Back to GetFilings.com

Table of Contents

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   x

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

     The aggregate market value of shares of Common Stock held by non-affiliates of the Registrant as ofJune 28, 2002, the last trading day of the Registrant’s most recently completed second fiscal quarter, was approximately $33,762,686 based on the $1.03 closing price for the Common Stock on The Nasdaq National Market on such date.  For purposes of this computation, all executive officers and directors of the registrant have been deemed to be affiliates.  Such determination should not be deemed to be an admission that such directors and officers are, in fact, affiliates of the registrant.

     The number of shares of Common Stock of the registrant outstanding as of March 24, 2003 was 38,060,986.

DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the registrant’s definitive Proxy Statement relating to its 2003 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this report, are incorporated by reference into Part III of this report.

Table of Contents

Index to Items

2

Table of Contents

PART I

Item 1.    Business.

               Certain statements contained in this Annual Report on Form 10-K, including, without limitation, statements containing the words “believes,” “anticipates,” “estimates,” “expects,” and words of similar import, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Readers are referred to the “Risk Factors” section of the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained herein, which identifies important risk factors that could cause actual results to differ materially from those contained in the forward looking statements.

               SportsLine.com, Inc. (together with its subsidiaries, “SportsLine” or the “Company”) publishes one of the most comprehensive collections of multimedia sports news and information available on the Internet and offers consumers a broad assortment of merchandise and subscription and premium services, including fantasy leagues and contests.  SportsLine offers advertisers the opportunity to reach its audience through marketing solutions that include sponsorships, advertising and direct marketing services. 

               The Company has established a number of important strategic relationships to increase awareness of the SportsLine brand, build traffic to its Web sites and develop proprietary programming. SportsLine has strategic relationships with, among others, CBS Broadcasting Inc. (“CBS”), the National Football League (the “NFL”), the National Collegiate Athletic Association (the “NCAA”), the PGA TOUR, Westwood One and the National Basketball Association (the “NBA”) and serves as a primary sports content provider for America Online, Inc. (“AOL”).  See “– Strategic Relationships.” 

Sports Information, Programming and Distribution

               SportsLine offers a broad range of sports-related information and programming, which it delivers through its network of Web sites and other distribution channels.

     Information and Programming

3

Table of Contents

       Web Sites

               cbs.sportsline.com, the Company’s flagship Web site, features comprehensive, in-depth coverage of all major professional and college sports on a domestic and international basis.  The cbs.sportsline.com Web site offers fantasy sports products for all major sports including NFL, MLB, NBA, NHL, PGA Tour and NASCAR.  See “— Subscription and Premium Products.”  cbs.sportsline.com has won numerous awards since its initial launch in 1996.

4

Table of Contents

Recent awards include Best Sports website in the WebAward competition by the Web Marketing Association (2002); One of 50 Best Web sites by Time Magazine (2002); Best Fantasy Sports site from Yahoo! Internet Life’s “100 Best Sites of ‘02” (2002); Horizon Awards “Top Sports Web Site of the Year” and “Sports Business Impact Partnership of the Year” (2001); one of the top 100 innovative high-tech companies from Info World 100 (2001); Top Fantasy Baseball site, Los Angeles Times (2001); Outstanding Achievement in Web Site Development, Web Marketing Association (2001); Horizon Awards “Top Sports Business Website Marketing Campaign of the Year” (2000); The Top 100 Web sites, P.O.V. Magazine (2000); Top NFL Web site by Access Magazine (2000); San Francisco Chronicle Best of the Web 2000; an Outstanding Web site by the Web Marketing Association (2000); Best Football Site from Yahoo! Internet Life (2000); and The Top 100 Web Sites, PC Magazine (2000). 

               NFL.com, produced by SportsLine in association with the NFL and in partnership with AOL and CBS, is the league’s official Web site and the anchor of the NFL Internet Network, which includes NFL.com, the 32 NFL team Web sites and other related Web sites, including superbowl.com, playfootball.com and nfleurope.com. The NFL.com site delivers complete coverage of the NFL and its players with state-of-the-art technology, live scoring and play-by-play, audio and video streaming from NFL Films and a fantasy football product suite.  Additionally, the site provides access to the teams and players with behind-the-scenes features, news and analysis. The NFL.com site was honored with the Horizon Award as the “Top League Web Site of the Year” for 2001.

               [email protected], produced by the Company in association with the PGA TOUR, is a comprehensive golf site that offers the only full leaderboard real-time scoring on the Internet from the PGA TOUR, CHAMPIONS TOUR and NATIONWIDE TOUR events.  The site also features news covering other golf organizations and international tours.  Additionally, the pgatour.com site focuses on recreational golf, travel opportunities and golf instruction and features a variety of interactive tools such as course guides and reviews.  The site also contains exclusive features such as Live@17, a video transmission of one hole of a PGA TOUR tournament; and “TOURCast”, which allows users to view specific details such as distance and location of each shot of every golfer in a tournament.  The pgatour.com site also features the PGA TOUR SHOP, the official online pro shop of the PGA TOUR offering a complete line of golf equipment, accessories, apparel and other products, including PGA TOUR branded merchandise.  The site also incorporates the Company’s golfweb.com site, which provides golf-related content, interactive entertainment, membership services, golf course discounts and merchandise.   

               NCAASports.com, produced by SportsLine pursuant to a sublicense of rights from CBS, is the official Web site of NCAA championship events.  The NCAASports.com site features in-depth coverage of all championship events administered by the NCAA and a vast array of year-round content including student-athlete features, standings, stats, brackets, event results and on-site championship information, including tickets, local events and activities.

               mvp.com is a state-of-the-art comprehensive sports-oriented retail Web site that offers consumers the opportunity to purchase thousands of licensed products, memorabilia and sporting goods.  See “—Merchandise.”

               vegasinsider.com provides sports gaming information and features electronic odds on all major sports events from major Las Vegas casinos, including the Stardust, the MGM Mirage, Caesars-Hilton, and Harrah’s/The Rio, plus lines from nationally recognized oddsmakers.  Handicapping information includes commentary, matchup analysis and picks from some of the nation’s leading sports handicappers.  The site’s news reporting is focused on a gaming perspective and provides detailed statistical and matchup analysis tools, including “against-the-spread” and “straight-up” records, team and player statistics and injury and weather reports.  Live scoreboards provide breaking news and scores, updates, recaps and boxscores.  On February 26, 2003, the Company announced its intention to dispose of its gaming information operations, including the vegasinsider.com Web site.  See “– Management’s Discussion and Analysis of Financial Condition and Results of Operations–Recent Developments.”

               Other League Web Sites. SportsLine has created Web sites for sports organizations and major sports events, including superbowl.com (for Super Bowl XXXV, XXXVI and XXXVII), usopen.org (for the US Open Tennis Championship in 2001) and pgachampionship.com (for the PGA Championship in 2000 and 2001).

5

Table of Contents

               SportsLine is responsible for the technical development, production and maintenance of the Web sites it creates for third parties, as well as customer service, technical support and billing associated with the sale of premium features or merchandise. SportsLine’s third party Web site agreements are for terms ranging from one to five years and generally provide SportsLine the exclusive right to create a Web site for a sports league, superstar, personality or organization as well as to receive certain content for the Web site and, in some cases, to use the league, athlete or organization’s name, logos and other materials to promote the Company’s business and products.  In consideration for the rights granted under its third party Web site agreements, SportsLine has, in certain instances, issued shares or warrants to purchase shares of Common Stock and/or agreed to make cash payments.  The Company generally is entitled to receive a percentage of the sponsorship, advertising and other revenue generated from the third party Web sites it develops. 

                Other Distribution Channels

               The inclusion of the Company’s content in AOL’s services makes the Company’s sports content and programming readily accessible to Web users that access the Internet via the AOL platform.   See “—Strategic Relationships—AOL.”  The Company, in partnership with the Westwood One Radio Network, had two radio programs in syndication as of December 31, 2002: “NFL Today,” broadcast in approximately 150 markets and “NFL Sunday,” broadcast in approximately 175 markets. 

Strategic Relationships

               SportsLine has established strategic relationships to provide marketing, e-commerce and cross-promotional opportunities to increase consumer awareness of the SportsLine brand and other brands owned by the Company, to build traffic on its Web sites and to obtain exclusive sports content for its Web sites.

               CBS.  In March 1997, the Company entered into a strategic alliance with CBS pursuant to which the Company’s flagship Web site was renamed “cbs.sportsline.com.”  The term of the agreement, as amended, runs through 2006.  The agreement provides for cbs.sportsline.com to receive, among other things, extensive network television advertising and on-air promotion, primarily during CBS television sports broadcasts of events such as the NFL, the NCAA Men’s Basketball Championship, NCAA Football, PGA TOUR events and U.S. Open tennis.  In addition, the Company has the right to use certain CBS logos and television-related sports content on cbs.sportsline.com and in connection with the operation and promotion of that Web site.  CBS and the Company seek to maximize SportsLine’s advertising sales revenue through a joint advertising sales effort. 

               PGA TOUR.   In April 1999, the Company entered into an exclusive agreement to align the pgatour.com and golfweb.com Web sites and co-produce a comprehensive golf site providing real-time scoring, golf news and information regarding recreational golf, travel opportunities and golf instruction.  The Company and the PGA TOUR have combined resources to develop sales and sponsorship opportunities and share revenues from the combined site.   This agreement expires at the end of 2003.

               NFL.  In July 2001, SportsLine entered a four-party, multi-year agreement with NFL Enterprises, L.P., CBS and AOL encompassing a wide-range of initiatives, including the production and hosting by SportsLine of NFL.com, the most popular sports league Web site. SportsLine was given the designation of “official online sports partner of the NFL” and benefits in its marketing efforts from the use of official NFL marks and logos and other league assets.  The cbs.sportsline.com site is prominently promoted on the NFL Internet Network, and receives selected NFL content for use on cbs.sportsline.com, including four video clips a week, an audio game of the week, contests and sweepstakes.

               SportsLine manages media sales and direct marketing services for NFL.com and related sites.  In addition to producing NFL.com, the Company produces other NFL-related sites, such as superbowl.com, playfootball.com, and nfleurope.com, as well as the official fantasy football games for the sites. SportsLine also hosts and sells certain NFL content, such as NFL Films video, within the team sites. SportsLine, the NFL, CBS and AOL have also agreed to jointly explore a range of potential new business ventures in technology-based media.

6

Table of Contents

               NCAA.  In February 2003, SportsLine entered into an agreement with CBS whereby SportsLine sublicensed the rights for the official NCAA Championship Web site, in their entirety, through 2006. These rights include site production, hosting and management of the sale of advertising for NCAASports.com, and the exclusive rights to provide Internet broadcasts of certain NCAA championships including the Division 1 Men’s Basketball Championship.  CBS received the NCAA’s Internet rights, beginning in 2003, as part of its long-term arrangement with the NCAA that includes coverage of the Division I Men’s Basketball Championship and approximately 65 other championships, as well as radio, corporate marketing, licensing, publishing and special events rights. 

               AOL.  In July 1997, SportsLine entered into a strategic programming and distribution agreement with AOL pursuant to which cbs.sportsline.com became the first “anchor tenant” on the AOL service.  In October 1998, SportsLine and AOL significantly expanded their online relationship to provide SportsLine-produced sports news and statistics, special features, major event coverage and merchandise on several key AOL brands around the world.  In July 2001, SportsLine and AOL entered into a multi-year extension to the agreement, pursuant to which SportsLine remains an anchor tenant on the AOL Sports Channel, giving it access to AOL’s more than 30 million members.  Additionally, SportsLine receives extensive promotion across key America Online interactive brands, including Netscape, Compuserve, Digital City and ICQ.  SportsLine also provides private label fantasy sports game products to AOL and sells advertising and sponsorships in connection with those games, including NFL fantasy products produced in association with the NFL, and fantasy games for professional baseball, basketball, hockey, golf and auto racing, as well as college basketball tournament brackets contests.

               GSI Commerce, Inc.  In July 2002, the Company entered into an e-commerce relationship with GSI Commerce, Inc. (“GSI”) under which GSI was named the exclusive operator of the Company’s online store, operated under the MVP.com brand name.  Under the five-year agreement, GSI manages certain components of the store, including customer service, order processing and fulfillment.   The Company oversees the merchandising and marketing of the store. 

               Westwood One.  In August 1999, the Company entered into a three-year agreement with Westwood One.  Under this agreement, the Company produces sports content for Westwood One/CBS Radio Sports’ coverage of live sporting events.  In addition, Westwood One was granted the right to syndicate the Company’s radio programs (“NFL Today” and “NFL Sunday”).  In August 2002, the Company extended its programming and promotional agreement with Westwood One through July 2005. 

               Sports Superstars.  The Company has established strategic relationships with sports superstars and personalities, including Michael Jordan, Tiger Woods, Joe Namath and Shaquille O’Neal.

Advertising and Marketing Services

               The Company believes that the demographics of its audience are similar to traditional sports advertisers’ target market.  Based on Company-sponsored market research, users of SportsLine’s United States-targeted Web sites are predominantly male, 75% are between the ages of 25 to 54, 87% have attended college and 47% have an annual income greater than $75,000.

               The Company currently derives, and expects to continue to derive, a substantial portion of its revenue from advertising on Web sites.  The Company sells sponsorship opportunities that enable advertisers to associate their corporate messages with the Company’s coverage of athletes and marquee events (such as the Super Bowl, the NCAA Men’s Basketball Championship, tennis and golf’s major events, the NBA playoffs and the Stanley Cup playoffs), its fantasy sports products, special features of the Company’s Web sites (including GameCenters and live scoring applications) and special promotions, contests and events. In addition, the Company sells “banner” advertisements that allow interested readers to link directly to the advertisers’ own Web sites or to promotional sites created by SportsLine.  SportsLine targets as advertisers on its Web sites traditional sports advertisers, such as consumer product and service companies, technology companies, sporting goods manufacturers and automobile companies.

7

Table of Contents

               Advertising revenue is generally derived from short-term advertising contracts on a per-impression basis or for a fixed fee based on a minimum number of impressions. SportsLine’s advertising rates generally range from $5.00 to $30.00 per thousand impressions.  To enable advertisers to verify the number of impressions received by their advertisements and monitor their advertisements’ effectiveness, the Company provides its advertisers with third party audit reports showing data on impressions received by their advertisements.

               The Company has developed its database marketing capabilities to offer its advertisers more targeted means to reach sports fans.  SportsLine has developed its direct marketing database by leveraging its registration process for fantasy products, memberships, contests and other products and services.  The Company had approximately 10.5 million registered users as of December 31, 2002. Current programs in place include direct e-mail campaigns as well as cost-per-lead-generation campaigns that are promoted on registration pages.

               SportsLine’s in-house sales staff develops and implements its advertising strategies, including identifying strategic accounts and developing presentations and promotional materials.  The Company has sales personnel located in Fort Lauderdale, New York, Chicago, San Francisco, Los Angeles, Atlanta and Detroit.  The Company also capitalizes on its cross-marketing relationships with sports superstars, personalities, organizations and affinity groups by seeking sponsorships and advertisements from their sponsors.  The Company coordinates its advertising sales efforts for cbs.sportsline.com with CBS’s television network advertising sales personnel.

               No customer accounted for more than 9% of the Company’s revenue during 2002 or 2001. 

Subscription and Premium Products

               The Company offers fantasy products for professional football, baseball, basketball, hockey, golf and auto racing.  These fantasy products allow members to form their own team by assembling a group of athletes from a sport and following their performance on a weekly or daily basis.  These fantasy teams can then perform in competitions administered by the Company for cash or merchandise prizes, or compete in leagues administered by the users on the Company’s Web site. 

               The Company’s fantasy sports products are offered for all major sports including NFL, MLB, NBA, NHL, PGA TOUR and NASCAR. The Company’s top-selling fantasy league management service is offered for use during the NFL, MLB, NBA and NHL seasons. Leagues are charged a fee for each sport in which they participate. Single team purchases are also available, and are managed by Company representatives. Fantasy challenge games are selectively made available. These competitions allow all participants to compete against the entire game population for a grand prize. 

               From July 2000 to July 2001, the Company offered its fantasy products and services as a free service. Offering fantasy products for free allowed the Company to showcase its league management service to a broad audience of fantasy players who had either only played free games before or had never played in a fantasy game online.  As a result of this strategy, the Company attracted more than four million fantasy products customers in 2001, firmly establishing SportsLine as a clear leader in fantasy sports offerings.   After July 2001, the Company converted its free fantasy products back to primarily pay services, with select challenge and other games made available for free from time to time.   Offerings include a league management service currently priced at $139.95 or individual fantasy teams, placed in a league, ranging in price from $9.95 to $249.95, based on prizes and type of game. During 2002, more than 80,000 paid fantasy leagues representing about one million teams were formed in the Company’s fee-based baseball, football, basketball and hockey fantasy games. In addition, the total number of teams in all of the Company’s fantasy sports products for 2002 was in excess of five million, including products managed by the Company for AOL, NFL.com and si.com.

Memberships

               The Company currently offers two versions of its core loyalty program. SportsLine Rewards is free to members and SportsLine Rewards Plus is available for a fee of $39.95 per year. Both programs allow members to earn points by visiting the cbs.sportsline.com Web site, becoming more involved in membership offerings, referring others

8

Table of Contents

to register and clicking on sponsors’ advertisements. Members can redeem accumulated points in exchange for merchandise in the SportsLine Rewards catalog or by participating in auctions for a variety of goods and services. SportsLine Rewards Plus members receive enhanced program benefits such as double points for visiting the cbs.sportsline.com site, access to exclusive contests and the ability to redeem points in exclusive auctions. 

               Through its membership programs, the Company has established an extensive database of members who exhibit increased media consumption (visit frequency and page views) due to their intense usage of the Company’s membership products and services. The membership list is also one of company’s key assets in terms of both internal list marketing and external direct marketing services. Core membership products include web site customization offerings and a wide variety of contests. All membership benefits require registration and many are offered free of charge. In addition, the Company’s fantasy sports products require registration to participate and users become part of the Company’s database of members. 

               The Company offers members the ability to customize its Web site in two ways. On the cbs.sportsline.com Web site, members can enter their favorite (and despised) teams and players along with their zip code. Given these preferences, the Web site is tailored to highlight information specific to the member’s team and player preferences. The member’s zip code is used to translate all schedule information into their local time zone.  Members who desire more control over their cbs.sportsline.com experience can design their own personal sports Web pages using “My SportsLine”. This product allows the user to manage the content, layout and page settings of the site. Both customization offerings are intended to make the cbs.sportsline.com visitor experience more efficient and effective.

               The Company also provides the opportunity for registered users to participate in contests and sweepstakes in which the user can win cash, trips or merchandise. In many cases, an advertiser sponsors these contests and sweepstakes.

Merchandise

               In July 2002, the Company entered into a five-year e-commerce relationship with GSI under which GSI was named the exclusive operator of the Company’s online store, marketed under the MVP.com brand name.  GSI provides inventory and conducts sales on the MVP.com Web site and pays a revenue share to the Company which is included in advertising and marketing services revenue.  In January 2001, following the cessation of business operations by MVP.com, Inc., the sports and outdoor e-commerce company that had previously acquired and agreed to operate SportsLine’s domestic e-commerce business, SportsLine acquired certain assets of MVP.com, Inc., including the domain names, trademarks and certain other assets associated with the Web sites mvp.com, planetoutdoors.com, igogolf.com, golfclubtrader.com and tennisdirect.com. 

Marketing

               The Company’s agreement with CBS provides for cbs.sportsline.com to receive extensive network television advertising and on-air promotion, primarily during CBS television broadcasts of sports events such as the NFL, the NCAA Men’s Basketball Championship, NCAA Football, PGA TOUR events and U.S. Open tennis.  In addition, CBS will provide on-air promotion for NCAASports.com, produced by SportsLine, during its telecasts of NCAA championships.  NFL.com, which is produced by the Company and has direct links to cbs.sportsline.com, receives significant on-air promotion during all televised broadcasts of NFL games, including broadcasts on ABC, ESPN and Fox. PGATOUR.com, which is produced by the Company and has direct links to cbs.sportsline.com, receives significant on-air promotion during all televised broadcasts of PGA TOUR events, including broadcasts on ABC, NBC, ESPN, Fox SportsNet, USA Networks, TNT, Golf Channel and CNBC. The Company’s agreement with Westwood One Radio Network provides the Company with extensive on-air promotion and live reads during radio broadcasts of the NFL, NCAA Football, Notre Dame Football and HBO Boxing and during other special events, such as the U.S. Open and Masters golf tournaments.

               Under the terms of the Company’s multi-year agreement with AOL, cbs.sportsline.com is an anchor tenant on the AOL Sports Channel and receives extensive promotion across key AOL interactive brands, including Netscape, Compuserve, Digital City and ICQ.  Pursuant to the anchor tenancy agreement, the “CBS SportsLine.com”

9

Table of Contents

brand is promoted to AOL’s more than 30 million members, each of whom have instant access to the Company’s comprehensive coverage of the sports world through cbs.sportsline.com’s continuous presence on the main screen of the AOL Sports Channel. The Company’s features and programming are also integrated throughout the AOL Sports Channel’s aggregated sports areas.

               Another effective marketing outlet for the Company has been online advertising. The Company, from time to time, purchases advertising impressions on leading web sites. In addition the Company purchases paid listings on major search engines to promote its fantasy sports products. SportsLine also advertises using direct e-mail, targeted print publications, stadium signage, outdoor billboards, and sports talk radio.

Member Service and Support

               The Company believes that member service and support are important to its ability to attract and retain members.  The Company’s member services staff provides telephone and continuous e-mail support, responds to customer requests concerning technical aspects of SportsLine’s Web sites and certain third party software and conducts inbound and outbound telemarketing on a 16 hour a day, seven day a week basis. 

Competition

               The market for Internet services and products is highly competitive and the Company expects that competition will continue to intensify.  SportsLine competes, directly and indirectly, for advertisers, viewers, members, content providers, merchandise sales and rights to sports events with the following categories of companies: (i) Web sites targeted to sports enthusiasts generally (such as espn.com, si.com, sports.yahoo.com and foxsports.com) or to enthusiasts of particular sports (such as Web sites maintained by the NBA, MLB and the NHL); (ii) publishers and distributors of traditional off-line media (such as television, radio and print), including those targeted to sports enthusiasts, many of which have established or may establish Web sites; (iii) general purpose consumer online services such as AOL and MSN, each of which provides access to sports-related content and services; (iv) vendors of sports information, merchandise, products and services distributed through other means, including retail stores, mail, facsimile and private bulletin board services; and (v) Web search and retrieval services, such as Google, Lycos, Netscape and Yahoo!, and other high-traffic Web sites.   Management believes that SportsLine’s most significant competitors are espn.com, Yahoo! Sports, AOL Sports, foxsports.com and si.com, all of which offer a variety of sports content.

               The Company believes that the principal competitive factors in attracting and retaining users and members are the depth, breadth and timeliness of content, the ability to offer compelling and entertaining content and brand recognition.  Other important factors in attracting and retaining users include ease of use, service quality and cost.  The Company believes that the principal competitive factor in attracting and retaining content providers and merchandisers is SportsLine’s ability to offer sufficient incremental revenue from licensing fees, bounties and online sales of product or services.  The Company believes that the principal competitive factors in attracting advertisers include the number of users and members of SportsLine’s Web sites, the demographics of SportsLine’s user and membership bases, price and the creative implementation of advertisement placements.  There can be no assurance that the Company will be able to compete favorably with respect to these factors.

               Certain current and potential competitors of SportsLine have longer operating histories, significantly greater financial, technical and marketing resources, significantly greater name recognition and substantially larger user or membership bases than SportsLine and, therefore, have a significantly greater ability to attract advertisers and users.  In addition, many of these competitors may be able to respond more quickly than the Company to new or emerging technologies and changes in Internet user requirements and to devote greater resources than the Company to the development, promotion and sale of their services.  There can be no assurance that SportsLine’s current or potential competitors will not develop products and services comparable or superior to those developed by SportsLine or adapt more quickly than the Company to new technologies, evolving industry trends or changing Internet user preferences.  Increased competition could result in price reductions, reduced margins or loss of market share, any of which would materially and adversely affect the Company’s business, results of operations and financial condition.  There can be no assurance that the Company will be able to compete successfully against current and future

10

Table of Contents

competitors, or that competitive pressures faced by the Company would not have a material adverse effect on its business, results of operations and financial condition.

Government Regulation and Legal Uncertainties

               General.

               Except as discussed below, SportsLine’s Internet operations are not currently subject to direct regulation by any government agency, other than regulations applicable to businesses generally. The application of existing laws and regulations to SportsLine with respect to issues such as the protection of databases, user privacy, defamation, pricing, advertising, gambling, taxation, sweepstakes and contests, promotions, content regulation, quality of products and services and intellectual property ownership and infringement can be unclear. In addition, SportsLine may also be subject to new laws and regulations directly applicable to its activities.  Any existing or new legislation applicable to SportsLine could expose it to substantial liability, including significant expenses necessary to comply with such laws and regulations, and dampen the growth in use of the Web.

               SportsLine’s contests and sweepstakes may be subject to state and Federal laws governing lotteries and gambling.  The Company seeks to design its contests and sweepstakes to either not be subject to or to fall within exemptions from such laws and restricts participation to individuals over 18 years of age who reside in jurisdictions within the United States and Canada in which the contests and sweepstakes are lawful.  There can be no assurance that SportsLine’s contests and sweepstakes will be exempt from such laws or that the applicability of such laws to the Company would not have a material adverse effect on the Company’s business, results of operations and financial condition.

               Certain Federal laws could have an impact on SportsLine’s business. The Digital Millennium Copyright Act is intended to reduce the liability of online service providers for listing or linking to third-party Web sites that include materials that infringe copyrights or other rights of others. The Children’s Online Protection Act and the Children’s Online Privacy Protection Act are intended to restrict the distribution of certain materials deemed harmful to children and impose additional restrictions on the ability of online services to collect user information from minors. In addition, the Protection of Children From Sexual Predators Act of 1998 requires online service providers to report evidence of violations of Federal child pornography laws under certain circumstances. Such legislation may impose significant additional costs on the Company’s business or subject the Company to additional liabilities.

               SportsLine posts its privacy policy and practices concerning the use and disclosure of user data on its Web sites.  Any failure by the Company to comply with its posted privacy policy, requirements of the Federal Trade Commission (the “FTC”) regarding user privacy, or other privacy-related laws and regulations could result in proceedings by the FTC or others which could potentially have an adverse effect on SportsLine’s business, results of operations and financial condition. In this regard, the United States Congress and state legislative bodies periodically consider legislation regarding privacy issues that could affect SportsLine’s business.  It is not possible to predict whether or when such legislation may be adopted, and certain proposals, if adopted, could materially and adversely affect the Company’s business through a decrease in user registrations and revenues.  This could be caused by, among other possible provisions, the required use of disclaimers or other requirements before users can utilize SportsLine’s services.

               Due to the global nature of the Internet, it is possible that the governments of various states of the United States or foreign countries may attempt to regulate SportsLine’s transmissions or to prosecute SportsLine for violations of their laws.  The Company may unintentionally violate these laws and these laws may be modified, or new laws enacted, in the future.  It is also possible that various states of the United States or foreign countries may seek to impose sales taxes on out-of-state businesses that engage in commerce over the Internet.  In the event that states or foreign countries succeed in imposing sales or other taxes on Internet commerce, the growth of the use of the Internet for commerce could slow substantially.

11

Table of Contents

               Nevada Regulation and Licensing

               During 2000, the Company’s wholly owned subsidiary, VegasInsider.com, Inc. (“VegasInsider”), purchased the DBC Sports division (“DBC Sports”) of Data Broadcasting Corporation (“DBC”), including all of the outstanding stock of Las Vegas Sports Consultants (“LVSC”).  LVSC was and remains engaged in the business of selling and providing certain information to casinos doing business in Nevada.  As such, it is required to be licensed as an “information service provider” as that term is defined by the Nevada Gaming Control Act and the regulations promulgated thereunder (the “Nevada Act”) and is subject to the licensing and regulatory control of the Nevada Gaming Commission (the “Nevada Commission”) and the Nevada State Gaming Control Board (the “Nevada Board”) (The Nevada Commission and the Nevada Board are collectively referred to as the “Nevada Gaming Authorities”). 

               The laws, regulations and supervisory procedures of the Nevada Gaming Authorities are based upon declarations of public policy which are concerned with, among other things: (i) the prevention of unsavory or unsuitable persons from having a direct or indirect involvement with gaming at any time or in any capacity; (ii) the establishment and maintenance of responsible accounting practices and procedures; (iii) the maintenance of effective controls over the financial practices of licensees, including the establishment of minimum procedures for internal fiscal affairs and the safeguarding of assets and revenues, providing reliable record keeping and filing periodic reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and fraudulent practices; and (v) providing a source of state and local revenues through taxation and licensing fees. Changes in such laws, regulations and procedures could have an adverse effect on the Company’s “information services provider” operations.  Gaming licenses require the periodic payment of fees and taxes and are not transferable.

               Prior to the acquisition of LVSC by the Company, LVSC had submitted an application with the Nevada Gaming Authorities to be licensed as an “information service provider.” As a result its change of ownership, LVSC filed an amended application with the Nevada Gaming Authorities in order to reflect its new ownership structure.  VegasInsider filed an application with the Nevada Gaming Authorities to be found suitable as an intermediary holding company, and the Company filed an application with the Nevada Gaming Authorities to be registered as a publicly traded company (“Registered Corporation”).  In addition, certain officers and/or directors of the Company, VegasInsider and LVSC filed applications with the Nevada Gaming Authorities to be found suitable as officers and/or directors of the respective companies.  In November 2000, the Nevada Board activated an investigation of the respective applications and the investigation is ongoing.  However, prior to final action on the applications, LVSC is permitted under Nevada law to continue to operate its present business without an approved license.

               The Company has declared its intention to sell LVSC and VegasInsider; upon the sale of these businesses, the Company intends to seek withdrawal of its applications to the Nevada Gaming Authorities.  LVSC and VegasInsider intend to continue their respective business operations pending such sale. If, prior to the sale, the Nevada Gaming Authorities determines that LVSC, VegasInsider or the Company are unsuitable, LVSC may be required to cease the business of providing odds information to Nevada’s licensed sports books, within a time frame prescribed by the Nevada Gaming Commission.

Intellectual Property

               SportsLine’s performance and ability to compete are dependent to a significant degree on its internally developed content and technology.  The Company relies on a combination of copyright and trademark laws, trade secret protection, confidentiality and non-disclosure agreements with its employees and with third parties and contractual provisions to establish and protect its proprietary rights.  There can be no assurance that the steps taken by SportsLine to protect its proprietary rights will be adequate, that SportsLine will be able to secure trademark registrations for all of its marks in the United States and/or foreign countries, or that third parties will not infringe upon or misappropriate the Company’s copyrights, trademarks, service marks and similar proprietary rights.  In addition, effective copyright and trademark protection may be unenforceable or limited in certain foreign countries, and the global nature of the Internet makes it impossible to control the ultimate destination of the Company’s services.  In the future, litigation may be necessary to enforce and protect the Company’s trade secrets, copyrights and other intellectual property rights.

12

Table of Contents

               From time to time, third parties have asserted copyright or trademark infringement claims against SportsLine or claims that the Company’s use of certain technologies violates a patent. If it is determined that SportsLine has infringed upon a third party’s proprietary rights, there can be no assurance that any necessary licenses or rights could be obtained on terms satisfactory to the Company, if at all.  The inability to obtain any required license on satisfactory terms could have a material adverse effect on the Company’s business, results of operations and financial condition.  SportsLine may also be subject to litigation to defend against claims of infringement of the rights of others or to determine the scope and validity of the intellectual property rights of others.  If competitors of SportsLine prepare and file applications in the United States that claim trademarks used or registered by the Company, SportsLine may oppose those applications and have to participate in proceedings before the United States Patent and Trademark Office to determine priority of rights to the trademark, which could result in substantial costs to the Company, even if the eventual outcome is favorable to the Company.  An adverse outcome could require SportsLine to license disputed rights from third parties or to cease using such trademarks.  Any such litigation would be costly and divert management’s attention, either of which could have a material adverse effect on the Company’s business, results of operations and financial condition.  Adverse determinations in such litigation could result in the loss of certain of the Company’s proprietary rights, subject the Company to significant liabilities, require the Company to seek licenses from third parties, or prevent the Company from selling its services, any one of which could have a material adverse effect on SportsLine’s business, results of operations and financial condition.  In addition, inasmuch as SportsLine licenses a substantial portion of its content from third parties, its exposure to copyright infringement actions may increase because the Company must rely upon such third parties for information as to the origin and ownership of such licensed content.  SportsLine attempts to obtain representations as to the origins and ownership of such licensed content and generally obtains indemnification to cover any breach of any such representations; however, there can be no assurance that such representations will be accurate or that such indemnification will provide adequate compensation for any breach of such representations.

               The Company has applied to register in the United States a number of marks, several of which include the term “SportsLine.” The Company has filed applications to register “SportsLine” marks in the United Kingdom, Canada and Mexico.  There can be no assurance that the Company will be able to secure adequate protection for these trademarks in the United States or in foreign countries.  Many foreign countries have a “first-to-file” trademark registration system; and thus the Company may be prevented from registering its marks in certain countries if third parties have previously filed applications to register or have registered the same or similar marks.  It is possible that competitors of the Company or others will adopt product or service names similar to the Company’s, thereby impeding the Company’s ability to build brand identity and possibly leading to customer confusion.  The inability of the Company to protect its “SportsLine” mark and other marks adequately could have a material adverse effect on the Company’s business, results of operations and financial condition.

               SportsLine grants users of its Web sites a license to use the Company’s service under an agreement that prohibits the unauthorized reproduction or distribution of SportsLine’s licensed and proprietary content.  Despite the Company’s efforts to protect its proprietary rights, unauthorized parties may attempt to copy aspects of the Company’s service or to obtain and use information that SportsLine or its content providers regard as proprietary.  There can be no assurance that the steps taken by the Company to protect its proprietary rights will be adequate or that third parties will not infringe or misappropriate SportsLine’s copyrights, trademarks, service marks and similar proprietary rights.

Employees

               As of December 31, 2002, SportsLine had 294 full-time employees, of whom 96 employees were in editorial and operations, 61 were in technical and product development, 100 were in sales and marketing, and 37 were in finance and administration.  The Company’s future success depends in large part upon its ability to attract and retain highly qualified employees.  There can be no assurance that the Company will be able to retain its senior management or other key employees or that it will be able to attract and retain additional qualified personnel in the future.  The Company’s employees are not represented by any collective bargaining organization, and the Company considers its relations with its employees to be good.

13

Table of Contents

Infrastructure, Operations and Technology

               The Company’s web sites are made available with multiple servers using both the Red Hat Linux and Solaris operating systems on Dell, Intel and Sun equipment. The majority of the sites was built using the perl programming language and is served with the Apache web server software. Capabilities in place include bulletin boards, mail, chat, news groups, merchandising, and interactive Java and Flash applications.

               The Company maintains the equipment used to service its customer sites with Cable and Wireless (“C&W”) in their Miami, Florida datacenter facility. The facility maintains multiple redundant Internet feeds on the C&W backbone and accommodates 4 to 5 times the amount of bandwidth capabilities that the Company requires. The Miami datacenter gets power from two independent power grids and is located near Miami International Airport, which is given higher priority for service restoration in the event of a catastrophe. The datacenter is staffed twenty-four hours a day, every day, with both operations and security personnel.  The Company also maintains a disaster recovery site with C&W datacenter in Sterling, Virginia.

               The Company’s offices and production/programming systems are located at its Fort Lauderdale, Florida corporate headquarters.  The Company’s headquarter operations are dependent upon its ability to protect its systems against damage from fire, hurricanes, power loss, telecommunications failure, break-ins, computer viruses and other events beyond the Company’s control.  The Company maintains access to and from the Internet through two third-party providers of DS3 connections; one provides a capacity of 45 megabits per second, the other provides 100 megabits per second capacity. These links are connected to two routers in the Company’s facility.  Redundant cables from the Company’s building connect with each local Internet provider’s network.  The Company’s Internet connections are designed to be fully redundant, so that if a failure in the network or equipment of one service provider occurs, traffic is automatically routed through to the other provider.  All of the Company’s computer equipment is powered by an uninterruptible power supply, which is backed up by a diesel generator designed to provide power to the UPS within seconds of a power outage.  In addition, all of the Company’s production systems are copied to backup tapes each night and stored at a third party, off-site storage facility.  All of the Company’s computer equipment is insured at replacement cost.  The Company also maintains a private data circuit connecting it’s headquarter facility to its Miami datacenter and uses an encrypted virtual private network over the Internet as a redundant backup to that circuit.

               If, despite these and other precautions taken, the Company’s internet access is disrupted, and the Company’s third party providers are unable to handle higher volumes of users, or such third party providers experience damage or failure that causes system disruptions or other significant interruptions in the Company operations, the Company’s business, results of operations and financial condition could be materially adversely affected.

Executive Officers

               The executive officers of the Company are as follows:

               Michael Levy has served as the Chairman of the Board, President and Chief Executive Officer of the Company since its inception in February 1994.  From 1979 through March 1993, Mr. Levy served as President, Chief Executive Officer and as a director of Lexicon Corporation, a high technology company specializing in data communications and signal processing technology.  From January 1988 to June 1993, Mr. Levy also served as Chairman of the Board and Chief Executive Officer of Sports-Tech International, Inc., a company engaged in the

14

Table of Contents

development, acquisition, integration and sale of computer software, equipment and computer-aided video systems used by professional, collegiate and high school sports programs.  Between June 1993 and February 1994, Mr. Levy was a private investor. 

               Mark J. Mariani has served as President, Sales and Marketing, since June 1999. He joined the Company in April 1996 as Executive Vice President, Sales. Mr. Mariani is responsible for Sales, Marketing, Radio Operations and Vegas Insider. From August 1991 to March 1996, Mr. Mariani served as Executive Vice President of Sports Sales for Turner Broadcasting Sales, Inc.  From June 1990 to August 1991, Mr. Mariani served as Senior Vice President and National Sales Manager for CNN in New York, and from May 1986 to June 1990, Mr. Mariani served as Vice President for CNN Sales Midwest. Prior to joining Turner Broadcasting, Mr. Mariani served as an Account Executive for WBBM, an owned and operated CBS television station in Chicago, Illinois. 

               Peter Pezaris  has served as SportsLine.com’s President of Operations and Product Development since April 2002, responsible for technology and computer operations as well as programming, production and fantasy products.  From June 2001 to April 2002, Mr. Pezaris was President, Product Development, responsible for programming, production and fantasy products and prior to June 2001 was Senior Vice President, Product Development, responsible for SportsLine.com’s Commissioner.com subsidiary, which produces Fantasy products for CBS SportsLine.com as well as official Fantasy games for NFL.com and AOL.com. Mr. Pezaris joined SportsLine in December 1999 when SportsLine acquired Daedalus World Wide Corporation (“DWWC”), the producer of Commissioner.com fantasy products that Mr. Pezaris co-founded in 1995. Prior to DWWC, Mr. Pezaris was a systems and software developer for the investment banking firms of Bankers Trust and Salomon Brothers.

               Kenneth W. Sanders has served as President of Finance and Administration and Chief Financial Officer since January 2001. Mr. Sanders became the Vice President and Chief Financial Officer of the Company in September 1997 and was appointed Senior Vice President in October 1998. From January 1996 to August 1997, Mr. Sanders served as Senior Vice President, Chief Financial Officer of Paging Network, Inc., the world’s largest paging company. From May 1993 to December 1995, Mr. Sanders served as Executive Vice President, Chief Financial Officer and a director of CellStar Corporation, an integrated wholesaler and retailer of cellular phones and related products. Between July 1979 and April 1993, Mr. Sanders was with KPMG Peat Marwick, most recently as an Audit Partner from July 1990 to April 1993.

Item 2.    Properties.

               SportsLine’s corporate headquarters are located in Fort Lauderdale, Florida.  The Company currently leases approximately 80,000 square feet under a lease which expires in March 2010. See Note 11 of Notes to Consolidated Financial Statements.  The Company has options to extend the lease for two additional five-year terms.  The space at the corporate headquarters facility is in excess of the Company’s current needs and the Company is seeking to sublease approximately 30,000 square feet of the facility.  SportsLine leases sales offices in Chicago, New York, Atlanta, San Francisco, Los Angeles and Detroit and office space in Las Vegas.  The Company also leases two offices in Austin, Texas and New York, New York that are no longer being used by the Company and are currently being subleased; however, there is no guarantee that these subleases will continue in the future.

Item 3.    Legal Proceedings.

               In November 2001, Sandbox.com, Inc. (“Sandbox”) filed a lawsuit in the Seventeenth Judicial Circuit in and for Broward County, Florida, alleging that the Company breached an agreement and plan of merger to acquire Sandbox (the “Merger Agreement”), misappropriated trade secrets, breached fiduciary duties, and was unjustly enriched as a consequence of alleged transfers of assets and proprietary information.  The Company in its Answer and Affirmative Defenses and Claim of Right to Setoff asserts that it was within its contractual rights to terminate the Merger Agreement and otherwise denies the substantive claims set forth in Sandbox’s complaint, claims a $600,000 set off for Sandbox’s breach of the Merger Agreement, and has filed a counterclaim against Sandbox and a third party complaint against another party for fraud in the inducement relating to the Merger Agreement and a related Consulting Agreement.  The case is in the pre-trial discovery phase, and no trial date or pretrial order has yet been

15

Table of Contents

set by the court.  On September 6, 2002, Sandbox commenced a Chapter 11 bankruptcy proceeding in the United States Bankruptcy Court, Eastern District of Virginia, which was subsequently converted into a Chapter 7 bankruptcy proceeding.  The Company believes that it is unlikely that the bankruptcy trustee will continue to pursue the case; however, the Company believes that the claim by Sandbox is without merit and intends to vigorously defend itself in this action in the event the case is pursued by the trustee.   The Company also intends to continue to pursue its claims against the third party defendant. 

               On January 28, 2003, SportsTicker Enterprises, L.P., a vendor of electronic sports data, filed a lawsuit against SportsLine in New York State Supreme Court, alleging that SportsLine improperly terminated its subscription agreement with SportsTicker.   SportsTicker’s complaint seeks approximately $2.15 million in damages.  On March 24, 2003, SportsLine filed a motion to dismiss all claims on the ground that SportsLine’s termination was expressly authorized by the contract as a result of interruptions in SportsTicker’s service.  The motion has not yet been decided.  The Company believes the claim by SportsTicker is without merit and intends to vigorously defend itself in this action.

               From time to time, SportsLine may be involved in litigation relating to claims arising out of its operations in the normal course of business.  The Company is not currently a party to any other legal proceedings, the adverse outcome of which, individually or in the aggregate, is expected to have a material adverse effect on SportsLine’s financial position or results of operations.

Item 4.    Submission of Matters to a Vote of Security Holders.

               No matter was submitted to a vote of security holders during the fiscal quarter ended December 31, 2002.

16

Table of Contents

PART II

Item 5.    Market for the Registrant’s Common Equity and Related Stockholder Matters.

Market Prices for the Company’s Common Stock and Related Stockholder Matters

               The Company’s Common Stock has been traded on the Nasdaq National Market under the symbol “SPLN” since November 13, 1997.  The following table sets forth for the periods indicated the range of high and low closing prices per share of Common Stock, as reported by the Nasdaq National Market:

               SportsLine has never paid any cash dividends on its Common Stock and does not anticipate paying any cash dividends in the foreseeable future.  SportsLine currently intends to retain future earnings, if any, to fund the development and growth of its business.

               As of March 11, 2003, the Company had approximately 570 stockholders of record.

Sales of Unregistered Securities During the Year Ended December 31, 2002

               No underwriter was involved in any of the above sales of securities.  All of the above securities were issued in reliance upon the exemption set forth in Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), on the basis that they were issued under circumstances not involving a public offering.

17

Table of Contents

Item 6.    Selected Financial Data.

               The following data should be read in conjunction with the Company’s Consolidated Financial Statements and Notes thereto included in Item 8 of this Form 10-K.  The selected consolidated balance sheet data set forth below as of December 31, 2002 and 2001, and the selected consolidated statement of operations data for the three years ended December 31, 2002 have been derived from the Company’s audited consolidated financial statements included elsewhere herein.¹

¹ Results of Sports.com are consolidated from August 1999 through July 2001 only.  See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview.”

18

Table of Contents

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

               The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements, which involve risks and uncertainties.  The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of certain risk factors, including those set forth under “Risk Factors that May Affect Future Results,” below and elsewhere in this Report.  The following discussion also should be read in conjunction with the information set forth in “Item 6. Selected Financial Data” and the Company’s Consolidated Financial Statements and Notes thereto included in “Item 8. Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

Overview

               Commencing in 2002, the Company is categorizing its revenue streams into two types: advertising and marketing services revenue and subscription and premium products revenue. Prior to 2002, the Company also derived revenue from content licensing and international revenue.  Advertising and marketing services revenue, subscription and premium products revenue, content licensing revenue and international revenue constituted approximately 77%, 23%, 0%and 0%, respectively, of the Company’s total revenue in 2002; 80%, 8%, 5%and 7%, respectively, of the Company’s total revenue in 2001; and 76%, 6%, 9% and 9%, respectively, of the Company’s total revenue in 2000. 

               Advertising and marketing services revenue is derived principally from short-term advertising contracts on a per impression basis or for a fixed fee based on a minimum number of impressions.  Advertising revenue also includes sponsorship opportunities that enable advertisers to associate their corporate messages with the Company’s coverage of major sports and marquee events, games and contests for a fee.   Advertising and marketing services revenue is also derived from the sale of advertising on Web sites that the Company operates such as NFL.com and pgatour.com.  Advertising and marketing services revenue is recognized in the period in which the advertisement is displayed or services rendered, provided that no significant obligations remain and collection of the resulting receivable is probable.  Company obligations typically include guarantees of a minimum number of “impressions,” or times that advertisements appear in page views downloaded by users.  Advertising and marketing services revenue includes the Company’s revenue from its direct marketing services and from promotion of e-commerce Web sites such as MVP.com and the NFL.com shop.

               Although most of the content on the Company’s Web sites is free, users of the Company’s Web sites can purchase memberships and premium services for a fee.  Subscription and premium products revenue relating to annual memberships and seasonal sports contests is recognized ratably over the life of the membership agreement or contest period.  Accordingly, amounts received for which services have not yet been provided are recorded as deferred revenue on the Company’s balance sheets. 

               Content licensing revenue was recognized over the period of the license agreement as the Company delivered its content.  The Company did not have any content licensing revenue in 2002 and does not expect to have any such revenue in the future, unless the Company enters into new content licensing agreements. International revenue was related to the Company’s prior subsidiary Sports.com.

               In March 1997, the Company entered into a strategic alliance with CBS pursuant to which the Company’s flagship Web site was renamed “cbs.sportsline.com.”  The CBS agreement was amended in February 1999 (as amended to date, the “CBS Agreement”) to extend the term for an additional five years, effective as of January 1, 1999, through 2006.  Commencing with calendar year 1999, CBS is obligated to provide advertising and promotion of the cbs.sportsline.com Web site pursuant to a fixed promotion schedule. In consideration of additional promotional and advertising opportunities, at the time of the execution of the amendment in 1999, the Company accelerated the issuance of the remaining shares that were formerly to be issued in 2000 and 2001 (567,579 and 485,358 shares, respectively), issued additional warrants to purchase 1,200,000 shares of common stock at per share exercise prices ranging from $23 in 1999 to $45 in 2001 and became obligated to issue additional shares of common stock valued at $100 million between 2002 and 2006.  The 1999 amendment to the CBS Agreement provides that SportsLine’s obligation to issue additional shares of common stock valued at $100 million between 2002 and 2006 is to be satisfied

19

Table of Contents

by the issuance of shares having a fair market value of $20 million based on the average of closing prices of the common stock on the Nasdaq National Market for the five-day period ending on the day prior to each of the following five issue dates, as applicable:  January 1, 2002; April 1, 2003; July 1, 2004; October 1, 2005; and January 1, 2007. In January 2002, the Company satisfied the first of the foregoing five issuances by issuing approximately 6.9 million shares of common stock to CBS valued at $20 million.  In March 2003, the CBS Agreement was amended to modify the annual schedule of stock issuances to CBS.   See “—Recent Developments.” 

               In July 2001, SportsLine entered into a multi-year agreement (the “NFL Agreement”) with CBS, AOL and the NFL.  Pursuant to the terms of the NFL Agreement, SportsLine is responsible for the production and hosting of the NFL’s Internet sites, including NFL.com, superbowl.com, nfleurope.com and playfootball.com.  SportsLine is entitled to recoup the costs of such production and hosting pursuant to an agreed-upon budget, from the first dollars of revenue generated from such sites, after the payment of certain sales commissions, including but not limited to, advertising and sponsorship sales, e-commerce revenues and direct marketing and, to a limited extent, from the exploitation of certain emerging media rights (collectively, the “Gross Revenues”).  SportsLine is responsible for a portion of the rights fee payments required to be made to the NFL under the NFL Agreement, with SportsLine’s share of the required cash payments aggregating $24,050,000 over the five-year term of the NFL Agreement as follows:  $4,238,000 has been paid as of December 31, 2002, $812,000 is owed for the second year; $6,000,000 for each of the third and fourth years; and $7,000,000 for the fifth year.  In addition, SportsLine issued to the NFL 350,000 shares of SportsLine common stock upon effectiveness of the NFL Agreement; and is obligated to pay an additional $1,333,333 in cash or stock, at SportsLine’s option, in May 2003 and an additional $2,666,667 in cash or stock, at SportsLine’s option, in May 2004.  After the payment of certain sales commissions and SportsLine’s recoupment of its production and hosting expenses, SportsLine is entitled to a graduated share of Gross Revenues in an amount aggregating approximately 50% of the first $140,000,000 of Gross Revenues generated during the term of the NFL Agreement.  In addition, SportsLine may be entitled to receive 20% of certain additional Gross Revenues in excess of such amount.  The NFL has the unilateral right to terminate the NFL Agreement after the second or third year of the contract. 

               In July 2001, SportsLine extended its existing agreement with AOL (the “AOL Extension”).  Pursuant to the AOL Extension, SportsLine paid AOL $1,000,000 cash in July 2001 and issued to AOL approximately 1.95 million shares of common stock valued at $2,000,000 in July 2002, and the Company is obligated to pay an additional $1,000,000 in cash and/or stock, at SportsLine’s option, in July 2003.

               In May 1999, SportsLine established Sports.com as a European-based, majority owned subsidiary.  In 2000, the Company consolidated between 71% and 100% of the losses of Sports.com, which had historically been offset by the allocation of a portion of such losses to third party holders of Sports.com common stock.  On July 17, 2001, Sports.com raised approximately $13,000,000 in equity funding from its existing investors.  After giving effect to the funding, the Company’s fully diluted ownership stake in Sports.com, including all outstanding warrants and management options, was approximately 30%. As a result of the Company’s reduced ownership interest in Sports.com and a reduction in the Company’s representation on Sports.com’s board of directors to less than a majority, as of July 17, 2001 the Company no longer consolidated the results of Sports.com and accounted for its investment in Sports.com under the equity method of accounting.  In accordance with United States generally accepted accounting principles, the Company recorded in 2001 the effect of the deconsolidation of the subsidiary in the amount of $41,739,000.  The Company’s comprehensive loss in 2001 decreased by approximately $5,200,000 due to the deconsolidation of Sports.com.  After July 17, 2001, the Company no longer recorded any losses generated by Sports.com, as its investment had been reduced to zero and the Company had no future obligation to provide funding to Sports.com. Sports.com’s assets and liabilities are included in the Company’s Consolidated Balance Sheet as of December 31, 2000. Sports.com’s revenue, expenses and minority interest are included in the Company’s Consolidated Statements of Operations for the year ended December 31, 2000 and its revenue, expenses and minority interest through July 17, 2001 are included in the Consolidated Statement of Operations of the Company for the year ended December 31, 2001.  On May 31, 2002, Sports.com was placed into administration, a procedure in the U.K. pursuant to which a court-appointed administrator assumes day-to-day control of a company in order to determine whether a business should be reorganized, sold or liquidated.  In July 2002, the Company terminated its inter-company agreement with Sports.com, pursuant to which, among other things, the Company licensed the sports.com domain to Sports.com.  Separately, the Company sold the rights to the sports.com domain to an unrelated third party.  The effect on the Company’s financial condition and results of operations was not material.

20

Table of Contents

               The Company acquired DWWC in December 1999.  The transaction was accounted for using the purchase method of accounting.  The purchase resulted in goodwill of $31,880,000, which was being amortized over an estimated life of seven years.  In the fourth quarter of 2000, a $12,000,000 liability (included in accounts payable at December 31, 2000) was recorded pursuant to the purchase agreement, which provided for additional consideration contingent upon the acquired company meeting certain performance thresholds.  During the first quarter of 2001, 828,376 shares of common stock were issued in satisfaction of $6,000,000 of the liability and during the fourth quarter of 2001, 2,195,968 shares of common stock were issued in satisfaction of the remaining $6,000,000 liability.  In addition, the Company recognized a goodwill write-down during the year ended December 31, 2001 of $17,000,000 related to the reduced estimate of the value of its investment in DWWC.  The Company’s assessment of its goodwill investment was based on historical operations, undiscounted future cash flows and the market values of similar entities.  See Note 4 of Notes to Consolidated Financial Statements.  The Company performed the annual impairment test required under SFAS No. 142 to test impairment as of October 1, 2002.  As a result, the Company found no impairment of its goodwill.  At December 31, 2002, the Company had goodwill of $16,194,000 recorded for DWWC.

               In April 2000, the Company, through its wholly owned subsidiary VegasInsider.com, Inc., purchased the assets of the DBC Sports division (“DBC Sports”) of Data Broadcasting Corporation (“DBC”), including LVSC, in exchange for 277,152 shares of the Company’s common stock (the “Consideration Shares”).  Pursuant to the terms of the purchase agreement, the Company guaranteed that the Consideration Shares would have a value equal to or greater than $12.5 million on March 31, 2001 (the “Guaranteed Proceeds”).  On April 6, 2001, due to the decline in the trading price of the Company’s common stock, the Company fulfilled its obligation to DBC by purchasing the Consideration Shares for $12.5 million. The Consideration Shares were cancelled and retired in April 2001. The Company recorded a goodwill write-down of $4,600,000 in 2001 to reflect a reduction in the estimated value of its investment in DBC Sports.  The assessmentof goodwill was based on historical operating results, undiscounted future cash flows and the market values of similar entities.  The Company performed the annual impairment test required under SFAS No. 142 to test impairment as of October 1, 2002.  As a result, the Company recorded a goodwill write-down of $2,650,000 to adjust the value of its investment in DBC Sports to its estimated fair value.  At December 31, 2002, the Company had goodwill of $2,017,000 recorded for DBC Sports.  See Note 4 of Notes to Consolidated Financial Statements.

Recent Developments

     NCAASports.com Agreement

               In February 2003, the NCAA, CBS and SportsLine announced an agreement whereby the Company sublicensed the rights from CBS for the official NCAA Championship Web site, in their entirety, through 2006. These rights include site production, hosting and management of the sale of advertising for the NCAASports.com Web site, and the exclusive rights to provide Internet broadcasts of certain NCAA championships, including the Division 1 Men’s Basketball Championship. The Company and CBS will share in revenues from the operations of the new site, with the Company’s start-up production costs being recouped in the initial year of operation. 

     Disposal of VegasInsider.com Website and LVSC

               As part of the NCAASports.com agreement, the Company agreed that it would dispose of its gaming information operations, consisting of the VegasInsider.com Web site and LVSC.  Beginning in its quarterly report on Form 10-Q for the quarter ending March 31, 2003, the Company will report the results from these operations as results from discontinued operations.

     CBS Amendment

               On March 5, 2003, SportsLine and CBS entered into an amendment to the CBS agreement to provide for a change in the annual payment schedule pursuant to which CBS is entitled to receive SportsLine.com common stock in exchange for promotion of the CBS SportsLine.com Web site.

21

Table of Contents

     April 2003 Payment

     On April 1, 2003, SportsLine is obligated to issue to CBS, the lesser of (1) a number of shares of common stock having a fair market value of $20,000,000 on April 1, 2003; or (2) a number of shares of common stock that will result in CBS and its affiliates’ aggregate beneficial ownership interest in SportsLine’s outstanding common stock not exceeding 39.9% (in which case the shares actually issued on April 1, 2003 will be valued at the current fair market value of such shares and the remainder of SportsLine’s $20,000,000 obligation will be deferred until July 2004).

     July 2004 Payment

     On July 1, 2004, SportsLine is obligated to issue to CBS the lesser of (1) a number of shares of common stock having a fair market value on July 1, 2004 equal to (x) $20,000,000 plus (y) the amount of the April 2003 payment which was deferred; or (2) a number of shares of common stock that will result in CBS and its affiliates’ aggregate beneficial ownership interest in SportsLine’s outstanding common stock not exceeding 49.9%.  If the number of shares of common stock that would result in CBS and its affiliates’ aggregate beneficial ownership interest in SportsLine’s outstanding common stock not exceeding 49.9% has a fair market value on July 1, 2004 less than the amount of SportsLine’s total obligation on July 1, 2004 (i.e., $20,000,000 plus the deferred portion of the April 2003 payment), then SportsLine must satisfy up to $5,000,000 of such obligation in cash.  SportsLine has the option to satisfy any additional remaining obligation on July 1, 2004 in cash and/or stock at its option.  If SportsLine elects to satisfy any portion of that remaining obligation, if any, in stock and the issuance of such stock would cause the ownership interest of CBS and its affiliates to exceed 49.9% on July 1, 2004, then CBS may elect to defer that portion of the issuance until October 1, 2005.

     October 2005 and January 2007 Payments

     On October 1, 2005, SportsLine will remain obligated to issue to CBS common stock with a fair market value equal to (x) $20,000,000 plus (y) the portion of the payment due in July 2004, if any, that CBS may have elected to defer.  SportsLine remains obligated to issue common stock with a fair market value of $20,000,000 to CBS on January 1, 2007.

Critical Accounting Policies and Estimates

               Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.  The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenue and expenses during the reporting period.  On an on-going basis, management evaluates its estimates and judgments, including those related to bad debts, intangible assets, restructuring costs, contingencies and litigation.  Management bases its estimates and judgments on historical experience, and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions or conditions.

               Management believes the following critical accounting policies, among others, affect the more significant judgments and estimates used in the preparation of its consolidated financial statements:

22

Table of Contents

Results of Operations

     Revenue

               Total revenue for the year ended December 31, 2002 was $62,065,000 compared to $64,530,000 for the year ended December 31, 2001 and $95,887,000 for the year ended December 31, 2000.  Advertising and marketing services revenue decreased to $47,816,000 in 2002 compared to $53,583,000 in 2001 and $77,666,000 in 2000. Advertising and marketing services revenue for 2002, 2001 and 2000 accounted for approximately 77%, 83% and 81%, respectively, of total revenue.  Advertising and marketing services decreased in 2002 from 2001 primarily due to management’s decision to limit barter revenue, which caused barter revenue to decrease in 2002 to 11% of advertising and marketing services revenue from 17% in 2001.  Excluding barter revenue from both years, advertising and marketing services revenue increased slightly, mainly due to increased revenue derived from the NFL as a result of the agreement being in effect for a full year in 2002.  During 2002, the Company was able to take advantage of preseason sales opportunities, which the Company did not have the opportunity to do in 2001 since the agreement was entered into in July 2001.  Advertising and marketing services revenue decreased in 2001 from 2000 due to lower advertising revenue relating to the termination of the Company’s agreements with MVP.com, Inc. (“MVP”) and Internet Sports Network, Inc. (“ISN”), which accounted for $27,655,000 of advertising revenue during 2000 in the aggregate, and the result of a general slowdown in the domestic advertising market.  In addition, following the events of September 11, 2001, advertising revenue was lower than expected because of cancellations and postponement of certain sporting events such as the second week of college and pro football games and the Ryder Cup.

               Subscription and premium products revenue increased to $14,249,000 in 2002 compared to $4,252,000 in 2001 and $6,284,000 in 2000.   Subscription and premium products revenue increased in 2002 from 2001 because of the

23

Table of Contents

successful conversion from primarily free fantasy sports products to fee-based fantasy products.  More than 80,000 paid fantasy leagues representing about one million teams were formed in the Company’s fee-based baseball, football, basketball and hockey fantasy games in 2002, allowing the Company to generate approximately $10,900,000 of fantasy revenue in 2002 compared to $700,000 in 2001.  The increase in fantasy revenue from 2002 to 2001 was offset by decreases in other products such as services related to statistical data and sales of the membership rewards program.  From July 2000 to July 2001, the Company offered its fantasy products and services for free instead of for a subscription fee. As a result, subscription and premium products revenue decreased from 2000 to 2001 primarily due to the free offering of fantasy during the 2001 baseball season offset by fee-based football fantasy offerings during the 2001 season. Other factors contributing to the decrease in 2001 from 2000 were the discontinuation of some products such as Sports Careers subscriptions and services related to sales of statistical data. 

               There was no content licensing revenue in 2002 compared to $6,695,000 in 2001 and $11,937,000 in 2000.   The decrease in content licensing revenue was due primarily to the replacement in July 2001 of the Company’s previous agreement with AOL, which had included a barter content licensing provision.  Additionally, in 2000 the Company recognized content licensing revenue pursuant to its agreement with Excite, Inc. that expired in December 2000.  Unless the Company enters into new content licensing agreements, management does not expect content licensing revenue to be significantin future periods.

               There was no international revenue in 2002 compared to $4,484,000 and $8,429,000 in 2001 and 2000, respectively.  The Company’s former subsidiary, Sports.com, was the sole source of international revenue. 

               As of December 31, 2002, the Company had deferred revenue of $2,052,000 relating to cash and receivables for which services had not yet been provided.

               Barter transactions, in which the Company received advertising or other services or goods in exchange for content or advertising on its Web sites, accounted for approximately 8%, 20% and 17% of total revenue for 2002, 2001 and 2000, respectively.  Barter transactions are recorded based upon, and to the extent of, similar recent cash transactions of the Company pursuant to Emerging Issues Task Force (“EITF”) Issue No. 99-17, Accounting for Advertising Barter Transactions.  While the Company may enter into barter arrangements from time to time, the Company does not expect to recognize barter advertising revenue, along with the offsetting marketing expense, in future periods.

               Equity transactions, in which the Company received equity in companies in exchange for advertising and promotion accounted for approximately 0%, 5% and 16% of total revenue for the years ended December 31, 2002, 2001 and 2000, respectively.  The majority of the equity-related revenue in 2000 was derived from two agreements, both of which had been terminated as of December 31, 2000. An additional agreement for equity-related revenue terminated in June 2001.  Therefore, the Company expects that, unless new agreements are entered into, equity-related revenue will be insignificant in future periods.

     Cost of Revenue

               Cost of revenue consists primarily of revenue share expenses, content fees to third parties and payroll and related expenses for the editorial and operations staff that are responsible for creating content on the Company’s Web sites.  Telecommunications, Internet access and computer related expenses for the support and delivery of the Company’s services are also included in cost of revenue. 

               Cost of revenue was $23,962,000 in 2002 compared to $32,672,000 and $41,001,000 in 2001 and 2000, respectively.  The decrease in cost of revenue in 2002 from 2001 is primarily due to the deconsolidation of Sports.com in July 17, 2001.  Sports.com accounted for 27% of cost of revenue in 2001.  Costs related to revenue sharing increased in 2002 from 2001, primarily due to increased expenses related to increased fantasy football revenue.   Total revenue sharing expense was $10,211,000, $7,490,000 $13,608,000 for the years ended December 31, 2002, 2001 and 2000, respectively.  Revenue sharing expense represented 16% of total revenue in 2002, 12% of total revenue in 2001, and 14% of total revenue in the year 2000.  These increased costs were offset by reductions in telecommunications expenses and payroll.  The decrease in cost of revenue from 2000 to 2001 was primarily due to decreased revenue

24

Table of Contents

sharing expense to CBS because of lower advertising revenue, elimination of revenue sharing expense to Major League Baseball and lower costs associated with the Company’s cost restructuring program initiated in the second quarter of 2001.  Also contributing to the decrease in 2001 was the deconsolidation of Sports.com in the third quarter of 2001.  As a percentage of revenue, cost of revenue decreased to 39% in 2002 compared to 51% in 2001 and 43% in 2000.

     Operating Expenses

               Product Development.  Product development expense consists primarily of employee compensation and related expenses required to support the continuing development of proprietary sports information and entertainment applications, services, technologies, interfaces and content. These costs include the Company’s effort to develop streaming media content and players, advanced java applications, ShockWave and Flash games and contests, wireless applications and technologies, broadband content and enhanced user interfaces across all products. These costs are expensed as incurred.  In future periods, the Company intends to reclassify product development costs as general and administrative expense. 

               Product development expense was $2,132,000 in 2002 compared to $1,854,000 and $1,791,000 in 2001 and 2000, respectively. The increase in product development expense in 2002 is primarily the result of increased product development personnel and consultants related to the Company’s agreement to produce NFL.com partially offset by lower costs from the Company’s restructuring program.  As a percentage of revenue, product development expense was 3%, 3% and 2% for 2002, 2001 and 2000, respectively.

               Sales and Marketing — Amortization of Equity Issued to Viacom for Promotion.  Amortization of equity issued to Viacom for promotion consists of the amortization expense for the Company’s agreements with two Viacom-related entities pursuant to which the Company issued equity instruments in exchange for advertising and promotion.

               Pursuant to the Company’s promotion and licensing agreement with CBS, the Company issued shares of common stock and warrants to purchase shares of common stock and expensed $22,286,000 in 2002 compared to $17,288,000 in both 2001 and 2000.  Additionally, the Company expensed $1,750,000 in 2002 and $3,000,000 in both 2001 and 2000 related to shares of common stock issued to Westwood One, Inc. in exchange for promotion and programming.  These expenses were classified as depreciation and amortization expense in prior periods; 2001 and 2000 amounts have been reclassified in the accompanying consolidated financial statements to conform to current-year presentation as sales and marketing expense.   As a percentage of revenue, amortization of equity issued to Viacom for promotion was 39% for the year ended December 31, 2002 compared to 31% in 2001 and 21% in 2000.  The Company will not recognize amortization expense related to the Westwood One, Inc. agreement in future periods due to the expiration of the Company’s agreement with Westwood One on August 1, 2002.  At that time, the Company entered into a new agreement with Westwood One that does not require the issuance of additional equity or any other financial consideration.

               Sales and Marketing — Other.  Sales and marketing – other expense consists of salaries and related expenses, advertising, marketing, promotional, business development, public relations expenses, research expenses and rights payment expenses related to the Company’s agreement with the NFL.

               Sales and marketing expense – other was $24,471,000 in 2002 compared to $41,255,000 and $50,943,000 in 2001 and 2000, respectively.  The decrease in sales and marketing – other expense from 2001 to 2002 was due to the deconsolidation of Sports.com along with decreased advertising and payroll as a result of the Company’s cost restructuring programs. Also, the Company’s decision to limit barter advertising contributed to the decrease in 2002.  Barter transactions accounted for approximately 21% of sales and marketing – other expense for 2002, 31% for 2001 and 30% for 2000.  The decrease in sales and marketing – other expense from 2000 to 2001 was primarily due to the decreased Web site and television advertising spending and the replacement of the Company’s agreement with AOL at a lower cost, offset by increases in radio and outdoor advertising expense. Additionally, payroll expenses decreased in 2001 because of the Company’s cost restructuring program. Also contributing to lower sales and marketing expense – other in 2001 was the deconsolidation of Sports.com in the third quarter of 2001.    As a percentage of revenue, sales and marketing – other expense decreased to 39% in 2002 compared to 64% in 2001 and

25

Table of Contents

53% in 2000.  Included in sales and marketing – other expense are cash payments made to CBS and certain affiliates of CBS, of $367,000, $2,227,000 and $1,408,000 in 2002, 2001 and 2000, respectively, for television, radio and outdoor advertising during those periods.

               General and Administrative.  General and administrative expense consists of salary and related costs for executive, finance and accounting, technical and customer support, human resources and administrative functions, as well as rent and occupancy expenses and professional service fees. 

               General and administrative expense was $20,193,000 in 2002 compared to $31,359,000 and $37,091,000 in 2001 and 2000, respectively. The decrease in general and administrative expense from 2001 to 2002 was mainly due to the deconsolidation of Sports.com, which accounted for 20% of general and administrative expense in 2001, and decreases in payroll and consulting expenses due to the Company’s cost restructuring program.  The decrease in general and administrative expense in 2001 from 2000 was primarily attributable to the deconsolidation of Sports.com in the third quarter of 2001, the Company’ cost restructuring program and to a lesser extent reduced bad debt expense related to lower advertising billings.  As a percentage of revenue, general and administrative expense decreased to 33% in 2002 compared to 49% in 2001 and 39% in 2000.

               Depreciation and Amortization.  Depreciation and amortization expense consists of the depreciation of property and equipment, amortization of costs associated with consulting agreements and amortization of licensing rights and intangible assets. Depreciation and amortization expense was $11,029,000 in 2002 compared to $24,235,000 and $21,598,000 in 2001 and 2000, respectively. The decrease in depreciation and amortization expense in 2002 compared to 2001 was due primarily to the adoption of Statement of Financial Accounting Standard (“SFAS”) No. 142 “Goodwill and Other Intangible Assets,” effective January 1, 2002.  Goodwill is no longer subject to amortization, but instead will be reviewed for impairment and, if deemed necessary, written down and charged to results of operations.  Goodwill amortization was $8,343,000 and $6,762,000 for the years ended December 31, 2001 and 2000, respectively.  Also depreciation and amortization expense related to fixed assets decreased due to decreased purchases in 2002 compared to 2001 combined with certain equipment becoming fully depreciated.  The increase in depreciation and amortization in 2001 compared to 2000 was due to the amortization of the intangible assets acquired from MVP in January 2001 and the goodwill recorded in connection with the acquisition of DBC Sports in April 2000.

               Under the Company’s agreement with the PGA TOUR, which became effective in April 1999, the Company paid an up-front licensing fee of $8,500,000. The licensing fee was recorded on the balance sheet as licensing rights and was amortized to depreciation and amortization expense over each related contract year, and has been fully amortized at December 31, 2002.  Total amortization expense under the PGA TOUR agreement was $2,267,000 for each of the years ended December 31, 2002, 2001 and 2000.  In January 2003 a cash payment of $2,000,000 was made to the PGA TOUR, which will be recognized as sales and marketing expense – other in 2003.

               Write-down of Goodwill.  For the years ended December 31, 2002 and 2001 the Company recorded charges totaling $2,650,000 and $21,600,000, respectively, to reflect the reduction in the estimated value of its investment in DWWC and DBC Sports. The write-down of goodwill related to DBC Sports was $2,650,000 in 2002 and $4,600,000 in 2001.  The write-down of goodwill related to DWWC was $0 in 2002 and $17,000,000 in 2001. The assessment of goodwill in 2001 was based on historical operating results, estimated undiscounted future cash flows, and the estimated market values of similar entities. As of October 1, 2002, the Company performed the annual impairment test required under SFAS No. 142 to test impairment.  

               Restructuring Charge.  For the years ended December 31, 2002 and 2001 the Company recognized restructuring charges of $2,499,000 and $985,000 related to severance payments and the termination of leases.   See Note 2 of Notes to Consolidated Financial Statements.

               Interest Expense.  Interest expense was $929,000 in 2002 compared to $1,073,000 and $1,084,000 in 2001 and 2000, respectively.  The decrease in interest expense in 2002 was primarily due to the repurchase of an additional $2,930,000 principal amount of the Company’s Convertible Subordinated Notes due 2006 (“Convertible Subordinated Notes”) in the fourth quarter of 2001.  The decrease in interest expense in 2001 was primarily due to the expiration of capital leases in the first quarter of 2001. 

26

Table of Contents

               Interest and Other Income, Net.  Interest and other income, net primarily represents interest earned on cash and cash equivalents and marketable securities.  Interest and other income, net was $891,000 in 2002 compared to $3,479,000 and $12,914,000 in 2001 and 2000, respectively. The decrease in interest income in 2002 compared to 2001 and 2000 was primarily attributable to a lower invested cash balance and lower interest rates.   

               Loss on Equity Investments.  Several of the Company’s equity investments in certain Internet companies, primarily its investment in MVP, were written off in 2000 in the amount of $127,653,000 while the remainder of such investments in the amount of $28,000 was written off in 2001.  There was no loss on equity investments in 2002.   During the third and fourth quarters of 2000, the Company deemed its investment in MVP to be permanently impaired and wrote off the entire value of that investment.  The Company’s determination was based on the market downturn during the third and fourth quarters of 2000 which caused similar declines in the market values of publicly-traded Internet e-commerce companies, the difficulty experienced by MVP in raising additional capital and an assessment of MVP’s financial condition and prospects. MVP ceased operations in January 2001.

               Gain on Termination of Advertising Agreements.  Due to the termination of the Company’s relationships with MVP and Internet Sports Network during 2000, the Company was no longer obligated to perform under either of these agreements.  In December 2000, the Company recorded a gain related to the recognition of deferred revenue from these agreements of $78,766,000, net of an expense accrual of $2,673,000 for tax expense and potential expenses related to the MVP liquidation, such as assumption of leases and legal expenses.  In December 2001, the Company reversed the remaining accrual of $2,051,000 having deemed the MVP liquidation substantially complete.  There was no gain on termination of agreements in 2002.

               Gain on Sale of E-Commerce Subsidiaries.  Effective January 1, 2000, the Company sold to MVP three of its subsidiaries, which engaged in e-commerce activity (International Golf Outlet, Inc., Golf Club Trader, Inc. and TennisDirect.com, Inc.).  The sale resulted in a one-time gain of $7,814,000, net of taxes, in 2000.

                Gain on Extinguishment of Debt.  During the fourth quarter of 2001, the Company repurchased $2,930,000 of its Convertible Subordinated Notes for approximately $500,000 and, as a result, recognized a gain of $2,404,000, net of unamortized debt issuance costs.   SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 62, Amendment of FASB Statement No. 13, and Technical Corrections, eliminates the previous requirement under FASB Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt, to report gains and losses from extinguishments of debt as extraordinary items in the income statement.  The Company adopted SFAS No. 145 on July 1, 2002, and accordingly reclassified the extraordinary gain of $2,404,000 that occurred from its extinguishment of debt in 2001 to other non-operating income.

               Effect of deconsolidation of Sports.com.  In accordance with United States generally accepted accounting principles, the Company recorded in 2001 the effect of the deconsolidation of Sports.com in the amount of $41,739,000.  On July 17, 2001, Sports.com raised approximately $13,000,000 in equity funding from its existing investors.  After giving effect to the funding, the Company’s fully diluted ownership stake in Sports.com, including all outstanding warrants and management options, was approximately 30%. As a result of the Company’s reduced ownership interest in Sports.com and a reduction in the Company’s representation on Sports.com’s board of directors to less than a majority, as of July 17, 2001 the Company no longer consolidated the results of Sports.com and accounted for its investment in Sports.com under the equity method of accounting. 

               Income Taxes.  No provision for Federal and state income taxes has been recorded as the Company incurred net operating losses for each period presented.  As of December 31, 2002, the Company had approximately $185,000,000 of net operating loss carryforwards for Federal income tax purposes, expiring beginning in 2009, available to offset future taxable income.  Additionally, the Company had approximately $93,000,000 of capital loss carryforwards. Given the Company’s losses incurred to date and the difficulty in accurately forecasting the Company’s future results, management does not believe that the realization of the related deferred income tax assets meets the criteria required by United States generally accepted accounting principles and, accordingly, a full valuation allowance has been recorded to reduce the deferred income tax assets to zero.  See Note 10 of Notes to Consolidated Financial Statements.

27

Table of Contents

               In  2002, the Company recorded a tax benefit of $720,000 due to a refund of alternative minimum taxes paid in 2000. 

Quarterly Results of Operations (unaudited)

               The tables below set forth the quarterly operating results for 2002 and 2001.  This information is unaudited, but in the opinion of the Company reflects all adjustments (consisting only of normal recurring adjustments) that the Company considers necessary for a fair presentation of such information in accordance with United States generally accepted accounting principles. The results for any quarter are not necessarily indicative of results for any future period.

28

Table of Contents