ESPN held talks with NBA, NFL, MLB in search of strategic partner

LeBron James of the Los Angeles Lakers against the LA Clippers at the ESPN Wide World Of Sports Complex on July 30, 2020 in Lake Buena Vista, Florida.

Mike Ehrmann | Getty Images

whom Disney For ESPN, which it considers a strategic partner, CEO Bob Iger and ESPN chief Jimmy Pitaro have held early talks to bring in professional sports leagues, including the National Football League, the National Basketball Association and Major League Baseball, as minority investors, according to people familiar with the matter. issue.

ESPN has been in preliminary discussions with the NFL, NBA and MLB about various new partnerships and investment structures. “We have a long-standing relationship with Disney and look forward to continuing discussions about the future of our partnership,” an NBA spokesperson said in a statement.

Spokesmen for ESPN, the NFL and MLB declined to comment.

The talks with the NFL coincided with the league’s desire to buy a stake in a company’s media assets, including NFL Network, NFL.com and RedZone, said the people involved in the negotiations, who spoke on condition of anonymity. has been private.

The NBA and Disney have discussed multiple potential structures around renewing media rights, the people said. Disney and Warner Bros. Discovery has exclusive negotiating rights with the NBA until next year.

In an interview with CNBC’s David Faber last week, Iger said Disney is looking for a strategic partner for ESPN as it prepares to bring the sports network to broadcast. He didn’t explain what that meant, other than to say the partner could add value with distribution or content. He admitted that it is possible to sell his share in the business.

Disney owns 80% of ESPN. Hearst owns the remaining 20%.

“Our position in the sport is very unique and we want to stay that way,” Iger told Faber. “We’re going to be open-minded to looking for strategic partners that can help us with distribution or content. I’m not going to go into too much detail about that, but we’re looking forward to sports as a media property.”

In theory, a shared subscription streaming service across multiple leagues could give consumers new game packages and other innovative ways to receive content.

The move would make sense for Disney as it seeks to move past the traditional cable subscription model and underscores the company’s unwillingness to find a solution for its sports network as linear subscribers decline. Still, ESPN’s ratings have soared for major sporting events in recent years. There is no better partner for sports content than the leagues themselves.

On the surface, it might make less sense for the NBA, NFL and MLB, which have signed lucrative media rights deals with multiple media companies that boost team revenue and player salaries.

Professional sports leagues could face a conflict of interest if they take a minority stake in ESPN. Owning a stake in ESPN could irritate Disney’s rivals, e.g ComcastNBCUniversal, Fox, amazon, Paramount Global and apple, which helps leagues earn billions of dollars by participating in bidding wars for sports rights. Taking an ownership stake in ESPN could give leagues an incentive to increase the value of that entity instead of making deals with rivals.

There will also be hurdles for Disney. ESPN also employs hundreds of journalists who cover major league sports. Selling the ownership stake to the leagues could undermine the perception of objectivity for ESPN’s reporting apparatus.

Still, the leagues are already business partners with ESPN. It’s possible ESPN could take steps to ensure reporters can continue to cover the leagues while minimizing conflicts, but that adds another layer of complexity to any deal.

First broadcast ESPN

ESPN is trying to break new ground as a digital-first broadcast entity. Disney realizes that ESPN won’t be able to make money like it did in the traditional TV model before.

Selling a minority stake in ESPN to the leagues could reduce future rights payments and allow Disney to better compete with the large balance sheets of Apple, Google and Amazon. It would also guarantee ESPN a steady stream of premium content from the leagues.

Until last quarter, Disney’s suite of linear TV networks still enjoyed revenue growth as increases in its affiliate fees to pay-TV providers — largely driven by ESPN — paid for the millions of Americans who ditch cable each year. That trend finally ended last quarter, according to people familiar with the matter. The acceleration of cancellations has already outstripped fee increases, and non-advertising linear TV revenues have begun to decline.

“There hasn’t been much talk about leasing (sports rights) versus ownership,” Iger said in an interview with CNBC last week. “If you can lease it and continue to make a rental profit, which we have been and we believe we will continue to be, then there is value in staying there. We have great relationships with Major League Baseball and the National Hockey League and various colleges. conferences and, of course, the NFL and the NBA. It’s not just about the live sports coverage of those leagues, those teams, but all the shoulder programs that it throws at ESPN and what you can do with it. The world of streaming.”

ESPN wants to position itself as the streaming hub for all live sports. Management wants to launch a feature that would allow ESPN.com or the ESPN app to direct users to games regardless of where they are being broadcast, CNBC reported earlier this year.

While signing deals with professional sports leagues isn’t easy, Disney is pushing the envelope to prepare for a streaming-dominated world that includes a full portfolio of sports rights.

“If (a partner) comes to the table with value, whether it’s content value, whether it’s distribution value, whether it’s equity, whether it’s just helping to tease out the business — that’s not going to be the primary driver — but if they come to the table, it’s a direct-to-consumer to ESPN. value that allows us to transition to its proposition, we’ll be very open-minded about that,” Iger said.

WATCH: Disney CEO Bob Iger talks to CNBC’s David Faber about ESPN and its future

Disney CEO Bob Iger on ESPN: Passionate about sports but open to new strategic partner

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