Major League Baseball's Digital Fortunes

It's the final inning and the marlins, who have been ahead since early in the game, have seen their lead slip to a single run. Now, with one out to go, their opponents have two runners on. Bob Bowman, the most powerful man in baseball you've never heard of, paces the sideline anxiously. His pitcher, the Marlins' third that day, is not sharp. And he is only 9 years old. But as Bowman shouts encouragement, the Little Leaguer retires the last man on a ground ball to first. The chronically caffeinated coach Bowman breathes a sigh of relief. The victory keeps alive his winning streak for the Marlins, a suburban Connecticut squad that includes his son.

Nice work in the field of dreams. But in the Chelsea dot-com district of Manhattan (just across from Google's new outpost in Gotham), Bowman heads a team with a string of victories that's made the entire sports world take notice. The 52-year-old onetime corporate whiz kid is the CEO of Major League Baseball Advanced Media (everybody refers to it as BAM). To the surprise of those who assumed that the lords of baseball would handle the Internet with the ineptness with which they've handled labor relations and performance-enhancing drugs, baseball is the grand-slam online leader among major sports. "They've done as good a job as anyone in our industry," says John Kosner, ESPN's head of new media.

Growing at a rate of roughly 30 percent a year, BAM now takes in about $400 million in revenue. Going by its logs, it entertains more than 50 million visitors a month, putting it close to the top 100 sites of any kind. By the end of the season, more than a million subscribers will pay for its media offerings, including video content of all out-of-market games at $99 to $120 a season and audio broadcasts for $20 a season. More than a billion minutes of baseball will flow from its servers. It sells more than $80 million in merchandise, ranging from hats and jerseys to authenticated relics like signed baseballs and bases. (In the 24 hours after Boston became champs in 2004, the site sold $5 million worth of Red Sox gear.) BAM processes a third of the 75 million tickets sold for major-league parks, and resells at premium prices the ducats that season-ticket holders want to offload. It also employs a team of journalists who cover each team—"we had to make sure our reporters were independent," says BAM's content czar Dinn Mann—and hosts hundreds of blogs written by players, celebrities and fans. One of the fastest-growing revenue streams is advertising, now bringing in 15 percent of the total. And more than a million wireless subscribers get mobile updates, ringtones and cell-phone wallpaper.

BAM's success—as well as the egalitarian structure of its ownership scheme—has deep implications for the sport's future. Because each of the 30 clubs has an equal share, BAM is a Trojan horse for parity in a game where the payrolls of some teams (well, one) is eight times that of the financial cellar dwellers. In other words, the mighty New York Yankees' share of the pie is no bigger than that of the hapless Tampa Bay Devil Rays. It's an open question whether this, or other issues that arise as the online world becomes the dominant media platform, will eventually cause tensions between the hang-loose Chelsea crowd at BAM and the fusty MLB headquarters on Park Avenue.

BAM began in 1999, when baseball created a separate company for new-media operations. Of all sports, it was best poised to please current fans and lure a new generation by going online. "We have built-in advantages," says Major League Baseball president Bob DuPuy. "There are 2,500 games a year—we play every day." There's also a rabid community of statheads and fantasy players addicted to news and rumors of the diamond.

Baseball's leadership also saw the opportunity to painlessly level the balance of power between teams. "We had this growing disparity," says Jerry Reinsdorf, the Chicago White Sox owner who helped structure the setup. "It wasn't really a difficult sale," says Kansas City Royals owner David Glass. "The Internet rights pooled together were simply worth more." Besides, it was easier for rich clubs to share future profits than to change the way they divvied up current loot. "We had to sacrifice," says Randy Levine, president of the Yankees, the ultimate big-market club. Baseball Commissioner Bud Selig remembers exactly when BAM was formalized in January 2000. "I thought then that in the history of this game, this would be as important a date as when Pete Rozelle got the NFL clubs to share revenue," he says. "And nothing has changed my mind."

The clubs' investment to date is about $75 million. In other words, creating an entity that would take baseball into the next century was begun at a minimal per-club cost of $2.6 million, "the price of a designated hitter," says K.C.'s Glass. BAM's chief financial officer, Ed Weber, says that by the end of 2007, the clubs will be fully reimbursed for their initial investment; Bowman hopes (and Selig agrees) that future profits will be plowed back into the company. Speculation that BAM would go public ended in 2004, when owners rejected the idea, even though bankers were valuing the company at more than $2 billion. The bottom line seems to have been that running baseball as a public company wasn't yet in the DNA of the owners. Nine months after BAM's founding, baseball recruited Bob Bowman to head it. The golden-tongued leader is sharp—he zips through the Times crossword puzzle on the commuter train each day, in pen—and has a résumé bursting with experience in business, e-commerce and even politics. In 1983, at the ripe age of 27, the Harvard and Wharton graduate became Michigan's state treasurer, and from there, became CFO of the Sheraton division of ITT, a classic conglomerate that was in the process of splitting up. Bowman soon became ITT's president, and when the de-conglomeration was done in 1998 he left with a reported nest egg (pretax, he emphasizes) between $35 million and $50 million. Then he got a taste of the digital world by heading Cyberian Outpost, an e-commerce site known largely for a TV ad where (fake) gerbils were shot out of a cannon. But his tenure coincided with the dot-com crash. So the baseball-loving Bowman (he recalls attending 70 Milwaukee Brewers games a year as a kid) jumped when the BAM headhunter called.

Bowman hired former colleagues from Outpost and ITT, and set out to revamp the Web site by Opening Day 2001. It turned out to be the digital equivalent of Bill Buckner's World Series error in 1986. Visitors checking stats were told that Florida Marlins hurler Ryan Dempster had given up 39 runs (nobody's that bad) and that the Phillies had turned 10 double plays (nobody's that good). "It was awful," recalls Bowman. "We herked and jerked our way through 2001, and rebuilt the whole site in the off-season."

From there, it's been a steady uptick. A lot of ideas have clicked—a small example is a fantasy game called Beat the Streak, where visitors pick a player who they think will get a hit that day. If you do it 57 times in a row—Joe DiMaggio territory—you win $100,000, a prize that has yet to be claimed despite more than a million attempts. It's one of many hidden gems on a Web site that's millions of pages deep. Not so successful was an initiative to hire broadcasters to supply Japanese-language game-calls for every match that Nippon's idol Ichiro Suzuki played in his first year with the Mariners. The project, which cost $50,000, drew fewer than 1,000 fans in Japan, and to this day whenever an idiotic suggestion is made in BAM's Chelsea meeting rooms, people will chant "Japanese audio!"

This year's hot innovation is an application called Mosaic that allows broadband subscribers to watch as many as six games at once. (Try that with any sport but baseball.) Local games are blacked out to protect existing broadcast rights, but anything else is available. In the near future, expect the option to watch a single game with multiple camera angles.

Though says that a big part of its mission is spreading the gospel of baseball, its attitude toward sharing video is definitely old school. Every day four BAM staffers prowl the back channels of YouTube and the like, seeking video highlights of recent and classic games that they can tag for the site's copyright censors to remove. And recently, Bowman's lawyers publicly charged that Slingbox, a company that lets customers beam video from their living rooms to their computers, was violating baseball's rights. Slingbox CEO Blake Krikorian angrily charges that "Bowman's henchmen" were inaccurate in their charges and that he's making baseball's cable and satellite subscription plans more valuable by allowing people to use them while on the road. Bowman says that the whole thing is overblown. "This is clunky technology that's not going to survive," he says, adding that he has no plans to bring suit.

The Slingbox controversy points to an area of potential tension in the world of baseball. Krikorian is right that Slingbox enhances the value of offerings like DirecTV's watch-it-all Extra Innings—but if people use Slingbox on laptops, they may be less likely to want to buy BAM's baseball package. A more important conflict could arise when TV sets are directly connected to the Net, and BAM is streaming games in living-room-friendly high definition. Will the current system—which maintains two business plans, one for online and one for broadcast—hold firm? "We've been aware of this convergence issue since 2000," says MLB's DuPuy. "Assurances were given that the Internet was meant to be additive, not something to take over broadcast rights." On the other hand, he says, "Our fans want any game, any time, anywhere, and on any device." Bowman says he's "pretty relaxed" about the issue. "So far all boats are rising."

In this new golden age of baseball—where everything is up, from ticket sales to salaries of mediocre starting pitchers—that's certainly true. But the Internet has disrupted bigger enterprises than our beloved national pastime. Baseball wouldn't be the first arena where a onetime cutting-edge digital experiment winds up becoming the Most Valuable Player.