For years, the conventional wisdom about ESPN it’s been a cash cow for its parent company Disney. And while that has been true, it appears that with its rising costs due to programming and production, Wall Street analysts are nervous that as ESPN has to pay more for live sports (new contracts have kicked in or about to kick in for MLB, NBA, NFL and the College Football Playoff), it will have to cut costs meaning that people both on-air and off will lose jobs.
As several high profile contracts come up, ESPN has to keep the Disney execs happy. Bill Simmons and his reported $5 million per year contract have already been let go. And with Colin Cowherd’s deal coming up, we wonder if ESPN is preparing to cut ties despite the fact that his show anchors the ESPN Radio lineup.
The Street reports that while ESPN’s spending isn’t leading to losses, it is cause for concern among Wall Street analysts who are worried that ad revenues won’t be enough to offset the rising sports rights fees:
Some industry analysts have raised concerns about ESPN’s impact on Disney. Last week, Morgan Stanley’s Benjamin Swinburne said that he even though Disney may take in almost $2 billion in box-office receipts from Star Wars: The Force Awakens later this year, he is keeping his rating on Disney’s stock at equal-weight, partly because of ESPN.
Swinburne said he sees “more limited upside” for ESPN to increase revenue from affiliates that carry the network, as well as programming-rights costs that “may grow more quickly than expected.” He estimates that ESPN’s ad revenue during Disney’s fiscal third quarter will fall 2% from a year ago and will rise just 3% for the company’s full fiscal year ending in September, as opposed to an earlier estimate of a 6% increase.
The Big Lead jumping on the analysis cited the departures of Bob Knight and Lou Holtz (both men’s contracts expired and were not renewed) plus a pay cut for Mark Schlereth who wanted to pare down his duties as examples of some ESPN cost cutting.
In addition, the recent announcement of Mike & Mike in the Morning moving to New York, then deciding keep it in Bristol is another example, but was that decision based on Disney directives or was it something else? No one inside ESPN is saying.
ESPN is gleeful in the fact that it has so much content, but there’s a dark cloud as well knowing that with rising costs comes a price and if corporate isn’t happy despite all of the content, the other shoe may drop. ESPN still is making a profit, but it’s not as big as Disney would like. If the trend continues, we’ll see if more cutting is in order.