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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 2004

OR

For the transition period from              to             

Commission file number 0-23337

SPORTSLINE.COM, INC.

(Exact name of Registrant as specified in its charter)

(954) 489-4000

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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.    YES  x    NO  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Number of shares of common stock outstanding as of November 2, 2004: 45,451,224

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INDEX TO FINANCIAL STATEMENTS

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SPORTSLINE.COM, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except share data)

The accompanying notes to condensed consolidated financial statements are

an integral part of these condensed consolidated balance sheets.

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SPORTSLINE.COM, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(amounts in thousands, except share and per share data)

(UNAUDITED)

The accompanying notes to condensed consolidated financial statements are

an integral part of these condensed consolidated balance sheets.

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SPORTSLINE.COM, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(amounts in thousands, except share data)

(UNAUDITED)

The accompanying notes to condensed consolidated financial statements are

an integral part of these condensed consolidated statements.

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SPORTSLINE.COM, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

(UNAUDITED)

The accompanying notes to condensed consolidated financial statements are

an integral part of these condensed consolidated statements.

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SPORTSLINE.COM, INC. AND SUBSIDIARIES

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands except share and per share data)

SportsLine.com, Inc. was incorporated on February 23, 1994 and we began recognizing revenue from our operations in September 1995. We publish one of the most comprehensive collections of multimedia sports news and information available on the Internet and offer consumers a broad assortment of merchandise and subscription and premium services, including fantasy leagues and contests. Our flagship Internet sports service (http://cbs.sportsline.com) was renamed CBS SportsLine.com in March 1997 as part of an exclusive promotional and content agreement with CBS Broadcasting Inc. (“CBS”). We have strategic relationships with CBS, Westwood One, the National Football League (the “NFL”), the National Collegiate Athletic Association (the “NCAA”) and the PGA TOUR. We distribute a broad range of up-to-date news, scores, player and team statistics and standings, photos and audio and video clips obtained from CBS and other leading sports news organizations; produce and offer fantasy league products, contests and other games; and produce and distribute entertaining, interactive and original programming such as editorials and analyses from our in-house staff and freelance journalists.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by United States generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring accruals considered necessary for a fair presentation, have been included in the accompanying unaudited financial statements. All significant intercompany transactions and balances have been eliminated in consolidation. Operating results for the three and nine months ended September 30, 2004 are not necessarily indicative of the results that may be expected for any subsequent period or the full year ending December 31, 2004. Historically, the first and fourth quarters of each year have been the strongest for us due to the timing of major sporting events and sports seasons, such as the NCAA Division I Men’s Basketball Championship and the National Football League season. In addition, the effect of such seasonal fluctuations could be enhanced or offset by revenue associated with major sports events, such as the Olympics and the Ryder Cup, which do not occur every year. For further information, refer to the consolidated financial statements and notes thereto, included in our Annual Report on Form 10-K/A, for the fiscal year ended December 31, 2003.

Per Share Amounts

Loss per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period. Common equivalent shares consist of the incremental common shares issuable upon conversion of all of our convertible subordinated notes (“Convertible Subordinated Notes”) (using the if-converted method) and shares issuable upon exercise of stock options and warrants (using the treasury stock method) and unvested restricted shares. There were 255,832 shares issuable upon conversion of the Convertible Subordinated Notes at September 30, 2004, 73,100 unvested restricted shares at September 30, 2004 and there were 5,245,490 options and warrants outstanding in the aggregate at September 30, 2004 that could potentially dilute earnings per share in the future. Such shares issuable upon conversion of the Convertible Subordinated Notes and upon exercise of the options and warrants, as well as unvested restricted shares were not included in the computation of diluted loss per share for any period presented because to do so would have been antidilutive.

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SPORTSLINE.COM, INC. AND SUBSIDIARIES

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands except share and per share data)—(Continued)

Revenue by Type

Revenue by type for the three and nine months ended September 30, 2004 and 2003 is as follows:

Restructuring Charge

In April 2002, we announced the resignation of our chief technology officer and the expansion of responsibilities of our president of product development. As part of this change in personnel, we further integrated our fantasy sports operations into our other operations and technology departments. In August 2002, we announced the resignation of our president of corporate and business development and integrated our business development and legal affairs departments into the sales and finance departments, respectively. As a result of these resignations and organizational changes, we eliminated approximately twenty-seven redundant positions. Severance payments relating to these actions during the three months ended September 30, 2004 and 2003 were $38 and $214, respectively, and were approximately $384 and $848 for the nine months ended September 30, 2004 and 2003, respectively, with no remaining obligation as of September 30, 2004.

In November 2003, we announced the resignation of our president of operations and product development. As a result of this resignation and other organizational changes, we recorded severance payments during the three and nine months ended September 30, 2004 of $180 and $539, respectively, with a remaining accrual balance of $1,002 as of September 30, 2004.

Stock-Based Compensation

SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” allows either adoption of a fair value based method of accounting for employee stock options and similar equity instruments or continuation of the measurement of compensation cost relating to such plans using the intrinsic value method of accounting prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees. We have elected to use the intrinsic value method.

Pro forma information is required by SFAS No. 123 and has been determined as if we had accounted for our stock-based compensation plans under the fair value method. The fair value of each option grant was estimated at the date of grant using the Black-Scholes option pricing model.

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SPORTSLINE.COM, INC. AND SUBSIDIARIES

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands except share and per share data)—(Continued)

Our pro forma information follows for the three and nine months ended September 30:

There were no options granted during the three months ended September 30, 2004. The fair value of each option grant was estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants for the three months ended September 30, 2003 and the nine months ended September 30, 2004 and 2003:

Restricted stock is measured at fair value on the date of grant based on the number of shares granted and the quoted price of our common stock. Such value is recognized as an expense ratably over the corresponding vesting period. Stock based compensation associated with the issuance of restricted stock for the three months ended September 30, 2004 and 2003 was $64 and $86, respectively and was $224 and $257 for the nine months ended September 30, 2004 and 2003, respectively.

Comprehensive Loss

SFAS No. 130, Reporting Comprehensive Income, establishes standards for the reporting and display of comprehensive income (loss) and its components in a full set of financial statements. The objective of SFAS No. 130 is to report comprehensive income (loss), a measure of all changes in equity of an enterprise that result from transactions and other economic events in a period, other than transactions with owners. Comprehensive loss was $8,289 and $12,137 for the three months ended September 30, 2004 and 2003, respectively, and $26,824 and $35,192 for the nine months ended September 30, 2004 and 2003, respectively. The differences between net loss and comprehensive loss were due to unrealized gains and losses on marketable securities.

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SPORTSLINE.COM, INC. AND SUBSIDIARIES

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands except share and per share data)

On February 26, 2003, we announced our intention to sell our gaming information operations, consisting of VegasInsider.com and Las Vegas Sports Consultants. On June 23, 2003 we completed the sale of our VegasInsider.com subsidiary to Sports Information Ltd., a United Kingdom company. On November 24, 2003, we completed the sale of Las Vegas Sports Consultants to a group of Las Vegas-based investors.

VegasInsider.com generated revenue from advertising and the sale of premium subscription products while Las Vegas Sports Consultants generated revenue from sales of statistical content data. Advertising and subscription products revenue was recognized ratably over the applicable contract period while statistical data revenue was recognized on a monthly basis as services were billed to customers.

The results of VegasInsider.com and Las Vegas Sports Consultants have been shown separately as discontinued operations in the accompanying consolidated statement of operations for the three and nine months ended September 30, 2003. As of December 31, 2003, the Company had sold all of its discontinued operations.

Financial information from the discontinued operations for the three and nine months ended September 30, 2003 are as follows:

We acquired Daedalus World Wide Corporation (“DWWC”) in December 1999. The transaction was accounted for using the purchase method of accounting and resulted in goodwill of $31,880. As a result of the identification of several indicators of impairment including a slowdown in the economy and differences in actual results in comparison to initial valuation forecasts, we recognized a goodwill write-down in the year ended December 31, 2001 of $17,000 to adjust our investment in DWWC to its estimated fair value. Our assessment of our goodwill investment was based on historical operations, future cash flows and the market value of similar entities. We performed the annual impairment test required under SFAS No. 142 to test impairment as of October 1, 2003 and 2002. As a result, we found no impairment of goodwill. At September 30, 2004, the Company had goodwill of $16,194 recorded for Daedalus World Wide Corporation.

In January 2001, we acquired for a cost of $6,000 certain assets of MVP.com, Inc. (“MVP”), which had ceased business operations, 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. The cost of these assets was being amortized using the straight-line method over five years. As a result of the shortfall in actual results compared to initial valuation forecasts, we recorded a write-down in the three months ended September 30, 2003 of the remaining carrying value of such assets, totaling $2,800, to reflect a reduction in the estimated value, based on projected future cash flows, of the e-commerce assets we acquired from MVP.com. As a result, there was no amortization expense related to these assets for the three and nine months ended September 30, 2004 and there will be none in future periods.

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SPORTSLINE.COM, INC. AND SUBSIDIARIES

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands except share and per share data)

CBS. In February 1999, we amended and extended our agreement with CBS. The agreement provides that we shall issue to CBS a number of shares of our common stock having a fair market value of $20,000 each year for five years commencing on January 1, 2002, based on the average of the closing prices of the common stock on the Nasdaq National Market for each five day period ending on the day prior to the applicable issue dates. Pursuant to this agreement, in January 2002 we issued 6,882,312 shares of common stock valued at $20,000 to CBS. On March 5, 2003, the CBS agreement was amended to modify the annual schedule of stock issuances to CBS. Pursuant to the 2003 amendment, on April 1, 2003 we issued to CBS 5,454,428 shares of common stock valued at $5,400 with the remainder of our obligation of approximately $14,600 deferred until July 1, 2004. On June 30, 2004, we amended the agreement to defer the payment due on July 1, 2004 until August 1, 2004. On August 1, 2004, we entered into an agreement with Viacom Inc., the parent company of CBS, to merge with a subsidiary of Viacom Inc. (see below). In connection with the merger agreement, we amended our agreement with CBS to defer the payment that was due on August 1, 2004 until the date that is ten trading days after the earlier of the date of (i) the termination of the Merger Agreement in accordance with its terms, or (ii) the consummation of the merger (“the agreed upon date”).

Future payment. In accordance with the August 1, 2004 amendment, on the agreed upon date we will be obligated to issue to CBS the lesser of (1) a number of shares of common stock having a fair market value on the agreed upon date equal to $34,600; or (2) a number of shares of common stock that will result in CBS and its affiliates’ aggregate beneficial ownership interest in our 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 our outstanding common stock not exceeding 49.9% has a fair market value on the agreed upon date less than the amount of our total obligation on the agreed upon date (i.e., $20,000 plus the deferred portion of the April 2003 payment), then we must satisfy up to $5,000 of such obligation in cash. We have the option to satisfy any additional remaining obligation on the agreed upon date in cash and/or stock at our option. If we elect 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 the agreed upon date, 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, we are obligated to issue to CBS common stock with a fair market value equal to (x) $20,000 plus (y) the portion of the payment due on the agreed upon date for 2004, if any, that CBS may have elected to defer. We are obligated to issue common stock with a fair market value of $20,000 to CBS on January 1, 2007.

Merger with Viacom. On August 1, 2004, we entered into an agreement with Viacom Inc. to merge with a subsidiary of Viacom Inc. Stockholders of SportsLine.com other than Viacom and its subsidiaries will be entitled to receive $1.75 per share in cash upon closing of the transaction. Completion of the merger is subject to customary closing conditions, including approval by SportsLine.com’s shareholders. We expect the merger to be completed by the end of the year; however, we may be unable to obtain approvals or complete the transaction. Three of our executive officers, Michael Levy, Mark J. Mariani and Kenneth W. Sanders, who collectively beneficially own approximately 5.1% of our common stock as November 2, 2004, have entered into voting agreements with Viacom. Pursuant to the voting agreements, each executive granted Viacom a proxy to vote his shares in favor of the adoption of the merger agreement and the related merger and, unless Viacom votes such shares directly pursuant to a proxy, each executive has agreed to vote his shares in favor of adoption of the merger agreement and the related merger. As part of the merger agreement, we also entered into a letter agreement amending our agreement with CBS. The amendment provides for a deferral of the payment to CBS that was due on August 1, 2004 until the date that is ten trading days after the earlier of the date of (i) the termination in accordance with its terms of the Merger Agreement and (ii) the consummation of the merger. Pursuant to an engagement letter entered into with a financial advisory firm, upon the closing of the transaction we will be obligated to pay the firm approximately $750 less the amount of payments made to date which currently total $365.

NFL.com. In July 2001, we entered into an agreement with the NFL, CBS and AOL (the “NFL Agreement”). We are responsible for a portion of the rights fee payments required to be made to the NFL under the NFL Agreement. Under the terms of the multi-year agreement, $14,050 has been paid as of September 30, 2004, and

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SPORTSLINE.COM, INC. AND SUBSIDIARIES

UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands except share and per share data)—(Continued)

we are obligated to make additional payments totaling $10,000 as follows: $3,000 for the fourth contract year ending July 2005; and $7,000 for the fifth contract year ending July 2006. In addition, we issued to the NFL 2,564,103 shares of our common stock in May 2004 valued at $2,667, 1,049,869 shares of our common stock in May 2003, valued at $1,333, and 350,000 shares in July 2001, valued at $633. We are amortizing the total cost of the rights fee to sales and marketing expense on a straight-line basis over the five-year term of the NFL Agreement.

Contingencies

In December 2003, a derivative lawsuit was filed by a purported shareholder on behalf of SportsLine.com in the United States District Court for the Southern District of Florida against our chief executive officer, our former chief financial officer and each member of our Board of Directors as of September 25, 2003. In April 2004, the plaintiff filed an amended derivative complaint against the same individuals. The plaintiff alleges violations of Section 304 of the Sarbanes-Oxley Act of 2002 and breaches of fiduciary duty arising out of the payment of incentive compensation by certain of the named defendants and breaches of fiduciary duties and claims for contribution and indemnification against all the named defendants. On August 9, 2004, the court granted the plaintiffs leave to further amend the complaint, and the complaint was so amended, to include claims on behalf of a putative class of shareholders, relating to an alleged breach of fiduciary duty in connection with the acquisition proposal made by Viacom as announced on July 1, 2004 and that the proposed price of $1.50 per share was inadequate. In August 2004, we filed a motion dismiss and/or stay the claims in the amended complaint. The court has not yet ruled on this motion. In December 2003, in response to a purported shareholders’ demand that we file a derivative law suit against certain of our officers, our board of directors formed a special committee to investigate the allegations of such demand and recommend appropriate action to the Board. The special committee has also been delegated authority to evaluate the allegations of the derivative shareholder lawsuit and to determine whether such suit is in the best interests of the company. The special committee has not yet reported the results of its investigation to the full board of directors.

In April 2004, the Supreme Court of the State of New York granted Broadview International LLC’s motion for summary judgment in a lawsuit previously brought by Broadview seeking compensation from our wholly owned subsidiary Commissioner.com, Inc. (as successor-in-interest to DWWC) for financial advisory services rendered to DWWC in connection with our acquisition of it. In May 2004, a judgment was issued to Broadview in the amount of approximately $663. The Agreement and Plan of Merger pursuant to which we acquired DWWC requires the former DWWC shareholders to indemnify us with respect to any losses arising from this lawsuit. To date, these individuals have indemnified us for our legal costs, and we intend to seek indemnification from them for the full amount of any final judgment rendered against Commissioner.com. Accordingly, no liability has been recorded in the accompanying condensed consolidated balance sheets.

On or about July 1, 2004, six putative class action lawsuits were filed in the Court of Chancery of the State of Delaware in and for New Castle County and one putative class action lawsuit was filed in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida purportedly on behalf of our stockholders. The six lawsuits in Delaware were consolidated on July 13, 2004. All of these lawsuits name us, our directors and Viacom as defendants and allege, among other things, a breach of fiduciary duty in connection with the acquisition proposal made by Viacom as announced on July 1, 2004 and that the proposed price of $1.50 per share was inadequate. During the negotiations regarding the merger agreement, counsel for Viacom and us discussed with counsel for the plaintiffs a settlement of these lawsuits. Following these discussions, on July 30, 2004, counsel for the defendants entered into a memorandum of understanding with counsel for the plaintiffs in these lawsuits. The memorandum of understanding contemplates the proposed settlement of these lawsuits. The settlement is subject to, among other things, completion of appropriate discovery, definitive documentation relating to the settlement, court approval and consummation of the merger.

We are subject to various other legal proceedings and claims arising in the ordinary course of business. Our management does not expect that the outcome in any of these legal proceedings, individually or collectively, will have a material adverse effect on our consolidated financial position or results of operations.

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ITEM 2. 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. Our actual results could differ materially from those anticipated in these forward-looking statements. Factors that might cause or contribute to such differences include, among others, competitive pressures, the growth rate of the Internet, constantly changing technology and market acceptance of our products and services. Investors are also directed to consider the other risks and uncertainties discussed in our Securities and Exchange Commission filings, including those discussed under the caption “Risk Factors That May Affect Future Results” in our Annual Report on Form 10-K/A for the year ended December 31, 2003. We undertake no obligation to publicly release the result of any revisions to these forward-looking statements, which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. The following discussion also should be read in conjunction with our Consolidated Financial Statements and Notes thereto included elsewhere in this Report.

Overview

On August 1, 2004, SportsLine.com and Viacom Inc. signed a definitive agreement for SportsLine.com to merge with a subsidiary of Viacom. Shareholders of SportsLine.com other than Viacom and its subsidiaries will be entitled to receive $1.75 per share in cash on closing of the transaction. Completion of the merger is subject to customary closing conditions, including approval by SportsLine.com shareholders. The merger is expected to be completed by the end of the year; however, we may be unable to obtain approvals or complete the transaction. Three of our executive officers, Michael Levy, Mark J. Mariani and Kenneth W. Sanders, who collectively beneficially own approximately 5.1% of our common stock as of November 2, 2004, have entered into voting agreements with Viacom. Pursuant to the voting agreements, each executive granted Viacom a proxy to vote his shares in favor of the adoption of the merger agreement and the related merger and, unless Viacom votes such shares directly pursuant to a proxy, each executive has agreed to vote his shares in favor of adoption of the merger agreement and the related merger. As part of the merger agreement, we also entered into a letter agreement amending our agreement with CBS. The amendment provides for a deferral of the payment to CBS that was due on August 1, 2004 until the date that is ten trading days after the earlier of the date of the termination in accordance with its terms of the merger agreement and the consummation of the merger.

We currently derive our revenue from two major sources: advertising and marketing services revenue and subscription and premium products revenue.

We derive advertising and marketing services revenue principally from sponsorship opportunities that enable advertisers to associate their corporate messages with our coverage of major sports and marquee events, games and contests. We attempt to leverage our relationship with CBS to sell advertising associated with events broadcast on CBS and to participate in joint sales efforts with CBS. During the three months ended September 30, 2004 and 2003, revenue generated through our joint sales efforts with CBS comprised approximately 9% and 15%, respectively, of our total advertising sales. Our advertising revenue also includes short-term advertising contracts for the display of banners or other media type for a fee on a per impression basis or for a fixed fee based on a minimum number of impressions. We also provide other types of advertising and marketing services such as wireless alerts, product exclusive emails and names captured from targeted advertising offers. Due to innovations in the industry as well as the increased use of broadband technology in personal computers, new types of advertising are constantly being developed and sold. We also derive advertising and marketing services revenue from the sale of advertising on Web sites that we operate such as NFL.com, PGATOUR.com and NCAAsports.com, as well as from our promotion of e-commerce Web sites such as MVP.com and the NFL.com shop. We recognize advertising

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and marketing services revenue in the period in which the advertisement is displayed or services rendered, provided that no significant obligations remain and that collection of the resulting receivable is probable. Our obligations typically include guarantees of a minimum number of “impressions,” or times that advertisements appear in page views downloaded by users, or may include a length of time the sponsorship is displayed. We typically invoice our advertising clients on a monthly basis for our services; however, in some cases payment is received prior to the service being provided and is recorded as deferred revenue on our balance sheets.

Most of our subscription and premium services revenue is derived from Web site users’ participation in fantasy sports. Fantasy sports entail participants creating fictitious teams comprised of actual professional athletes and competing against other teams where results are based on the statistical performances of the respective professional athletes in actual games. Fantasy sports enthusiasts can participate in our leagues we administer, for which the participant pays a fee as a single game user, or form their own leagues with customized rules, live scoring and reporting for which the customer pays a fee for the league. The primary sports responsible for our fantasy revenue are football and baseball, with some contribution from basketball and hockey. We charge our fantasy customers through their credit card at the time they sign-up for our service, and we recognize this revenue ratably over the relevant sports season or life of the game or contest period. Accordingly, amounts received for which services have not yet been provided are recorded as deferred revenue on our balance sheets. A major point of emphasis in our strategy has been to establish strategic relationships with key entities in the sports industry to increase consumer awareness of the SportsLine brand and increase advertising and sponsorship sales opportunities.

Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. 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. Our accounting policies are more fully described in Note 2 of the Condensed Consolidated Financial Statements. 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:

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Results of Operations (amounts in thousands except share and per share data)

Revenue

Advertising and marketing services revenue increased slightly for the three months ended September 30, 2004 and increased 6% for the nine months ended September 30, 2004 compared to the three and nine months ended September 30, 2003, primarily due to increased sales to both new and repeat advertisers. Some factors that enabled us to achieve higher advertising revenue include the Super Bowl being broadcast on CBS in January 2004 and the NCAA agreement being in effect a full year.

Subscription and premium products revenue increased in the three and nine months ended September 30, 2004 compared to the three and nine months ended September 30, 2003 primarily because of increased fantasy baseball subscription revenue received as compared to last year due to an approximately 15% increase in paid leagues and owners. Fantasy baseball revenue was $238 higher and $310 higher for the three and nine months ended September 30, 2004 compared to the three and nine months ended September 30, 2003, respectively. Additionally, for the three and nine months ended September 30, 2004 there was $241 and $542, respectively, of revenue generated from our agreement with Amazon.com which did not begin generating revenue for us until October 2003.

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As of September 30, 2004 and December 31, 2003, we had deferred revenue of $15,806 and $2,221, respectively, relating to cash received for which services had not yet been provided, including $11,197 at September 30, 2004 relating to subscriptions for our fantasy football products (which will be recorded as revenue primarily in the fourth quarter of 2004). The larger increase in deferred revenue of $13,585 from December 31, 2003 to September 30, 2004 compared to the increase in deferred revenue of $11,567 from December 31, 2002 to September 30, 2003 was due to increased billings for our fantasy football products in 2004 compared to 2003.

Cost of Revenue

Cost of revenue in the three months ended September 30, 2004 increased slightly compared to the three months ended September 30, 2003. Cost of revenue in the nine months ended September 30, 2004 decreased slightly compared to the nine months ended September 30, 2003. Revenue share payments related to the PGA TOUR were lower in the three and nine months ending September 30, 2004 compared to the same periods in 2003 by $610 and $2,562, respectively. Our current agreement with the PGATOUR, which became effective January 1, 2004, allows for the recoupment of costs before we are required to begin sharing revenue with the PGA TOUR, whereas under the prior agreement there was no such recoupment. Offsetting this decrease was an increase in costs related to the Amazon.com agreement of $171 and $369 for the three and nine months ended September 30, 2004, respectively. This agreement was not in effect in the first three quarters of 2003. Additionally, due to the increased popularity of our fantasy baseball and football products, cash prizes and awards increased by $139 and $307 for the three and nine months ended September 30, 2004 compared to the three and nine months ended September 30, 2003.

Operating Expenses

Sales and Marketing — Consideration to CBS for Promotion