Wednesday, February 01, 2006

Mining for Lead Means No Silver: 
Is MLBAM Hungry or Scared?  

The question is this: is it Immature Exuberance or Late-Stage Panic?

Major League Baseball's highly successful media group, MLBAM (MLB Advanced Media) has worked out a deal between MLB (the owners) and MLBPA (the players' union) to market fantasy/rotisserie baseball leagues. It's an odd, but not illogical extension of MLB's licensing strategy, which is designed to glean the chaffy bits of extra income from activities related to the National Pastime, like baseball cards and team-logo haberdashery. But, according to Business of Baseball's Maury Brown (posted on The Hardball Times, and thanks to Baseball Think Factory), this has brought the leagues into a legal clash with existing Stats Love Brokers over the right of the competitor fantasy/rotisserie organizations (most of which, but by no means all of which are for-profit endeavours) to use players' names and the stats those players produce. MLBAM refused to grant a license to at least one of them, and the Stats Love Broker sued. MLBAM is going to argue that to use names of public figures (the ballplayers) and numbers that any fan in the stands with a scorebook can get as a by-product of keeping score are intellectual property that should be licensed. 

MLBAM's is an interesting argument, not devoid of merit. There are some good business arguments on both sides, and while legal precedent favors the right of the outsider rotisserie dudes to use the already-public information, it's not an inevitability like a José Mesa spontaneous combustion in an inherited runners situation. I suspect a majority of the recreational schemes' sponsors don't have enough cash flow to fight MLB in court or to miss all the revenue opportunities the 2006 season (at least) has to offer, and will settle. I suspect MLB knows this.

So regardless of how the merits might play out in court, the deeper pockets are likely to win. The winnings will be to an organization as big as MLB... chump change...enough to pay Sergio Mitre's 2006 salary but probably not his 2007 salary.

What's the point for MLBAM? Why create a thousand hours of work for counsel on both sides and kill trees over an amount of revenue that won't pay a mop-up man's salary? You see these situations beyond baseball all the time, and there are three common reasons they happen. I'm going to point these out because knowing this sometimes enables you to recognize all kinds of intel about the atacking organization that they would rather keep secret.

Keep in mind that few organizations will mine for lead if silver is equally available. They might try to market the lead that's the by-product of the silver mining, but probably not if their return on the silver is already enough to fuel returns. Dinging the Stats Love Brokers definitely yields lead-quality returns.

COMMON REASON #1 -- The attacking organization is on a decline it cannot stem with the creative energy & growth in its market & is just trying to squeeze a little more juice out of the old beetle before it folds.

Old corporations with intellectual capital but not much current creative juice will sometimes sue competitors legitimately in the hopes they can slow their own erosion. Usually it's an organization that's too big to still be effective, overcome with the diseconomies of scale, fat with overhead. IBM flirted with this approach a few times, but never fell into it completely. Sometimes the company still has a bit of orgone, but the market they're in is contracting. Business Objects recently won a battle of patents with business intelligence rival MicroStrategy, a company that's had no shortage of difficulty sustaining real profits from real products. Both companies are struggling less because they are out of intellectual steam than that the business intelligence market is very difficult with their prospective customers struggling for margin and viewing the solutions as frosting not cake.

This, btw, doesn't look like MLBAM's reason.

COMMON REASON #2 -- The attacking organization is struggling to survive because even though it has creative energy, its markets are blocked & the chump change it stands to claim is more than it currently has.

In the 80s and 90s, some tech. companies that couldn't get into oligopolistic markets for business technology (operating systems, high-end computers, instrumentation) took this route. For them, the pride of winning is worth something, perhaps another round of venture financing, and the chump change might look like a lot.

This doesn't look like MLB's reason either.

COMMON REASON #3 -- The attacking organization just brought counsel in house or hired new outside counsel and the newcomer is trying to make an impression or the hiring executives want to show off their new toy.

I call this "immature exuberance". When what you have in your hand is a legal weapon, everything looks like Michael Jackson.

I have been a partner in a consulting operation for a long time, The Data Works, Ltd. It started around 1980 by getting a Washington state license and paying taxes and all that boring legit stuff. We took out ads, and did a twice-weekly radio show using our name. Around 1986, the business manager got a letter from an attorney advising us our name infringed on his new client's name (they were Dataworks). We checked with the State (they shouldn't have issued us the name if it was that close) but they didn't have Dataworks on record. I researched around -- there was no evidence of them I could find anywhere. They had no license, didn't pay taxes, had been around only a year, but they had for some reason hired an attorney and had chosen to pay him in equity. The counsel decided to flex his new corporate muscle. He was very disappointed when I called him back and asked him when they first got a license. He had had no idea before he called of any of the facts. Immature exuberance.

I've worked in medium organizations that when they got big enough brought counsel in-house, and this inevitably leads to quick, not always well-thought-out actions from the attorney looking to prove quick returns.

It's classic immature exuberance. They have a mission and time.

I suspect this MLBAM action against rotisserie is a bit of immature exuberance, people at a growing successful young division of MLB flexing their new muscles and seeing what they can do. It's not good for goodwill, and I suspect their take won't cover their outlays.

When you see lead mining beyond baseball, if you can discern your antagonist's reason, your knowledge can be a solid advantage in a negotiation or court battle. With margins thinning, and less growth available in established sectors of the U.S. economy, you can expect to see more lawsuits over intellectual proprty infringement for all three reasons, as operations try to find non traditional ways to attain the growth they wish they had.

In too many cases, it'll be Reason #1. Like an old pitcher who's lost a few m.p.h. of his heater wetting one down. He wants to stay in the game an get outs...he just doesn't have the stuff any more.

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