Editor’s Note: Sports business reporter Daniel Kaplan has covered the industry for 25 years at Sports Business Journal and The Athletic. He can be reached on Twitter @KaplanSportsBiz.
ESPN has been in the news a lot in recent weeks. Bob Iger, CEO of Walt Disney, ESPN’s parent, told CNBC July 13 the company was looking for a strategic partner to buy part of the World Wide Leader–and someone to take ABC off his hands.
Then just yesterday, ESPN shocked the sports world by licensing its name to Penn Entertainment to create ESPN Bet, marrying the Disney brand to sports gambling (raise your hand if you saw the Mickey Mouse affiliate taking over for bad boy Dave Portnoy, who scrambled back to Massachusetts wholly in control of his Barstool Sports, laughing all the way to the bank).
So Disney’s third quarter earnings call was a must listen event on Wednesday afternoon. Here is what we learned:
* Iger again stressed it is a question of not if but when ESPN goes direct to consumer.
* The strategic partner ESPN is hunting for could be one that helps with digital distribution, underscoring the investor is likely to be a technology company. Iger said, “Overall, we’re considering potential strategic partnerships for ESPN, looking at distribution, technology, marketing, and content opportunities where we retain control of ESPN. We’ve received notable interest from many different entities, and we look forward to sharing more details at a later date when we’re further along in this process.”
* ESPN talked to several sportsbooks but Penn Entertainment’s offer was far and away the best. “Penn stepped up in a very aggressive way and made an offer to us,” Iger said. “That was better than any of the competitive offers by far.”
It always makes me nervous when I hear something like that. First, as many have pointed out, Penn’s ESPN outlay of $2 billion–$1.5 billion in license fees over 10 years and $500 million of stock options–is only a billion and a half or so less than Penn’s valuation. This comes after Penn spent $551 million to buy Barstool, and then appears to have returned it to Portnoy for nothing more than a commitment to receive half the sales price if he ever sells, which he has promised he won’t.
So now we hear Penn was essentially bidding against itself. ESPN better hope Penn shows better judgment with the stewardship of ESPN Bet.
The future of ESPN itself is clearly over the top, Iger said. When that happens he wouldn’t tip his hand, but said internally the company is already working on pricing. “The team is hard at work looking at all components of this decision, including pricing and timing.”
But while the gap between what Disney earns on linear TV and what it loses in streaming narrowed, it is still a massive chasm, suggesting the switch is not right around the corner.
In the nine months ended July 2, Disney’s linear networks, which includes ESPN, earned $4.9 billion, down 27 percent from the like period in 2022. By contrast, streaming, which includes Disney+ and ESPN+, lost $2.2 billion, a 12 percent improvement on the $2.5 billion loss in the like period of 2022.
Another factor favoring more time until a DTC ESPN is available is that ESPN ad income is up in a down market for advertising.
“Our total domestic sports advertising revenue per linear and addressable is up 10% versus the prior year, adjusted for comparability, which speaks to the fact that the sports business stands tall and remains a good value proposition,” Iger said. “We believe in the power of sports and the unique ability to convene and engage audiences.”
The strategic partner would not just help with streaming distribution, Iger said, but in supplying content. But he waved away a question about a report that speculated that Disney could be bought by Apple, a company that certainly would meet the criteria of helping with content and distribution.
“When it comes to partners, we’re looking for partners that are going to help ESPN successfully transition to a DTC model,” Iger said. “And that, as I’ve said, can come in the form of either content, or distribution and marketing support or both.”
This is the last quarter ESPN results are merged with other assets under the Disney banner. So it has not been possible to know exactly how much ESPN earns, or how much ESPN+ loses. Under the corporate restructuring Iger announced in February, ESPN will operate under its own silo and break out its results starting next quarter, making that report a must read one.
