How ESPN Went From Disney’s Financial Engine to Its Problem (2023)



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The sports juggernaut continues to earn billions of dollars for Disney, but profits are down and opportunities for growth have dwindled.

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How ESPN Went From Disney’s Financial Engine to Its Problem (1)

By Kevin Draper and Brooks Barnes

ESPN has been Disney’s financial engine for nearly 30 years, powering the company through recessions, box office wipeouts and the pandemic. It was ESPN money that helped Disney pay for acquisitions — Marvel, Lucasfilm, Pixar, 21st Century Fox — and build a streaming service, transforming itself into a colossus and perhaps traditional media’s best hope of surviving Silicon Valley’s incursion into entertainment.

Those days, ESPN’s best, are over.

With its dual revenue stream — fees from cable subscribers and advertising — the sports juggernaut continues to earn billions of dollars for Disney. In the first six months of the 2023 fiscal year, Disney’s cable networks division, which is anchored by ESPN and its spinoff channels, generated $14 billion in revenue and $3 billion in profit.

The problem: Wall Street is fixated on growth. Revenue for those six months was down 6 percent from a year earlier, as profit plunged 29 percent.

Disney is now exploring a once-unthinkable sale of a stake in ESPN. Not all of it, Robert A. Iger, Disney’s chief executive, has made clear. But he wants “strategic partners that could either help us with distribution or content,” he said during an interview with CNBC last month. Disney has held talks with the National Football League, the National Basketball Association and Major League Baseball about taking a minority stake.

Underscoring the complexity — and urgency — Mr. Iger has brought in two former senior Disney executives, Kevin Mayer and Thomas O. Staggs, to consult on ESPN strategy with James Pitaro, the channel’s president, and help put together any deal. Their return, earlier reported by a Puck newsletter, was confirmed by two Disney executives who spoke on the condition of anonymity to discuss internal matters.


“It is really tricky in this cord-cutting environment to see the real growth opportunities available to ESPN,” Steve Bornstein, a former chief executive of ESPN, said in an interview. Still, “they have a great hand,” he added, reeling off strengths like the numerous rights the network has to air live games, its digital assets and a popular website.

Mr. Iger made clear during the interview with CNBC that things will change at ESPN, but his comments generated more questions than they answered. Exactly what kind of strategic partner is ESPN seeking? Does ESPN need money, technological help or assistance with distribution?

“There is so much uncertainty in what Bob meant,” said Michael Nathanson, a media analyst at MoffettNathanson.

Mr. Iger declined to comment. Disney is scheduled to report quarterly earnings next week. Analysts expect per-share profit to have declined 11 percent, as the company contends with disappointing box office results, softening attendance at Walt Disney World and two striking Hollywood unions.

Whatever might be in ESPN’s future, its problems are easy enough to understand.

The bulk of ESPN’s revenue comes from what are called affiliate fees. These are monthly fees that cable providers — like Comcast, Charter Communications and Cox — pay ESPN for the right to offer its television channels to households. Last year around 71 million United States households paid for a television package that included ESPN, and those cable providers, in turn, paid ESPN an average of $8.81 per month for each home, according to S&P Global Market Intelligence.

S&P Global Market Intelligence estimates that ESPN has also taken in more than $2 billion annually in advertising in recent years.

But cord cutting has been hurting both those revenue streams. A decade ago, more than 100 million households received ESPN, meaning 30 million fewer households get ESPN today than in 2013. ESPN has consistently raised its affiliate fee to offset this decline, but its ability to continue doing so will be limited in the coming years: By 2027, fewer than 50 million homes will pay for cable television, according to PwC, the accounting giant.

At the same time, ESPN’s costs are exploding. ESPN will pay an average of $2.7 billion annually over the next decade for the right to show the N.F.L., a 42 percent increase from what it used to pay. It will soon negotiate with the N.B.A. on a potentially very expensive renewal of its rights agreement.

According to Disney’s financial filings, it will pay $10.8 billion this year for sports programming. It has future commitments totaling about $57 billion, with some of its contracts running well into the 2030s. These contracts are a result of a spending spree the company has undertaken to head off deeper-pocketed tech companies, which are also hungry for sports programming, and to stock its nascent ESPN+ streaming service.

“The cord-cutting phenomenon is a response to the increasing cost of cable, and indeed the increasing cost of cable is due in part to the increasing cost of sports rights,” said Roger Werner, a former ESPN chief executive who helped create the dual revenue stream. “There is a causality there.”

To pay for the rights, ESPN has cut back in other areas — primarily original programming — and relied more heavily on a handful of its most famous personalities, like Stephen A. Smith. Once justifiably proud of never having undergone layoffs, the company has seen six waves of layoffs since 2015, including one that affected a number of high-profile executives and on-air personalities in June.


At the same time, it is confronting the turbulent economics of the streaming era.

ESPN+ shows thousands of games annually, but very few are the biggest N.F.L., college football, N.B.A. or baseball games. Those marquee matchups are reserved mostly for ESPN and ABC, which is also owned by Disney (and potentially for sale). Sports leagues are reluctant to allow media companies to offer games exclusively on streaming platforms, where they almost always reach much smaller audiences than on network or cable television.

As of April, ESPN+ had 25.3 million subscribers, though only five million people paid for it directly, according to Disney’s financials. The bulk of ESPN+ subscribers bought it as part of a discounted bundle with the far more popular Disney+ and Hulu streaming services.

Mr. Nathanson, the analyst, called ESPN+ a “complementary” product, something attractive mostly to die-hard sports fans.

The question, then, is when will Disney offer ESPN as a stand-alone streaming channel, allowing people to buy it à la carte, and not as part of some larger package of channels they don’t really want?

“We haven’t said when, but we do know that it will happen,” Mr. Iger said on CNBC.

Pricing, however, is an enormous obstacle. Offering ESPN à la carte will assuredly hasten the erosion of the cable bundle, which is held together mostly by sports.

“The current cable bundle, if you are a sports fan, is probably the optimal way to watch sports content because the majority of sports are in that bundle,” Mr. Nathanson said.

Affiliate fee increases for other Disney channels will slow, or even decrease, when they are sold on their own without ESPN. Cable providers are likely to be far more aggressive in offering cheaper, skinny bundles that do not include ESPN channels.

Disney’s family of sports channels currently earn somewhere north of $12 per month in affiliate fees for each cable subscription, according to S&P Global Market Intelligence. Estimates vary widely, but if ESPN offered its cable channels à la carte, it would most likely have to charge an astonishingly high fee for the streaming service, perhaps $40 or $50 per month, just to maintain its current revenue.

“It is not easy,” Mr. Nathanson said. “It really is not. That is why they have been reluctant to do it.”

Kevin Draper is an investigative reporter on the Sports desk, where he has written about workplace harassment and discrimination, sexual misconduct, doping, league investigations and high-profile court cases. More about Kevin Draper

Brooks Barnes is a media and entertainment reporter, covering all things Hollywood. He joined The Times in 2007 as a business reporter focused primarily on the Walt Disney Company. He previously worked for The Wall Street Journal. More about Brooks Barnes

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Who sold ESPN to Disney? ›

In 1984, the U.S. ABC television network purchased a controlling stake in the company. ABC later merged with Capital Cities Communications, and the combined company was purchased by The Walt Disney Company in 1995. In 1988, Roger Werner became the network's president and CEO.

How much did Disney pay for ESPN? ›

In February 1996, The Walt Disney Company purchased Capital Cities/ABC for $19 billion, and assumed the latter company's 80% stake in ESPN at that time.

Who owned ESPN before Disney? ›

From the network's founding, its majority owner was Getty Oil. ABC acquired ESPN in 1984, selling 20% to Nabisco, who later sold its share to Hearst Corporation. When The Walt Disney Company acquired ABC's parent company Capital Cities/ABC, Inc. in 1996, ESPN became a subsidiary of Disney.

Is ESPN associated with Disney? ›

ESPN's parent company renamed themselves as Capital Cities/ABC Inc. Capital Cities/ABC Inc. was then acquired by The Walt Disney Company in 1996 and was re-branded as Walt Disney Television.

Who owns ESPN now? ›

Who owns Disney? ›

Disney is owned by many shareholders, as it's a publicly traded company. According to CNN Business News, the Vanguard Group, Inc. is the largest shareholder of Walt Disney Co.

Why would Disney sell ESPN? ›

The sports network, once a financial engine for Disney, is suffering a decline in revenue owing to the slow death of traditional cable TV. Though ESPN is still profitable, Disney is looking to sell off a stake and transform the business into a digital streaming company, though near-term plans for that are unclear.

Do Disney employees get free ESPN? ›

YES, Disney employees get Disney Plus for free if they're currently registered on the books. You'll get a bundle that includes Disney Plus itself as well as Hulu and ESPN Plus.

Does ESPN turn a profit? ›

ESPN has long been the reliable moneymaker of the media and entertainment giant. In the first half of 2023, Disney's cable networks division, led by ESPN and its sister channels, generated $14 billion in revenue and $3 billion in profit.

What major network owns ESPN? ›

ESPN is 80 percent owned by ABC, Inc. (an indirect subsidiary of The Walt Disney Company) and 20 percent by Hearst. Based in Bristol, Conn., ESPN has approximately 3,800 employees (4,600 worldwide). ESPN Plaza includes more than 1.3 million square feet in 19 buildings on 120 acres (additional 200,000+ sq.

How much is Disney net worth? ›

Disney net worth as of August 10, 2023 is $167.67B. Walt Disney Company has assets that span movies, television, publishing and theme parks.

What did ESPN originally stand for? ›

When ESPN started in 1979 we were the Entertainment and Sports Programming Network (thus, ESPN). However, that name took too long to paint across our chests on game day, so we dropped it in 1985 and adopted a new corporate name -- ESPN, Inc. -- and a new logo.

What companies do Disney own? ›

Disney owns numerous companies including Pixar Animation Studios, Lucasfilm Ltd., Marvel Entertainment Inc., The Muppets Studio LLC and National Geographic Society. You've probably heard of Disney, the entertainment giant that owns Marvel and Lucasfilm.

Does Disney own HBO? ›

Home Box Office (HBO) is an American pay television network, which is the flagship property of namesake parent subsidiary Home Box Office, Inc., itself a unit owned by Warner Bros. Discovery.

Does Disney own both ESPN and Pixar Studios? ›

Disney has an interest in major TV networks and channels, including ABC, ESPN, A&E Networks (including Lifetime), The History Channel, and more. What is this? They also own Pixar Animation Studios and Marvel Entertainment.

Did Disney plus buy ESPN? ›

ESPN Plus is a subscription streaming service accessible in the US that is jointly owned by Disney and ESPN.

When did ESPN get bought by ABC? ›

30, 1984

Does Disney own ESPN or does ESPN own Disney? ›

The Walt Disney Company is a massive corporate enterprise and media empire. ESPN, ABC, Lifetime, History, A&E, and FX are owned by Disney. Marvel Studios and Lucasfilm are both Disney-owned, as well.

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