Bob Iger is still trying to put out the fire he started with comments he made during an appearance on CNBC last week. The usually polished Iger insinuated that ABC “may not be core” to the company and he has also had discussions looking at options “strategic partners” for ESPN, which would help Disney navigate transitioning ESPN into a DTC product.
Many have speculated that a strategic partner for ESPN would likely come from the tech or private equity world. However a much more plausible option was put forth today by Jessica Reif Ehrlich of Bank of America in her apperance on the Marchand and Ourand Sports Media podcast. Ehrlich believes there’s only one partner that makes sense and that is…. Comcast.
“The first thing I thought of was when he said content distribution, maybe a little bit financial, it screams one company and that company is Comcast. I could be completely wrong, but they are in negotiation for the Hulu outcome. Now, it’s much more interesting. Comcast has so many sports assets and sports aspirations. They obviously have distribution. They have an amazing balance sheet. They have a company that’s kind of become mid-size. There has been tons and tons of speculation in media that they are very interested in NBA.
“What Bob said as part of this strategic negotiations was its likely before they finalize the NBA negotiations. That’s why it screams Comcast for me. It makes it so interesting because it’s a way for maybe Disney to de-lever. ESPN is the most important sports brand and it’s a way to strengthen it.”
CLIP: Bank of America's Jessica Reif Ehrlich says Bob Iger's comments screams for an ESPN deal with Comcast.
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— Andrew Marchand (@AndrewMarchand) July 19, 2023
Reif Ehrlich highlighted that Comcast has a lot of sports aspirations, which is correct. Peacock is the biggest hub for Premier League soccer in the United States. The streaming service also scored an NFL playoff game for the first time. NBC just landed a deal with the Big Ten as well, which will give the network a larger foothold in college football but also add a lot of football and basketball games to Peacock as well.
But how would Comcast and Disney/ESPN want to find some type of deal here? It doesn’t really make sense… That is, unless you consider the two companies are already at the table negotiating Disney’s planned buyout of Comcast’s stake in Hulu.
In May, CNBC reported that Comcast was primed to sell its stake in the streaming service to Disney at the beginning of 2024. This alone is going to be a transaction in the billions as Comcast holds a 1/3 stake in Hulu, which is valued somewhere near $30 billion. Whenever a valuation on Comcast’s stake is agreed upon, it’s not hard to envision a scenario where Comcast opts to take some of that payment in equity in ESPN versus cash, which Disney would likely welcome. Disney, Inc currently owns 80 percent of ESPN, while 20 percent goes to Hearst for reference. Could Comcast take some of their Hulu cashout and maybe throw some more cash to take a Hearst-like stake in ESPN and leave ESPN as the majority holder?
Such a move would align the two behemoths on two other fronts, the first being working together on the timing of the cable bundle collapse that has been foretold for quite some time, but is still not here. Many have tried to predict when ESPN might be offered outside of cable, and the best estimate of that I’ve heard has been from Nick Khan, who believes Disney will only pull the trigger when major distribution deals with DirecTV and Comcast wind down. If Comcast owns equity in ESPN, both companies would be incentivized to milk out a few more years of propping up the cable bundle together.
The other area of synergy is with the upcoming NBA media rights negotiation. Comcast/NBC has been without the NBA for over 20 years, but there is a considerable amount of smoke that they will be aggressive in trying to regain some type of package with the league. Whether this means replacing WBD (Turner), or some type of new third or even fourth package, their efforts are going to be aided considerably if they are a part owner with ESPN.
Plus, Comcast has shown the ability to make shrewd deals when the door is open.
One thing to consider, though is will new merger requirements put a pin in that thought, though? The FTC and the Justice Department announced new guidelines on Wednesday for mergers. It might not be a loud talking point right now, but it could be something to watch for.
While the idea of Comcast working with ESPN seems really out there, as Reif Ehrlich pointed out, it actually makes a lot of sense. These two companies really used to butt heads often and have a pretty well-known rivalry. Flash forward to now to a world where Amazon, Netflix, and Apple may now scare the two once enemies into at least kicking the tires in uniting so their seats at the table in regards to sports rights are secure for the rest of this decade and beyond.
