ESPN Jumps Into Bed With the NFL. What About Everyone Else?

0:00Hey, it's Danny Kelly and it's officially fantasy football season, which means the Ringer Fantasy Football Show is back with the latest news from around the NFL and everything you need to get ready for the fantasy football season. So join us at the Ringer Fantasy Football Show on Spotify or on our new YouTube channel. For adults with Crohn's disease or ulcerative colitis symptoms, every choice matters. Trimphia offers self-injection or intravenous infusion from the start. Tremphaya is administered as injections under the skin or infusions through a vein every four weeks, followed by injections under the skin every four or eight weeks.

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1:58But the big news for Disney has been trickling out for a couple weeks now. ESPN is about to become a full-fledged streaming service. None of this ESPN Plus limited offering nonsense. Starting August 21st,$30 a month gets you all of ESPN's premium sports on its linear channels. That includes NFL, NBA, MLB, even Cornhole on the Ocho. Plus, and here's the big one, they announced a complicated new deal with the NFL in which the league will now own 10 % of ESPN. Lots of ramifications there. And in exchange, ESPN is taking over the NFL network and NFL Red Zone, Craig's favorite channel. Plus, they get a few more NFL games and some programming as well.

2:39The NFL still owns Red Zone, but ESPN also will be able to launch Red Zone branded formats to other sports. Makes sense for college football, in my opinion. Basketball, maybe. ESPN will keep the NFL draft through 2030, and in a separate deal, will take over WWE events like WrestleMania for the next five years. Peacock had those rights, and ESPN is reportedly paying$1.6 billion for them. Big increase. All of this represents a pretty big statement by Disney and ESPN's leader, Jimmy Pataro. They got a new NBA deal. They're talking about renewing MLB again after passing. We know why. Sports rights may be incredibly expensive, but the breadth and diversity of ESPN's rights are a differentiator, especially against Netflix and even Amazon or Apple, at least for now.

3:25At 30 bucks a month, I'm not sure how popular ESPN the standalone app will be, at least at first, but the app will be available to cable subscribers that already get ESPN. And Disney wants to either keep those people in the bundle or transition them to its own apps, either ESPN or preferably the Disney bundle under Disney Plus. But what's in this for the NFL? And does this big bulk up mean that ESPN might get spun into a new company? Lots to discuss. We've got Joe Pompliano here. Joe's a sports business reporter. He has his own newsletter and podcasts, and he gives investment advice as well. Today, it's Disney's full court press into sports, the big new NFL deal, and all the ramifications.

4:04From The Ringer and Puck, I'm Matt Bellany, and this is The Town.

4:12okay we are here with joe pompliano who is the founder of the huddle up newsletter sports reporter podcaster etc etc welcome thanks matt glad to be here so you've been following this espn nfl courtship i guess it's a courtship that's been going on for a while and we finally got news today, Disney confirmed it actually last night, that the NFL is now an official owner of ESPN. So I want to get into the rationale on both sides of the table for doing this. Let's start with the NFL. Why is the NFL doing this? Well, they've been trying to do this for, as you alluded to, about a decade now. Well, they've been trying to sell those assets.

4:58They've been trying to sell their media assets. I don't know that they were necessarily trying to invest in media companies, were they? Well, I think that was the result of not being able to sell them potentially. I don't know, right? Like if you couldn't get what you wanted out of it, maybe this is the next best option. So they get the equity in ESPN. I think for the NFL, right? Like NFL Network really feels like it just never became what they wanted it to become. Like, you know, they started 2003. It's a way to directly reach the fans. They actually started Thursday Night Football for the NFL Network, right?

5:27to get more viewers on the NFL network. But now we're in this environment, right, where they went from 70 million households to less than 50. It's obviously declining. It's really expensive to run. You have to run production studios. They have a 75 ,000 square foot studio in LA. Oh yeah, the one attached to SoFi. I've been there. Exactly. And now you're in this business that you don't really want to be in. So now you have to find someone to go take it over. Out of all the companies they talk to and have been reported to talk to, ESPN probably makes the most sense, I would guess, because of how intertwined their business is with the NFL.

5:58Like every media company seems to be intertwined with the NFL in some degree, but ESPN is really betting a lot on the NFL and college football. Well, and the NBA and tennis and potentially MLB. Really everything, right? Everything. It is the highest profile and most prolific owner of sports rights in this country. Yes, and they've been on a spending spree, which we can get into later. But part of that, right, is what they're trying to do on the DTC side. And I think the NFL is a big part of that. So if you're ESPN, you're willing to probably take these assets, even though the math doesn't quite work out, right?

6:32Like my guess is if ESPN is doing the deal, some of this is, yeah, we can make it work. There's some advantages that we have on the DTC side by adding these assets in, making the package more compelling. We can make a stronger bid when it comes to renegotiating affiliate fees, different things like that. But ultimately, what you want to do is you want to be partnered with the NFL, right? Because it gives you so many other benefits when you're banking such a large part of your future on the NFL as a sports property. Yeah, they're the unicorn in TV. They're the only thing propping everything up.

7:01Yes. There's these high-level benefits, which we just talked about, which is DTC, all that other stuff. But then there's also a bunch of other benefits that are really hard to value. and some of that is if you think about what ESPN did during their last rights negotiation, they went from$2 billion a year for Monday Night Football to$2.7 billion. But it wasn't just a rights increase because the NFL got more popular. They also got a bunch of contractual upgrades in that deal. Well, but you're going into why ESPN is doing this. Oh, yeah. That is the ESPN. You've moved on to that. One point I want to make on why NFL is doing this, I just think that it's diversification.

7:38The NFL's entire business is selling media rights and other sponsorships and things like that. But here now they have an equity interest in part of a media company. And potentially someday this could be spun out into its own separate company that the NFL would then own 10 percent of. But do you think that the NFL would have rather cash or do you think they always wanted equity? Good question. I think if someone was out there that would have been willing to overpay for these assets, they probably would have taken the quick hit. But potentially long term, ESPN as a perhaps standalone company to own 10 % of that, not bad.

8:17And then you could use the prowess of the NFL to grow that entity. And I think you could still do that within ESPN as well in ways we'll get into. So let's go to the ESPN. But so that's why I asked about would you rather cash, right? Because my guess is ESPN probably went to market, would have rather cash. Ultimately, the market determined that they had to take equity. So yeah, they're diversifying. You mean the NFL went to the market? The NFL, yeah. NFL went to market. So ultimately, they're diversifying. But was that out of necessity or was that what they always wanted to do? Maybe. My guess is probably necessity.

8:47Yeah, probably. But not a bad thing to have. I mean, if you are looking at owning what is essentially a piece of the Walt Disney company, I mean, the analysts have said that ESPN is worth what? $25 billion? like that's not a bad asset to own 10 % of. Yeah, I agree. So ESPN, I think there's a bunch of kind of high-level benefits when it comes to DTC. We know they're launching the streaming service. It's going to be a huge part with the NFL. You obviously have Red Zone, which is extremely popular. You have NFL Network, which is somewhat popular. But I think also like if you're ESPN, you just want to be in bed with the NFL because there's so many other benefits that you can get to.

9:24So part of that is what happened on their last deal. But one of the things I wrote about the other day too is scheduling. And I think that's like a really underreported benefit because if you think about how these games are decided right now in college football, we can use the Big Ten as an example. Fox, NBC, CBS, whatever, they all sit in a room and they do a draft for literally the days of the game. And depending on how much you paid as part of that deal, you get more picks, the order changes, whatever. But you go down, Michigan versus Ohio State is obviously the number one pick. And then you go down determining kind of what games you get.

9:53In the NFL, it's obviously a little bit different where these broadcasters have their windows. So there's Thursday night, Sunday night, Monday night. You can submit preferred matchups, but at the end of the day, it's up to the NFL to determine what matchups go on which days, right? And there's definitely some favors that are pulled there. I mean, this has been widely reported with Amazon when they signed that initial deal for Monday Night Football. They wanted better matchups. They got better matchups. Ratings improved. Same thing happened with ESPN when they increased their payment. The last two years have been the highest ratings in Monday Night Football history.

10:21So you're saying they're going to get better games because the NFL is now directly invested in the outcome of ESPN. The NFL is not going to say that, but it doesn't take a genius to realize that, right? Yeah, I mean, the conflicts here are potentially pretty extraordinary. I mean, it goes beyond that. Like, why wouldn't the NFL say to potential sponsors, like, hey, if you want to be the official beer of the NFL, you've got to spend X amount of money on ESPN. Like, what's to stop that? I mean, it goes from there. Like they now have a thumb on one of their partner's scales. And the other partners, if I were Comcast, Paramount, Amazon, Fox, I'd be kind of annoyed by this.

11:05For sure. I think they're going to be watching this very closely to see kind of how that plays out. Or they say, where's our stake? Like you want to buy 10 % of Paramount? Please be our guest. Yeah, well, they may have something in CBS right after the Skydance deal. Yeah. And also, I think the other incentive here is that ESPN is terrified that the NFL is going to renegotiate when they have that out after 2029 and potentially take away Monday Night Football when those rights come up a couple of years after that. And this now would suggest that that's less of a fear because the NFL is now invested in ESPN.

11:42They're not going to renegotiate significantly or pull Monday Night Football. That's sort of my point, right? Because you can look at this deal and I bet if you model it out, it probably doesn't make a ton of sense. There's a reason, again, why no one else did the deal. But if you're ESPN, you're probably comfortable with all these other benefits. Not only are you not going to lose Monday Night Football, but you might get preferential treatment or terms on the next deal versus what you would have gotten if you hadn't have done this deal. So I think there's a bunch of other benefits that ultimately could bring the price way above the two and a half billion dollars that they're giving up in equity.

12:11Right. And if someday ESPN and ABC or the linear assets or all of it becomes a separate company, and many people believe that once Bob Iger leaves Disney, that the next CEO will try to spin off the sports assets or spin off linear or something like that, then the NFL is set up to potentially benefit there. And ESPN is set up because you've got this investor in the company that is by far the most popular sports league in the country. Yeah. And that brings on a whole nother set of challenges and problems and opportunities. Right. But I think if you're the NFL, you probably rather that ESPN is its own standalone entity.

12:53But also it begs the question of how does the NFL value this deal if the equity ends up becoming liquid and turns into cash? And I ask that because if you think about the NFL, they share revenues with their players. They don't share equity. So where does the equity sit? And I don't know this to be certain, but I have a feeling that probably plays into this as well. Spoken like a player's rep. You should try to head the union. No, I'm just saying if equity sits in a separate bucket, that seems more advantageous from an ownership perspective. Totally. Tell Goodell to go do this deal for equity rather than cash.

13:26Yeah, it's a great point. Most linear subs of ESPN, people who subscribe on TV, will have access to the ESPN streamer. So the goal here is to bring in people who are cord nevers or cord cutters or people that are sports nuts and only want this one thing. What do you think is reasonable for the amount of subs that they will be able to get in the first couple of years? because they're downplaying. They're really setting the bar low. I think it said only a couple million. Yeah, honestly, it's tough to tell because again, to your point, linear subs are going to get it for free. And you're really going after the smaller percentage of market.

14:11And ESPN is the necessity for sports fans. No one's going to argue that, right? But they also don't have everything. So I think low millions is probably accurate. Yeah, especially with the pricing. 30 is about what we thought it would cost. It's more than our normal streaming service, but it's less than cable. Well, in Fox, their Fox One service is going to be 20 bucks and they only have the Sunday NFL games and they don't have a lot else in terms of sports. They have World Series. They have some other stuff, soccer, but they don't have what ESPN has. Like we've all we've talked about this. Craig's complained for a while.

14:44Like each of these services has something, but they don't have it all. And even venue, when they were talking about combining all that stuff, it was still not everything. It was like a little more than 50 percent of everything. but would people have subscribed to venue sports in order to get kind of half or a little more of what you want? Well, think about ESPN strategy. And I actually think this has been really smart. It's cost a lot of money, but they spent the last few years overspending in a lot of cases for some of these sports rights. And they've really diversified to your point where they have NFL, NBA, college football, college basketball, NHL, UFC.

15:20We'll see what happens there. But Formula One is obviously leaving, P.J. Taurus, tennis, whatever, right? There's a million different sports. And some of these are only portions of those leagues, but oftentimes they're very careful about getting the most important events. So if you want to watch that sport or that league at all, you need ESPN, which I think is a helpful strategy when you're trying to transition people to a streaming app where the game and the live content is ultimately most important. Yeah, and ultimately what you want if you're Disney is you want to bundle ESPN with your other services.

15:50They also announced that the Hulu app is going away as a separate service. Craig, check me, but I believe I predicted that on this very show. And the Disney bundle is going to be the primary point of sale, or they hope it will be, where you pay 50 bucks and you get Disney Plus and all the Hulu content as a tile and ESPN as a tile. Well, that's what helped ESPN Plus so much. Yeah. I mean, ESPN Plus, how many subs do they have? And that was basically nothing on there. It was like 25 million subs and then they started to decline. But like, I would be surprised if even a fraction of those people were watching ESPN Plus.

16:26It was all coming from Hulu and Disney Plus. Yeah, that's the goal in the television streaming business is to get people to pay for stuff they don't watch.

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17:14us. If I'm Joe Blow consumer and I am looking at the sports landscape and what I want to purchase as a streaming service, now there is one that you can buy and I think it rises above the others. That I think is the explanation for the spending spree. There has to be a sense of urgency and a sense of bulk around your service in order to get people to say, okay, I'll do that. And now when you look at ESPN, it's got all four of the major leagues in some part. And it's got enough where you can say, I'm a sports fan. I subscribe to one of these services. It's ESPN. Yeah, but I think also the execution of how the app actually works is super important, right?

17:58Because I think they almost have to make it where it's a must have for sports fans, where you're tying all these things in together, right? Because one of the biggest frustrations as a sports fan over the last decade has been just the confusion around everything, right? How many different apps you need, you don't know where to watch games. And ESPN is not going to be able to tie all that together because they don't own the rights to all these things. But if you're able to create a central location that's personalized to the individual and the teams and the leagues that they like, but also combines sports betting and fantasy and merchandise purchases and all that kind of stuff, like all of a sudden it becomes a little bit more valuable on top of those live sports rights.

18:32Live sports rights still drive everything, but there's going to be people that are just such big sports fans where they're going to subscribe to it anyways, because it's going to become a must-have if you integrate all of that. Yeah. And you can use algorithms to curate what people see. Yeah. I want it to look like my Netflix home screen, right? I want to be shown what I want to watch. And eventually, if they get local rights, maybe they can show you the new version of the RSN for your favorite team. Maybe if your favorite team is playing on ESPN basketball night or whatever, it will alert you, things like that, that can kind of customize.

19:06That's why the baseball deal, getting rid of MLB was so interesting. Well, they said they were not going to renew an MLB Sunday Night Baseball at the current price. Now, they are supposedly talking again about renewing it. Are your sources saying that that will likely happen? No, I don't know, right? I think there's a chance that it will. I think they weren't likely to do it at the price that it was. But now they're probably more interested when MLB hit the market and realized that that was the truth. But I think there's a huge benefit to MLB content too, for all the reasons you just mentioned.

19:37It's a ton of inventory. It's regionalized in a lot of places. And it can act as like that new age RSN where you put it all on there and you're able to drive subscribers, but also reduce churn because, you know, if you're an Atlanta Braves fan and you're subject to blackouts in an area or vice versa, whatever, pick a team, you're more likely to subscribe to the service and keep it because you know that you're going to be able to watch all your team's games. Right. And the algorithm could essentially become the RSN regional differentiator, where if you can bundle a lot of these RSNs together, then you just show the games to the people in the area that want to watch them.

20:12One thing that I wasn't as bullish on in the announcement that a lot of people seem to be excited about, and Goodell even talked about it on ESPN this morning, was the idea that ESPN now owns the Red Zone brand. Yeah, why not? That could be cool. Red Zone for college football, Red Zone for... They already did that, though. They had that. They have that? ESPN used to have the show called Goal Line, which was literally the same thing as Red Zone. And it wasn't that popular because of the rights problems. They were only able to show games that were on ESPN. And the way college football is spread out, there's so many different games going on at once.

20:46If Fox has the game or whatever, then you can't show that game. So it ends up being like SEC Red Zone. Yeah, which I think maybe there's an appetite for it. Like if you just admit it up front, you say, okay, this is going to be SEC specific. And that's all you're going to see. Like maybe someone who watched that, but it's not nearly as enticing as the NFL product because of the rights problem. Interesting. Yeah, I guess you would have that problem. But you know what? Maybe they solved that down the line. The Red Zone is a brand though. Everyone knows what that is. Couple other downsides to this.

21:15The Trump question. This NFL buying a stake in ESPN, that means that it is subject to regulatory review, which means that the Trump Department of Justice is going to be involved here. Given what we have just witnessed with the paramount nonsense and the tributes that various media companies are paying to the president and his interests in order to get these deals done, are ESPN and the NFL essentially walking into a buzzsaw with the government right now? Is Trump going to be able to essentially extract what he wants in order to get this deal done? I think potentially. I mean, you saw, did you see his true social post about the Commander Stadium the other day?

21:57Yeah, he wants to strong arm everybody into getting rid of the commander's name and going back to the old name. He likes getting involved in the sports stuff, too. He attends a lot of games. So maybe he takes a personal interest in this and something has to be done to get the deal. But it's non-binding. And I would assume that there's some expectation that they would have clarity in this over the next 9 to 12 months at least. Because that's the other thing I don't think people realize is that this deal isn't going into effect when the streaming service launches. It has to get regulatory approval over the next nine to 12 months if it gets that approval at all.

22:29If it does, this would happen for the 2026 season, which I think going back to the point around the app is the streaming service is a huge miss, right? If you're going down and some of this is timely and you can't control it. But if you're launching one of these streaming services, what is ESPN coming out with as sort of the bang, right? They did the WWE deal today. But again, that's not till 2026. So sort of everything that you're going to be getting today is already available and out there. There's nothing that's going to be super exclusive to the ESPN streaming service that's going to differentiate itself in some meaningful way.