Since acquiring ESPN in 1984, Walt Disney has helped transform the sports media company into a major cash cow. The network has a solid subscriber growth, high advertising rates, and charges cable providers the highest fees in the industry.
Disney bought ESPN through its acquisition of ABC, who had earlier purchased the sports channel from Getty Oil.
However, to coincide with the decline of the US cable television business, the growth rate of its subscribers is steadily dwindling – this has become a significant concern for shareholders. Although it still had over 77 million subscribers at the end of 2021, it is nearly 25% less than the 100 million it had in 2011. Moreover, S&P Global Market Intelligence believes that figure will continue to decrease to 72.5 million at the end of 2022.
“ESPN still is an engine from a cash standpoint, but in terms of growth trajectory, it’s a challenged business as more people are cutting the cord and giving up on pay-TV,” said Rich Greenfield, an analyst at LightShed Partners.
ESPN Has a Future
This worrying projection has fuelled speculation that Disney may sell ESPN or use the brand to further tap into the growing sports betting industry. However, Disney chief executive Bob Chapek insists that ESPN’s future will revolve around sports betting.
With the recent news of New York mobile sports betting apps reporting a combined gross revenue of over $204 million in under two months, using ESPN’s image to tap into this market makes sense. Yet the company will have to tread carefully to avoid damaging its family-friendly image.
Tax rates for gambling companies in legal gambling states like New York are high, but change could be coming, as a team of top lawmakers have created a new bill aimed at reducing the tax rate paid by gambling companies and opening the door for new gambling companies to enter New York.
During the company’s results call last month, Chapek said that the push into sports betting was “driven by the consumer, particularly the younger consumer that will replenish the sports fans over time and their desire to have gambling as part of their sports experience.” He added that the future of sports broadcasting will extend to “sports betting, gaming, and the metaverse.”
After the Supreme Court overturned PASPA (Professional and Amateur Sports Protection Act) in 2018 to give other states apart from Nevada the right to choose whether to legalize this form of gambling, the industry has gone from strength to strength. Goldman Sachs has projected that the US market will grow from its current worth of $900 million to $39 billion in 2033.
Over 30 states have launched legal USA sports betting, and more are set to make wagering on sports legal within state lines. Rule and regulations across the country. For example, some states allow online betting services, while others only permit physical retailers to offer wagering options in person.
New, Younger Audience
Jessica Reif Ehrlich, an analyst at Bank of America, stated that wagering on sports makes fans tune and stay tuned into games instead of watching highlights for free on social media platforms.
“You’re betting on a play, on an athlete – there are different elements that keep everyone interested,” said the analyst. “And it brings in a younger demographic.”
Although many might see Disney moving into sports betting as a big step, it has already tested the waters. In 2019, it acquired a 6 percent stake in DraftKings, a fantasy sports and betting group, when it bought 21st Century Fox. Also, it struck a deal with Caesars that gives the betting provider exclusive rights to provide sports betting odds to ESPN.
ESPN+ viewers will know that Caesars and Draftkings frequently advertise on the network to promote their online betting platforms. On the television network and ESPN+, which has 21 million subscribers, there is a range of betting-related content – something that would have caused outrage ten or fifteen years ago.
Last year, rumors started to circulate that ESPN was asking for billions to license its name to a sportsbook such as Caesars, DraftKings, or MGM Resorts. In the end, no deal materialized. However, Ehrlich expects ESPN to make a move to strengthen its position in the market.
“ESPN is going to get bigger in sports betting, more visible,” she said. “They really barely put their toe in the water with a modest stake in DraftKings, so the question is how do they get in in a bigger way. They’re not going to handle the bets but do a licensing deal.”
Opting for a licensing deal would allow ESPN to play a bigger role in the market without taking bets. Yet, consumers could call Disney’s wholesome image into question.
However, Chapek stated that Disney’s internal research has found consumer attitudes toward sports betting have changed. “We feel the Disney brand is broad enough to have an ESPN business under our roof and have ESPN in the business of sports betting,” he told the Financial Times in November. “That’s not harmful to the mother brand and is beneficial for the ESPN brand. The Disney brand is elastic.”
Saying that the Disney brand is “elastic” is a bold statement, but it looks like ESPN becoming more gambling-friendly is just a matter of time.
