Disney plots sports activities betting push in bid to revitalise ESPN

For many of the 25 years since Walt Disney purchased ESPN, the cable sports activities community has been a serious revenue engine of the corporate, due to strong subscriber progress, excessive promoting charges and the industry-leading charges it prices cable suppliers.

However like the broader US cable tv enterprise, its subscriber numbers have been steadily shrinking as audiences have migrated to streaming providers. From a peak of about 100mn subscribers in 2011, ESPN had 77mn by the tip of 2021, down 23 per cent. S&P International Market Intelligence estimates that determine will fall to 72.5mn this yr.

“ESPN nonetheless is an engine from a money standpoint, however when it comes to progress trajectory it’s a challenged enterprise as extra individuals are slicing the wire and giving up on pay-TV,” mentioned Wealthy Greenfield, an analyst at LightShed Companions.

The downward pattern has prompted hypothesis amongst analysts that Disney would possibly spin off or promote ESPN. However Disney chief government Bob Chapek insists it has a future throughout the firm — one that’s more and more on-line, and, controversially for a corporation constructed on a household pleasant picture, tied to sports activities betting.

The push into betting, Chapek mentioned throughout its outcomes name final month, was “pushed by the buyer, significantly the youthful client that can replenish the sports activities followers over time and their need to have playing as a part of their sports activities expertise”. He added that the way forward for sports activities programming will prolong to “sports activities betting, gaming and the metaverse”.

Sports activities betting has exploded within the US since a 2018 Supreme Courtroom choice ended Nevada’s maintain available on the market, opening the door to greater than 30 states to legalise it thus far. This has fuelled the rise of on-line sportsbooks — digital areas the place gamblers can place bets — and corporations offering knowledge and different providers.

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Goldman Sachs has projected that the US sports activities betting market will attain $39bn by 2033, from $900mn at the moment.

Jessica Reif Ehrlich, an analyst at Financial institution of America, mentioned one of many appeals of sports activities betting for Disney was that it offers followers a motive to remain tuned into video games at a time when many are selecting to skip the entire match and watch highlights on social media as an alternative.

“You’re betting on a play, on an athlete — there are totally different parts that hold everybody ,” she mentioned. “And it brings in a youthful demographic.”

To date, Disney’s presence in betting is modest. It acquired a 6 per cent stake in DraftKings, a fantasy sports activities and betting group, in 2019 when it purchased twenty first Century Fox. It additionally has a cope with Caesars that provides it the unique proper to supply sports activities betting odds to ESPN.

DraftKings and Caesars are distinguished advertisers on ESPN and the community’s streaming service ESPN+, which hyperlinks to their online-betting platforms. On the tv community and ESPN+, which has 21mn subscribers and is lossmaking, there’s a vary of betting-related content material, together with odds, sport projections and different statistics — all of which might have been taboo on US sports activities networks only a few years in the past.

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Stories arose final yr that ESPN was looking for billions to license its title to a sportsbook comparable to Caesars, DraftKings or MGM Resorts, although no deal has materialised. However Ehrlich expects ESPN to make a transfer to strengthen its place out there.

“ESPN goes to get greater in sports activities betting, extra seen,” she mentioned. “They actually barely put their toe within the water with a modest stake in DraftKings, so the query is how do they get in in a much bigger method. They’re not going to deal with the bets, however do a licensing deal.”

Column chart of  showing ESPN’s subscriber numbers have fallen in the streaming era

Greenfield mentioned Disney additionally has the choice of taking the extra drastic step of merging ESPN with a sportsbook and making a separate enterprise. “Are they merging all-in with a sportsbook, or simply licensing? They haven’t determined but,” he mentioned. “These are massive strategic questions it’s important to resolve.”

A licensing deal would enable ESPN to play a much bigger position out there with out really dealing with the mechanics of taking bets — a distinction which may be misplaced on some customers who care about Disney’s healthful, household pleasant picture.

“Disney has been meticulous about making certain that the model is a nurtured and guarded asset,” mentioned Americus Reed, a advertising and marketing professor on the College of Pennsylvania’s Wharton enterprise faculty. “Sports activities betting can have a connotation that’s antithetical to what Disney is about. The problem can be to reframe the class, [to say] it’s authorized, it’s a special factor now — we don’t need you to think about it within the previous method.”

However Chapek mentioned Disney’s inside analysis has discovered client attitudes towards sports activities betting have modified. “We really feel the Disney model is broad sufficient to have an ESPN enterprise below our roof and have ESPN within the enterprise of sports activities betting,” he advised the FT in November. “That’s not dangerous to the mom model and is helpful for the ESPN model. The Disney model is elastic.”

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Because it plots its technique, Disney should cope with a continued decline in ESPN’s core cable enterprise. “They’ve misplaced 1 / 4 of their paying subscribers, and there are not any indicators of this reversing any time quickly,” mentioned Scott Robson, a analysis analyst at S&P International Market Intelligence’s Kagan. “However by means of the previous decade they’ve maintained a worthwhile enterprise and saved their income streams afloat.”

That’s as a result of ESPN has been in a position to cost cable corporations among the many highest charges within the {industry} to hold the channel. But programming bills have additionally been going up — and can proceed to take action. Amazon and Apple have entered the competitors for sports activities rights, which most analysts consider will solely push the prices for rights to main sporting occasions even increased.

All of this implies ESPN is at an “inflection level,” Robson mentioned, the place the core enterprise turns into much less worthwhile as the corporate spends extra to grow to be a much bigger streaming participant. However sports activities betting may open new areas for progress.

“It’s thrilling if you’re a cable community in a mature a part of the life cycle and you’ve got the potential to breathe new life into your properties with playing relationships,” he mentioned.

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