2000: Buy.com official: ‘We feel like it’s working’

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The Buy.com Tour’s first visit to Dothan, Ala., proved profitable for native son Spike McRoy. His second tournament victory of the year was worth $99,000 and restored him to the PGA Tour.

Similarly, Buy.com Inc. officials hoped to use the developmental tour to right the company’s wayward financial course. By assuming title sponsorship of the former Nike Tour, Buy.com staked millions on the quick name recognition – and presumed customer traffic – that comes with sports.

With the first of its five contracted seasons in the record books, did the gamble pay off?

Chief financial officer Mitch Hill says the sponsorship achieved its first-year benchmarks. “Our primary objective was more of a brand-awareness objective. We knew we would have time in a five-year deal to transfer that brand awareness into revenue for the business.”

Hill says Buy.com (NASDAQ: BUYX) officials are hatching plans with PGA Tour officials for next year, “talking with them about a lot of ideas to further the branding objective and to take the next step in terms of customer acquisition and revenue.” He said he was “not at liberty” to discuss the plans because of their tentative nature but did let on that “the high concept is to drive customers to our business through nationwide brand awareness and … during local events maximize the exposure of the company in the market during that week.”

The sponsorship will have to touch a lot of people for it to pay off.

Buy.com, founded in June 1997 and located in Aliso Viejo, Calif., forked over $8.5 million in cash, a $17 million line of credit, and 1.125 million shares of stock for the five-year deal. The company went public Feb. 8 – two days after the Buy.com Tour’s first event in Gainesville, Fla. Shares closed that day at $25.13.

Like other Internet pure plays, the tour-naming deal was calculated to make a media splash and drive traffic to its e-commerce portal by grabbing mind-share – the association of a specific brand to a product line. It also allowed Buy.com access to a coveted demographic – affluent, educated white males ages 18 to 49. With that exposure, Buy.com anticipated a jump in sales of 38 percent to 50 percent in 2000. According to its third-quarter results, Buy.com racked up $190.2 million in revenues – up 19.6 percent over the same period a year ago. (Its net loss declined to $25.3 million, down from $33.1 million a year earlier.) However, Amazon.com saw its third-quarter revenues rise 79 percent from 1999 in spite of Wall Street’s spanking of Internet stocks.

That’s important because Buy.com’s sponsorship was viewed as a critical component of its strategy to position itself as the dominant online retailer. Today, King Amazon wears that crown. Indeed, a year after the sponsorship deal, Buy.com finds itself essentially where it started – nipping at the heels of Amazon.com, according to NextCard’s October 2000 eCommerce Index, which measures top Web sites based on the number of online transactions by more than 577,000 users of NextCard, an Internet credit card.

But one important indicator for Buy.com is on the upswing. Cumulative customer accounts reached 3.1 million, up from 1.9 million in December 1999. It would appear the sponsorship has worked on some level.

Hill could not provide firm numbers to tie sales growth to the sponsorship, but he says “there’s clearly a link between our improving brand awareness and the continuing growth numbers. It’s an indirect link – not directly traceable – but we feel like it’s working.”

Nonetheless, as financial difficulties hinder the Internet sector (Buy.com’s stock has plunged to $1 as of Nov. 30), many cash-poor dot-coms have turned Scrooge, no longer tossing money around on luxury items such as sports sponsorships. For instance, HomePoint.com abandoned its college bowl sponsorship after one year of a two-year deal.

FamilyClick.com probably will drop NASCAR Winston Cup racing because owners now want payment in cash, not stock.

That doesn’t mean the sponsorships didn’t work.

“My sense … was that many of these deals successfully increased consumer awareness and even helped push Web traffic,” says Sean Brenner, managing editor of IEG Sponsorship Report, an industry newsletter. “The problem in many cases was that companies weren’t able to monetize those site visits or create marketing programs around the sponsorship to engender consumer loyalty.”

Will Buy.com follow lockstep with other dot-com sponsors and bail out of its sponsorship, should the going get rougher, to save its financial hide?

Hill says Buy.com is contractually committed for five years, but beyond that, “we feel very positive with our relationship with the PGA Tour. We’re actively seeking to build the Tour. We’re very conscious of the environment and concerned about it – the financial market and how our company is valued today. There are some very stormy waters, but we think our ship is sailing smoothly, and we expect Buy.com to be one of the survivors in the shakeout.”

Meanwhile, PGA Tour officials rave about the arrangement. “We have just concluded a very successful first year,” said Bill Calfee, chief of operations for the Buy.com Tour. “We have a strong working relationship with the people at Buy.com and have been very pleased with the results so far.” m

Originally organized in 1990 as the Ben Hogan Tour, the PGA developmental circuit became the Nike Tour in 1993. Nike’s original contract with the PGA Tour included the 2000 season, but Nike wanted to expand its international presence on the PGA Tour. Nike could shift its marketing investment if a replacement sponsor for its developmental tour contract could be found.

Like other sports organizations in the past two years, the PGA Tour grabbed at the money flowing from the Internet sector. Buy.com assumed Nike’s role; Nike became a World Golf Championship sponsor this year.

Doing business with a dot-com exposed the Tour to a new degree of risk. Nevertheless, PGA officials bristle at the suggestion the deal was a matter of cold cash and characterize the alliance as an opportunity to elevate the profile of the developmental tour.

“Entering this agreement opened a whole new avenue of potential sponsors for the PGA Tour that has grown to include other dot-com businesses,” said Bill Calfee, chief of operations for the Buy.com Tour. “The financial backing of Buy.com allowed the Buy.com Tour to make tremendous strides in 2000 with purses growing 70 percent over the previous year.”

Chief Financial Officer Mitch Hill were unsuccessful.

• • •

Founded in June 1997, and located in Aliso Viejo, Calif., Buy.com filed for an initial public offering Oct. 27, 1999 – two days after the ink had dried on its landmark deal with the PGA Tour. On Feb. 8 – two days after the Buy.com Tour’s first event in Gainesville – Buy.com went public. Shares closed that day at $25.13. It’s been largely downhill ever since. Buy.com’s stock has plunged to $1 (as of Nov. 30) , down a staggering 96 percent from its IPO days.

Even the good news for the company can translate as bad.

“With this we had the chance to get an almost ridiculous amount of national coverage every week,” Buy.com CEO Gregory Hawkins told Golfweek at the time.

To leverage the sponsorship online and offline, Buy.com ran online sweepstakes and hawked exclusive Buy.com Tour merchandise as well as nonexclusive PGA Tour merchandise to draw customers to its site – a move to generate more ads and boost rates. Through its e-commerce portal, Buy.com operates buygolf.com as one of its online superstores.

Offline, the company resembled the traveling elixir peddler of the Old West, erecting tents at Buy.com Tour events, trying to raise awareness of the company and convince crowds that online shopping wasn’t snake oil.

It was recently announced that the 2001 Buy.com Tour promises a minimum increase of $25,000 per event – with four events boasting purses over $500,000 – and 11 events will be broadcast on The Golf Channel. That plays into Buy.com’s commitment “to continue to pursue an aggressive branding and marketing campaign in order to attract new customers and retain existing customers,” which includes its sponsorship of the Buy.com Tour, its Form 10-Q states.

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