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THE PARTY IS OVER(PROBABLY)
Greed is good or so says fictional character Gordon Gekko from the popular 80's film, Wall Street. In the end , Gekko's character was undone by hubris and his belief that he could create a world based on his own boundary less image. An image that came with an insatiable appetitie for money, control and power.
ESPN is the Gordon Gekko of the sports world. For the past two decades ESPN has played a ruthless game of divide and conquer. No where has ESPN's unfettered and powerful influence been as menacing and evident than in the world of College Football.
Like powerful kings of old, ESPN has cultivated its kingdom with great skill and at times raw power. If there is anything ,however that history has taught us its that every kingdom eventually transforms itself into something new. And that every king , no matter how powerful, is vulnerable to the will and anger of its subjects.
In the past when Kings did encounter revolt, they usually faced it in the form of angry peasants wielding pitchforks and torches . Today's subjects however, have traded in these rudimentary tools of war for something less physically menacing but far more dangerous and powerful: their wallets and modern technology.
In short, ESPN's subjects are revolting with good old fashioned American technology. Technology that is allowing them to cut the expensive traditional cable cords for cheaper hybrid cable alternatives . To quote another famous movie character, Howard Beale from the 1970's movie, "Network", ESPN's once placid subjects are beginning to shout "we are mad as hell and we're not gonna take it anymore,".
PANIC IN THE STREETS OF DISNEY
Wall Street Journal reporters Shalini Ramachandran and Joe Flint in their recent excellent article entitled,"ESPN Tightens its Belt"(ESPN Tightens Belt(link) )have shared new and potentially game altering information about ESPN. In the article Ramachandran and Flint, report that ESPN is losing both subscribers and money and that Disney, ESPN's parent company, is worried about its powerful sports network property.
Here's the most important bit of news you need to know from WSJ article: 3.2 million. That's the number of former cable subscribers the ESPN has lost in the last year. 3.2 million former cable subscribers have migrated to cheaper and more flexible ways of watching television. The loss of 3.2 million in 1 year no less , is jaw dropping .
Make no mistake, Mickey and Mini are losing sleep over these numbers. And what the ESPN and Disney execs are probably most worried about is this question: Do these numbers represent some random statistical deviation or do they spell revolution? Note to Disney and ESPN, this is far more likely revolution than it is a statistical blip on the radar.
In the WSJ article Flint and Ramachandranreport also tell us that to curb the financial bleeding from the loss of these 3.2 million subscribers, ESPN has begun clamping down on the salaries of its on air personalities.
Cutting salaries of its on air personalities? Really? This is ESPN's plan to cover the loss of millions of subscribers? This it seems to me is like using a single stitch to sew a gaping wound from a shark bite to ones torso. It is probably not going to work.
Cutting salaries is probably not going to to cut it for Disney either . ESPN represents 25% of Disney's yearly profits. That is a lot of mouse ears. Disney's CEO, Bob Iger, understands how important ESPN is to Disney and that the loss of these 3.2 million subscribers is probably just the beginning of a larger and more devastating phase for ESPN. The Disney Company has proven year after year that they know how to operate as a savvy and smart business. This is why the loss of these subscribers and their money is so intriguing and such a potentially game altering event for ESPN and the properties ESPN pays to broadcast.
WHAT THIS MEANS FOR THE GANG OF 5
I am going to spare us the financial details of ESPN's current tv contracts with the Power 5 leagues . ESPN of course pays large sums of money each year to earn the right to broadcast 100's of Power 5 football games( Forbes estimates that the SEC for example, makes over 300 Million a year from ESPN. This equates to about 3 billion in profit for SEC over the course of its contract with ESPN, ESPN Signs Riches Deal with SEC link)
At present ESPN has contracts with all 5 Gang of 5 Conferences in one form or another.(ESPN has its most limited Gang of 5 investment with Conference USA, broadcasting only the Championship game for the conference ) While ESPN has money on the table with the MAC, SUN BELT and the MWC, it is most heavily involved with the AAC both in terms of broadcast content and money. ESPN signed a 7 year, 126 Million dollar contract with the AAC in the summer of 2014. It also agreed to broadcast 90% of the AAC's football and basketball games on National platforms.
Regardless of what type of involvement ESPN has with the Gang of 5 , the likely outcome of a cash strapped ESPN is not going to be good news for this group of schools. Like all companies that are forced to trim down, ESPN will review its vast array of assets and decide if they are worth keeping at their current price or commitment.
This is bad news for the Gang of 5, especially for the AAC and the MWC( ESPN's second most important Gang of 5 property) precisely because ESPN seemed to favor the split between the power conferences and the non power conferences even before this new round of new financial news. One has to wonder what value ESPN execs will place in the AAC especially if they are forced to reduce contract costs. Simply put, if ESPN saw limited value in the Gang of 5 schools before this most recent slate of financial news , what value will they see in them if they have to operate with less money going forward.
If ESPN does cut contract payments and reduces the broadcast coverage of the AAC after its current contract expires, then this will also likely spell bad news for everyone else in the Gang of 5, even for those not under contract with ESPN. If for example, the AAC struggles to make a financial go of it, with arguably more national brands than anyone else in the Gang of 5, then it seems likely less well known schools and conferences will as well.
ONE SILVER LINING
There is however, a silver lining to a leaner meaner ESPN for the Gang of 5. Since the Gang of 5 are already paid far less for their content than the Power 5 schools are, it could very well mean that ESPN holds these properties up as models of wise and fiscally sound investing. After all, the Gang of 5 have learned to do more with less for years and have proven that they have excellent football and basketball products to show case.
Although it is to early to provide a definitive analysis on what a cash strapped ESPN will mean to the sports world, one does not have to be an economist to know that the sports money bubble that ESPN has helped create seems likely to burst. While the Power 5 conferences in football would most likely take the biggest hit from a financially weaker ESPN, the Gang of 5 would also take a hit.
As the old saying goes however, it is easier to learn how to survive when half a loaf of bread is cut into quarters than it is when a whole loaf is cut in half. I suspect that that the Gang of 5 will learn to survive in any new financial climate more easily than their financially bloated Power conference counter parts will or can.
If the financial party is not over with the latest news from ESPN, it certainly is a warning bell that the beer and chips are about to run out sooner rather than later. Stay tuned.
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