Once the closing bell sounded on Wall Street Wednesday afternoon, The Walt Disney Company reported its third quarter earnings. Company chief executive officer Bob Iger confirmed ESPN’s plans to unveil a direct-to-consumer offering in the coming future. The plan was reported earlier in the summer and is said to be titled “Project Flagship,” with other industry insiders speculating based on intel that it could be unveiled some time in 2025 or 2026.
“Taking our ESPN flagships direct-to-consumer is not a matter of if, but when, and the team is hard at work looking at all components of this decision, including pricing and timing,” Iger said. “It’s interesting to note that ratings continue to increase on ESPN’s main linear channel even as cord cutting has accelerated. This ratings strength creates tremendous advertising potential off the board.”
One day before the earnings call, the company announced that ESPN and PENN Entertainment have come to terms on a 10-year deal to launch a sportsbook, ESPN BET. The deal provides substantial growth potential for both parties, leveraging the reach of ESPN and licenses of PENN Entertainment to cultivate an industry-leading product. Speculation related to the company entering the sports betting space had been present for several years as the sector continued to grow.
“This licensing deal will offer a compelling new experience for sports fans that will enhance consumer engagement,” Iger said. “We are excited to offer this to the many fans that have long been asking for it.”
Barstool Sportsbook will be rebranded to ESPN BET this fall as Dave Portnoy reacquires 100% control of the digital sports media company he founded once again. Upon purchasing the venture for $1, he immediately reinstated Ben Mintz, who was fired after uttering a racial slur during a podcast, and vowed that he will hold the company for the rest of his life.
PENN Entertainment purchased shares of the company in two different transactions totaling $551 million. They returned it back to Portnoy for no charge, incumbent on a non-compete agreement prohibiting the brand from receiving any advertising revenue from sportsbook or launching a betting product of their own. Moreover, Portnoy will need to cede 50% of gross profits to Penn Entertainment should he decide to engage in a transaction for the property, including a sale.
Sports revenue for The Walt Disney Company is up 10% year-over-year, with Iger emphasizing that it remains a viable source of revenue with the power to connect audiences. After all, sports accounted for 82 of the 100 most-watched television broadcasts in the United States during 2022.
“Our total domestic sports advertising revenue per linear and addressable is up 10% versus the prior year, adjusted for comparability, which speaks to the fact that the sports business stands tall and remains a good value proposition,” Iger said. “We believe in the power of sports and the unique ability to convene and engage audiences.”
In order to best position itself for future growth, ESPN is in the midst of looking for a strategic partner to acquire a minority equity stake in the company. The network has reportedly heard from leagues, technology firms and other companies interested in forging and/or strengthening business relationships. In the end, the company wants to bring on a partner that will help it realize its direct-to-consumer interests.
The Walt Disney Company owns 80% of ESPN and the remaining 20% is owned by Hearst Communications. “We received notable interest from many different entities,” Iger explained “and we look forward to sharing more details at a later date when we’re further along in this process.”
ESPN is now viewed as its own distinct business entity, and the network is expected to report its first earnings for the first time this November. In the meantime, the company divulged that subscribers to ESPN+ fell by one hundred thousand (0.1 M). Additionally, the average revenue per user (ARPU) decreased by $0.19, which was driven by low subscriber advertising revenue and more subscribers opting to engage with its multi-product offerings.
