Rising rights fees and increased competition put the pressure on ESPN

The news of ESPN's hundreds of layoffs this week staggered the sports world. How could the leading media company in all of sports, and maybe even in all of media, cut almost 1/6th of their workforce? How could a company that spends billions of dollars (yes, that's billion with a "B") on rights deals just for the privilege to televise games not have anymore room for a senior staffer in the accounting department? How could one of the laid off employees drive by the new multi-million dollar digital center and not think there was something in this picture not adding up?

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Perhaps what isn't adding up is ESPN's longstanding invulnerability over the sports world. ESPN's value has been placed in the tens of billions of dollars. Forbes even remarked, "The reality is that there is not another media property in the world worth as much as ESPN because no media asset delivering content generates close to as much money." And truth be told, as cold-hearted as it seems, the washing out of veteran highly-paid employees with younger (i.e. cheaper) alternatives to maximize profit is nothing new for corporate America. In fact, ESPN posted job listings for many new positions this week, presumably including ones that had just been filled days earlier, and announced a high-profile hiring of southern sports radio personality Paul Finebaum. ESPN isn't hurting for business.

However, one of the reported reasons for ESPN needing to slash dollars from its payroll is the humongous rights fees the network has dished out to the NFL, college football, and other sports in recent years.

One of the most intriguing conversations around sports media has been that of a "rights bubble." The cost for televising live sports has exponentially increased in recent years. Major League Baseball's contracts with Fox, TBS, and ESPN is worth more than double its previous deals. NFL TV rights increased 60% when the league re-signed with its network partners. It's one of the reasons why the NBA is so eager to get to the negotiating table. College sports and conference networks are a new cash cow in televised sports, too. The logic is simple, there's more money in televised sports because sports are one of the last broadcast entities that you have to watch live in a DVR age. But with rights fees going up the pressure is on the networks to find the capital needed to pay for them. That financial squeeze is also putting more pressure on distributors and consumers. With prices rising (just look at your most recent cable or satellite bill), some consumers are considering cutting the cord and counting on streaming outlets like Hulu, Netflix, or Aereo for their television viewing.

That's why ESPN finds themselves in a much different landscape than the last time the company faced large scale layoffs in 2009. Not only is the price of poker going up, but the competition is getting stronger and more pronounced. NBC (backed by Comcast) has launched NBC Sports Network and Fox Sports (backed by News Corp) is planning the August launch of Fox Sports 1. Both are national 24/7 sports cable networks that will compete with ESPN for talent, sports rights, and everything in between. Fox Sports in particular seems ready to challenge ESPN's spot at the top of the mountain that has been entrenched for decades.

The brilliance of ESPN President John Skipper has been building and securing ESPN's place in the sports world by aggressively pursuing live sports rights. Sports fans are ingrained to turn to ESPN because that's where all the games are. It's the central reason why NBC Sports Network has struggled to get off the ground and Fox Sports 1's pursuit to overtake ESPN may take not years, but decades to complete, if it ever does succeed.  Already though, Fox has made an impact by surprising the sports world and taking World Cup rights from Bristol starting in 2015. The network is also poaching talent to staff its new network like ESPN's Charissa Thompson and TSN's popular anchor duo of Jay Onrait and Dan O'Toole.  Not even ESPN's resources are unlimited to match all the opportunities that exist at the moment.

ESPN's dominance in the sports world isn't capitulating tomorrow, but it faces more national competition than ever before. Does the recent round of layoffs show ESPN's position at the top of the sports world is less impenetrable? Does it represent a tightening of the sports rights bubble? The television industry is on the verge of significant changes in the coming years and the sports world will be directly at the center.

Matt Yoder

About Matt Yoder

Managing Editor of Awful Announcing and award winning sportswriter. Bloguin consigliere. The biggest cat in the whole wide world.

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