The business of cheer

December 21, 2012, 10:00 AM UTC
Highflying cheerleaders at the University of Central Florida

FORTUNE — Like the company he built, Jeff Webb is cheerleading incarnate. In 1974, Webb, an ex-cheerleader, founded Varsity with $85,000. Today the company’s tag line rings true: We are cheerleading.

Webb helped launch the first televised cheerleading competition — a 20-team invitational held at Orlando’s SeaWorld — in 1980, and seven years later he helped start the American Association of Cheerleading Coaches and Administrators (cheerleading has gotten notably safer over the past five years, although it remained the second-most-dangerous athletic activity in 2011, ranking just behind football), but it’s his company, Varsity, that has the largest impact on cheer.

Last year Varsity hit $300 million in revenue, an 8% increase over 2010. The company now boasts over 20 brands — from apparel lines to national competitions at Disney’s Magic Kingdom to American Cheerleader magazine — and merged with class ring manufacturer Herff Jones in June 2011. Nearly every uniform sold or camp attended by high school or college cheerleaders is part of Varsity’s vast empire of pep. So where does it go from here?

MORE: Maryland football’s best corporate friend

Straight up and, err, into a pyramid formation. Varsity is helping launch a new sport called STUNT. The name comes from stunting — the act of lifting teammates to create multilevel visual spectacles — and the nuances were dreamed up by USA Cheer, a governing body headed by Varsity SVP Bill Seely. The goal was to develop an activity that met Title IX sport requirements since, despite all the athleticism it demands, cheer is not yet deemed a NCAA sport.

A STUNT game, like so many other competitions, features four quarters — two teams perform identical routines side by side while a panel judges execution. There are different combinations per quarter, and the winner of each level picks which routine will be performed in the next. “You have to use strategy. You look at the other teams and see where they’re strong,” says Florida State University coach Staci Sutton. Sutton’s team performed in STUNT’s second season, which began just after college football ended. STUNT is working to gain NCAA emerging-sport status; at least 26 colleges are participating this year, and the 2013 season will be the first for high schools. Florida alone has 135 high schools signed up.

MORE: Bjorn Rebney’s fight club

Though STUNT fails to directly influence Varsity’s bottom line, it creates more opportunities for athletes to get involved in cheerleading, which increase the number of bodies in need of uniforms, Varsity’s most profitable segment. (A single uniform costs $150, not including accessories.) Varsity EVP Kris Shepherd, who has been with the company since its founding, oversaw last year’s launch of the Varsity Design Studio, a multi-million-dollar virtual platform that allows sales reps to efficiently sort through Varsity’s 17 million uniform combinations and create personalized options for customers. A larger community of cheerleaders will likely escalate advertisers’ interest in Varsity, too. It currently contracts sponsors like Gatorade, Soft Lips, and Oxy to buy $250,000 to million-plus-dollar packages, supporting the athletes and covering camp and competition production costs.

Varsity’s command of the market has not escaped criticism, but plenty of Webb’s cheerleading peers admire his molding of the industry. “With [Varsity] being the leader, it really raises the standards and the bar,” says Pauline Zernott, Louisiana State University’s coach for 21 years. “It’s nice to have one group that really gets it.”

MORE: What’s behind career achievers’ love of marathons?

The company’s obsession with improvement stems from its employees’ passion for the activity — 75% are former cheerleaders. “When we started our first camp, Jeff and I never wanted to be the biggest; we just wanted to be the best,” remembers Shepherd. “But by being the best, we eventually became the biggest.”

His new sport on the rise, Webb looks to cheer’s next move, and his gaze is eastward: In 2013, Varsity will open a cheerleading academy in Guangzhou, China. “We don’t really have to make the separation that this is the business part and this is just the good of the sport,” says Webb. “To us, it all runs together.”

A shorter version of this story appeared in the December 24, 2012 issue of Fortune.