How a Hot Sports Media Startup Unraveled – Wall Street Journal (subscription)

Last summer, the web video company OneUp Sports was riding high at the Cannes advertising festival on the French Riviera, with plans to deliver sports videos to a new generation of fans obsessed with social media and their mobile devices.

OneUp said distribution deals were lined up with more than 2,000 newspapers and sports sites for its hyperlocal sports videos, like clips of reporters breaking down the Philadelphia Eagles’ draft strategies. It planned to produce over 7 million hours of video that would generate almost $100 million in ad revenue in 2017, according to presentations for advertisers and investors.

The company looked like one of the next hot sports media startups, with a new Facebook Live effort and coverage in The Wall Street Journal of its splashy purchase of Insider Sports Inc. in October.

Since then, OneUp’s business has been unraveling. The company backed out of the Insider Sports acquisition; employees and distributors say they haven’t been paid; and the company faces multiple lawsuits, including one accusing OneUp of not fully paying for a company it acquired in 2015.

It’s a dramatic tale, even for an early-stage company in digital media and technology, where stars can fade as quickly as they rise.

OneUp Chief Executive Daren Trousdell paints a picture of a bootstrapped startup that took on too much and didn’t make the right bets at the right time.

“This is us biting off more than you can chew,” he said. “I still believe in everything we wanted to do. We could not get the economics to work.”

In interviews, Mr. Trousdell blamed business model pivots, acquisitions, the high costs of creating content and the hiring of an expensive advertising executive who he says didn’t generate meaningful direct sales.

The $4.2 million in debt financing and equity that OneUp raised last summer and a $600,000 loan in December weren’t enough to cover costs, according to Mr. Trousdell, particularly with costs for deals and legal fees. He says the company raised $25 million over more than five years — what he called “a tight budget.” He wouldn’t name his investors, but MLB Advanced Media and the National Football League are among his shareholders.

“Our biggest challenge was lowering the cost of content creation and monetization,” said Mr. Trousdell.

OneUp is down to about a dozen employees from 75 last year, he said, and plans to move forward with a refined strategy for the start of baseball season.

The 37-year-old Mr. Trousdell, who has a background in digital marketing, founded OneUp in Florida in 2010 to help sports franchises like the New York Jets develop and monetize their mobile apps. In 2015, OneUp abruptly changed directions to focus on building out a new web video business, powered by the acquisition of CineSport, which syndicated video content to local newspaper publishers.

When the deal closed, CineSport founder Gregg Winik stayed on with OneUp to continue running the video business. But several months later, OneUp started missing deferred payments to CineSport that were guaranteed as part of the acquisition, according to Mr. Winik. He sued OneUp on April 4, the same day he was fired from the company by Mr. Trousdell, according to court documents.

Mr. Winik’s lawsuit alleges OneUp has missed payments to Mr. Winik and other CineSport shareholders totaling $650,000. He later amended his complaint to also say that he was fired without cause, which the suit says triggers a provision in the deal entitling CineSport’s owners to the more than $11 million in payments that the company was set to earn over three years if it met performance targets.

Mr. Trousdell said Mr. Winik was fired because the business wasn’t living up to performance expectations and because Mr. Winik was in breach of his contract. He declined to comment further.

In the past six months, OneUp scrapped its Facebook Live show after only a few attempts and stopped producing videos with local sports partners in the U.S. After moving into new offices in Manhattan’s Flatiron District in October, the company got out of its lease in February and fired some employees.

Multiple former staffers and freelancers said they hadn’t received paychecks from OneUp for wages they are due. One person said she is due over $20,000, while another says he’s owed nearly $6,000.

Mr. Trousdell said he expected to pay all money owed to full-time employees by the end of the month and said contractors, in general, submit invoices and “are paid when we can.”

Separately, some OneUp employees have been reaching out to several distribution partners, apologizing for not paying them, according to people familiar with the matter. OneUp typically co-produced videos with its partners, such as the St. Louis Dispatch, and shared the ad revenue.

Mr. Trousdell estimated the company owes its distribution partners about $125,000.

The ad agency Tamm & Kit, since rebranded as Purpose/Built, says it’s owed more than $500,000, according to an invoice. Mr. Trousdell said he believes the firm is owed only about $17,000.

Major League Baseball Players Association sued OneUp for $225,000 in unpaid rights fees in June. The association and Mr. Trousdell declined to comment.

Last fall, OneUp agreed to buy Insider Sports, the operator of sports sites Basketball Insiders and Football Insiders. The purchase price was more than $575,000, said a person familiar with the matter.

Some initial cash and equity traded hands, but the bulk of the cash wasn’t due for 90 days. OneUp never paid, and Mr. Trousdell says he changed his mind about the deal right before Christmas. The transaction was terminated, but Insider says it’s still owed some money.

“We believed strongly in what OneUp was trying to become, unfortunately, none of what was promised to us ever worked out,” said Insider Sports President and Chief Executive Steve Kyler. “It’s unfortunate that we lost so much time in the ordeal.”

Then there’s the deal that never was.

OneUp stated on its website and in a presentation deck for investors from July that it had purchased digital sports company SendtoNews, a rival video producer with rights to highlights from leagues like the NFL and the NBA.

But OneUp never acquired SendtoNews.

Mr. Trousdell said it was a “clerical error.”

Write to Mike Shields at mike.shields@wsj.com