Shaquille O’Neal is finding the Internet anything but a slam dunk. Forsaking the traditional path to promotional riches traveled by Michael Jordan, Tiger Woods and other mega-star athletes who pitch soft drinks, cars and other Old Economy products, O’Neal has embraced the Internet. But so far, his scoring percentage in cyberspace rivals his performance at the freethrow line. Both are dismal. CBS-affiliated SportsLine.com Inc., a Florida-based sports media company that hosts Shaq’s Web fan site as part of a seven-year stock option deal with the reigning NBA most valuable player, recently announced it lost $130.5 million ($4.94 per diluted share) in the third quarter ended Sept. 30. SportsLine.com’s share price sank to an all-time low of $7.25 on the news, from a 52-week high of $83.25 in December. Last week, it was trading at around $9 a share. Seattle’s FreeInternet.com, which came out of nowhere earlier in the year to become one of the country’s largest Internet service providers based largely on a series of clever TV ads featuring O’Neal and a talking infant named “Baby Bob,” filed for Chapter 11 bankruptcy protection this month. O’Neal, through his management firm, is owed $500,000.

And Dunk.net, the Santa Monica startup partially funded by O’Neal that has sought to promote his own brand of shoes and sports apparel strictly over the Internet, is undergoing a makeover. Most of Dunk.net’s staff has been let go and a retail marketing professional has been brought in as chief executive to try and save the company.

The tech shakeout’s impact on the most dominant basketball player in the world is all the more striking because of his commitment to change his endorsement strategy from the traditional route of soft drinks, food and famous brand-name shoes to a risky but compelling road of e-commerce and stock options. No other professional athlete has embraced the Internet as a marketing tool to the extent O’Neal has.

Hitting bumps

“The bottom line is, as much as all of us have said this would be a new way of doing things, there are bumps in the road,” said Rick Burton, director of the Warsaw Sports Marketing Center at the University of Oregon. “Shaq was trying to create new-media companies. There was a window of time where everyone thought creating them wasn’t so hard. The truth of the matter is, it’s not so easy. “If Shaq’s not an innovator, at least he’s on the forefront of this,” Burton said. “Most athletes haven’t even bothered (with the Internet). Those that have, like (the athlete backers of) MVP.com, are having their troubles as well.” MVP.com, an online sports retailer backed by Michael Jordan, John Elway and Wayne Gretzky, reportedly missed a $5 million payment due on Oct. 5 to Sportsline.com as part of a marketing agreement, which in turn has hurt Sportsline and its stock. But Jordan, Elway and Gretzky all have lucrative traditional endorsement deals, from fast food to clothing to beer. In contrast, O’Neal no longer shills for Pepsi Cola, Taco Bell or Reebok. Attempts to contact O’Neal for an interview through his representatives were unsuccessful. O’Neal’s strategy and commitment have been praised by sports business gurus.

Giving it time

“He took a major responsibility in saying, ‘I’m going to try and build up my own brand instead of having other brands use me as leverage,'” said David Carter, principal of the Sports Business Group who teaches a sports marketing class at USC. “That’s gutsy. But if Shaq’s going to build up his own brand and do it over the Internet, it takes time.”

Dunk.net debuted with a huge splash early this year. Conceived by O’Neal and his agent Leonard Armato, the company raised nearly $20 million in start-up money. Participating in the funding were Palo Alto blue-chip venture capital firm Technology Crossover Ventures, SportsLine (as part of its cross-marketing deal with O’Neal), as well as O’Neal and Armato themselves. The company signed up baseball star Mike Piazza and WNBA players Rebecca Lobo and DeLisha Milton to wear the company’s shoes and apparel, which could be bought exclusively at Dunk.net’s Web site (. Proprietary technology was developed that encourages visitors to design and order shoes online. The site also features exclusive interviews and community chat rooms. O’Neal was clearly the focus of the company’s marketing campaign, which consisted primarily of his wearing Dunk shoes every night on the court, and its hats and shirts at every opportunity.

But April’s tech wreck hit the company hard. Plans for a second round of financing were shelved and a lucrative initial public offering was abandoned. The staff was cut from around 50 to about 40 in August. Armato brought in Robert Hollander, a respected retail executive who had run all the licensing and marketing business for the 1996 Atlanta Summer Olympics, and who had subsequently been president of WhatsHotNow Inc., a successful ISP for the merchandise industry. “We had to modify the business model,” Armato conceded in a phone interview last week. “Three years to profitability is no longer a viable strategy. This is a response to severe market problems.”

Trimming more staff

Hollander promptly cut the staff to less than 20, laying off all the content-oriented employees, and began to retool the company to enter the traditional retail business. Dunk.net recently put its shoes in its first store, in Pasadena, and is negotiating with others. But Hollander is unsure what the company’s long-term prospects are. Selling out to a larger company isn’t out of the question. “We’re looking at every single avenue to protect the brand and to protect the company, whether that’s other financing, other partners or anything else,” he said. “Any and all things you can imagine are possibilities.” The company apparently is having trouble paying its bills. A lawsuit was filed earlier this month, in the Santa Monica branch of the Los Angeles Superior Court, by Web designer Dedicated Net Access, claiming it hasn’t been fully paid for creating the Dunk.net Web site, and is owed more than $300,000. Hollander declined to comment on the case. He did say, however, that O’Neal has been realistic about his company’s problems, and while not involved in day-to-day operations, he remains committed to it.

The company still has its main marketing assets in Piazza, Lobo and, of course, O’Neal. And despite all the turmoil, Shaq’s image is unlikely to be tarnished even if Dunk.net joins FreeInternet.com as another of the mounting number of Internet firms in Bankruptcy Court. Although Armato declined to detail his client’s financial interest in each of the companies, O’Neal has been paid the lion’s share of money he’s owed from FreeInternet, and the investments are minimal compared with O’Neal’s total worth. Forbes magazine estimated Shaq’s 2000 income at $31 million in salary, bonuses and endorsements, and that’s before he signed a three-year, $88.4 million extension of his already lucrative contract with the Lakers that will keep him in purple and gold until the end of the 2006 season. Moreover, his Internet struggles are unlikely to make much difference to his fans, given O’Neal’s success on the court and model behavior off it. Then, too, Shaq’s willingness to explore previously uncharted business opportunities in the New Economy is likely to win more cheers than boos from an investment community that has gone through the same troubles. “What you’re seeing is an athlete who not only has a good brand name, but when you factor in his personality and his decision to give this a try, it may reflect very well on him,” Carter said. “Here’s a guy who had the guts to go out and do it his way. He’s not going to lose a lot of money over this. Nothing ventured, nothing gained.”