ESPN's college football bet weighs down Disney profits
If we’ve learned anything in the past three years while watching schools hopscotch the country from conference to conference, it’s that ESPN now wields an inordinate amount of power over college sports. The Worldwide Leader has been dropping coin on college sports media rights like Johnny Manziel at an Indian casino.
Now, the bill is starting to come due.
Wall Disney Co., ESPN’s parent company, announced its quarterly earnings Tuesday and witnessed a drop of 6 percent in profits. Mickey attributed the slide in part to rising costs related to ESPN’s college football programming.
Operating income from Disney’s cable networks dipped 2 percent from the year-earlier period, down from $967 million to $952 million. The decline occurred despite growing profitability from the firm’s non-ESPN cable networks, which include its Disney channels, ABC Family and the A&E Television Networks.
Before anyone starts asking if this means ESPN will be withdrawing from college sports broadcasting, it should be noted that Disney’s announcement didn’t exactly stun the investing community. In fact, the entertainment goliath’s net income of 77 cents per share actually beat Wall Street’s expectations.
On the other hand, the quarterly report does serve as a reminder that ESPN is footing a significant bill for the football-fueled partying being done by universities after negotiating new media rights deals. The network has made an enormous investment in essentially taking control of the broadcasting of college football and related events. While ESPN is cornering the market on one of the few remaining properties with any value to advertisers, it’s coming at a big cost.
Unlike college athletics bigwigs such as Jim Delany and DeLoss Dodds, Disney CEO Bob Iger has shareholders to answer to. If this quarter turns out to be a harbinger of more to come, ESPN may have to start cutting its losses on college sports. What that means for the networks more tenuous ventures, such as the Longhorn Network or a potential ACC network, is anyone's guess.
Whether remaining in, or coming out of, a recession these kinds of indicators always lag the actual events. The question will be whether this was skewed by start up costs and contract costs that will not arise again for another decade, or were indicative of continued gradual economic decline. I suspect it's both and that it will remain somewhat of a mixed bag for a few more years. Some of the dip may be attributed to the realignment process itself which has alienated viewers of smaller school in particular. Those viewers frequently adopt other larger schools to pull for and watch. If they fell excluded from the opportunity to compete at the highest level they may well quit pulling for secondary larger schools that they have adopted in the past. That would hurt ratings and affect advertising income.
1 Like
@JRsec There are definitely transition costs at play in this case. Ultimately, the question will be how much pricing power ESPN gains in negotiations with advertisers and the cable carriers through its investment in becoming the dominant provider of college sports entertainment.
@Blatant Homerism Good point. I can't help but believe that what seems to be a FOX bidding war for product to fill their two new sports channels may be inflating expenses a bit right now as well. When realignment is finished the schools will have to find new income by increasing content value with scheduling and by maintaining income through leverage found in coalitions. But there will be a settling out period for sports income. It also has been somewhat of a Boomer driven bubble that has inflated gradually for a couple of decades now.
