ESPN had talks with NBA, NFL looking for strategic partner

  • ESPN has held early talks about strategic partnerships with the NBA and NFL that could include the leagues taking an ownership stake in the business, sources told CNBC.
  • Disney CEO Bob Iger talked about bringing a strategic partner into ESPN in an interview last week with CNBC.
  • Making a deal directly with the leagues would be unprecedented, but would give ESPN a safety net that it would receive premium content from the leagues.

LeBron James of the Los Angeles Lakers in a game against the LA Clippers at the ESPN Wide World Of Sports Complex on July 30, 2020 in Lake Buena Vista, Florida.

Mike Ehrmann | Getty Images

As Disney considers a strategic partner for ESPN, CEO Bob Iger and ESPN chief Jimmy Pitaro have held early talks about bringing professional sports leagues forward as minority investors, including the National Football League and the National Basketball Association, according to people familiar with the matter.

ESPN has been in preliminary discussions with both the NFL and NBA about a number of new partnerships and investment structures, the people said. In a statement, an NBA spokesperson said: “We have a long-standing relationship with Disney and look forward to continuing discussions around the future of our partnership.”

Spokesmen for ESPN and the NFL declined to comment.

Talks with the NFL have occurred in connection with the league’s own desire for a company to take a stake in its media assets, including NFL Network, and RedZone, said the people, who asked not to be named because the talks have been private.

The NBA and Disney have adopted many potential structures around a media rights renewal, the people said. Disney and Warner Bros. Discovery has exclusive negotiating rights with the NBA until next year.

Iger said last week in an interview with CNBC’s David Faber that Disney is looking for a strategic partner for ESPN as it prepares to transition the sports network to streaming. He did not elaborate on exactly what that meant beyond saying a partner could provide additional value with distribution or content. He acknowledged that it was possible to sell a stake in the business.

Disney owns 80% of ESPN. Hearst owns the other 20%.

“Our position in sports is very unique and we want to stay in that business,” Iger told Faber. “We’re going to be open to looking for strategic partners that can either help us with distribution or content. I won’t go into too much detail about that, but we’re positive about sports as a media property.”

Theoretically, a jointly owned subscription streaming service among multiple leagues could eventually provide consumers with new bundles of games and other innovative ways to consume content.

The move would make sense for Disney as it tries to move beyond the traditional cable subscription model and underscores how badly the company wants to find a solution for the sports network as viewership declines. There is no better partner for sports content than the leagues themselves.

On the surface, that might make less sense for the NBA and NFL, which sign lucrative media rights deals with many media partners that drive team revenue and player salaries with a variety of media companies.

Professional sports leagues may face conflicts of interest if they take a minority stake in ESPN. Owning a stake in ESPN could anger Disney’s competitors, such as Comcast’s NBCUniversal, Fox, Amazon, Paramount Global and Apple, which help earn the leagues billions of dollars by engaging in bidding wars for sports rights. Taking a stake in ESPN could give leagues incentive to increase the value of that entity rather than strike deals with competitors.

Major League Baseball and the National Hockey League may also want to get involved in any deal involving the NBA and NFL, one of the people said. Involving multiple leagues in a strategic investment would be complicated and unprecedented. MLB and the NHL did not immediately respond to requests for comment.

There would also be obstacles for Disney. ESPN also employs hundreds of journalists covering the major sports leagues. Selling a stake to the leagues could cloud the perception of objectivity for ESPN’s reporting apparatus.

Still, the leagues are already business partners with ESPN. It’s possible ESPN could put measures in place to ensure reporters can continue to cover the leagues while minimizing conflicts, but that adds another layer of complexity to any deal.

ESPN is trying to forge a new path as a digital-first streaming entity. Disney realizes that ESPN will not be able to make money as it has in the past in a traditional TV model.

Selling a minority stake in ESPN to the leagues could reduce future rights payments, allowing Disney to better compete with the large balance sheets of Apple, Google and Amazon. It will also guarantee ESPN a steady stream of premium content from the leagues.

Until last quarter, Disney’s bundle of linear TV networks had continued to see revenue growth as associated fee increases at pay-TV providers — largely driven by ESPN — offset the millions of Americans who cancel cable each year. That trend finally ended last quarter, according to people familiar with the matter. Accelerating cancellations have now overwhelmed fee increases, and linear non-advertising TV revenue has begun to decline.

– A lot has been said about renting [sports right] versus owning,” Iger said last week in his CNBC interview. “If you can rent it and continue to be profitable from renting, which we have been and we think we will continue to be, then there is value in staying in it. We have good relationships with Major League Baseball, and the National Hockey League, and various college conferences, and of course the NFL and the NBA. It’s not just about live sports coverage of those leagues, those teams, it’s also about all the shoulder programming it throws off on ESPN and what you can do with it in a streaming world.”

ESPN wants to transform itself into a streaming center for all live sports. Management wants to launch a feature that allows or the ESPN app to direct users to games wherever they stream, CNBC reported earlier this year.

While striking a deal with professional sports leagues wouldn’t be easy, Disney appears to be pushing the envelope on its thinking to prepare for a streaming-dominated world that includes its entire portfolio of sports rights.

“If [a partner] come to the table with value, whether it’s content value, distribution value, whether it’s capital, whether it just helps hurt the business — that wouldn’t be the primary driver — but if they come to the table with value that allows ESPN to make a transition to a direct-to-consumer offering, we’re going to be very open about that, Iger said.

WATCH: Disney CEO Bob Iger talks to CNBC’s David Faber about ESPN and its future

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