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Wow!!! Now I don't need to take the class! Very nice explanation, indeed. I'm thinking that Fox or CBS might play a role in ESPN's "broadcast rights dissipation". I would expect that the Big 10 is not at all happy with ESPN, and when contract time comes along, we could see a reallignment.

That makes me a little sad, however, because I associate Big Ten football with ABC, and I guess you can't kick ESPN to the curb without also giving ABC the boot.

I don't know Steve, what do you think. It appears you are the guru on this topic.
 
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IrontonBuck said:
...I guess you can't kick ESPN to the curb without also giving ABC the boot. I don't know Steve, what do you think. It appears you are the guru on this topic.
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Sorry, IrontonBuck, I'm not an industry analyst so my opinion is as good as the next guy's.

Disney's SEC 10-K filing tells us a lot about Disney and a little about ESPiN or ABC, because they aren't reported separately.
  • The Disney Corporation owns ESPiN and ABC.
  • Disney has been dogged by leadership issues which seem to be resolving.
  • The Disney business appears sound and earnings per share doubled in 2004 compared to the previous year.
  • There is nothing Mickey Mouse about Disney except the character, there is about $2 billion in cash in the business right now.
  • Disney is one of the world's most admired brand and looks pretty solid and well managed.
  • ESPiN has expanded internationally quite aggressively.
  • American pro football attracts more viewers than college in the international audience.
  • Also, international viewers watch European soccer. Cricket and rugby also much bigger than American football internationally.
  • The cost of broadcasting college football is increasing.
  • The new NFL saved $180 million in 2004 (over 2003 when the contract was escalating each year at the end of the previous 5 year contract)
  • The increased cost of college football consumed some of that saving.
  • The NFL contract expires at the end of next year and costs could increase.
  • Suggests college will be less important to ESPiN in the future as an aspect of the total business but it could still be very interesting, we don't know.
  • However, if college ball gets too expensive, ESPiN has other revenue streams and may walk away from it, if it doesn't feel that college ball is "mission-critical".
  • The division that includes ESPiN and ABC (and lots of other business) had increased revenues.
  • ABC contributed to the increase because it increased its viewership.
  • ESPiN contributed to the growth because its increased ad revenue.
  • This division contributes about 35% of sales but only about 15% of before tax profits, but it still contributing hundreds of millions.
  • That said, costs at ESPiN apparently are increasing.
  • That means that margins are tight in this business division but doesn't tell us what is attributable to ESPiN. It may explain the logic of X-games, fishing, hunting and other lower cost content that receives much of the airtime on ESPiN internationally.
  • There appears to be a drive to find synergy between divisions and to use ESPiN content in many delivery formats (TV, Radio, Broadband, satellite, cable, international) but its not clear what that means for college football.
  • A media conglomerate like Disney will find it necessary to get non-performing units or low performing units to perform better or sell them because it is a drag on the valuation of shares for the entire company.
  • The information I have at hand doesn't suggest that is the case with ESPiN or ABC right now.
  • But if costs escalate rapidly in a business unit with tighter margins, because of increased competition or other factors, then it seems reasonable to conclude that such a unit is a potential candidate for future discussion in this regard.
  • So, this makes the increased pressure at universities to stop subsidising athletics programs a "wildcard".
  • Most Div IA programs lose money and are subsidized by their universities (of course, ignoring that athletics keep alumni and their donations in a relationship with their universities) and it is worse in other divisions.
  • That is why university administrators are beginning to unite behind making sports pay and dropping the costs of coaches salaries and the like.
What this says to me:
  • Disney looks pretty strong but the competitive environment and other factors such as the globalization of sports suggest that this is a dynamic situation.
  • Disney will want ESPiN and ABC to deliver at the bottom line.
  • There is nothing to preclude selling one or the other, or keeping one or the other from exiting college football (or expanding those operations).
  • Still, one wonders about the rising costs and the importance of college football in what is an increasingly global ESPiN business.
  • Losing market share in either operation will make the largest division at sales line less profitable, and it already has a bottom line profit margin before tax that is half the average profit margin of the entire business.
  • Lose viewers and you lose ad revenue.
  • If margins are tight, a 2% or 3% drop in viewership can have major impact on their business.
Ironton, I can't really express a credible opinion about ESPiN or ABC because there isn't enough information at hand. Right now it all looks very solid for them but it is a very complex situation and, in the medium-term, it looks like college football costs rise perhaps even faster and cost pressures rise for NFL. Moreover, NFL costs and universities are wildcards.

One does wonder then about the logic of antagonizing large fan bases like Ohio State's. That's why it would be in their interest to apologize and walk away from this with the fan base as ESPN viewers again and not ESPiN avoiders.

Check out the Centre rankings of research universities which includes an extended commentary on the costs of sports in US universities by Division at:

http://thecenter.ufl.edu/research2003.html

The Disney SEC 10-K filing including commentary and financials is available at the URL:

http://www.hoovers.com/walt-disney/--ID__11603,Page__1,Sort__FA--/free-co-sec.xhtml
 
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