Dwayne “The Rock” Johnson and “Stone Cold” Steve Austin helped open up XFL games like they were announcing wrestling pay-per-view events. The rules were changed to allow more fast paced, intense and violent football. The marketing tended to be overtly wild and sexual, with one infamous promotional segment focused on a cameraman trying to sneak into the locker room of XFL cheerleaders.

The XFL was focused so much on creating an edgy entertainment brand that the quality of the game on the field suffered. After initial ratings success in the first game, the number of viewers dropped drastically over the course of the season and their broadcast partners pulled out. The XFL couldn’t support itself financially and was forced to shut down at the end of the 2001 season.

Vince McMahon announcing the XFL’s 2020 return

But could it work today?

Now is a really good time to innovate in the world of sport, better than any other time in history. The bold and interesting experiment of launching a brand new sports league is extremely high-risk, high-reward and one has to respect the entrepreneurial drive of Vince McMahon, who has picked himself up from the ashes of the XFL 2001 to recreate the XFL in 2020.

McMahon has acknowledged his mistakes from the past and created a new legal entity called Alpha Entertainment that will completely own the XFL. He has sold significant chunks of his own stock in the WWE and is committed to spending $500M over the XFL’s first three years, which is five times more than the capital raised for the XFL in 2001. This time, it looks like he’s going all in.

Vince McMahon has an established a track record of business success spanning decades. Since becoming the WWE’s CEO in 1982, he has turned a small regional wrestling operation into one of the world’s most successful entertainment franchises, continually growing in terms of global revenue, and making him a billionaire.

Last year’s Wrestlemania 35 broke the record for the highest-grossing entertainment event at New York’s Metlife stadium — an arena that consistently hosts big professional sports games and major music concerts. The WWE also sells out events in places all around the world like the UK, Saudi Arabia, India, and China.

Vince McMahon’s WWE success lends him credibility as an entertainment business mogul, but can he build a modern entertainment brand from scratch? I think it’s precisely due to his recent success with the WWE over the last twenty years that makes the XFL more likely to succeed now.

The world of sports and entertainment has changed over the last twenty years and there are now more ways to monetise sports than ever before. The two biggest changes are how technology can build direct-to-fan relationships and how technology can redefine your potential market of fans. The WWE has understood both of those things really well.

Selling broadcast rights and sponsorship will still likely be the largest source of immediate revenue for the XFL. But if they want to skate where the puck is going and explore the additional business models of 2020, here are some things the XFL could try. Let’s pretend I’m Vince McMahon for a day.

The XFL should embrace the basics of modern growth marketing and create a growth team similar to what exists in most Silicon Valley startups. Fans should be able to unlock geo-targeted offers related to their favourite teams on their mobile devices and have built-in referral mechanisms. The XFL should use website pixels to retarget visitors based on where they are from, what specific things they are interested, or what actions they have taken onsite.

The XFL should design gamification into all of their digital properties and the overall fan user experience should be based around gathering more data points around fan preferences. As a fan, the XFL should understand who my favourite players and teams are, personalising the content and team offers they deliver to me. The offers they put in front of me could include a mixture of not just physical goods but all types of digital goods like custom stickers or avatars for my social media.

The XFL could truly be more free to experiment with their marketing principles and channels. Most traditional sports leagues are so protective of their brand that they are usually uncomfortable with things like user-generated content on social media.

What I think a lot of traditional sports don’t realise is that user-generated content allows your brand to become a platform, where fans themselves can surface what things they care about rather than you guessing or autocratically directing. This creates more overall engagement and most importantly, allows you to truly be authentic as a brand, rather than just promoting generic corporate messaging.

The XFL could actively employ Youtube stars, Tik Tok influencers and anyone who already creates fan content around sports and football. Sometimes these types of people are getting sued by bigger sports leagues, so if the XFL does the opposite and creates official partnerships with them, they could tell a legitimate PR story about how they have a deeper, more authentic connection to their fanbase compared to other leagues.

McMahon’s WWE seems to be doing a pretty good job with their social media. As an example, the WWE’s official Youtube channel has 55 Million subscribers, while the NFL’s official Youtube channel has 6 Million subscribers.

The size of your potential market in 2020 is a lot bigger than in 2001, when the internet was still young and mobile devices weren’t widely used. The global fanbases of western sports have expanded to the rest of the world, and most sports leagues like the NBA and the English Premier League look eagerly to places like Asia as their biggest growth opportunity. The XFL should take advantage of these trends.

As a smaller organisation, the XFL could move more quickly to develop an aggressive fan engagement strategy in huge markets like China, India or the Middle East. They could also gather data on the countries with the biggest NFL fanbase who are currently underserved and double down on these regions.

They could find the XFL players from different countries and actively promote the international connection. If an XFL player is part-Indonesian, the XFL could partner with amateur sports leagues in Jakarta and create content around international stories. If the XFL has built high quality digital properties like websites and apps with localised content — they could better sell physical and digital merchandise to their international fanbases.

The NBA is the American sports league that focuses most on internationalisation, and many NBA players have made a big effort to connect with their home countries, with or without the league’s direct involvement. Steve Adams, starting center for the Oklahama City Thunder, originally hails from New Zealand and does extensive charity work and hosts free basketball camps in the country. Yao Ming, former center for the Houston Rockets, has become the president of the Chinese Basketball Association and is largely responsible for the popularity of the sport in China.

Jordan Clarkson, the only Filipino player in the NBA, recently narrated a story on ESPN about traveling to the Philippines for the first time and trying to save a housing project in one of the poorest parts of Manila. These stories really matter, resonate with fans and honestly elevate sport.

Kobe and Gianna Bryant mural in a Manila housing project

While the WWE sometimes gets disrespect for being framed more as flashy entertainment than real sport, one thing the WWE really has is international reach.

Vince McMahon being both the CEO of the WWE and the XFL might have been a hindrance in 2001 when he tried too hard to connect the two entities. Instead of getting WWE wrestlers to promote the XFL, McMahon could instead borrow the global business development skills of the WWE to scale the XFL’s operations and events internationally. The WWE hosts hundreds of events across the globe every year and already has a built in network of partners, logistics, and operations — advantages that even the NFL does not have.

The WWE has several events around the world more like smaller meet and greets with wrestlers rather than full blown pay-per-view events. If the XFL can do something similar with international events (an XFL world tour?), paired with a superior digital product for fans, and compelling localised, content — that’s worth a lot of money in the world of sports.

Recent WWE events in Saudi Arabia

Today you can have immediate global reach within your fanbase, at a faster speed and at a much lower cost than 2001. With new entrants like tech companies (Amazon, Facebook, Twitter, Tencent) and OTT platforms (DAZN, ESPN+) bidding for the rights to broadcast mainstream sports, you have more potential buyers for XFL rights. While the price they could garner wouldn’t be massive on day one — in this competitive market of buyers the XFL sales team could likely sell rights at a much higher price if they have proven the passion of their international fanbase. That option didn’t exist for the XFL in 2001.

For the first sports leagues and teams who can successfully innovate beyond traditional ways of doing business, the potential revenue upside is definitely in the billions of dollars.

All of the above ideas I mentioned are better suited for the XFL to try because they are a startup and the NFL is the incumbent. Innovation is often better suited for new entrants rather than incumbents. A young league without the years of bureaucracy and internal politics could have a clean break to allow more different ways to approach monetisation. At the very least, the XFL could move faster. And if a league like the NFL is already making tons of money and has a permanent place in the heart of many fans, there’s less pressure to innovate.

The XFL gives Vince McMahon license to do things differently. And his background in the WWE gives him the perfect credibility since the WWE is one of the more forward thinking franchises. In sport, technology is the tool which you use to connect with your fans and monetise your fanbase. If the XFL does that well, there’s enough value in that for the league to be a success.

If Vince McMahon is thinking about all of this, he may be even smarter than people realise, since most of XFL’s critics miss these points and focus on his ability to monetise through traditional means. And that’s what makes the XFL more exciting, despite the fact that history is littered with several dead American football leagues.

The World Football League (WFL) was founded in 1973 and shut down after three years. The United States Football League (USFL) was founded in 1982 and shut down in 1986. Current US President Donald Trump was owner of the USFL’s New Jersey Generals, and represented the league in an antitrust lawsuit brought against the NFL.

President Trump at critical moments in sports history

The Alliance of American Football (AAFL) was founded two years ago and ran out of money halfway through their first season in 2019. Apart from the glaringly obvious challenge of not having enough money, I didn’t really see much innovation in the way the AAFL approached the business model of sports.

And if Vince McMahon doesn’t approach going ‘all-in’ on innovative business models, he probably won’t succeed. Let’s be real — the NFL is a behemoth and the XFL can’t beat them by playing by the same rules. The XFL needs to think like a startup and have enough self-awareness to understand modern fandom.

The odds are stacked against the XFL succeeding. So why should Vince McMahon believe that the XFL can succeed? It’s the same reason why new startup companies are formed every day, despite the massive rates of startup failure. Vince McMahon endured a high profile failure with the original XFL in 2001, and I admire the type of drive he would need in order to believe that he can succeed this time.

The NFL is the world’s most lucrative sports league, with the most valuable broadcast rights, highest team valuation, and most expensive advertising and sponsorship contracts. The value of every single NFL team has gone up over the past twenty years, outpacing the S&P 500. It’s hard to put an exact number on the value of the NFL, but the league generated $16 Billion in revenue in 2018 and the combined valuation of all 32 NFL teams is around $90 Billion. Even if the XFL becomes 1/10th the value of the NFL in twenty years, that’s a 18x return on Vince McMahon’s $500MM investment.

If Vince McMahon succeeds, this cements his place in history as one of the most pioneering and successful entrepreneurs in sports and entertainment. If the XFL fails, we should at least respect his boldness because the global sports landscape is healthier when people make bold moves.

I’ll be cheering for you, Vince McMahon.

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Tech, Entertainment, Media, Emerging Markets. Ex-Facebook and Singularity University.