Shaq Shoots for the Net in Endorsements

By GREG JOHNSON

May 27, 2000 12 AM PT

TIMES STAFF WRITER

There’s more on the line in Portland’s Rose Garden this weekend than a simple basketball game for NBA star Shaquille O’Neal. With every rebound, dunk and blocked shot, the league’s MVP hopes to further solidify his position near the top of the lucrative sports marketing pyramid.

During commercial breaks in the NBA’s Western Conference finals, O’Neal is pitching an online retail start-up, a free Internet service provider and a Web-hosting service. The interactive Shaq Attack is the business equivalent of the triangle offense that Laker Coach Phil Jackson instituted to sate the talented but mercurial Los Angeles Lakers’ hunger for an elusive NBA championship ring.

Gone are lucrative and high-profile endorsement deals with such familiar brands as Pepsi-Cola, Taco Bell and Reebok that pushed O’Neal’s annual income to $25 million in the late 1990s. In their place are ownership deals and corporate alliances with a tech-heavy roster that includes SportsLine.com, Dunk.net, FreeInternet.com, Digex Inc. and Midway Games Inc.

Why the shift from colas, sneakers and tacos? “I wanted to do things that were different . . . and e-commerce and the Internet are picking up very, very nicely, both cash-wise and stock-wise,” O’Neal said in an interview.

O’Neal isn’t the only well-known athlete reacting to changes in how athletes are used in sports marketing campaigns. Endorsement dollars have dwindled dramatically as marketers--most notably shoe companies--have cut back. “There’s still money to be made, but not like the gold rush mentality we saw in the ‘80s and early 1990s,” said Brian Murphy, editor of the Sports Industry Daily, a Westport, Conn.-based sports marketing newsletter.

At the same time, athletes such as Michael Jordan, Wayne Gretzky and John Elway are recognizing that their names, faces and personalities are of increasing value in an interactive world. And they’re increasingly likely to demand an ownership stake in projects that stand to reap financial gains.

Leonard Armato, the Santa Monica-based agent who has long represented O’Neal, knows that the center’s high-tech game plan isn’t a slam dunk. For starters, even 7-foot, 1-inch MVPs aren’t immune to the high-tech investment world’s dramatic mood swings.

Championship Rings Boost Marketability

The style of play that earned O’Neal a most valuable player award somewhat insulates him from criticism on rare opportunities when the talent-laden Lakers drop big games. Still, O’Neal recognizes the off-court leverage a championship ring brings: “It would make my plate full.”

The ring also would comfort such business partners as Digex, a Beltsville, Md.-based Web site operator that broke an ad campaign featuring O’Neal the day after the Lakers lost a stunning 106-77 game to the Portland Trail Blazers.

And, as premier athletes move online, they’re bumping up against sports leagues that hope to control online distribution of game-related content--such as video clips from the locker room. Athletes, broadcasters and leagues all want part of that potentially lucrative business.

The league undoubtedly will have something to say about O’Neal’s innovative plan to stream proprietary online audio and video from the Dunk.net Web site immediately after Laker games.

“We’ve had a lot of success working with the players to grow the economic pie together,” said Adam Silver, president of NBA Entertainment. “So the issue seems to be how to maximize these [online] rights for the good of everyone.”

O’Neal’s strategy is not without risk, if only because any ownership stake can be as dicey as O’Neal’s foul shooting. O’Neal’s 1996 decision to move the Shaq.com fan Web site from the Microsoft Network to the relatively unknown SportsLine.com is a case in point.

O’Neal “got zero cash” for making the move, said Michael Levy, founder and chairman of the Web site, now affiliated with CBS. O’Neal and Armato instead structured a seven-year stock option deal--a risky step because SportsLine had not yet made an initial public stock offering.

Armato didn’t disclose O’Neal’s interest in the Fort Lauderdale, Fla.-based company, which went public in 1997 at $8. But the risks are still evident: Company shares closed Friday at $10.69 after rocketing to $83.25 in December.

Deals such as SportsLine make it difficult to calculate O’Neal’s income, but Forbes Magazine’s annual listing of celebrities pegs his 2000 income, including salary, bonuses and endorsements, at $31 million. Among athletes, O’Neal--one of five NBA stars with $100-million-plus, multiyear contracts--trails Tiger Woods ($47 million) and Michael Jordan ($40 million).

Armato won’t detail O’Neal’s income, but he maintains that the star’s current income is “close to what he was making” in 1998, when O’Neal earned a reported $25 million, including $13.9 million in salary.

“If you structure things properly, he has the opportunity to turn ordinary income into a capital gains opportunity,” Armato said. “That gives you more value in the end.”

The Big Technophile

O’Neal’s high-tech business plan is driven by his deep-rooted love of technology. When he headed to Seattle on Thursday, O’Neal carried a two-way pager (“to keep in touch with my people”), a laptop (“I’m looking at Napster right now”) and a portable DVD player.

Dunk.net, a Santa Monica start-up, is at the core of O’Neal’s online push. The privately held company--Armato is chairman and chief executive, O’Neal is a founder and investor--began selling a limited line of athletic shoes and apparel over the Internet in February

Armato first began sketching an outline for Dunk.net in 1997, as O’Neal’s Reebok endorsement drew to a close. During subsequent strategy sessions with Lee Clow, chairman and creative director for advertising agency TBWA Worldwide, Armato honed plans for a free-standing shoe and apparel brand.

The business plan gradually evolved as the pair recognized the growing power of the Internet. “The end vision became ‘Let’s build products for every one of our customers’--mass customization,” Armato said. “That’s the way business is heading.”

“What Leonard and Shaq are trying to do with Dunk.net will be seen as a paradigm shift in sports marketing,” said Robert Landes, chief executive of Guidance Solutions Inc., a Marina del Rey-based company that polished an early version of Dunk.net’s business plan.

Shaq isn’t the only investor in Dunk.net. It has also attracted investment from Technology Crossover Ventures, a $2-billion Palo Alto-based venture capital firm that invests in a range of well-known Internet companies.

When the site is updated in June, a consumer will use a computer mouse to click on shoe and apparel models--and then personalize them by changing colors and adding artistic touches.

“The old [sports marketing] model was, ‘Oh, I want to be like Mike, to wear what he wears,’ ” Armato said. “In the new world, Shaq is telling them they can look the way they want to look.”

Dunk.net’s advertising will include a touch of Shaq, but the company won’t build its advertising around O’Neal or Mike Piazza and Rebecca Lobo, who also are affiliated with the brand.

“Young people are so smart about advertising,” said Clow, whose firm produced O’Neal’s Reebok commercials. “They can’t be manipulated into buying. It can’t look like your typical, high-profile spokesman who wants you to buy something.”

O’Neal, a veteran of the media wars, is doing his part to lure younger consumers to the brand. O’Neal wore a Dunk.net shirt earlier this month when television cameras showed him accepting the MVP award. He began generating buzz during last season’s truncated NBA season by trading his trusted Reeboks for Dunk.net sneakers.

‘Homeboy Marketing’

Marketers refer to it as guerrilla marketing, but O’Neal calls it “homeboy marketing. . . . Most people spend $2 million, $3 million for a commercial. With homeboy marketing, it’s all for free. When these TV stations want to interview me, I wear a FreeInternet hat. When consumers see me on TV, they also see all this stuff.”

O’Neal’s other online business relationships are intended to support Dunk.net. SportsLine actively promotes Dunk.net on its Web site and two SportsLine executives are investors who sit on the company’s board of directors.

Dunk.net executives know that the superheated dot-com environment leaves little margin for error.

“We’ve already got others on our tail,” said longtime Nike Inc. executive Christopher M. Walsh, Dunk.net’s chief operating officer. “Nike could squash us like a bug if they really wanted to.”

Nike’s Web site offers consumers the opportunity to design the look of their shoes, but retail industry insiders wonder if the company can afford to alienate brick-and-mortar retailers. Dunk.net, meanwhile, is opening kiosks in such high-profile locations as Staples Center, where consumers can order goods online.

But first, there’s this business of a championship.

As the Lakers battle the Blazers, O’Neal’s business associates are keeping their fingers crossed. “The ideal scenario would be to have them win the ring,” Clow said. “If they don’t win, it would be a little less perfect in terms of a model for launching the brand.”

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Shaq’s Web Marketing Attack

During the 1990s, Shaquille O’Neal provided high-profile endorsements for such companies as Pepsi-Cola, Reebok and Taco Bell. He’s now concentrating on business deals with high-tech companies.

Dunk.net

* What: Sells footwear and apparel online

* Where: Santa Monica

* What Shaq does: Wears company products

* Relationship: Undisclosed equity stake and cash payments in return for wearing and promoting the company’s goods.

FreeInternet.com

* What: Free Internet service provider with 2.2 million registered users

* Where: Federal Way, Wash.

* What Shaq does: Shares percentage of ad revenue, appears in FreeInternet’s ad campaign

* Relationship: FreeInternet provides Dunk.net with private-label free ISP for visitors. O’Neal shares undisclosed percentage of revenue generated by Web site ads.

SportsLine.com

* What: Top-rated sports Web site, runs Web sites of Major League Baseball, the PGA Tour and NFL Europe League

* Where: Fort Lauderdale, Fla.

* What Shaq does: Shareholder; appears in online chats; appears in billboard advertising

* Relationship: SportsLine promotes Dunk.net; two SportsLine executives have investments in Dunk.net and sit on firm’s board.

Digex Inc.

* What: Provides Web-hosting services

* Where: Beltsville, Md.

* What Shaq does: Appears in newspaper and billboard ads for an undisclosed payment.

* Relationship: Digex provides Web-hosting services for Dunk.net and Dunk.net’s logo appears in Digex ads.

Midway Games Inc.

* What: Manufacturer of arcade and home video games.