Officials from the National Basketball Association and Major League Baseball have raised doubts about what good it would do Disney to acquire a minority stake in ESPN if their intent is to substitute cash payments for league rights with equity, according to sources.Disney is trying to find cost-savings as it continues to experience streaming-related losses and anticipates buying out Comcast's interest in Hulu.Disney desires to own a majority share in ESPN, but there is a possibility that the business may be spun off.
The four major U.S. professional sports leagues are aware that Disney's ESPN has shown potential interest in taking an equity stake in the network. However, the reason why the leagues would be interested in such a move is still uncertain. People familiar with the conversations have revealed that both the National Basketball Association and Major League Baseball have expressed doubt in a partnership with ESPN if Disney's purpose is to replace payments to leagues for sports broadcast rights with equity in ESPN. The people, who asked to remain anonymous due to the private nature of the talks, revealed that discussions have not yet advanced to specifics. Nonetheless, the heat may be turned up as ESPN attempts to reach a rights renewal deal with the NBA, with Disney's exclusive negotiating window ending in April 2024.
To strengthen its balance sheet, Disney is exploring ways to save cash, including the possibility of trading equity for sports rights. To this effect, the media giant struck an agreement with Penn Entertainment this past week that will provide it with $1.5 billion in cash over the next 10 years. The leagues, however, need money as the regional sports network business is under threat and much of what teams pay players is derived from sports rights fees. ESPN's involvement in the acquisition of packages of games helps to create a competitive market for these rights. CEO Bob Iger stated on Wednesday during Disney's earnings conference call that the company is not necessarily on the lookout for cash infusions, but rather strategic partners that can provide content and distribution and marketing support for ESPN's transition to a direct-to-consumer business - a move that could potentially save Disney billions of dollars. Additionally, Iger stated that the company is also holding discussions with strategic investors who are in a position to offer such advantages. The MLB declined to comment, and the NBA noted that it looks forward to continuing the dialogue regarding the future of their relationship.
Bob Iger during a CNBC interview last month said Disney is not planning to spin off ESPN. However, the person familiar with Disney's plans noted that keeping majority ownership while spinning off ESPN is an option under consideration.A spin-off would give potential investors better insight into ESPN's value if it becomes an independent publicly traded entity. As part of Disney, ESPN's value is as good as concealed by the major company.From the following quarter on, Disney will start reporting ESPN's finances separately from the corporation. Kevin Mayer and Tom Staggs, the former Disney Chief Operating Officer, have been assisting Iger on the future of ESPN and it was reported last week that Mayer has been in favour of spinning off the network.ESPN, which has contributed billions of dollars to Disney's income through pricey pay-TV subscription fees, has been Disney's foremost asset in recent decades. In the U.S., each household is charged nearly $10 for ESPN subscription each month irrespective of whether they watch it or not.As cord cutting progressed, ESPN allegedly attempted to offset the losses it suffered combat declining subscription revenue. However, people familiar with the situation have stated that the trend has reversed within the last year.Contrarily, ESPN linear channel ratings have increased this year, along with a 10% increase in advertising revenue compared to the previous quarter. Iger has confirmed this during Wednesday's discussion, saying that brands are seeking live events which cannot be skipped due to the lack of advertisements.Former ESPN chief Steve Bornstein commented on the matter during a CNBC interview Wednesday, proclaiming that ESPN is well-positioned to tackle the problem. He added that the current executives, particularly Jimmy Pitaro, Kevin Mayer, Bob Iger and Tom Staggs, will achieve success.Disney must assess whether it would be more strategic to retain ESPN's positive free cash flow in order to invest in streaming entertainment or if spinning off an asset with a declining growth trajectory is the better option.
Disclosure: NBCUniversal, the parent company of CNBC, is owned by Comcast.
תגובות