LeBron James of the Los Angeles Lakers during the game against the Los Angeles Clippers at ESPN Sports Complex on July 30, 2020 in Lake Buena Vista, Florida.
Mike Elman | Getty Images
as disney ESPN Chief Executive Bob Iger and ESPN head Jimmy Pitaro have considered professional sports leagues such as the National Football League, National Basketball Association and Major League Baseball as minority investors, according to people familiar with the matter.
ESPN has held preliminary discussions with the NFL, NBA and MLB about various new partnerships and investment structures, the people said. “We have a longstanding relationship with Disney and look forward to continuing discussions regarding the future of our partnership,” an NBA spokesperson said in a statement.
Related investment news
Spokespeople for ESPN, the NFL and MLB declined to comment.
The talks with the NFL come at a time when the league wants a company to take a stake in its media properties, including NFL Network, NFL.com and RedZone, people familiar with the matter said. He spoke on condition of anonymity because the negotiations are private.
The NBA and Disney have proposed a number of potential structures around the media rights renewal, according to people familiar with the matter.disney and Warner Bros. Discovery Has the exclusive right to negotiate 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 move the sports network to streaming. He didn’t elaborate on exactly what that meant, other than that partners could bring additional value through distribution or content. He acknowledged that a sale of the company’s stake was possible.
Disney owns 80% of ESPN. Hearst owns the other 20 percent.
“We’re in a very unique position in sports and we want to stay in this industry,” Iger told Faber. “We will be open to finding strategic partners who can help us with distribution or content. I won’t go into too many details, but we are bullish on sports as a media property.”
In theory, a subscription streaming service jointly owned by multiple alliances could eventually offer consumers new game packs and other innovative ways to acquire content.
The move is logical for Disney as it seeks to move away from the traditional cable subscriber model and underscores how much the company is looking to find solutions for sports networks amid declining linear subscriber numbers.Still, ESPN’s ratings for major sporting events have climbed in recent years. There is no better partner for sports content than the league itself.
On the face of it, this might not mean much for the NBA, NFL and MLB, which have lucrative media rights deals with a host of media partners that boost team revenue and player salaries through a string of media companies.
Professional sports leagues could face conflicts of interest if they take minority stakes in ESPN.A stake in ESPN could anger Disney’s rivals such as ComcastNBCUniversal, fox, Amazon, Paramount Global and apple, They help the league earn billions of dollars by participating in bidding wars for the rights to broadcast sports events. Taking an equity stake in ESPN could give the league an incentive to boost the entity’s value rather than strike deals with rivals.
Disney will also run into obstacles. ESPN also employs hundreds of reporters to cover the major sports leagues. Selling ownership to the league could affect the objectivity of ESPN’s reporting organization.
Nonetheless, the league has become a commercial partner of ESPN. ESPN could take steps to ensure reporters can continue to cover the league while minimizing conflict, but that adds another layer of complexity to any deal.
ESPN is trying to forge a new path as a digital-first streaming entity. Disney realized that ESPN would not be able to make as much money as it had in the traditional TV model.
Selling a minority stake in ESPN to the league could reduce future rights fees and allow Disney to better compete with the massive balance sheets of Apple, Google and Amazon. It will also ensure ESPN has a steady stream of premium content from the league.
Until last quarter, Disney’s bundle of linear TV networks still delivered revenue growth, as higher ancillary fees from pay-TV providers, largely driven by ESPN, made up for the millions of Americans canceling cable each year. That trend finally ended last quarter, according to people familiar with the matter. Accelerated cancellations are now outpacing fee increases, and linear TV revenue outside of advertising has begun to decline.
“There’s been a lot of discussion about leasing (sports rights) versus owning,” Iger told CNBC last week. “If you can lease it and continue to profit from the lease (which we have always been and we believe we will continue to be), then there is value in staying. We have a great relationship with the MLB, the NHL and the various collegiate conferences, and of course the NFL and the NBA. It’s not just about those leagues, the live sports coverage of those teams, but all the shoulders that it puts on ESPN and what you can do with it in the streaming world.”
ESPN wants to establish itself as the streaming hub for all live sports. CNBC said management wants to roll out a feature that would allow ESPN.com or the ESPN app to direct users to games no matter where they are streaming reported earlier this year.
While striking deals with professional sports leagues won’t be easy, Disney appears to be pushing the limits of its thinking to prepare for a streaming-dominated world that includes all of its sports rights.
“If[partners]come to the table with value, whether it’s content value, distribution value, capital value, or just helping to reduce business risk — that’s not the primary driver — but if they come to the table with value that enables ESPN to transition to a direct-to-consumer service, we’re very open to that,” Iger said.
WATCH: Disney CEO Bob Iger talks ESPN and its future with CNBC’s David Faber