In the technology world, we often make a very important distinction between companies. The difference between a traditional business and a startup is in its ability to scale. Consider the following two scenarios:
Company A sells Widgets. The number of Widgets they sell is limited by consumer demand, but also by how many Widgets they can hold in stock and how quickly they can produce them. Each individual Widget has a fixed manufacturing cost associated with it. This is how traditional businesses work. Each Widget generates a fixed x% profit for Company A and in order to increase profit they need to increase the price of Widgets or lower manufacturing costs. Every single Widget they sell requires a certain amount of upfront money, time, and work, so their potential growth is linear.
Company B creates a website that allows any other company to sell their products on Company B’s website and they take a small percentage from each sale as a transaction fee. This company is scalable. Company B invests time and money one time up front to create the website, then is basically in a position to make money while they sleep. Other companies are doing the actual logistics of listing products and shipping them, and Company B is just taking a small cut of each transaction. Theoretically, Company B could never invest another dollar or hour into their website, and they would keep generating revenue. In reality, of course, there would be fixed costs to maintain the website and do things like customer support, but the point is that their profit is not necessarily directly correlated with hours or dollars sunk into the website. This company has the potential for exponential growth and would be considered a high-growth startup.
The NFL Model
The NFL is a traditional business. They make their money mostly from their lucrative broadcast deals. That is not scalable. Their revenue directly corresponds to how many minutes their product is on TV. Sure, they can continue to demand more and more for those minutes each time their contracts are up for negotiation, but that doesn’t change the fact that their revenue is linearly correlated to the number of Widgets (football games) they produce.
Now I don’t know anyone in the AAF organization and I don’t have any more information on their business model than anyone else, but it seems to me that the AAF is taking an altogether different approach. They are taking a play from the high growth tech startups’ playbook. They offer a traditional product of the games being played on the field each weekend, but in addition to that, they are creating a number of scalable products around that. It’s the exact same approach megaliths like Google or Facebook took: let’s get people on the platform and monetize tangentially around the core product.
Like it or not, now that sports gambling is becoming more and more legal, it is going to balloon as an industry. It’s estimated that $150 billion are bet on American sports each year already. With more and more states legalizing and legitimizing the industry, that’s a lot of revenue up for grabs from legit businesses. The AAF has already stated that a core part of one of their mobile apps will involve gambling. This type of product is more like what Company B above would do. They build the app once, put it out there, and then make a small cut of all transactions. That is scalable. That is exponential growth.
The AAF Model
The AAF is also going big on fantasy sports, another relatively new billion dollar industry. The NFL has tried to break into this market, but anyone who’s played season-long fantasy on nfl.com and also somewhere like Yahoo or ESPN knows that they failed miserably.
The Alliance is also making a major effort to open up their core product to third parties. They have a blog for tech nerds at https://aaf.engineering/ where they talk about what they’re building and the technology infrastructure they’re using. And the impression I’m getting from that blog? This isn’t a marketing team that’s building a website to occasionally publish blog posts and update game scores; this is a legit engineering team that knows what they are doing and are building to scale.
Their focus on technology everywhere from sensors in the helmets to creating apps to providing a streaming service of the games creates an impressive package in itself. If the worst case scenario happened and the AAF was desperate for money to keep going, they could license this technology package to any other major sports league in the world and make so much money they wouldn’t know what to do with it. That’s scalability. That’s a high growth startup. You could think of the AAF as two distinct companies, really. AAF Technology is a tech startup whose first client is AAF Football. Any other sports league could become a client of AAF Technology if they build everything correctly, which it seems like they are.
The AAF is not just another sports league. They are potentially a tech startup that provides entertainment for cheap or free and is creating high growth, scalable products around that core product. And this is just the beginning. I would love to see them open up their streaming platform even more. Imagine a Twitch-like interface where there are endless numbers of amateur announcers calling the games and you can switch between them. Imagine watching the games on your VR headset while virtually hanging out with other fans around the world. These are the kinds of things the AAF is setting themselves up to do. I’m counting down the days to the inaugural season and can’t wait to see what this league does with technology over the coming years.
About the Author
Brian Wentzloff is a serial tech entrepreneur. He is currently involved in the blockchain industry with his development firm web3devs.com and is also involved in the Augmented Reality and Virtual Reality space with his company Gifford Lake Labs, which recently released a multiplayer/cross-platform 2-on-2 basketball augmented reality game BallARs on iOS. He grew up in Michigan as a Detroit Lions fan, so it will be literally impossible for the Memphis Express to disappoint him.