Every large company has a profitable division and investors purchase the company expecting the revenues to flow every year. The division is not the primary reason for the company but either it evolved or purchased as a smaller entity and grew. It would be a powerhouse if the company either sold it or split it off, but the division continues to earn money. For nearly 30 years, the financial engine for Disney is ESPN.

In an article by Kevin Draper and Brooks Barnes of the New York Times News Service, very few people bought Disney because if own ESPN, but because Disney owns ESPN. However, the money it generated allowed Disney to buy Marvel, Lucasfilm, Pixar, 21st Century Fox, and while Disney is movies and theme parks, the consistent moneymaker was ESPN.

The issue is ESPN’s best days as a money generator over?

ESPN is the sports channel of Disney and in the first 6 months of 2023, ESPN generated $14 billion in revenue and $3 billion in profits. The problem for Wall Street are the revenue numbers were done 6% for the year before and 29% less profit.

The bulk of ESPN’s revenue comes from are called affiliate fees. These are the monthly fees that cable providers pay ESPN for the right to offer its TV channels to household subscribers. Last year around 71 million US households paid for a TV package that includes ESPN and those TV providers gave $8.81 a month to ESPN according to S&P Global Marketing Intelligence. In addition, ESPN brings in $2 billion in advertising.

A decade ago, the number of people with TV channels was over 100 million. According to PwC, the accounting firm, it is estimating the 71 million will fall to 50 million subscribers.

On the cost side, which is good for the profession sports league is not so good for ESPN, their costs are rising. For the NFL package, ESPN will pay an average of $2.7 billion for the next decade, a 42% increase. At the moment, Disney will pay $57 billion in future commitments to sport leagues. It is noted both Apple and Google’s You Tube are interested in sports programming.

Disney is consulting on what to do with ESPN.

Linking to dividend paying stocks, all large companies own divisions which make money and as long as they make money profits roll in. Similar to all industries there are changes for every industry, understanding which divisions are the large revenue generators will allow you to analyze whether to continue to hold or look for alternatives.

There are more questions than answers, till the next time – to raising questions.