ESPN SAN FRANCISCO, CA – FEBRUARY 05: A view of the logo during ESPN The Party on February 5, 2016 in San Francisco, California. (Photo by Mike Windle/Getty Images for ESPN)

Is ESPN toast?

Shocking as that question might seem, noted Wall Street analyst Rich Greenfield put out a thought provoking bit of analysis yesterday in which he essentially described the network’s future as either grim or grimmer.

By now if you have been following the media, ESPN’s issues are well known and afflict many of its ilk.  Once fat and happy, fed on the never-ending subscription fee honey of the cable bundle, cable outlets have been ravaged by cord cutting and cord nevers, taking a chainsaw to the prior paradigm.

In 2013 the number of cable households stood at about 100 million, and a decade later that figure is down to just over 70 million, and falling fast. But unlike many cable networks that can more easily reduce their content costs, ESPN faces ever growing sports rights fees, and likely billions of dollars of losses on its direct to consumer efforts. How much ESPN+ is losing is not clear because Disney has grouped the app in with Disney+ in its financial filings, though that is about to change in the next quarterly submission.

“ESPN has two strategic paths, neither of which is terribly exciting,” Greenfield wrote. “1) Renewing their extensive portfolio of sports rights licensing deals and eating into margins so they can attempt to transition from linear TV to streaming TV (preparing for ESPN+ to become ESPN, with no way of knowing if a dual distribution model will even work). 2) Pare back on major sports rights and become an increasingly irrelevant sports destination that simply harvests cash until it dies.”

In other words, ESPN can continue what it is doing, straddling the transition from linear to direct to consumer until the number of cable subscribers drops enough that the main channel is offered a la carte digitally. As Greenfield notes whether that’s feasible is the million dollar question. Or ESPN can belt tighten significantly, which according to Greenfield leads to death.

Ouch, is this really the fate of the colossus that is ESPN, one that includes its death?  To take a step back here, ESPN does have an avalanche of valuable rights. To begin with, it has Monday Night Football for another decade, and the best slate of games this season in recent MNF memory and will broadcast the 2026 and 2030 Super Bowls in conjunction with ABC (food for thought, what if as Disney CEO Bob Iger indicated the company wants to do, ABC is sold before either of those Super Bowls). The Southeastern Conference is coming in full next year, and ESPN has the National Basketball Association, including the Finals, not to mention scores of other rights.

Of course, the NBA contract is up after next season and some reports have the league looking to double, or even triple the $25 billion it currently takes in–not all of that is on ESPN, but includes Turner.

“It feels like EBITDA could easily be cut in half over the next three years, which makes it even harder to understand why Iger is so insistent on keeping ESPN inside of Disney, as well as who would actually consider investing billions into ESPN?,” Greenfield wrote. EBITDA, or earnings before interest, taxes, depreciation and amortization, is a measure of cash flow. Iger also said ESPN is looking for a strategic investor. 

ESPN’s problems have led many to interpret its betting deal with Penn Entertainment as a desperate scramble for cash. James Andrew Miller, author of the seminal book on ESPN, “These Guys Have All the Fun,” said on The Press Box podcast last week, “Personally, I don’t think it’s that great a deal for them, is not going to wind up being that much money. And they’re cutting themselves off from other opportunities. But the point is that they had a 180 degree turn, a change of opinion. And I think that just shows the lack, I don’t want to use the word desperation. But I think that clearly everything is on the table now.”

ESPN’s Penn deal to create ESPN Bet in some ways is a head scratcher. Iger had said over the years associating Disney’s family brand with betting was a nonstarter. But ESPN did go into business with smaller arrangements with DraftKings and Caesars, so clearly the family values attitude had already shifted. But Penn is not a big, bold brand name like FanDuel, DraftKings and so forth. Iger admitted in the company’s earnings call Penn offered the most money, which for a brand like Disney with billions of dollars in revenue, that shouldn’t have been the only defining metric. Penn is paying ESPN $150 million annually, but it’s unclear if DraftKings and Caesars will continue paying the Worldwide Leader or if their deals are terminated. If that’s the case, the Penn deal looks even smaller.

Greenfield called Penn “a surprisingly weak partner…who is increasingly desperate after squandering billions trying to scale sports betting (Barstool and theScore).”

ESPN launched in 1979 and rode the wave of the cable business to unprecedented heights. Now, that same business could take the network to new lows.

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.