ESPN's betting deal part of Disney's reinvention plan
ESPN's $1.5 billion betting deal with Penn Entertainment is the first of likely many moves by Disney as it attempts to revive the decades-old cable TV relic.
Why it matters: As the cable TV model crumbles, ESPN needs to rethink its business to avoid becoming a blight on Disney's balance sheet.
The big picture: ESPN's future has come under heavy scrutiny as it bleeds subscribers while paying higher prices for sports rights, which will only get higher once new SEC and NBA deals kick in.
- The network's subscriber base has fallen off a cliff since surpassing 100 million at the height of the cable TV boom in 2011. It's now around 74 million and continues to fall.
- The network's streaming service ESPN+ has 25.3 million subscribers, though ESPN makes less from those viewers than it does from cable. ESPN gets more than $9 per cable subscriber each month, while its monthly revenue from streaming subs is less than $6.
Flashback: Disney faced pressure from Third Point's Dan Loeb last year to spin out ESPN.
- After CEO Bob Iger returned in November, ESPN was separated into its own business unit, putting its finances even more under the spotlight. Disney reports earnings later Wednesday.
Zoom out: ESPN is entering a tough sports betting market.
- FanDuel and DraftKings are effectively a duopoly with 77% of the market.
- Barstool Sportsbook, the sportsbook rebranding into ESPN Bet, only has 2% of the market.
- ESPN is not the only newcomer. Retail giant Fanatics bought PointsBet's U.S. business to prop up its own forthcoming sportsbook.
- Jake Paul's micro-betting platform Betr just raised $35 million.
- "It isn't clear that ESPN's exclusive partnership will be enough to supercharge Penn's current limited OSB market share," MoffetNathanson analysts Michael Nathanson and Robert Fishman wrote in a research note Wednesday morning.
Zoom in: A licensing deal gives ESPN access to betting-related business opportunities, including developing a stronger relationship with younger audiences, without having to directly facilitate bets.
Of note: Fox shut down its 4-year-old sportsbook Fox Bet after barely making a dent in the market.
What's next: Expect more changes for ESPN.
- Iger is still searching for a strategic partner for ESPN and has held exploratory talks with the NBA, NHL, NFL and MLB.
- ESPN will go fully direct-to-consumer in the coming years, but Iger won't say exactly when.
The bottom line: "We will see if this is the first step for Disney to reposition ESPN through new partnerships and even a potential new strategic equity partner that might help ESPN with distribution and content as well as capital to de-risk the asset for the company," Nathanson and Fishman wrote.