One of the greatest plays in the world of sports is taking place, but it isn’t on the field – its happening in the board room.
According to an exclusive report by the New York Post, the NFL is in advanced talks with Disney’s (NYSE: DIS) ESPN on an agreement that could give the country’s biggest sports league a stake in the country’s biggest sports network. In return, Disney would get complete control over NFL Media, which is basically all the operations concerned with the league’s online presence.
This deal would be incredible for DIS stock, since the mass media titan will get to own new NFL content, but the deal still faces considerable challenges. If it goes through, it could dramatically change the future of DIS stock and may even change how we see the future of the sports industry.
The Deal
What the NFL is getting from this deal is quite self-explanatory, an equity stake in ESPN, Disney’s cable sports channel. But, what exactly is the NFL Media that Disney is getting in return?
NFL Media includes NFL Network, a pay television network that features game telecasts, as well as NFL-related content including analysis programs, specials and documentaries. It also includes the NFL’s official website, special exclusives channel NFL Red Zone, NFL Films, and NFL +, which broadcasts out-of-market preseason games.
If the deal happens, ESPN and Disney would own a significant amount of new content related to the NFL – which they would be more than happy to have. In fact, ESPN and the NFL already have a working relationship, as the network purchased the rights to 25 NFL games for about $2.6 billion per year.
However the two parties refused to comment on the deal to the New York Post which cited “people close to the matter” as its sources. Its certainly not clear that the deal will come to reality, but both the NFL and Disney need it.
Why does Disney Need this Deal?
Disney’s CEO, Bob Iger, told CNBC in July of 2023 that Disney would be willing to sell major assets, including a stake in ESPN, to strategic partners in order to reduce costs and acquire cash.
According to Iger, the challenges that Disney and ESPN are currently facing require such actions. The biggest challenge of all is the historic levels of cord-cutting by consumers as they move away from cable and towards streaming services. In fact, nearly 28 million ESPN linear subscribers have left since 2011. Despite this, Iger said that he was still “bullish about sports” and stressed the importance of discipline.
On the other hand, ESPN’s streaming service, ESPN +, is increasing its viewership and has a growing direct-to-consumer business. In 2023, ESPN+ had 26 million subscribers, a massive increase from 2022’s 2 million. This has caused Disney to rethink its strategies and now, virtually everything within the company is up for serious reevaluation.
As for the NFL, the league has been attempting to unload its network for the last two years in order to find a strategic partner that would help with the distribution of its programms. It had talks with Amazon (NASDAQ: AMZN), CBS, Fox (NASDAQ: FOX), NBC, and even YouTube, which resulted in deals worth more than $110 billion but no sale of NFL Media.
But, this deal might be different. Since Disney’s ESPN already covers the league thoroughly and already has a relationship with the NFL, there definitely are some synergies. Additionally, Disney might be able to secure better carriage arrangements for NFL Media than any other media company. This is because ESPN has targeted 2025 as the year it will transition to direct-to-consumer by offering a streaming service that doesn’t need cable or satellite.
Additionally, the Athletic, a sports journalism website, cited an email dated January 9th from NFL Commissioner Roger Goodell to NFL employees explaining that it’s time to “adapt to the changing business environment, aligning resources with key investment opportunities”.
While its certainly not clear what the email is referring to exactly, it could be about the NFL deal. Even if this is the case, itcould still take months to finalize since the NFL’s collective bargaining agreement requires both team owners and players to weigh in on it.
Saying Goodbye to the NBA
Notably, the deal comes at a time when ESPN is negotiating with Turner Sports over the NBA media rights the two have shared since 2002, hoping to extend them into the 2030s. Yet, some have speculated that ESPN could walk away from the deal, now that the NBA is seeking a combined $50 – $75 billion for its next long-term cycle of media rights.
That is double or triple the payout from its current nine-year deals which amount to $2.6 billion a year. In light of this, now might be an opportunity for ESPN to replace the NBA with the NFL – a substitution that might be in the network’s best interest.
After all, 2023’s Super Bowl achieved an estimated 113.06 million views, while the NBA Finals for the same year had just 11.64 million viewers. Higher viewership and the chance to transition the NFL’s content to streaming, could make it the best option for ESPN out of the two leagues. Judging by the Chiefs-Dolphins game – which was streamed by 23 million people on Peacock – there is certainly an appetite for this content.
The Challenges
NFL fans are at the heart of whether this deal works out in the ESPN’s best interests, and they have already pointed out that if the deal goes through it will have an important impact on ESPN’s editorial arm and coverage of the NFL. Fans don’t think ESPN can impartially cover the NFL if the deal happens.
NFL fans are not very pleased with the deal for another reason. Since Disney Executive Kevin Mayer admitted when the company first announced its plans to transform ESPN into a streaming platform, that $30 a month would be “entirely reasonable”. Fans disagreed, saying it was actually too expensive for a streaming service.
Another issue is ESPN Bet, the network’s sports betting venture with casino group Penn Entertainment. Its not clear how it would factor into this arrangement. Another question is how this agreement would affect the NFL’s relationship with its other media partners, such as Disney’s streaming competitor, Amazon. If the deal contains an exclusivity clause, it could change how the NFL does business with other media companies.
Even if all these other issues disappeared, the referee of the business world could bring it all to a halt. The biggest, most powerful sports league in the US acquiring a considerable stake in the country’s biggest sports network, could cause the SEC to step in.
DIS Stock Forecast
DIS stock had a tumultuous time in 2023 with Hollywood strikes pushing several releases to 2025, issues with its management team hurt investor confidence, and its head on battle with Florida’s state government, all impacted DIS stock which hit a low of around $79.
In fact, 2023 was so bad for Disney that it lost its top grossing movie studio spot to Universal Studios (NYSE: UVV), a title Disney had enjoyed since 2016. Bob Iger admitted that the company has “lost focus” and is now turning to make strategic moves to rebuild its business model, reduce costs, and increase profitability as well as shareholder value.
The proposed deal between ESPN and the NFL is in fact part of Disney’s larger plans to spinoff some of its assets and use its cash to tackle the company’s debt. As it becomes more nimble it plans to target narrower but deeper markets for growth.
Getting its hands on the media rights for the most popular sport in the country would definitely help Disney, especially since the 2024 projections for the box office dipped to $8 billion from $9 billion thanks to the strikes. This means more of DIS’ revenue will need to come from streaming.
Speaking of streaming, Disney + is showing signs of recovery after holding the company down for a number of quarters. In Q4 2023 alone, Disney + subscribers increased by nearly 7 million, topping estimates.
This could indicate that after losing nearly $11 billion since the launch of Disney + in 2019, the company’s streaming service is finally gaining momentum and could become profitable by the end of 2024. Releasing new content and implementing stricter standards around account sharing are key to achieving this. After Netflix cracked down on account sharing it saw a rise in subscribers and revenues in the most recent quarter, and DIS could see the same if it follows through.
This expected rise in streaming, along with the possibility of a deal with the NFL, could improve the DIS stock forecast for 2024 despite the expected dip in box office revenue. But a deal of this nature almost always encounters difficulties, and investors should be cautious of either party’s plans until they are fully announced.
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