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ESPN Still Strong Despite Challenges

Jason Barrett



It’s been a rocky year for ESPN, which shed high-priced, high-profile talent – reportedly under orders from Disney to cut costs – and continued to lose cable subscribers.

These two facts coupled together – ESPN cuts costs while losing subscribers – has triggered a wave of coverage speculating these are the first signs of eventual financial doom. With headlines such as “Is ESPN a giant bubble about to burst?” and, more colorfully, “The numbers behind ESPN’s grim meathook future,” these stories basically argue the nationwide trend of people ditching cable will further sap ESPN of income while the network still owes gobs of money to sports leagues to broadcast their games.

With apologies to our colleagues in sports media – we’re all engaging in crystal-ball journalism here based on incomplete financial glimpses of media conglomerates – there’s just as strong an argument to be made that ESPN is better positioned than any of its competitors to handle a market transition from cable bundle to a la carte streamed television.

Here are a few reasons why:

1. ESPN is the most-watched cable station in America.

This is a footnote in recent coverage, but it bears repeating: ESPN is America’s top-rated cable network.

Yes, ESPN, like all cable networks, has seen its subscriber base slide, dropping more than 3.2 million in a little more than a year, according to the Wall Street Journal. And yes, ESPN charges cable companies, and therefore consumers, far more than any other channel: $6.61 per subscriber, according to data collected by SNL Kagan, more than four times what the next most expensive channel charges (TNT, at $1.65 per subscriber). But ESPN commands that price because of the 90-some million cable subscribers in America, more watch ESPN than any other network.

In a post-cable, unbundled world, however, ESPN would have to charge way more than $6.61 monthly per subscriber, because the network would lose income from the millions of non-sports fan cable subscribers who wouldn’t buy ESPN. A recent survey found only 35.7 percent of people would pay for ESPN if they could pick their own cable lineups, fueling estimates the network would have to charge $20 to $30 monthly in an unbundled world.

ESPN doubters argue sticker shock would scare away so many sports fans the network would be in serious trouble. While it is true ESPN would have to strike a delicate balance in pricing a standalone product affordable enough to attract some cord-cutters while not so cheap it prompts droves of sports fans to cancel their cable subscriptions, that doesn’t mean the “World Wide Leader” is in any more trouble than any other cable network in a rapidly changing industry.

Michael Nathanson, senior research analyst at MoffettNathanson, estimates ESPN would actually have to charge about $36 monthly in an unbundled world, but he thinks the network would still get more than enough customers. The sports networks really threatened by a move away from cable, according to Nathanson, are ESPN’s competitors Fox Sports 1 and NBC Sports, both on a recent list he compiled of the 10 most expensive cable channels not among the most viewed.

“If everyone gets weaker, the bottom end of the market would get weaker, and (Fox Sports 1 and NBC Sports) therefore would probably have less conviction to get into bidding wars with ESPN … for these sports rights,” said Nathanson.

Which brings us to our next point.

2. If sports television rights are a bubble, we’re not seeing signs of a burst yet.

A central premise to the argument ESPN is in big trouble is that sports rights fees, which have gone up astronomically over the last decade, are a bubble. Just like a homeowner who bought an overpriced house in 2007 before real estate values plummeted, the argument goes, ESPN could soon be underwater on the billions it owes the NFL, MLB, NBA, and various college leagues to televise their games.

(Any guess at exactly how much ESPN spends on rights fees is just that – a guess – but a recent Fox Sports story estimated ESPN’s annual tab at $6 billion.)

The problem with this argument is we’re not seeing many signs of a slide in the actual value of these rights. There have been signs of leveling off for local television rights – stations launched by pro sports teams in Houston, Kansas City and Charlotte have struggled – but every time a national sports league puts its product on the market, it makes more money than it did before. Live sporting events continue to be more DVR-proof than any other kind of programming, and broadcasters desperate for captive audiences continue to shell out more money to sports leagues.

Most recently, the NFL got a reported $300 million from CBS for its Thursday night package for the upcoming season, up from $275 million the year before. Last fall, ESPN and TNT agreed to nearly triple their annual payments to the NBA – from $930 million to $2.66 billion per year – in order to renew their contract through 2025.

One major caveat: we don’t know how much the networks actually profit from these events. We get glimpses in reports of TV ad prices for big games, but we never get post-game profit or loss reports. But if broadcasting companies are losing money on live sporting events, they’re certainly not acting like it. The English Premier League is currently seeking an American broadcaster,according to Sports Business Journal. Expected to submit bids: ESPN, Fox, and NBC.

And while ESPN spends a lot of money on sports rights, it still generates a profit, year after year, of between 20 and 30 percent of its expenses, according to SNL Kagan analyst Scott Robson. Its fledgling competitors have not. NBC Sports, which launched in 2012, turned a profit for the first time in 2014. Fox Sports 1, launched in 2013, should turn a profit for the first time in 2016, according to Robson. (ESPN, Fox and NBC all declined to comment.)

3. These budgets cuts really aren’t that significant, relative to ESPN’s size.

The departures of Bill Simmons, Keith Olbermann and Colin Cowherd have come when, according to The Hollywood Reporter, ESPN has been told to trim $100 million from its 2016 budget and $250 million from the 2017 budget.

ESPN disputes these numbers, but let’s say they’re accurate. Yes, $100 million is a lot of money. But when your annual budget is in the neighborhood of $6 billion (and probably more) $100 million represents less than 2 percent of the overall pie. And ESPN is far from the only cable network looking to trim.

“This is an industry-wide trend,” said cable industry analyst Nathanson. “We’ve had five straight quarters of less than expected television advertising … and you’ve seen a bunch of companies all go through cost-cutting.”

ESPN has a long track record of letting high-priced talent leave. ESPN does not have a long track record of letting competitors corner the market on live sporting events. The network has recently relinquished rights to some events – the British Open, U.S. Open golf and, according to a Monday Sports Business Journal story, the French Open –  but with ESPN locked into deals with America’s major sports leagues for the rest of this decade, the sports cable landscape should stay relatively stable until the early 2020s.

In 2021, ESPN’s contracts with the NFL, ACC, Australian Open, and Big 12 expire. In 2022, ESPN’s deal with Major League Baseball is up. Which brings us to our most speculative point.

4. The biggest threat to ESPN is not other cable sports channels; it’s the leagues themselves.

Cable sports channels exist because there’s more inventory of sporting events than there is airtime on the Big Four broadcasters (ABC, CBS, NBC and Fox), and there are many events that won’t draw large enough audiences to merit airspace on those stations. The leagues themselves have started taking some of that inventory for themselves, though, by airing events on their own stations.

The biggest threat to ESPN, and its competitors, is a scenario develops in which sports leagues can make more money televising their games themselves than they do now selling their television rights to the highest bidder. That day could come, analysts think, but not this decade.

“I think the NFL’s people are the smartest people in the room. If it made more sense for them to go direct to consumer, they would do it tomorrow,” said Rich Greenfield, media and tech analyst at BTIG. “They are laying the groundwork to go direct to consumer over time, but that is a 2020-plus event.”

In the meantime, analysts see ESPN as the best-positioned cable station to monetize America’s sports fans, no matter which medium fans use to watch sports.

Last Monday, on CNBC’s Squawk Box, Walt Disney CEO Bob Iger said he could see ESPN offering a direct-to-consumer product like HBO Go, but it wouldn’t happen in the next five years.

Later the same day, Anthony DiClemente, an industry analyst with Nomura, also appeared on Squawk Box. He was asked about ESPN’s prospects in an unbundled world.

“ESPN has the quality and has the following to go direct to consumer,” DiClemente said. “Ultimately, if the bundle breaks apart, Disney and ESPN are well-positioned because you have such demand for ESPN’s sports … the No. 1 sports brand in the country and in the world.”

Credit to the Washington Post who originally published this article

Sports TV News

ESPN Sees Larger Than Average Audience For Big City Greens Classic





ESPN aired Tuesday night’s New York Rangers and Washington Capitals game. DisneyXD and Disney Channel aired an alternate broadcast that included players being 3D animated to resemble the cast of Disney Channel’s popular cartoon Big City Greens. It turned into a ratings win for the networks.

The alternate broadcast featured players animated in real time to mimic what was happening on the Madison Square Garden ice. Players were equipped with special chips in the padding to aid the animation, and special pucks were used to ensure a smooth transition from video to computer-animated graphics.

An average of 589,000 viewers tuned into the game on ESPN. Meanwhile, nearly 175,000 watched the broadcast between Disney Channel and DisneyXD.

The figure for ESPN represents its largest NHL broadcast since a November 1st broadcast featuring the Pittsburgh Penguins and Boston Bruins.

The combined total for the broadcast — 765,000 — outdrew the World Baseball Classic broadcasts but did not top the NCAA Tournament’s First Four round that was broadcast on truTV.

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Sports TV News

Greg Gumbel: I’m Lucky That I’ve Never Been Fired

“I worked for some people who didn’t like me, I’ve worked for some people I didn’t like. It’s a strange business, there’s no doubt.”

Ricky Keeler



Greg Gumbel

This week, it was announced that Greg Gumbel will no longer be a play-by-play announcer for the NFL on CBS after working on CBS’s NFL coverage every year since 1998. Gumbel has had an illustrious career and he takes pride in the fact that one thing has never happened to him.

Gumbel was a guest on the Tell Me A Story I Don’t Know podcast with George Ofman (Part 2 from an interview back in September) and he told Ofman that while he has never been fired before, but he doesn’t think broadcasters should be embarrassed when they get fired because of what the business is.

“It’s the nature of the business. I honestly think I’ve been extremely fortunate in that I’ve never been fired in a business that is known for firings. Being fired in this business is no shame, no embarrassment because it’s a subjective business. Because this guy at this network likes my work, it doesn’t mean that this guy at that network does. It’s extremely subjective and if you can buy that and understand it the way it is, then it shouldn’t bother you at all.

“It’s never happened to me. If it had, it would not have surprised me. I worked for some people who didn’t like me, I’ve worked for some people I didn’t like. It’s a strange business, there’s no doubt.”

Gumbel has been the host of CBS’s NCAA Tournament coverage for the last 25 years and he knows it’s a job that he is very grateful to have.

“I know there are people who would give their right arm to be sitting there next to Clark Kellogg and Seth Davis on Selection Sunday or sitting next to Kellogg, Kenny Smith, and Charles Barkley when the tournament begins to talk about what we’ve just seen or what we are going to see. I am never, ever going to take for granted the fact that I have been very fortunate to be able to do that.”

One thing Gumbel tries to avoid whenever he is on air is the mispronunciation of someone’s name because he knows how it feels to have his name distorted accidentally by some people.

“Pronunciations are important to me. There’s been a lifetime of people who may not completely mispronounce my name, but distorting it a little bit from time to time. I never want to do that to an athlete. If I ever mispronounce an athlete’s name, I hear it from his family, I hear it from the school or the team and I apologize for it as soon as I can. I don’t think that is something light or should be taken for granted.”

Toward the end of the interview, Gumbel was asked by Ofman when he will know it will be time to end his career.

“Other people have given it more thought than I have. I think when that time comes around, it will hit me over the head more than I will think about it. There are people who ask me why I still do what I do. The very bottom line is I love it, I enjoy it.”

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Sports TV News

Diamond Sports Group Misses Arizona Diamondbacks Rights Payment

It is believed that the missed rights payment by Bally Sports Arizona triggers a clause in the contract that reverts the television rights back to the Diamondbacks and Major League Baseball.





Last week, Diamond Sports Group — operator of the Bally Sports-branded regional sports networks — claimed it had paid every rights fee it was contractually obligated, except for the Arizona Diamondbacks.

At the time, the company said it had a grace period until it needed to make a payment. That payment was due by Thursday, March 16th at 11:59 PM. That time has come and gone, and the company failed to deliver its fee.

It is believed that the missed rights payment by Bally Sports Arizona triggers a clause in the contract that reverts the television rights back to the Diamondbacks and Major League Baseball.

The Diamondbacks are not the only team affected by the situation. Bally Sports — which filed for Chapter 11 bankruptcy earlier this week — has also reportedly entered a grace period with the San Diego Padres. According to a report from Sports Business Journal, that grace period ends on March 30th, baseball’s Opening Day.

Previous reporting claims that contract is one the network hopes to get out from under. The company loses a reported $20 million per season on its television deal with the Padres. The Cincinnati Reds and Cleveland Guardians are the other two baseball franchises the network holds the rights to that it hopes to terminate deals for.

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