ESPN To Make Bold Move Into Sports Betting

Walt Disney Company CEO Bob Chapek said mysteriously at the D23 Expo held over the weekend that he had big plans for ESPN, but didn’t put any meat on the bones until today. The D23 Expo is an annual event held in Anaheim for Disney fans, which includes experiences, concerts, pavilions, presentations, and special sneak peeks.

In an exclusive interview with David Faber of CNBC, Bob Chapek, CEO of Walt Disney
DIS
Company, said that the company did indeed plan to add sports betting—it just wanted a third party to process the bets (commonly referred to as the “handle”) via a partner.

That’s likely due to the fact that Disney wants to keep its wholesome family image but still get some upside from sports betting, which is projected to be a rapidly growing market. The move into sports betting is likely the reason that activist investor Dan Loeb on September 11 backtracked on his August suggestion (after making a $1 billion investment in Disney) that they spin off ESPN.

At Goldman Sachs’ Communicopia & Technology Conference on September 14, Disney CEO Bob Chapek said that they could have a link out of ESPN to a sports betting ESPN-branded site which would have “no impact on brand equity for Disney but will likely have a very positive impact on the brand equity for ESPN because our younger audience is demanding that.”

He also said the company is firmly committed to the sports giant. “The Walt Disney Company adds a lot to ESPN, and ESPN adds a lot into The Walt Disney Company…We think that The Walt Disney Company is a place where ESPN can be maximized relative to…that asset sitting anywhere else. And as such, we’ve been pretty staunch supporters despite the tremendous market demand for us to sell it or spin it or there’s a lot of people that are interested in getting a piece of ESPN, but we like our own hand.”

For some history, ESPN was launched by Getty Oil in 1979, ending 1980 with almost 8 million subscribers, just behind the market leader in ad-supported networks, WTBS, which had close to 11 million subscribers.

ABC cut a deal to buy 15% of ESPN for $30 million and received a first right of refusal if a majority stake were ever sold. At the time, the duo launched a 50/50 pay-per-view joint venture for a sports PPV service, and Getty’s ESPN got rights to one major sporting event.

By 1984, still in the red, Getty Oil, now owned by Texaco Inc., wanted out. ABC bought the 85% interest it didn’t already own from Texaco for $204 million. Ted Turner wanted badly to buy ESPN but was outbid and the bidding on sports rights became very competitive between ESPN and Turner’s WTBS.

Just five months after taking control of ESPN, ABC sold 20% to Nabisco for $60 million (a $300 million valuation which was significantly higher than the $240 million valuation when it bought 85% from Texaco).

In 1985, Capital Cities offered to take over ESPN for a hefty $3.5 billion. In 1989, after a $25 billion leveraged buyout of RJR Nabisco by Kohlberg Kravis Roberts, RJR Nabisco sold its 20% stake to Hearst Corp. for $175 million—Hearst still owns the 20% stake today.

Just five years later, The Walt Disney Company agreed to pay $19 billion for Capital Cities/ABC valuing its 80% stake at $2.6 billion. Flash forward to 2022 and the company is now heavily focused on streaming and will shortly be in the burgeoning sports betting market.

Putting the issue of sports betting aside, strategically ESPN will need to remain inside the Walt Disney Company at least until cable and satellite are no longer a meaningful revenue stream. That’s because media companies generally bundle all of their cable networks together meaning that if you want ESPN, you have to license the whole family of Disney Channels, and that’s huge (see table).

Cable Networks With Walt Disney Company Ownership Stake

Network Owner

A&E A&E Networks

ACC Walt Disney Co.

Crime & Investigation A&E Networks

Disney Channel Walt Disney Co.

Disney Junior Walt Disney Co.

ESPN Walt Disney Co.

ESPN Classic Walt Disney Co.

ESPN Deportes Walt Disney Co.

ESPN2 Walt Disney Co.

ESPNews Walt Disney Co.

ESPNU Walt Disney Co.

FreeForm Walt Disney Co.

FX Network Walt Disney Co.

FXM Walt Disney Co.

FXX Walt Disney Co.

FYI A&E Networks

History A&E Networks

History en Espanol A&E Networks

Lifetime A&E Networks

Lifetime Movies A&E Networks

Lifetime Real Women A&E Networks

Military History A&E Networks

Nat Geo Mundo Walt Disney Co.

Nat Geo WILD Walt Disney Co.

National Geographic Walt Disney Co.

SEC Walt Disney Co.

Vice on TV A&E Networks

Notes: A&E Networks is a 50/50 joint venture between HearstCommunications and The Walt Disney Company.Hearst Corp. has a 20% minority interest in ESPN networks.