5 ms·

Why is ESPN under such pressure, but sports franchise values seem to be still increasing? Aren't they competing/sharing the same dollar?

ssharp 10y ago
Maybe. It's not clear that these TV rights deals are unprofitable. If those deals are the drag on ESPN's financials, the leagues will take a big hit. Those deals are longer-term though and the leagues have lots of existing and emerging opportunities. You also have to consider that some owners treat their franchises like fancy sports cars, not businesses, and they are extremely rare cars at that!
cookiecaper 10y ago
ESPN makes its money from cable subscriptions, on average about $7 per subscriber. A lot of those subscribers value ESPN ... but a lot don't. They're all paying around $7 / mo for ESPN. Every cordcutter is a loss for ESPN. This is affecting not only ESPN, but The Walt Disney Company's profits substantially. ESPN makes up ~30% of their gross revenue. They've seen losses most of the last several quarters, in large part due to bad numbers from ESPN.
maxerickson 10y ago
The franchises exist in a sloppy private market. For football, the valuations also already take into account that players get about 50% of revenues.
twoodfin 10y ago
Guess: Franchises have more flexibility in their revenue model. Somebody will be bidding billions for broadcast rights whether OTA, premium cable, or streaming. ESPN has a ton of inertia to overcome and an uncertain future if they can't rely on an ever-growing "bundled" subscriber base.
siegecraft 10y ago
Sports franchise values are increasing, in general, because they're artificially limited in number (there are only 32 NFL teams) and specifically because of (a) increased rights fees, (b) rising value of local broadcast deals, especially in large markets like LA and NY and (c) taxpayer-subsidized stadiums. At the same time, there's more competition than ever for the national broadcast deals which is why ESPN had to overpay for its NFL and NBA deals. And those broadcasting rights keep decreasing in value as each league gets to sell its product multiple times (for the NFL there are games on broadcast networks, ESPN, streaming-only games, NFL network games, Sunday Ticket, and RedZone). ESPN is in a bad spot since they have to have NFL games, because even though their Sunday Night Football deal only lets them air one (usually terrible) game a week, it means they get to fill their network the rest of the time with NFL highlight / analysis shows.
dannyr 10y ago
There are a lot more sport networks now that compete for the rights. Aside from ESPN, there is Fox Sports, NBCSN, CBS Sports, etc.
xienze 10y ago
Who says this isn't the first sign of the bubble bursting?
- adventurer 10y ago
  Comcast keeps reporting subscriber growth (almost 300k last quarter). People are definitely watching sports on tv, just not ESPN. You need more than one large, bloated, continuously failing channel to convince me that we're at the beginning of giant slide, but it's not like you will ever predict that anyway.
  - narrowrail 10y ago
    According to the wikipedia entry on cord cutting: A TDG study showed nearly 101 million U.S. households subscribed to television at the industry's peak in 2011, but the number would fall below 95 million in 2017.
prostoalex 10y ago
TV contracts are multi-year. NFL's TV broadcast rights payments, for example, are set in stone until 2021 http://www.nytimes.com/2011/09/09/sports/football/espn-extends-deal-with-nfl-for-15-billion.html http://www.nytimes.com/2011/09/09/sports/football/espn-exten... I'd expect a wave of mergers/consolidations and player/staff contract re-negotiations around that time. For teams, though, TV broadcast rights are just one of many revenue streams. Ticket sales, attire and souvenirs, concessions, various online subscriptions, endorsements, etc. are all refenue generators.
heisenbit 10y ago
Efficient markets assume rationale participants. Sports fans are anything but. Sports is all about emotions. While valuation of sports franchises may be only loosely coupled to reason the salary of players is connected to cash flow into the company. That is even more true if the company will have struggle to get more loans (lenders tend also to be more rationale).
VLM 10y ago
ESPN is essentially a service and the franchises are a capital asset. As you know long term economic policy for a couple decades has been to inflate and bubble capital assets (real estate, for example). Meanwhile services get a mixed bag of tagging along or declining. So a capital asset like real estate or a pro sports team "must" go up 10x in price over a couple decades and a service may or may not keep up. ESPN kept up for awhile, not so much recently.

ssharp 10y ago

Maybe. It's not clear that these TV rights deals are unprofitable. If those deals are the drag on ESPN's financials, the leagues will take a big hit. Those deals are longer-term though and the leagues have lots of existing and emerging opportunities. You also have to consider that some owners treat their franchises like fancy sports cars, not businesses, and they are extremely rare cars at that!

cookiecaper 10y ago

ESPN makes its money from cable subscriptions, on average about $7 per subscriber. A lot of those subscribers value ESPN ... but a lot don't. They're all paying around $7 / mo for ESPN. Every cordcutter is a loss for ESPN. This is affecting not only ESPN, but The Walt Disney Company's profits substantially. ESPN makes up ~30% of their gross revenue. They've seen losses most of the last several quarters, in large part due to bad numbers from ESPN.

maxerickson 10y ago

The franchises exist in a sloppy private market. For football, the valuations also already take into account that players get about 50% of revenues.

twoodfin 10y ago

Guess: Franchises have more flexibility in their revenue model. Somebody will be bidding billions for broadcast rights whether OTA, premium cable, or streaming. ESPN has a ton of inertia to overcome and an uncertain future if they can't rely on an ever-growing "bundled" subscriber base.

siegecraft 10y ago

Sports franchise values are increasing, in general, because they're artificially limited in number (there are only 32 NFL teams) and specifically because of (a) increased rights fees, (b) rising value of local broadcast deals, especially in large markets like LA and NY and (c) taxpayer-subsidized stadiums. At the same time, there's more competition than ever for the national broadcast deals which is why ESPN had to overpay for its NFL and NBA deals. And those broadcasting rights keep decreasing in value as each league gets to sell its product multiple times (for the NFL there are games on broadcast networks, ESPN, streaming-only games, NFL network games, Sunday Ticket, and RedZone). ESPN is in a bad spot since they have to have NFL games, because even though their Sunday Night Football deal only lets them air one (usually terrible) game a week, it means they get to fill their network the rest of the time with NFL highlight / analysis shows.

dannyr 10y ago

There are a lot more sport networks now that compete for the rights. Aside from ESPN, there is Fox Sports, NBCSN, CBS Sports, etc.

xienze 10y ago

Who says this isn't the first sign of the bubble bursting?

adventurer 10y ago
Comcast keeps reporting subscriber growth (almost 300k last quarter). People are definitely watching sports on tv, just not ESPN. You need more than one large, bloated, continuously failing channel to convince me that we're at the beginning of giant slide, but it's not like you will ever predict that anyway.
- narrowrail 10y ago
  According to the wikipedia entry on cord cutting: A TDG study showed nearly 101 million U.S. households subscribed to television at the industry's peak in 2011, but the number would fall below 95 million in 2017.

prostoalex 10y ago

TV contracts are multi-year. NFL's TV broadcast rights payments, for example, are set in stone until 2021 http://www.nytimes.com/2011/09/09/sports/football/espn-extends-deal-with-nfl-for-15-billion.html http://www.nytimes.com/2011/09/09/sports/football/espn-exten... I'd expect a wave of mergers/consolidations and player/staff contract re-negotiations around that time. For teams, though, TV broadcast rights are just one of many revenue streams. Ticket sales, attire and souvenirs, concessions, various online subscriptions, endorsements, etc. are all refenue generators.

heisenbit 10y ago

Efficient markets assume rationale participants. Sports fans are anything but. Sports is all about emotions. While valuation of sports franchises may be only loosely coupled to reason the salary of players is connected to cash flow into the company. That is even more true if the company will have struggle to get more loans (lenders tend also to be more rationale).

VLM 10y ago

ESPN is essentially a service and the franchises are a capital asset. As you know long term economic policy for a couple decades has been to inflate and bubble capital assets (real estate, for example). Meanwhile services get a mixed bag of tagging along or declining. So a capital asset like real estate or a pro sports team "must" go up 10x in price over a couple decades and a service may or may not keep up. ESPN kept up for awhile, not so much recently.