Comeback kid: fantasy sports software publisher does an end run around business failure

Entrepreneur, July, 1998 by Elaine W. Teague

Years earlier, the business had made a promising start. Hughes had been playing fantasy football (a fantasy draft of actual pro players where, if "your" players do well in games, you score) with his buddies for years when, in 1988, he read about the inventors of Pictionary and their multimilliondollar sale of the game to a Fortune 500 company. Hughes, who owned an equipment leasing company, imagined himself reaping the benefits of fantasy sports' allure - and set to work turning his dream into a reality.

Hughes invested $150,000 in his new venture and found partners in his brother, Michael, who designed the software's original mathematical flow, and product designer Chris Yager, who tailored the software to fantasy sports administration. The program downloads actual sports statistics from the Internet and assigns points based on the fantasy league's guidelines.

The company sold only 200 copies of the software that first season, but Hughes was undaunted. He patented his product and secured a licensing agreement with the NFL Players Association and NFL Properties, which was followed by the company's first big break: After Hughes submitted a proposal to Miller Brewing Co., the beer giant signed on as a corporate sponsor in a lucrative one-year contract with a two-year renewal option.

With Miller's backing, Hughes soon boasted product placement in 6, 300 sports bars across the country as the 1989 Miller Franchise Football season (fantasy leagues played in local taverns) got underway.

The company got another boost, says Hughes, when he and Cheryl, an architectural engineer, married in 1990. Together they formed Fantasy Sports Properties Inc. (FSPI), and while continuing to run her own commercial construction project management consulting business, Cheryl began handling FSPI's books and personnel matters. Meanwhile, Yager was made head of product design and development, while Michael Hughes left to pursue other interests.

SAY IT AIN'T SO

Everything seemed to be going their way until 1992. As the third season of FSPI's contract with Miller Brewing Co. played out, the Hughes' good fortune was also about to expire, due to changes that had taken place in Miller's management. "A new set of people came in and went in a new direction," explains Hughes; their contract wasn't renewed.

Losing Miller's sponsorship was a major setback, but Hughes wasn't ready to throw in the towel. After another year without the fast-moving sales and high visibility the Miller sponsorship had generated, however, FSPI started to feel the crunch. Forgoing salaries for six to eight months at a time, the Hugheses were now relying on bank loans and Cheryl's salary to keep the company afloat.

By the fall of 1993, a big question mark hung over FSPI's future. With their business running on fumes, Patrick and Cheryl had run out of ideas. Selling the business wasn't an option, Hughes says, because of the small number of users they had.

Although the world of fantasy sports was thriving in sports bars and offices across the country, FSPI's piece of the pie was getting smaller. As the crisis unfolded, everything the Hugheses had worked for seemed to be slipping away. They were committed to keeping their company's doors open as long as possible, but by April 1994, laying off key personnel seemed inevitable. Faced for the first time with the prospect of not being able to make payroll, "I told my employees just to hang on," remembers Hughes, "and that I would figure something out."

BLAST FROM THE PAST

Although the future looked bleak, the Hugheses couldn't have imagined how soon FSPI's outlook would change. Entrepreneurial to the core, Hughes had taken an ingenious step six months earlier that was about to rescue FSPI's bottom line.

Retracing the earlier events that would eventually fuel FSPI's comeback, Hughes says, "After attending conferences on interactive television, one day I realized there wasn't an industrywide magazine for the phenomenon of interactive television. So I came up with a [magazine] name I thought would be perfect." Hughes immediately invested $1,500 in securing a trademark on the name "Interactive Age."

The result of that foresight couldn't have been scripted better by the Hugheses themselves. With FSPI's cash flow and the Hughes' spirits waning, "out of the blue, the phone rings, and it's an attorney saying his firm represents a major magazine publisher who's interested in purchasing all of the rights to my [magazine name] trademark," says Hughes. Not one to cave in to excitement, Hughes was cautious. "My instincts told me 'Don't negotiate over the phone. Ask them to fax an offer,'" remembers Hughes.

The fax arrived within minutes. Hughes knew he had nothing to lose, so he countered the attorney's faxed offer of $5,000 with an offer of $120,000. "As it turned out, the publisher had its magazine literally on the presses when the lawyers discovered I owned the trademark," says Hughes.

Aware that the publisher was between a rock and a hard place, Hughes was prepared to go for broke. When a second offer was made, this time for $25,000, Hughes kept his eyes planted firmly on his company's long-term needs - and declined.