It’s been a jagged 24 hours since ESPN, the Worldwide Leader in Sports, announced layoffs affecting roughly 100 people. ESPN proved to show no mercy when considering tenure as the sports giant continues to show signs of wanting to shed the old guard. The hottest, worst best kept secret for a while now is ESPN’s "dying of a dinosaur" like demise. Two rounds of layoffs within two years combined with fading subscriber growth and staggering content cost acquisitions has made it feel like the Worldwide Leader in Sports is playing from behind, not leading the pack. The gap between first and second has never been greater, so why are so many people comparing ESPN to MTV?
“The reports of my death are greatly exaggerated” – Mark Twain
“ESPN is finished” has been turned into such a consensus opinion that alone should make an individual pause and perhaps try to see the opposite. There is no denying ESPN is caught in transition and is currently facing a public perception battle. Almost daily, a story is published highlighting ESPN’s “leftist” culture and how it’s costing the network subscribers, or how they’ve paid too much for broadcasting rights. Hindsight is 20/20, as it’s now easy to rail against the “Embrace Debate” formula the sports giant instituted a decade ago. Keep in mind, the “Embrace Debate” campaign was initiated before the mass adaptation of Facebook and Twitter, where everyone now has a “voice”. Many critics point to the fact we no longer need to watch ESPN with the anticipation of catching a final score or witnessing a jaw dropping highlight, consumers can get those things instantly opponents to the network argue. The critics aren’t wrong, just like “expert analyst opinion” is now old news, we don’t need to wait around all day to hear it. Media consumption has undeniably evolved, the marketplace has changed, the industry is in the midst of a highly publicized cord cutting battle with consumers, and ESPN finds itself in the cross-hairs since it used to be the crown jewel for premium cable TV packages. ESPN’s fading subscribers may not be an ESPN problem, but more of a consequence resulting from long overdue industry upheaval.
“Years ago when I used to work at ESPN, they signed an NBA contract and ESPN was paying the NBA $400 million a year, and it was reported as I was driving to work that day they had signed the NBA for $1.4 billion. I told my producers … ‘fellas, it’ll never be the same here.’ You can not pay four times for the house what you paid for the house last year. And I said this company will never be the same” – Colin Cowherd
In life you can pay four times what something was worth the previous year, make money and still be considered a genius. Nothing is ever too expensive as long as there is profit margin growth to back it up. That is the part Mr. Cowherd got wrong, and the part that got ESPN into trouble. It’s hard to be an industry leader and a bag holder at the same time. Buying NFL broadcasting rights at peak value right as growth in viewership wanes will undoubtedly cut into profits and wash away the good times party. Overpaying for content past its peak growth cycle is not an overnight fix that can’t be stitched by cutting talent and trimming salaries. Either ESPN needs to restructure the NBA and NFL deals, which total 3.3 billion annually against the networks bottom line, or they need to find a way to reignite both sports former stellar growth trajectory. Regardless of the outcome, 3.3 billion dollars paid yearly to broadcast the NBA and certain NFL games is far from fatal. ESPN spends roughly 7.6 billion a year on content. For comparison, Nexflix is on track to eclipse 6 billion spent on content creation this year. Content is still king, but what’s proving to be more important than the content you have is how much you paid to have it. HBO forks over around 2.6 billion a year on content costs and finds ways to produce shows like Game of Thrones, The Leftovers, and Westworld. ESPN has been caught paying a premium for something going through a discount cycle and has chosen its employees as the ones to shoulder the burden of that mistake. While that makes for a grueling PR decision, we the consumers are the ones that voted style over substance.
While ESPN and MTV both counted on anticipatory viewing, one is not like the other. Music videos, are just that, videos. They are not live events that need constant updating and timely statistics. YouTube killed the video star but not the athlete. Highlights shared instantly online and circulated via Twitter and Facebook give us instant gratification but lack substance and context. Watching a game tying home run as a gif is visually awesome but informationally starved. I don’t get the box scores or other key plays from a twitter highlight. I go to ESPN for that and that’s where they’ve been letting us down. Nobody is watching anymore for 35 minutes of analysis from former players and coaches breaking down the results of a marquee matchup. That’s redundant now. One of the poisons to SportsCenter was an hour long show where the first 40 minutes were dedicated to a handful of “important” games in one or two leagues and the final 20 minutes squeezed in everything else. Where did my sports highlight show go?
Cord cutting, overpayment of broadcasting rights, and a sportsless SportsCenter, yet I would still put my money and eyeballs for that matter with ESPN. I say that, yet outside of Scott Van Pelts “Bad Beats” segment, which I maybe catch once a month, I haven’t watched a show on ESPN in years. Sports aside, I used to love Around the Horn, PTI and Jay Crawford's First Take, originally called Cold Pizza. But that was before cable television widely adapted the “Embrace Debate” formula and saturated the airwaves with it every waking minute. Now I watch TV for everything but opinion, and unfortunately for ESPN, that includes them. So why bet on a horse I haven’t been watching run? Pedigree my friends, pedigree.
Saying ESPN will fail is effectively saying “Disney doesn’t know how to fix this.” Every great company reaches a reflection point, we are witnessing ESPN’s. Founded in 1979, ESPN is actually three years younger than Apple, and 8 years younger than Starbucks, which was first brewed in 1971. Both Apple and Starbucks flirted with bankruptcy and bleeding balance sheets. Both kicked out, then welcomed back their company's founders. Apple’s deathwatch came in 1997 and almost happened if it wasn’t for a 150 million dollar investment from Microsoft. Starbucks closed over 600 stores in 2008, many were under 3 years old, and over 12,000 jobs were lost because the chain expanded too fast. There’s a good chance you were sipping a latte from Starbucks today while reading about the imminent demise of ESPN on your Apple IPhone. ESPN hasn’t asked for a 150 million dollar investment from a competitor, and 100 jobs were lost not 12,000.
Growing up can be painful. ESPN hit the proverbial ovarian lottery in the sense the network came along at a time when cable TV was brewing to take off. ESPN was an initial benefactor to an unsustainable long term growth rate. They caught the boom. If there is a bust it will come from the price of content and if that happens Amazon and Netflix will bear the brunt worse than ESPN. Sports gambling might just be ESPN’s ace in the hole when it comes to reversing the decline to their franchise.
96 Billion dollars wagered worldwide and 4 Billion of that cash was handled in Vegas. Capturing just a fraction of 1 percent in that market is enough to substantially move the needle and drive shareholder profits. That’s how this whole mess started, shareholders wanting higher profits. That’s the root of ESPN’s problems. Their investors feel they aren’t making enough money and are discouraged about their return on investment. Money is a great motivator and is the root cause behind most initiatives in capitalism. ESPN isn’t special enough to not answer to capitalism. For the longest time ESPN was the darling of Disney. It was Mickey’s growth engine and profit machine. With live sports not paying the bills like they used to Disney and ESPN’s layup to easy money got swatted away. But just because ESPN is no longer driving to the hoop in an uncontested open lane it doesn’t mean they’re about to lose the game because of it. If Disney spun out ESPN into its own separately traded public company, ask yourself, would you want to own a piece of ESPN? I have a feeling many of us would be buying shares. So to think a company like Disney won’t make adjustments and find a winning strategy again is almost like ripping up a Patriots SuperBowl 51 ticket at halftime. Be wary of who you’re betting against.
Article by Christian Cianci