Report: Disney is Considering Spinning-Off ESPN

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In the ever-changing media landscape, Disney is reportedly interested in spinning off ESPN, according to a report by Dylan Byers at Puck. Due to the popularity of cord cutting and streaming live sports, ESPN is tied up to long-term linear TV contracts, “there are now conversations happening regularly at Disney about whether or not to spin off ESPN,” a source told Byers.

Disney is under new leadership after former C.E.O. Bob Iger stepped down and was succeeded by Bob Chapek in early 2020. Iger, a sports fan, was known to be in favor of keeping ESPN under the Disney umbrella. Unlike his predecessor, Chapek is more analytical minded and reportedly isn’t invested in The Mouse being the home of the World Wide Leader in Sports.

Live sports remain one of the most popular assets when it comes to watching live TV, however, Byer’s report details what industry experts think of what Disney should do with ESPN in the world of streaming, noting that private equity firms have been encouraging a spin-off for years with Iger responding that “ESPN would never leave Disney under his watch.”

The Benefits of an ESPN Split From Disney

Since Iger isn’t in charge anymore, the chances of ESPN leaving Disney under Chapek have gained more credence. If ESPN does spin-off, the company has many noteworthy assets that will make it a valuable service. As we’ve previously reported, Monday Night Football is locked in on the network until 2033. Disney is currently the streaming home of the NHL after the new media rights deal brought hockey back to their networks until 2028. Byers’ report explains the value of an ESPN if there is a Disney split:

The argument for a spin-off goes like this: ESPN, while still extremely lucrative, is a zero-to-low-growth business, and it’s destined to lose significant subscriber and advertiser revenue as linear television declines, forcing it to manage the downturn. While other Disney linear assets like ABC, FX, and NatGeo may be able to more easily transition their content to Disney+ and Hulu—indeed, much of FX’s best content already lives on Hulu—even Chapek himself has said that moving sports to streaming is “a much more complicated equation” because ESPN is locked into expensive, long-term rights deals that keep the most popular sports programming on linear and off of ESPN+. Exiting ESPN, therefore, could allow Disney to go all-in on streaming, which could pop the stock and deliver meaningful shareholder value. And presumably the windfall from some form of exit or spin could be reinvested in streaming to achieve a Netflix-like stock price.

ESPN and the Untapped Potential of Sports Betting

Disney is known as a family-friendly company, so sports betting may not be something that they will take advantage of. With sports betting becoming a growing market there is a substantial amount of money that ESPN could make as a standalone network. Other sports broadcasting companies are attempting to allow in-game sports betting, but they don’t have the legacy brand recognition that ESPN does. Byers reports explains how The Mothership can be a leader in the sports gambling market:

It would also be able to pursue new growth opportunities currently unavailable at Disney, most notably by taking advantage of the rapidly growing sports betting industry, which is exploding as individual states legalize gambling. Wagering, and microbetting in particular, appears to be the trend that will define sports consumption for the next generation as fans place bets on their phones, usually small ones, while they watch a game in person, on TV, or on another app. In this oncoming economic environment, ESPN could become not only the market leader for live sports and sports news, but also the platform for a global sports book. It has inched toward this position in fantasy sports, but actual gambling is order of magnitudes more consequential. Imagine it as the Robinhood of sports, this logic goes.

Potential Buyers of ESPN

With many streaming providers getting into the world of sports, ESPN would be an asset to have. Amazon will soon become the exclusive home of Thursday Night Football after getting the NFL’s first-ever all-digital package, the streaming giant will be the home of TNF until the 2033 season. Buying ESPN would give Amazon all of ESPN’s production assets and give Prime Video in-house production instead of relying on traditional broadcasters like FOX or NFL Network.

WarnerDiscovery could be another suitor for ESPN, as they want to have more live sports available for streaming. After signing a 7-year deal to broadcast the NHL, WarnerMedia’s HBOMax would benefit from adding more sports to their streaming library. 

Time will tell what happens to ESPN with viewership habits changing. There are plenty of options whether it’s at Disney, Warner, Amazon, or another streaming service, ESPN is still the most recognizable brand when it comes to live sports, which still remain among the biggest reasons why people pay for TV.

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