Disney Stock: CEO Bullish on Sports, Sports Betting, ESPN Futur

Disney Stock: CEO Bullish on Sports, Sports Betting, ESPN Future

The future of Walt Disney's (DIS) - Get Walt Disney Company Report ESPN has been oft-debated, as cord-cutting has steadily, albeit slowly, shrunk the cable universe. 

Just under 79 million American homes had some form of cable at the end of the third quarter, down 8% from 86 million at the end of 2019 and off 16% from 94.6 million at the close of 2013, according to data from Leichtman Research Group.

That's a drop of 15.6 million customers in under a decade. Disney gets somewhere between $7 and $9 per cable subscriber for the various ESPN channels, according to The Motley Fool

And that means that at an $8 average, the Mouse House has lost $124.8 million a month or $1.5 billion a year, in subscriber fees from cable companies.

While cable has dropped, streaming has risen, and Disney Chief Executive Bob Chapek remains bullish on ESPN and the opportunity his company has with its ESPN+ streaming component.

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"We continue to build out ESPN+ with exclusive sports content that makes our DTC offering the perfect complement to the ESPN linear experience," Chapek said during Disney's fourth-quarter earnings call

"And with every new sports rights deal, we have considered both linear and DTC. In fact, all seven of the major deals we made in the last year and a half included a streaming component."

Disney Pays Up for Sports Rights

Chapek noted that Disney has signed a 10-year deal with the National Football League as well as a 7-year deal for National Hockey League rights, outbidding Comcast  ( CMCSA) - Get Comcast Corporation Class A Report for that deal, which has a heavy streaming component.

"Seventy-five of the league's live national games are and will be available exclusively on ESPN+ and Hulu. And ESPN+ is the sole home for more than 1,000 out-of-market NHL games," Chapek said. 

"By the way, this is another reason that Disney bundle is proving highly appealing to consumers because live sports are a key element and a key differentiator of our Disney ecosystem."

ESPN+, which is a unique service and not a feed of the cable version of ESPN, closed Disney's fiscal 2021 with 17.1 million subscribers. 

Disney charges $6.99 per month or $69.99 per year for the stand-alone version of ESPN+, but subscribers can also get it as part of a bundle with Disney+ and Hulu for $13,99. 

That makes it a little tricky to know whether the revenue from 17.1 million ESPN+ streaming customers makes up for the revenue lost from the 15.6 million lost cable subscribers. But Disney has clearly made up much, if not all of that revenue. 

Chapek made clear during the earnings call that live sports are a key part of his company's strategy going forward.

90% of the most-watched telecasts last year were sports and they continue to perform extremely well. For example, the NHL's opening night games on ESPN last month marked the highest viewed season-opening doubleheader on record with an increase of 54% over the 2019, 2020 season-opening doubleheader. And we are particularly pleased with the NHL's direct-to-consumer performance on ESPN+ and Hulu. Likewise, the hugely popular UFC, fresh off a strong card at Madison Square Garden last weekend, continues to be a top performer for ESPN+ with 6 of the top UFC on ESPN+ pay-per-views coming in the past year.

ESPN does not break out how much money it makes from its cut of pay-per-view revenue from its deal with UFC.

ESPN, Cable, Streaming and Sports Betting

Chapek also highlighted how Disney has continued to evolve its sports programming both on cable and on its streaming platform. He detailed some of those efforts during the call.

"[We] continue to expand our original sports programming with innovative broadcasts like the hugely popular Monday Night Football with Peyton and Eli, which airs on ESPN2 and reached 1.9 million viewers by its second week, as well as the highly anticipated new shows like "Man in the Arena: Tom Brady," the multipart docu-series about the legendary quarterback premiering on ESPN+ on Nov. 16, along with a host of fantastic new social and digital shows and podcasts," he said.

And while he was not overly specific, Chapek did say that Disney/ESPN would move into sports betting. Observers had considered sports betting an area the company was unlikely to enter.

"We're also moving toward a greater presence in online sports betting," he said. "And given our reach and scale, we have the potential to partner with third parties in this space in a very meaningful way. 

"Suffice to say, we continue to see enormous opportunity in sports and all of this, the rights deals, our innovative programming and the flexibility achieved through our DTC business."

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