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ESPN Still Strong Despite Challenges

Jason Barrett

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It’s been a rocky year for ESPN, which shed high-priced, high-profile talent – reportedly under orders from Disney to cut costs – and continued to lose cable subscribers.

These two facts coupled together – ESPN cuts costs while losing subscribers – has triggered a wave of coverage speculating these are the first signs of eventual financial doom. With headlines such as “Is ESPN a giant bubble about to burst?” and, more colorfully, “The numbers behind ESPN’s grim meathook future,” these stories basically argue the nationwide trend of people ditching cable will further sap ESPN of income while the network still owes gobs of money to sports leagues to broadcast their games.

With apologies to our colleagues in sports media – we’re all engaging in crystal-ball journalism here based on incomplete financial glimpses of media conglomerates – there’s just as strong an argument to be made that ESPN is better positioned than any of its competitors to handle a market transition from cable bundle to a la carte streamed television.

Here are a few reasons why:

1. ESPN is the most-watched cable station in America.

This is a footnote in recent coverage, but it bears repeating: ESPN is America’s top-rated cable network.

Yes, ESPN, like all cable networks, has seen its subscriber base slide, dropping more than 3.2 million in a little more than a year, according to the Wall Street Journal. And yes, ESPN charges cable companies, and therefore consumers, far more than any other channel: $6.61 per subscriber, according to data collected by SNL Kagan, more than four times what the next most expensive channel charges (TNT, at $1.65 per subscriber). But ESPN commands that price because of the 90-some million cable subscribers in America, more watch ESPN than any other network.

In a post-cable, unbundled world, however, ESPN would have to charge way more than $6.61 monthly per subscriber, because the network would lose income from the millions of non-sports fan cable subscribers who wouldn’t buy ESPN. A recent survey found only 35.7 percent of people would pay for ESPN if they could pick their own cable lineups, fueling estimates the network would have to charge $20 to $30 monthly in an unbundled world.

ESPN doubters argue sticker shock would scare away so many sports fans the network would be in serious trouble. While it is true ESPN would have to strike a delicate balance in pricing a standalone product affordable enough to attract some cord-cutters while not so cheap it prompts droves of sports fans to cancel their cable subscriptions, that doesn’t mean the “World Wide Leader” is in any more trouble than any other cable network in a rapidly changing industry.

Michael Nathanson, senior research analyst at MoffettNathanson, estimates ESPN would actually have to charge about $36 monthly in an unbundled world, but he thinks the network would still get more than enough customers. The sports networks really threatened by a move away from cable, according to Nathanson, are ESPN’s competitors Fox Sports 1 and NBC Sports, both on a recent list he compiled of the 10 most expensive cable channels not among the most viewed.

“If everyone gets weaker, the bottom end of the market would get weaker, and (Fox Sports 1 and NBC Sports) therefore would probably have less conviction to get into bidding wars with ESPN … for these sports rights,” said Nathanson.

Which brings us to our next point.

2. If sports television rights are a bubble, we’re not seeing signs of a burst yet.

A central premise to the argument ESPN is in big trouble is that sports rights fees, which have gone up astronomically over the last decade, are a bubble. Just like a homeowner who bought an overpriced house in 2007 before real estate values plummeted, the argument goes, ESPN could soon be underwater on the billions it owes the NFL, MLB, NBA, and various college leagues to televise their games.

(Any guess at exactly how much ESPN spends on rights fees is just that – a guess – but a recent Fox Sports story estimated ESPN’s annual tab at $6 billion.)

The problem with this argument is we’re not seeing many signs of a slide in the actual value of these rights. There have been signs of leveling off for local television rights – stations launched by pro sports teams in Houston, Kansas City and Charlotte have struggled – but every time a national sports league puts its product on the market, it makes more money than it did before. Live sporting events continue to be more DVR-proof than any other kind of programming, and broadcasters desperate for captive audiences continue to shell out more money to sports leagues.

Most recently, the NFL got a reported $300 million from CBS for its Thursday night package for the upcoming season, up from $275 million the year before. Last fall, ESPN and TNT agreed to nearly triple their annual payments to the NBA – from $930 million to $2.66 billion per year – in order to renew their contract through 2025.

One major caveat: we don’t know how much the networks actually profit from these events. We get glimpses in reports of TV ad prices for big games, but we never get post-game profit or loss reports. But if broadcasting companies are losing money on live sporting events, they’re certainly not acting like it. The English Premier League is currently seeking an American broadcaster,according to Sports Business Journal. Expected to submit bids: ESPN, Fox, and NBC.

And while ESPN spends a lot of money on sports rights, it still generates a profit, year after year, of between 20 and 30 percent of its expenses, according to SNL Kagan analyst Scott Robson. Its fledgling competitors have not. NBC Sports, which launched in 2012, turned a profit for the first time in 2014. Fox Sports 1, launched in 2013, should turn a profit for the first time in 2016, according to Robson. (ESPN, Fox and NBC all declined to comment.)

3. These budgets cuts really aren’t that significant, relative to ESPN’s size.

The departures of Bill Simmons, Keith Olbermann and Colin Cowherd have come when, according to The Hollywood Reporter, ESPN has been told to trim $100 million from its 2016 budget and $250 million from the 2017 budget.

ESPN disputes these numbers, but let’s say they’re accurate. Yes, $100 million is a lot of money. But when your annual budget is in the neighborhood of $6 billion (and probably more) $100 million represents less than 2 percent of the overall pie. And ESPN is far from the only cable network looking to trim.

“This is an industry-wide trend,” said cable industry analyst Nathanson. “We’ve had five straight quarters of less than expected television advertising … and you’ve seen a bunch of companies all go through cost-cutting.”

ESPN has a long track record of letting high-priced talent leave. ESPN does not have a long track record of letting competitors corner the market on live sporting events. The network has recently relinquished rights to some events – the British Open, U.S. Open golf and, according to a Monday Sports Business Journal story, the French Open –  but with ESPN locked into deals with America’s major sports leagues for the rest of this decade, the sports cable landscape should stay relatively stable until the early 2020s.

In 2021, ESPN’s contracts with the NFL, ACC, Australian Open, and Big 12 expire. In 2022, ESPN’s deal with Major League Baseball is up. Which brings us to our most speculative point.

4. The biggest threat to ESPN is not other cable sports channels; it’s the leagues themselves.

Cable sports channels exist because there’s more inventory of sporting events than there is airtime on the Big Four broadcasters (ABC, CBS, NBC and Fox), and there are many events that won’t draw large enough audiences to merit airspace on those stations. The leagues themselves have started taking some of that inventory for themselves, though, by airing events on their own stations.

The biggest threat to ESPN, and its competitors, is a scenario develops in which sports leagues can make more money televising their games themselves than they do now selling their television rights to the highest bidder. That day could come, analysts think, but not this decade.

“I think the NFL’s people are the smartest people in the room. If it made more sense for them to go direct to consumer, they would do it tomorrow,” said Rich Greenfield, media and tech analyst at BTIG. “They are laying the groundwork to go direct to consumer over time, but that is a 2020-plus event.”

In the meantime, analysts see ESPN as the best-positioned cable station to monetize America’s sports fans, no matter which medium fans use to watch sports.

Last Monday, on CNBC’s Squawk Box, Walt Disney CEO Bob Iger said he could see ESPN offering a direct-to-consumer product like HBO Go, but it wouldn’t happen in the next five years.

Later the same day, Anthony DiClemente, an industry analyst with Nomura, also appeared on Squawk Box. He was asked about ESPN’s prospects in an unbundled world.

“ESPN has the quality and has the following to go direct to consumer,” DiClemente said. “Ultimately, if the bundle breaks apart, Disney and ESPN are well-positioned because you have such demand for ESPN’s sports … the No. 1 sports brand in the country and in the world.”

Credit to the Washington Post who originally published this article

Sports TV News

The NFL Still Considering Multiple Offers For Sunday Ticket

The NFL has had the respective bids of Disney, Apple and Amazon for weeks now. DirecTV has not bid for the package but has stated it is willing to partner with the new rightsholder for a potential deal.

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Sunday Ticket Negotiations

DirecTV currently has the rights to Sunday Ticket. That deal expires at the end of this upcoming football season. The NFL is expected to make a boatload of cash when they decide which media organization gets the next rights to the package. The only question is… who will that be?

Alex Sherman of CNBC reports that the NFL has had the respective bids of Disney, Apple and Amazon for weeks now. DirecTV has decided not bid for the package. However, they are interested in partnering with the new rightsholder for a potential deal. DirecTV knows that Sunday Ticket is a staple in bars and restaurants and is interested in maintaining those relationships.

Outside of the bar/restaurant industry, success has been limited for the satellite provider with the football package. Fewer than two million subscribers signed up for Sunday Ticket each year which made the package a money-loser for the satellite TV provider.

According to the report, the NFL wants more than $2 billion for the rights and a stake in NFL Media, which is being packaged with Sunday Ticket. Also on the table is the NFL’s mobile rights. The league’s previous mobile agreement with Verizon has ended.

An interesting piece of the negotiations is Sunday Ticket price. According to the report, a buyer would have limited flexibility on pricing. The NFL signed contracts with CBS and Fox and within the framework of those deals, language mandates Sunday Ticket have a premium price. That’s to prevent loss of viewers from the networks that feature local market Sunday afternoon games. So essentially, the price is the price for the consumer.

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Sports TV News

F1 Renews With ESPN For U.S. Media Rights

ESPN was reportedly in a three-way bidding battle with Amazon and Comcast. According to the report, F1 told both Amazon and Comcast on Friday that they had decline to accept either one’s offer.

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F1 ESPN

The racing series F1 has decided to stick with ESPN through 2025.

ESPN was reportedly in a three-way bidding battle with Amazon and Comcast. According to the report, F1 told both Amazon and Comcast on Friday that they had decline to accept either one’s offer.

The reported value of the three-year contract is set to pay F1 $75-90M per year for the U.S. media rights. Amazon had offered to pay roughly $100M per year, with the right to sublicense to a linear broadcast network. Comcast’s offer was similar to ESPN’s in terms of value and the structure. They also wanted to put select races on it’s streaming service, Peacock.

Netflix was in on the negotiations, as well. The makers of Drive to Survive, the streaming series that many credit with the sport’s explosion in popularity in recent years, wasn’t close on on their financial offer. Also, it seems F1 executives were not ready to put all of its races on a streaming service just yet.

Currently, F1 receives $5M per year for ESPN to broadcast it’s races. ESPN has grabbed about 1.0 million viewers per race. That makes F1 a more than viable option for the network to invest into again. ESPN will be able to put a small number of races on its ESPN+ streaming service exclusively. The vast majority being on ABC or ESPN.

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Sports TV News

Skip Bayless Says He And Stephen A. Smith ‘Sorted Out’ Their Disagreement

“Brothers fight. We have fought before. I’m assuming we will fight again.”

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Skip Bayless

Stephen A. Smith and Skip Bayless were locked in a war of words last week following the First Take host’s appearance on JJ Redick’s Old Man and the Three podcast.

The origins of their partnership were discussed and Bayless admitted he did not like the way Smith characterized the state of First Take before he arrived on set. Smith insisted that Bayless simply misunderstood what he meant by saying that he was told the show needed him.

Over the weekend, Skip Bayless says he and Stephen A. Smith got together at the Bayless home in California to talk things out in private.

“He was in LA, he came over, we sat by the pool,” he said on the latest episode of The Skip Bayless Show. “It wasn’t the easiest conversation for a while, but we slowly but surely sorted it out. We got through it, and we have been through so much together.”

Bayless reiterated that he considers Smith a brother. They love each other. That doesn’t mean they are always going to remember events the same way or see eye-to-eye all the time.

“Brothers fight. We have fought before. I’m assuming we will fight again.”

Fighting doesn’t mean the relationship is fractured. In fact, Skip Bayless was adamant that he remains closer to Smith than he is to most people in his life.

“I don’t trust easily because of the way I was raised, but I do trust Stephen Anthony Smith. Trust him with my life. Always have and always will. I trust he will always be there for me, and you better believe I will always be there for him.”

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