NBC agreed Tuesday to acquire the warrants for purchasing up to 10 million shares of online sports site Quokka Sports (QKKA), which is producing NBC's Olympics Web site, in a deal that could be worth as much as $140.8 million.
The agreement brings NBC and Quokka closer together. The companies already have formed a joint venture to produce a site dubbed NBCOlympics.com for the Sydney 2000 Games, and they also plan joint coverage of events in Salt Lake City in 2002 and Athens, Greece, in 2004. The deal would allow the two companies to expand their joint coverage of sporting events, both online and offline.
"It is a testament of what NBC sees in Quokka," says Kevin Monaghan, VP of business development for NBC Sports. "In the last few months, we have been very, very happy with what we have seen on the Olympics Web site."
Under the terms of the three-and-a-half-year agreement, NBC could acquire the Quokka shares at prices ranging from $8.89 per share to $20 per share. NBC already had obtained warrants to purchase 2.1 million Quokka shares. If it exercises all of its warrants, NBC would own a 15 percent stake in Quokka.
Quokka shares gained 38 cents Tuesday to close at $6.75, but surged 41.7 percent, or $2.81, in after-hours trading on Island ECN (dossier) following news of the NBC deal.
Money-losing Quokka, founded in 1996 in San Francisco, has made a name for itself by producing niche sporting events such as sailing, motor racing and mountain climbing. Quokka's coverage of those sports is characterized by what the company calls an "immersion" experience, which provides fans with text, photos, video, athlete testimonies and every imaginable bit of trivia, from wind speeds in the high seas to the heart rates of climbers at high altitude.
But during the past year, Quokka has been seeking to broaden its exhaustive and expensive production techniques to mainstream sports. The strategy shift is essential for the company's long-term viability, as the larger audiences and regular seasons of mainstream sports would provide much-needed revenue streams that could nudge Quokka closer to profitability. The company reported losses of $56.9 million in 1999 and nearly $40 million in the first six months of this year.
In recent months, Quokka has been on a buying spree, snapping up 71 percent of Golf.com for $30 million (the remaining 29 percent is owned by NBC) and agreeing to acquire TotalSports.com, which produces coverage of Major League Baseball (dossier), NCAA basketball and NCAA football, for $130 million.
But Quokka's venture with NBC has been the company's boldest and most risky foray into mainstream sports. Quokka expects to lose money in Sydney, Australia, but it is betting that its success in luring Olympics fans will give it a credible chance to secure rights to produce coverage for major U.S. sports leagues. And the cozy relationship with NBC is certain to help.
Quokka COO Alvaro Saralegui, a long-time Sports Illustrated executive who is largely responsible for Quokka's move to the mainstream, said the two companies would co-produce more sporting events to be delivered on everything from Web sites to wireless devices and "converged" Internet appliances.
"I think the other sports that you will be seeing will be primarily American sports," Saralegui says.
Asked whether the increasingly close Quokka-NBC relationship was a precursor to an outright acquisition of Quokka by the network, Monaghan says: "The notion of a partnership here, which [NBC Sports Chairman] Dick Ebersol espouses, is you do more and more things with people you like. Whether that includes what you are talking about - our crystal ball is not clear on that." Monaghan stressed that NBC also has relationships with MSNBC.com for online coverage of sporting events.
Saralegui noted, however, that Quokka is producing several events independently of NBC. Yet the agreement with
