Global Sports Nets Fogdog For a Song

Wielding a consolidation pooper-scooper, Global Sports announced plans to acquire struggling sporting goods e-tailer
Fogdog for roughly $40 million in cash and
stock. Fogdog’s stock price has gradually slipped beneath the waves at just
under a buck, having long since fallen victim to its Scarlet Letter stigma
as a plain vanilla business-to-consumer Internet play. That pessimistic
trend shared by retail investors doesn’t look to change anytime soon, and
this deal was likely the best exit strategy in sight.

Executives at Fogdog, like most
publicly-traded e-tailers, were holding out for a blockbuster holiday
season and strong fourth quarter sales to put online retailing back in
vogue with investors. The upstart is fairly cash-rich as far as most
dot-com’s go, with some $40 million remaining under its pillow. But, B2C
Internet retailers have lately begun to show signs of permanent damage on
Wall Street during this market correction; and even should Internet stocks
enjoy a broad recovery, the retailing stocks aren’t likely to follow suit.

Despite previously maintaining a brave face under wretched circumstances on
the tech-heavy Nasdaq, Fogdog’s CEO Tim Harrington acknowledged, “This has
been a turbulent market environment for pure-play b-to-c business models.”
That’s being awfully diplomatic considering Fogdog once boasted a 52-week
high share price in the mid-20 dollar range. Prior to the acquisition
announcement, the firm’s stock sat patiently at $0.66. When stock market
conditions became less than ideal, Fogdog saw its chairman, along with a
director on its board, head for the hills, severing all ties with the
company back in May.

Under the terms of the deal, Global
Sports will swap nearly 5 million shares of common stock in exchange
for all of Fogdog’s outstanding shares. For investors not already hip to
Global Sports’ business model, that wouldn’t come as much of a shocker to
the firm’s management. The company has largely avoided having to walk the
proverbial plank alongside out-of-favor e-tailers, because it’s more of a
middleman than a salesman. Global Sports provides a one-stop shop for
established brick-and-mortar brands to sell their respective wares online,
with customers that include the likes of Sports Authority and The Athlete’s Foot.

Global Sports designs and implements each client’s Web site, while handling
all of the sales, fulfillment, customer service and infrastructure.
Essentially, the company’s stable of 13 offline partners lend their
established brands, while Global Sports does the rest, in exchange for an
eye-popping 93% cut of revenues. That lucrative business model was enough
to net the sporting goods player a staggering $150 million in funding from
heavies Softbank Capital Partners and QVC.

A potential Achilles heel for Global Sports has always been the bevy of
rivals competing for customer dollars in the sporting goods patch. Fogdog
and MVP.com were once a pair of Web sites
that posed the beefiest threat. One down, one to go. And word on the Street
is MVP.com is on the auction block itself. The sports site backed by
Michael Jordan, John Elway and Wayne Gretzky signed a deal with
Sportsline.com to become the site’s exclusive
e-commerce provider earlier this year. The contract had MVP.com paying
Sportsline $120 million over 10 years. Just last week, MVP.com missed a $5
million payment under that deal, which indicates the coffers have likely
run dry. So don’t be surprised if MVP.com is next on Global Sports’
land-grab list.

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