ESPN Profits Plunge 20% As Uncertainty Rises

Disney revealed the size of ESPN's business for the first time in a regulatory filing on Wednesday.

The company reported that profits for the sports segment -- a bundle of ESPN, ESPN television channels, and ESPN+ -- declined 20% in the first nine months of the fiscal year, down to o $1.48 billion.

Sales also decreased 1.3% to $13.2 billion.

For comparison, Disney's entertainment segment -- streaming services, linear TV networks, and movie studios -- recorded $39.6 billion in revenue and $2.1 billion in profit during that same time period.

Disney attributes the sports segment's declines to the continuation of cord-cutting, with ESPN's business model overly contingent upon cable fees.

The sports network makes around $9.42 per cable subscriber a month, well above the fees competing networks receive.

"Within segment during Disney's fiscal year 2022, the majority of revenue came from affiliate fees that cable programmers pay to distribute ESPN ($10.79 billion) versus advertising ($4.4 billion) and subscriptions and other forms of income ($2.1 billion)," reports Axios.

New York Post reporter Ryan Glasspiegel raised several points about the filing on X this week:

"ESPN is still a cash cow, the question is how long does that sustain if cord-cutting drives revenue declines?" asked Glasspiegel

"Their fourth quarter, with ad sales for football season factored in, is presumably the most profitable of the year."

Clay Travis published an op-ed on OutKick in September questioning the future of ESPN as the number of cable subscribers continue to dwindle:

"In the summer of 2014, the cable and satellite bundle peaked. One hundred million households were subscribed to ESPN, the most successful channel in the history of cable, and the apex of the greatest business in the history of media had been reached," Clay opened his piece.

"By the summer of 2023, just nine years after peak cable was hit in 2014, only 70 million households were paying for cable or satellite subscriptions. ESPN had lost 30% of its business, just as the cost for sports rights loomed larger and larger."

Those subscribers are not coming back.

To combat a declining cable base, Disney plans to offer ESPN as a standalone streaming service, perhaps as soon as 2025.

Unlike ESPN+, the forthcoming service would stream live exactly what airs on ESPN, be it Monday Night Football, college football, or the NBA.

ESPN hopes to find a strategic partner to help the company transition to this period, with Disney remaining the majority owner.

Potential and ideal partners include Verizon, Apple, and T-Mobile.

A Bloomberg analyst evaluates the sports segment at about $22 billion.

Questions about ESPN come at a time when the network has to calculate how much it plans to invest in a new NBA package following the 2024-25 season, when the league can negotiate with outside broadcast partners.

Earlier this week, a Wall Street Journal report said the network wants a smaller NBA package to save costs.

Already, ESPN passed on renewing rights to the Big Ten college football conference last year. 

Elsewhere, Disney is in the process of a reorganization in response to activist investor Nelson Peltz starting a proxy battle

The company is also in early talks to sell ABC and its TV stations to Nexstar.

Suffice to say the future at Disney is quite uncertain.