ESPORTE INTERATIVO TEACHING NOTE
ANDREW ZACHARAKIS
CASE SUMMARY
Esporte Interativo (EI) successfully launched and competed in the Brazilian sports television market for
over 12 years. EI basically created the category (e.g., ESPN of Brazil) and came to prominence by
televising the Champions League for European soccer, the National Basketball Association (NBA), and
other sports content property. Since its founding, other television entities have recognized the potential
for sports broadcasting which has dramatically driven up the cost of securing sports content. Edgar
Diniz and Leo Lenz Cesar, co–founders and the CEO and CFO of EI were pondering how to continue to
compete and grow in an increasingly competitive space. The main decision point was whether to accept
an offer from Turner Broadcasting Corporation to acquire EI.
NATURE OF THE CASE
All information contained within this case, including names and company financial data, is factual, unless
otherwise noted, and has not been altered. All data for this case was obtained between October 2016
and January 2018 via secondary research and firsthand interviews with authorized representatives from
the subject company.
The nature of this case is Entrepreneurial Decision–Making and it is appropriate for both undergraduate
and graduate entrepreneurship classes.
TEACHING OBJECTIVE
• Primary Lesson: Resources for growth.
• Secondary Lessons: (1) Understanding the nature of competition (key success factors); (2)
Putting forth a growth strategy; and (3) Negotiating with a potential acquirer (both financial and
non–financial terms).
LEARNING OBJECTIVES
1. Describe the challenges the team faces as they design and implement their aggressive growth
strategy to increase share value.
2. Describe the causes and effects of each of the three fronts of the growth strategy: distribution,
content, and social media.
3. Understand what the Key Success Factors (KSFs) are to succeed in this industry.
4. Negotiate with a potential acquirer for both financial (valuation) and non–financial (role for
founders, earn–out provisions, strategy for firm, etc.) terms.
TEACHING STRATEGY
1. Opener: How many of you watch sports on T.V.? Why do you watch? How do you watch? Use
this question to have students shape the sports broadcasting landscape.
a. It is perfectly okay for them to talk about sports in their home country. One of the
factors that first drove Edgar, Leo and Carlos (an original founder who left the company)
was their experiences in the U.S. and the fact that sports was as professionalized in their
home country of Brazil.
b. What you want to get at in this discussion is not only the types of sports broadcasting
(e.g., mainline broadcasters of sports like ABC, CBS, NBC and Fox), but also the
proliferation of other distribution points like pay TV (e.g., ESPN) and social media (e.g.,
Twitter and Facebook as means for sports teams and athletes to promote themselves
not only at the professional level but also the amateur level).
c. Explore the business models of some major players.
2. Once you have analyzed the U.S. market, look at the Brazilian market.
a. The Brazilian broadcasting market is dominated by Globo (the 4th largest media
company in the world). Globo controls 37% of the free–to–air audience. It has country
wide audience reach (distribution), huge resources to buy content, and money to invest
in its social media strategy. In addition to free–to–air, the pay (cable) market has also
exploded. While ESPN has been in Brazil since 1989, the pay TV market was very small
until 2012 when it started to grow dramatically. Brazil has several pay TV sports
competitors such as SporTV, Fox Sports, etc. While this material is not covered in the
case to keep it concise, you can have students do some outside research and bring it to
class.
b. What drives success in this market? This question gets to the Key Success Factors to
compete and grow in the Brazilian market.
Zacharakis, A., Corbett, A., & Bygrave, W. (2020) Entrepreneurship, 5th Edition. Hoboken, NJ: Wiley
means having transmitters and spectrum throughout the country. This
spectrum is all used up which means having to buy spectrum from companies
that own it. Cable TV is controlled by the providers and again requires
negotiating favorable terms with those providers. Both of these avenues are
critical to gaining social media traction. The more well–known your firm, the
more people who will respond to your social media messages.
ii. Content – the sports leagues and associations generate and then license their
content for broadcast. These contracts run into the millions and billions of
dollars. For example, the last NFL contract signed in 2011 was worth $27
billion. As noted in the case, EI secured the Champions League for $45
million/year through 2018. As the proliferation of new sports channels
continues to grow, popular content will continually get more expensive.
iii. Social Media – since content is increasingly expensive, EI and other sports
channels need to leverage that content across multiple platforms. EI has been
aggressive in creating its own social media platforms as well as using Facebook
and other existing platforms. The key question becomes how do you utilize
social media to make your brand stand out in a noisy environment.
3. Edgar and Leo recognize the need for resources to compete and grow.
a. EI has been aggressive in raising capital through its life. Have the students detail the
type and amount of capital that EI has used thus far (have them examine the balance
sheet in exhibit 2).
Zacharakis, A., Corbett, A., & Bygrave, W. (2020) Entrepreneurship, 5th Edition. Hoboken, NJ: Wiley
ii. Over BRL 110 million of outstanding common stock. Note, most of that BRL 85
million comes from the 27% stake that Turner purchased in 2013.
b. Despite all this investment and funding, EI is still struggling to compete on distribution
and content.
4. [VOTE] Should EI negotiate with Turner and be completely acquired?
a. Address pros and cons of each side.
b. Valuation – how much is EI worth?
Zacharakis, A., Corbett, A., & Bygrave, W. (2020) Entrepreneurship, 5th Edition. Hoboken, NJ: Wiley
BRL 74 million. Thus, it should be worth more, if all else was equal. In fact, the
company had been growing consistently over its life.
iii. One simple valuation would be to see what its revenue multiple was when
Turner bought its first stake in 2013. The valuation was roughly 6Xs revenue
(valuation of BRL315/revenue of BRL59.6 = 6). If we use the same multiple, the
company is valued at BRL425 million at end of 2014 (6 x BRL74 million in
revenue = 425 million). Thus, for the remaining 73%, Turner would pay
approximately BRL310 million.
iv. The actual valuation is determined by negotiation between the parties (Turner
and EI). The key is for Edgar and Leo to have a sense of the valuation so that
they can negotiate effectively. They need to know the range in which they are
comfortable making the deal.
v. Ask the students how Edgar and Leo might be able to improve their negotiation
position?
1. Shop EI to other potential acquirers, such as Globo, ESPN, etc.
2. Highlight the content contracts that they currently have and the length
of those contracts.
3. Show how EI fills a gap in Turner’s portfolio and how this may be a
platform to strengthen their position in other Latin American countries.
c. While the valuation and subsequent negotiation are important, many entrepreneurs
focus on valuation to the detriment of other important issues. Ask the students what
else Edgar and Leo should negotiate?
i. Future roles – EI has been their “baby” for 12+ years. By being acquired, they
will no longer have final say in the direction of the company. It is important to
QUESTIONS FOR DISCUSSIONS
1. Describe the challenges the team faces as they design and implement their aggressive growth
strategy to increase share value.
2. Describe the causes and effects of each of the three fronts of the growth strategy.
3. Does EI have what it takes to continue competing against the giants in terms of resources?
4. Is there something they can do differently?
5. Should the partners sell the company?
6. If they accept the TBS offer, what other considerations (besides price) should the founders
negotiate for? How should they broach these topics in the negotiations?
WEBSITE LINKS
EI homepage http://www.esporteinterativo.com.br/
EI You Tube Channel https://www.youtube.com/user/videosei/videos
EI Facebook https://www.facebook.com/esporteinterativo/
EI Instagram https://www.instagram.com/esporteinterativo/?hl=en
EI Twitter https://twitter.com/esp_interativo?lang=en
WHAT REALLY HAPPENED
EI was acquired by Turner Broadcasting on January 26, 2015. Leo remains with the company as Vice
President for Business Development in the sports division. Edgar left the company and founded
LiveMode, a company that works with professional sports clubs to maximize their digital presence.
Teaching Note Exhibit A: Opportunity Checklist
Customer
Better Opportunities
Weaker Opportunities
Identifiable
Defined core customer
Undefined customer
Demographics
Clearly defined and focused
Fuzzy definition and unfocused
Psychographics
Clearly defined and focused
Fuzzy definition and unfocused
Trends
Macro market
Multiple and converging
Few and disparate
Target market
Multiple and converging
Few and disparate
Window of opportunity
Opening
Closing
Market structure
Emerging/Fragmented
Mature/Decline
Market size
How many
Large core customer group
Small, unclear customer groups
Demand
Greater than supply
Less than supply
Market growth
Rate
20% or greater
Less than 20%
Price/Frequency/Value
Price
Gross Margin > 40%
Gross Margin < 40%
Frequency
Often and repeated
One time
Value
Fully reflected in price
Penetration pricing
Operating expenses
Low and variable
Large and fixed
Net Profit Margin
>10%
<10%
Volume
Very high
moderate
Distribution
Where are you in value
chain?
High margin, high power
Low margin, low power
Competition
Market structure
Emerging
Mature
Number of direct
competitors
Few
Many
Number of indirect
competitors
Few
Many
Number of substitutes
Few
Many
Stealth competitors
Unlikely
Likely
Strength of competitors
Weak
Strong
Key Success Factors
Relative Position
Strong
Weak
Vendors
Relative power
Weak
Strong
Gross margins they control in
value chain
Low
High
Government
Regulations
Low
High
Taxes
Low
High
Global Environment
Customers
Interested and accessible
Not interested or accessible
Competition
Nonexistent or weak
Existing and strong
Vendors
Eager
Unavailable
Source: Zacharakis, A., Bygrave, W, & Corbett, A. (2017) Entrepreneurship, 4th edition. New York: Wiley.
Used with permission.