Disney offers glimpse of ESPN’s financial performance amidst plans for new sports division

Disney has unveiled a financial snapshot of ESPN for the first time, setting the stage for its ambitions to secure strategic partners for a standalone sports division.

As part of a broader corporate restructuring led by returning CEO Bob Iger, the company is dividing its operations into three distinct business units: entertainment, amusement parks and sports. This restructuring has coincided with the layoff of 7,000 employees.

The revealed figures indicate that ESPN contributed a substantial $12.5 billion of Disney’s total $13.2 billion in sporting revenues during the initial nine months of the 2023 fiscal year, resulting in overall profits of nearly $1.5 billion.

To put this in perspective, this figure compares to the $17.3 billion in revenues and $2.7 billion in profits generated by Disney’s sports business throughout the entirety of 2022, and the $16 billion in revenues and $2.7 billion recorded in 2021.

This disclosure of financial information ahead of Disney’s fourth-quarter results is a clear signal of the company’s intention to secure strategic partners for a fully-fledged sports streaming service in the United States that would integrate both ESPN+ and the flagship ESPN network.

At present, ESPN’s linear networks and the ESPN+ streaming service operate independently, with exclusive rights to major sporting events like the National Football League (NFL), the National Basketball Association (NBA) and college football tethered to cable subscriptions.

However, Disney is actively exploring options to unify these services as early as 2025 and has confirmed its search for investors who can contribute to distribution or programming.

While Disney has engaged in discussions with several prominent US sports leagues, offering them an equity stake in its sports business in exchange for exclusive content or more favourable rights agreements, the ideal scenario for Disney would involve partnering with two entities from the telecoms and technology sectors.

ESPN has long benefited from the bundle model that characterised US broadcasting for decades – and it continues to play a pivotal role in maintaining this structure.

Disney recognises the shifting landscape as the number of pay TV households in the US declines. To achieve revenue levels comparable to cable, Disney understands the importance of scale and assistance in managing the additional sales and marketing expenses associated with a direct-to-consumer (DTC) approach.

These challenges are compounded by factors such as rising living costs, subscription fatigue and the increasing costs of sports rights. Key contracts with the NBA and the College Football Playoff, two pillars of ESPN’s content, are also set for renewal in the coming years and will likely command significant premium payments.

Disney is keen to secure potential partners swiftly to allow ESPN to plan more effectively for these renewals and navigate its future in the DTC space.

Despite these long-term challenges, the financial data underscores ESPN’s resilience in a rapidly evolving marketplace. Disney believes that ESPN’s strong rights portfolio, positioning as a sports content aggregator in an increasingly fragmented landscape, and its expansion across various devices position it favourably to successfully navigate this transition.