LeBron James of the Los Angeles Lakers at a game against the LA Clippers at ESPN Wide World Of Sports Complex on July 30, 2020 in Lake Buena Vista, Florida.
Mike Ehrmann | Getty Images
As Disney considers a strategic partner for ESPN, Chief Executive Officer Bob Iger and ESPN head Jimmy Pitaro have held early talks about bringing skilled sports leagues on as minority investors, including the National Football League, National Basketball Association and Major League Baseball, in line with people accustomed to the matter.
ESPN has held preliminary discussions with the NFL, NBA and MLB about quite a lot of recent partnerships and investment structures, the people said. In a press release, an NBA spokesperson said, “We now have a longstanding relationship with Disney and look ahead to continuing the discussions around the longer term of our partnership.”
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Spokespeople for ESPN, the NFL and MLB declined to comment.
Talks with the NFL have occurred along with the league’s own desire for an organization to take a stake in its media assets, including the NFL Network, NFL.com and RedZone, said the people, who asked to not be named since the talks have been private.
The NBA and Disney have broached many potential structures around a renewal of media rights, the people said. Disney and Warner Bros. Discovery have exclusive negotiating rights with the NBA until next yr.
Iger said last week in an interview with CNBC’s David Faber that Disney is searching for a strategic partner for ESPN because it prepares to transition the sports network to streaming. He didn’t elaborate on what exactly that meant beyond saying a partner could bring additional value with distribution or content. He acknowledged selling a stake within the business was possible.
Disney owns 80% of ESPN. Hearst owns the opposite 20%.
“Our position in sports could be very unique and we wish to remain in that business,” Iger said to Faber. “We’ll be open minded about searching for strategic partners that might either help us with distribution or content. I’m not going to get too detailed about it, but we’re bullish about sports as a media property.”
Theoretically, a jointly owned subscription streaming service amongst multiple leagues could eventually give consumers recent packages of games and other modern ways to absorb content.
The move could be a logical one for Disney because it tries to maneuver past the standard cable subscriber model and underscores how badly the corporate wants to seek out an answer for the sports network as its linear subscribers decline. Still, ESPN rankings have climbed in recent times on major sporting events. There is not any higher partner for sports content than the leagues, themselves.
Superficially, it might make less sense for the NBA, NFL and MLB which sign lucrative media rights deals with many media partners that fuel team revenue and player salaries with a variety of media corporations.
Skilled sports leagues could face conflicts of interest in the event that they take a minority stake in ESPN. Owning a stake in ESPN may irritate Disney’s competitors, equivalent to Comcast‘s NBCUniversal, Fox, Amazon, Paramount Global and Apple, who help make the leagues billions of dollars by participating in bidding wars for sports rights. Taking an ownership stake in ESPN could give leagues the inducement to spice up the worth of that entity somewhat than striking deals with competitors.
There would even be hurdles for Disney. ESPN also employs a whole lot of journalists that cover the key sports leagues. Selling an ownership stake to the leagues could cloud the perception of objectivity for ESPN’s reporting apparatus.
Still, the leagues are already business partners with ESPN. It’s possible ESPN could put measures in place to make sure reporters can proceed to cover the leagues while minimizing conflicts, but it surely adds one other layer of complexity to any deal.
A streaming-first ESPN
ESPN is attempting to forge a recent path as a digital-first, streaming entity. Disney realizes ESPN won’t have the option to make cash prefer it previously has in a standard TV model.
Selling a minority stake in ESPN to the leagues could mitigate future rights payments, allowing Disney to higher compete with the large balance sheets of Apple, Google and Amazon. It might also guarantee ESPN a gentle flow of premium content from the leagues.
Until last quarter, Disney’s bundle of linear TV networks still had revenue growth because affiliate fee increases to pay-TV providers — largely driven by ESPN — made up for the hundreds of thousands of Americans who cancel cable every year. That trend finally ended last quarter, in line with people accustomed to the matter. Accelerating cancellations have now overwhelmed fee increases, and linear TV revenue outside of promoting has begun to say no.
“Loads has been said about renting [sports right] versus owning,” Iger said last week in his CNBC interview. “Should you can rent it and proceed to be profitable from renting, which now we have been and we imagine we’ll proceed to be, then there’s value in staying in it. We now have great relationships with Major League Baseball, and the National Hockey League, and various college conferences, and after all the NFL and the NBA. It is not just concerning the live sports coverage of those leagues, those teams, it is also about all the shoulder programming it throws off on ESPN and what you’ll be able to do with it in a streaming world.”
ESPN would really like to morph itself right into a streaming hub for all live sports. Management would really like to launch a feature allowing ESPN.com or the ESPN app to funnel users to games regardless of where they stream, CNBC reported earlier this yr.
While striking a cope with skilled sports leagues would not be easy, Disney appears to be pushing the envelope on its considering to arrange for a streaming-dominated world that features its full portfolio of sports rights.
“If [a partner] involves the table with value, whether it’s content value, distribution value, whether it’s capital, whether it just helps derisk the business — that would not be the first driver — but in the event that they come to the table with value that allows ESPN to make a transition to a direct-to-consumer offering, we’ll be very open minded about that,” Iger said.
WATCH: Disney CEO Bob Iger talks to CNBC’s David Faber about ESPN and its future