What ESPN’s Layoffs Really Signal

0:00Andrew Marchand:The Varsity Podcast is presented by MLB. Major League Baseball is returning to Iowa this summer for MLB at Field of Dreams. Catch the Philadelphia Phillies and Minnesota Twins as they compete after a special pregame ceremony on Netflix, August 13th. Fans can find out more information at MLB.com slash Field of Dreams. Little Bob here. This summer, shop the latest small space solutions at Bob's Discount Furniture. From retro chic bedroom sets to stylish space-conscious Bob-O-Pedic sofas, it's all at Bob's, where America shops for furniture.

0:41Andrew Marchand:Congratulations! You made the varsity of the podcast. My name is John Arand, and I am Pups and Sports Correspondent and Host of the Spod. And what a week it was. ESPN just went through a big round of layoffs on Tuesday, which makes the timing of getting Andrew Marchand back on this pod just about perfect. Andrew, as you all know, is a great reporter. He's a senior sports media columnist at The Athletic, and he hosts his own twice-weekly podcast at andrewmarchand.com that is a must-listen. But before we get to Andrew, today is Sunday, July 26, and here's what I'm watching. The Southeastern Conference, you know, the SEC, just wrapped its media days last week as it preps for the coming football season.

1:22Andrew Marchand:And the big news coming out of it had to do with the SEC's place in college sports. You see, the SEC and the Big Ten are the two dominant colleges in college sports, as everybody knows. And SEC Commissioner Greg Sankey made it a point to remind people of that. Now, there's a bill going through Congress called the Protect College Sports Act. It's sponsored by Ted Cruz, a Republican, and Maria Cantwell, a Democrat. Sankey made it clear that the bill needs to see several changes before he can support it, like the need to create national laws that local judges can't overturn. Anyway, I spoke to Commissioner Sankey last week, and we spent a lot of time on the idea that all the college conferences should pool their media rights together and sell them to the networks.

2:07Andrew Marchand:The belief is that college sports would make a lot more from a pool with everyone than by having the Big Ten and the SEC and the ACC negotiate their own rights. I disagree with that premise. Media executives have convinced me that the pooling of college rights really isn't going to work at all. But more importantly than my opinion, Commissioner Sankey feels the exact same way. In fact, he told me some of these guys who have done research around this are good at writing and serving as expert witnesses, but they don't live in the world that I occupy. So the upshot is this. The future of college sports runs through the SEC and the Big Ten.

2:45Andrew Marchand:regardless of what winds up coming out of Congress. Okay, now let's get to Andrew Marchand. Andrew Marchand, thank you for joining us again. What a week that you've had. You're reporting. Everybody knows by now, if you're listening to this pod, ESPN went through a round of layoffs. All of Disney did, but we're focused on ESPN. More than 100 people laid off, most of them coming from the NFL network, but of course there are other names out there like uh you know ryan clark who was on the the studio show um there carl ravitch of course is you know has nothing to do with nfl network is a you know baseball uh broadcaster um so i don't want to necessarily get into the specifics because i think people know the specifics by now like as you're reporting this story what like what does this all mean?

3:37Andrew Marchand:Why did ESPN do this? Well, number one is they acquired the NFL network and, you know, the corporate synergy, having duplication, they're going to look at how they can make the business more efficient to make more money. So when the NFL wiped their hands of NFL network, NFL media, Roger Goodell and the owners, they kind of knew what was likely to happen to their former employees. and that's exactly what did happen. So it was a bloodbath in terms of people being let go from NFL Network. Again, this is what happens in business, but that's the main part of it. Now they also had layoffs. Disney has their targets that they have to meet ESPN and it's a challenging business.

4:29I think we all know ESPN at one point had 100 million cable subscribers. Now it's in the mid-50s. It's still a very good business. As I wrote in my column for The Athletic the other day, it's still the top brand in sports media. Its portfolio of rights, including the Super Bowl this year, are maybe the best in history. And it's still a dominant player. It's just not the same as it once was. It used to be Shangri-La before the layoffs began in 2013. And now it's still very important. It's still at the top, but it's kind of just another place as well.

5:12Andrew Marchand:So one of the things that people kept asking me when I was reporting some of this out is, look, every place has layoffs, but with ESPN, it's almost like an annual ritual that's happening. Why does it happen so much more frequently at ESPN than at other networks? Yeah, I don't know if it happens more frequently. I think ESPN is covered differently than other networks. Now, the other networks, Fox, NBC, CBS, et cetera, they're covered. ESPN is, and all these places are sort of like this in some regards, guards, but they're kind of like another team that fans root for or have affinity for or like certain people and don't like certain people.

6:00So I think when it happens at ESPN, there's more focus. They also have many more people working at ESPN as compared to other networks. You look at it, they're really... ESPN, they're not perfect in journalism, perhaps, but they are better than all the others who do what they do in terms of the rights holders. Fox, NBC, CBS, TNT Sports. I mean, they do a little journalism, maybe a little bit, but they're really just providing games for the most part. I mean, they have some shows, but for the most part, ESPN has 20, they have shows all the time. They have a lot of reporters. So there's more people that can potentially be laid off.

6:45And because of what's been going on, you've had this situation. you're probably going to continue to have it to some degree going forward. And they were still the most dominant. They were at the highest place on the mountain. And so as the digital world has kind of come for us all in media in some regards, that impacts them the most. And also the reason, it has been, now they've had some behind the scenes stuff go on and people have been like, oh, et cetera. But in terms of these mass layoffs, it was three years ago that they let go. I think it was 38 on-air people. This time it's 10, somewhere from NFL Network.

7:24I think that the one-day thing, and I think also how it's done, which I think we'll talk about later, but I think that also brings a lot of focus to it.

7:33Andrew Marchand:Yeah, the NFL Network purchase, ESPN took over the NFL media back in January, and the NFL owns now 10 % of ESPN. that that's why the numbers were so high and and so on on the tuesday you know people in la who worked for nfl network you know that that that is a huge story and that's why that was a huge story but there were people like carl ravage stefania bell um ryan clark as well that you know that didn't have anything to do with nfl network it appears because of what happened at national Geographic, what happened at ABC News and other Disney properties. This was something, this was a layoff that was going to happen regardless of that purchase.

8:25Andrew Marchand:And so the NFL Network certainly plays a key part in that. But there are a couple of other things that I'm particularly interested in. And one is just the whole business. And you referenced, it was more than 100 million in 2011, the number of homes that ESPN was in. The number that I saw, the most recent number out of Nielsen, I think it was 54.7. It's almost half of what it was. And ESPN at$10 per month per subscriber. You can do the math on that. And that's a lot of money in affiliate revenue that just is gone now. But on top of that, you and I have spilled a lot of ink talking about the NFL rights negotiations, which likely is going to go on this fall.

9:15Andrew Marchand:ESPN is paying$2.7 billion per year for the NFL, and that's certainly going to go up. We don't know how much higher it's going to go up, but that's certainly going to go up. They just finished the first season with the NBA, $2.6 billion a year, which was a significant increase, double what it used to pay the NBA. That's now coming off the books. And you've seen it where they've taken a pass on UFC, which was a property they liked. They took a pass on Formula One, which is another property that they liked because they're having to make a lot of decisions in the rights business that they really can't.

9:56Andrew Marchand:I don't want to say they can't afford it. I think they probably could afford it and have more layoffs, perhaps. But they just decided it's better for business not to move forward with those. and now we're just kind of seeing the cost-cutting implications as well in terms of the layoffs. Yeah, I think one thing that I think is important is that, yes, the business isn't the same as 2011, but the idea that it's not a great business still to me is a misnomer. I mean, you think about it, 55 million subscribers paying, I think it's more than$10, but let's just call it$10 a month. That's$550 million per month.

10:40That's before you sell one ad. And yes, you did outlay all the money that they have for rights. I know we've done a lot on the NFL, me and you, in terms of when you come on my podcast and when I come on yours, and maybe we'll get into it. I don't know how deep you want to get into this, but I've actually come to the realization for them, I'm not sure if they spend so much more than the 2.7 because they're spending 2.7 billion right now for Monday Night Football. They have a lot of games. What is it? 25, 28 games maybe. They have the Super Bowl this year. The others are paying NBC, Fox, and CBS are in around, at least right now, in the$2 billion range.

11:19So who's threatening them to take away ESPN's package at 2.7? You have to get the 2.7 to match and then you're going to have to exceed that by a good amount to take ESPN's package. I don't know who's doing that. Maybe a streamer you could say is leverage. The NFL will push, I'm sure, for it. But in terms of increase, if I'm Jimmy Pataro, I'm ESPN, I feel like maybe$100 million you want okay maybe i'll throw you 100 mil um which is you know that's a good amount of money of course 100 mil andrew it was 100 mil okay between friends uh but are they but i think the percentage is in terms of how much more they'll go up i don't really see if i'm espn why i'm doing that i don't think it's that big a factor but the nfl does own 10 of espn now do they want to I just, I don't know.

12:14I just think they're already, Amazon's at about a billion. So are they, I mean, Amazon somehow, like would they be interested in Monday Night Football to go from a billion to three billion? It just doesn't, I don't think they're doing that. I think they're waiting until the end of the decade and say, all right, you want to opt out? We'll deal with it then. We have a deal already. So yes, I mean, I think the NFL rights are going up. It's a matter of probably when, but I don't know if ESPN, if you're ESPN, like why are you paying so much more than you already are paying? I just don't really see that, like why you'd give that much more money to them.

12:54Andrew Marchand:So this is where I could see a potential hazard is, I don't know how much of that, that 2.7 billion isn't just for Monday night football rights. It's also for just use of the highlights from whenever they want, which is important to ESPN because they have 24 seven programming as does Fox with Fox, with that as does Peacock. So, you know, suppose Jimmy Pitaro says, yeah, we're not paying a lot more. We'll give you another 100 mil or whatever. And Fox says, great. The NFL says, great. We'll take those highlight rights and, you know, maybe not take them away from ESPN, but maybe also sell them elsewhere, you know, so they won't be exclusive.

13:35I mean, those aren't really exclusive highlights, but yes, you're right. That is part of it. And

13:38Andrew Marchand:that's a good point by you um oh well thanks we're gonna clip that andrew we're gonna clip that that's a good point by you i believe you said right there you go and so we're so i do think you do have to factor that in but i just think that they're just at a higher number so i i don't know again will they probably eventually pay more yeah there's a pretty good chance of that i just don't know you know i think you look at nbc i think that's the one where they have i think the best package and they don't pay the most. I think we talked about the business realities of ESPN. That's why they pay more.

14:14The NFL, getting NFL games, it didn't make ESPN, but it made it so powerful and rich. And why they can charge$10 per subscriber is mostly due to the NFL. And so probably more than$10 per subscriber. And so the world's changed. And if I'm ESPN, And I'm kind of, well, we aren't, even though they'd love to argue that they are as dominant in that argument, I think they might be like, well, we're not as dominant. Our financials aren't as different as everyone else's that made it so we had to pay more. And there was kind of an upcharge because you had to be on cable as opposed to broadcast, which reaches a broader audience.

14:57So I don't know.

15:01I think they'll pay more, but I just think they have a little bit better hand in terms of saying, well, no, no, we're not going to pay that much more as opposed to CBS 2.1 with the change of ownership clause that allows the NFL to go right into their clause contractually. I think the idea that they're going to pay another half billion or a billion more, if your CBS is at 2.1 for basically the AFC packages, they get the AFC championship and they have Super Bowls, it seems to me that they're going to have to pay a lot more as opposed to what ESPN will in terms of increase.

15:42Andrew Marchand:Here's a headline. I am very bullish on the NFL. I think the NFL can pretty much get whatever money it wants out of the market. The programming is that important. Whoa, whoa, whoa. However. Wait, let me see. There's not infinite money. All right. Yeah, yeah. Within reason, I guess. But my point, though, is if I'm going to make a bear case for the NFL and the NFL rights, is that if you go through traditional TV channels, CBS is happy with its package. Fox is happy with its package. ESPN, ABC is happy with its package. NBC is happy with its package. And there's nobody else. There used to be David Levy and Turner that was always sort of out there as somebody that could bid up these rights.

16:29Andrew Marchand:There's nobody else within the traditional linear TV system that is bidding up those rights which is why the nfl is consistently trying to get netflix more involved and consistently trying to get uh youtube more involved and and we see what amazon has right now um so the the there there are issues with dc there are issues with taking games off of broadcast and putting them onto onto streaming uh if espn or really any of the broadcasters want to start playing hardball with the NFL, this could be the time to do it. While they still have a, you know, look, there are 54 million homes right now. That shows no signs of cropping.

17:14Andrew Marchand:I guess the curve down is not quite as steep as it once was, but cord cutting is still happening. This could be the time where it's like, you know what? We don't think you're going to mess with DC and we don't think you're going to be hauled in front of Congress. Chris, we think you're going to do a deal with us, so let's work out a fair deal. Well, I mean, I think the one thing that you're missing in that argument is that the NFL's leverage is the streamers. The idea that they could go to one of the streamers. But my point is like the DC is taking that leverage away somewhat. No, they are. You're right.

17:49Well, presumably, yes. So that's... Yeah, well, I don't know. I would say the idea that Netflix could get Sunday Night Football to me is now out of the question. That's the one. I think you look at, again, they've been very consistent in terms of saying that they really only want one event a month and yada yada. and they got the five games now till the opt-outs for the next four years are officially around in terms of when the NFL could officially opt out of their current deals with all the networks that have the season-long contracts. But I think you look at the Netflix, we've seen that engagement on Netflix has gone down.

18:40Retention is really important. And if I'm Netflix and I have this huge base of subscribers and the way that to keep these subscribers so nobody cancels, there's no better way than for six months of the year, five and a half months of the year, than to have the NFL every week. A lot of people will not cancel because they have the NFL. I'm not saying they're going to do that. I just think that that is the stalking horse. Now, you are correct. Washington, D.C. is a very popular political topic because we're all paying too much in too many places for too little in terms of sports. So nobody really wants to see more things end up on a streaming service.

19:25And if I'm the NFL, I kind of don't want to either see that. I think I want to make it, I want to figure out how I can get the most money and keep CBS's, the NBC's, the Fox's, the ESPN's. I think you have a good system. I'm not saying incorporating some of these in. I just don't know. We've talked about this a number of times. If Amazon didn't have Thursday Night Football, stock goes up, stocks goes down. Might go up. YouTube, do they need the NFL? No. Would the NFL love to have them involved? Yes. Netflix, maybe. I mean, that's because of subscription. That's where it seems like, to me, it might make more sense long-term for what they're trying to accomplish.

20:08And Apple, they haven't really seemed to be very interested, and I only think they're really a great destination at this point, and so for leagues. And so, yeah, I mean, look, if DC takes out the streaming, then I think all these places have a much better hand, of course.

20:27Andrew Marchand:Yeah, yeah. Yeah, Netflix, I love Netflix. They will tell us that they are happy with the five games. They want to eventize, they're happy with it. But they are building out their ad tier. The ad tier is getting more and more popular. You want to build out an ad tier, what better thing than the most popular programming that's out there?

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21:28Andrew Marchand:And that is not exactly true. In fact, it may have happened this very week, hundreds or thousands of years ago. I'm Sally Helm, host of the podcast History This Week from the History Channel. Trade embargoes? Thomas Jefferson tried them. Rent too high? We've been arguing about that for a while. Each episode is proof. The past isn't that far away. Listen to History This Week, available now on Apple, Spotify, or wherever you get your podcasts.

22:18Andrew Marchand:on the list uh as ryan carlker was on the air and they decided that they were going to um that espn decided that they would tell ryan clark on the air and effectively pull him off of the show rather than move forward something i have never seen happen before uh that that i can that i can recall walk us through uh from your perspective like tell us that story so number one the idea of ryan clark being let go from espn is not new uh since the super bowl back in february um there was a lot of internal talk and things i'd heard from sources that you know clark you know might not be back he had an opt-out uh in his contract um that i'm unclear how that worked out but they had an opt-out where they could have just um not the final year's contract not be paid out.

23:14So it kept going and going. I had this story written back in February, actually. Not that we never published, but with preparing because we thought that might happen. And then as you got closer, when you do this stuff, you do this really well. So I'm sure the same thing. A lot of times you know things way more in advance that they're going to happen. So So I've known a couple of these names for a while. Ryan was one of them. When you're covering this stuff, there's a couple of things involved. I mean, first, it's better both reporting and also just how it should be done if the entity tells the person before the report, just because it's official.

24:01I mean, if you report somebody's going to be let go and then sometimes something could change. So you got to be a little careful. about that.

24:08Andrew Marchand:Yeah. You better be right. Exactly. And also, you know, so you're trying to be fair with that. So, um, so ESPN knew, I knew, um, and I, you know, Tuesday, um, you know, that's when things were expected to happen. Um, and you know, ESPN was trying to keep that close to the vest. So people, you know, so they could try to do it the proper way. I, I think one thing that should be pointed out in this whole thing. It was bad. It was horrendous how it went down. Ryan Clark being taken off the air. It kind of cut through from out of our media bubble into the mainstream. This guy was taken off the air and let go.

24:47But I think one thing that should be understood is ESPN was trying to do the right thing. And I know they flubbed it, but they were trying to do the right thing. It wasn't as if they said, hey, let's have a big meeting and we're going to, when should we let go Ryan Clark? Well, let's put him on NFL Live and then 34 minutes into the show, there's a break and we'll tell him. I mean, that wasn't the plan. They were another entity called up and had heard after I had that Clark was being let go and they were going to report it. Now, which is fair game. I mean, when you wait on something like this, it's fair game.

25:29and so then they were concerned about that so they decided to tell him they thought it was better to tell him personally than have it be online and then have him find out that way and then they're telling him in hindsight I don't know you're probably better off letting it go online and then telling him as it turned out but that would have been they would have been killed for that how can they let it leak out that a guy's getting laid off and not tell him. So it didn't work out. But I guess my point is that, again, terrible job at ESPN, but I think their hearts were in the right place. Like that, I think, kind of gets lost a little bit.