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Good Thursday Morning. Here’s the rundown of this week’s Sports Business Playbook:

• 📰 This Week’s Topic: ESPN is signaling its “all things to all people” strategy as it enters into its one of its biggest years yet. Will it work?

• 🍸️ Impress Your Friends at Cocktail Party: Want to show off your sports knowledge in a public setting but don’t have time to read the deep dive? Hit the “Impress Your Friends at Cocktail Party” section at the bottom for a CliffsNotes of this week’s topic

• 🤯 “Whoa of the Week”: Initial thoughts on the new MLS valuations

• 💪 Weekly Reminders that Sports are Awesome: Sports Twitter’s generational run post-Luka Dončić trade

Hey team,

Disney held its Q4 earnings call this week, and the sports division, led by ESPN, had a positive outlook. Revenue was flat at $4.85 billion, but the operating income was $247 million (up from -$103 million in Q4 last year), and Disney is projecting the sports division to have 13% growth in operating income this fiscal year.

The call also highlighted the flurry of activity — i.e., buying a competitor to fend off a lawsuit, shutting down a joint venture — that has already taken place in the first five weeks of the year while setting up what is expected to be one of ESPN’s most consequential years ever with the launch of its standalone “Flagship” streaming service this fall.

What’s emerging through the company’s words and actions is a clear view of ESPN’s strategy for the future — be “all things to all people”:

In this week’s SBP, we’re looking at ESPN and its shotgun approach to the future. You’ll learn

• The five distribution vehicles ESPN is now playing in

• The moves they made to get to this point

• The bull and bear case for this approach

ESPN’s Many to Many Strategy

Led by boss Jimmy Pitaro, ESPN has been innovation driven the last few years and will soon exist across five different formats/distribution vehicles later this year.

The traditional cable channel

This is ESPN’s oldest format, and it is frankly still its cash cow. We’ve talked a lot about the erosion of the cable bundle through “cord cutters” and the emergence of “cord nevers,” but the reality is this is still where ESPN is able to drive significant revenues through the combination of carriage fees and advertising dollars.

ESPN has roughly 67 million legacy cable subscribers, and they’re paying about $10-11 per month to ESPN as a part of their cable package. This is much more than what they make on streaming.

So, everything for these legacy media companies is still a loss leader, hedge or future strategy preparing for the day when the ultra lucrative legacy cable bundle finally goes kaput.

OTT offering — ESPN+

ESPN+ is ESPN’s over-the-top (OTT) service. It is not meant to replace the traditional channels, but instead provide additional, complimentary content to subscribers. This has been helpful for people who want to watch specific, more niche sporting events and/or like the deep repository of sports-related content.

ESPN+ was initially on an island by itself, but it’s gradually been moved into a bundle with Disney+ and Hulu, and as of December, you can actually now find a tile with ESPN+ sitting next to Marvel, Star Wars, and kids shows in the Disney+ app.

The service seems to have plateaued around 25 million subs, though, as it dropped 3% to 24.9 million in Q4 following modest subscriber growth last quarter — the first it had seen in over a year.

vMPVD

This is the most recent and also the most odd one.

Following a yearlong anti-trust court battle over the proposed Venu joint venture with Fox and Warner Brothers Discovery (more on that in a second), Disney announced in early January that it had acquired Fubo, the virtual Multichannel Video Programming Distributor (vMVPD) and plaintiff in the aforementioned lawsuit.

Fubo is a small player in the vMVPD space, with only 1.3 million subscribers and a stock that was trading at about $1 at the time of the lawsuit. So, what gives?

Disney’s strategy here is two-fold. For a relatively small amount of money, they get the lawsuit taken off the table, and they can also now combine Fubo with its other vMVPD — Hulu + Live TV — that it got in the Fox 21st Century deal a few years ago to form a separate public company (Fulu? Hubo? We’ll workshop it).

This is a smart play by Disney because these vMVPDs are breakeven at best. Disney can add 1.3 million subs from Fubo and combine the orgs to create the second biggest vMVPD in North America (6.2 million combined subs — just behind YouTube TV’s 8 million subs) while having it off its main balance sheet but still reaping the potential upside if it achieves economies of scale and works since it owns 70% of the spinoff company (remember when we talked about spinoffs becoming a trend in December?).

While bigger than ESPN, the channels will feature prominently as they do for other vMVPDs and distribution companies.

Skinny bundle(s)

Most consumers don’t watch all of the channels in their cable package, and there has long been a call for the distributors to provide them with a sports/news only, “skinny” bundle so they can pay for what they actually watch.

The cable companies had long fought this idea because it would mean they could not roll their less popular channels into their bundled carriage fees, and they held enough leverage that the distributors never did it.

Given the rapidly devolving legacy cable situation, Disney was the one who finally caved and announced it was going to bring the skinny bundle to life last year via Venu, the joint venture with Fox and WBD that would combine the three companies’ content into one shared streaming service.

While it was a step in the right direction in terms of giving consumers what they want, it only covered about half of the major sports people wanted, and it was plagued from the start by the Fubo lawsuit that alleged the three companies had done the very thing it would never let the distributors do and cut them out of it (true).

Many thought the surprise Fubo acquisition in January was a means to clear a path for Venu to move forward, but then Disney announced a few days later it had pulled the plug and the venture was officially dead. According to Iger, Venu became redundant.

This may seem odd at first glance, but in parallel with the Venu legal fight over the last year, other distributors began to announce they were going to be bringing a skinny bundle to market. DirecTV recently launched one, and Comcast just announced it will be offering one soon.

ESPN sits in the middle of all of those and can potentially stand to gain if the skinny bundles attract net new customers turned off by the increasing prices of the various streaming platforms.

Standalone streaming option — “Flagship”

This is the big bet.

Set to release ahead of this year’s college and NFL seasons, ESPN will launch its standalone streaming option that replicates all of the content from the traditional cable channels and combines it with a series of advanced features to create a “sports super app.”

Expected to cost between $20-30 at launch, in addition to being able to watch games, users will be able to tap into multiscreen viewing and advanced analytics, place bets via ESPN Bet and monitor fantasy teams, engage in ticketing, buy merchandise, and much more.

There is a lot riding on this, and we really do not have a clear sense yet of what this will look like in practice to be able to form on an opinion if it will work.

If it goes well, Disney will be able to secure its future in the new, streaming focused age while riding the cable cash cow to the end.

If it crashes and burns, it’s a dark stain on Bob Iger’s sterling legacy at Disney and likely sets ESPN up as an acquisition target for a tech giant in the space.

Bull/Bear Case for this Plan

This shotgun appriach is an understandable strategy from ESPN. As media consultant Patrick Crakes said in a recent JohnWallStreet article, “no one knows what digital distribution is going to look like in the future or what is going to work. Disney just knows it needs to have assets in place to be able to react accordingly.”

The bull case suggests they’re meeting fans wherever they wish to be met and giving themselves flexibility/agility to adapt to an industry that is in the midst of systematic transformation and uncertainty.

The bear case would say the Mouse is spreading its golden goose too thin, cannibalizing customers across this smorgasbord of offerings and becoming a master of none while other major players.

So, how does it pan out?

Count me in the bear camp for now.

While I like the general premise of being everywhere for everyone, my main concern lies with the viability of Flagship and its ability to move the needle.

• I think the service is coming five years too late, when the consumption landscape has become too fragmented and costs and streaming fatigue are at an all time high

• Similar to my concerns with Spulu, ESPN does not have enough of the overall sports market to justify the price point (and surefire price hikes in future years)

• The ESPN brand/ancillary features are not compelling enough to get a critical mass of cord cutters/nevers to invest in moving off of an vMVPD or other format to this service.

Time will tell, but I am curious to get all of your thoughts on this — reply via email and let me know your predictions!

🍸️ Impress Your Friends at a Cocktail Party

Want to show off your sports knowledge in a public setting but don’t have time to read the deep dive? This section is the CliffsNotes of this week’s topic

• Opener: ESPN had a strong performance during the Disney earnings call, and it now enters its most consequential year yet.

• Shot: ESPN is taking a shotgun approach of trying to meet consumers wherever they wish to be met across five different mediums

  • Traditional cable: Still a cash cow, but rapidly declining

  • OTT: Has worked by providing niche live sports and content, but is plateauing at about 25 million subscribers

  • vMVPD: With the surprising acquisition of Fubo, the group who had sued ESPN last year for their Venu skinny bundle joint venture, in January, Disney now has the second largest virtual distribution company behind YouTube TV, and it is off the main company’s balance sheet in a spunoff company. ESPN will feature prominently in this.

  • Skinny bundle: This skinny bundle of sports and news instead of a full cable package had been something the channels had long fought against, but once Disney tried the Venu joint venture with Fox and Warner Brothers, all bets were off. DirecTV now has a skinny bundle, and Comcast is launching one soon. ESPN sits squarely in the middle of those.

  • Standalone streaming service: ESPN is launching its first direct to consumer streaming service, known as “Flagship,” this fall. This is their big bet, and the goal is to create a sports super app that allows for consuming content, placing bets, buying tickets and merch, and much more — all in one place

• Shot: Will this work? The bull case suggests they’re meeting fans wherever they wish to be met and giving themselves flexibility/agility to adapt to an industry that is in the midst of systematic transformation and uncertainty.

• Shot: The bear case would say the Mouse is spreading its golden goose too thin, cannibalizing customers across this smorgasbord of offerings and becoming a master of none while other major players.

• Chaser: Count me in the bear camp for now. While I like the general premise of being everywhere for everyone, my main concern lies with the viability of Flagship and its ability to move the needle.

  • I think the service is coming five years too late, when the consumption landscape has become too fragmented and costs and streaming fatigue are at an all time high

  • Similar to my concerns with Spulu, ESPN does not have enough of the overall sports market to justify the price point (and surefire price hikes in future years)

  • The ESPN brand/ancillary features are not compelling enough to get a critical mass of cord cutters/nevers to invest in moving off of an vMVPD or other format to this service.

🤯 “Whoa” of the Week

Insane, mind-blowing things constantly happen in the sports business world. Here was my favorite of the past week.

1. The MLS valuations from Sportico are out, and they show a league continuing to ride a rocket ship — a polarizing rocket ship, but a rocket ship nonetheless. Let’s keep watching the revenue multiples (second image) on this league post-North America World Cup in 2026.

💪 Weekly Reminder that Sports are Awesome

This newsletter is, of course, mostly centered on the business side of sports and the things that happen off the field. That being said, it’s important to remember why we fell in love with sports in the first place, though.

This section is meant to highlight the amazing things that happened in sports this week that serve as that reminder.

1. There are certain generational runs on sports Twitter — the Scottie Scheffler arrest, Bill Belichick signing with UNC — where the community is galvanized and comes together to post A+ content that makes forget about what a cesspool the platform overall is.

   You know we are in the middle of one of those runs post-Luka Dončić trade when:

   • Duolingo is cooking the Mavs

   • The transaction broke Bill Simmons and the other Ringer NBA guys (NSFW)

   • Chamath Palihapitiya is amplifying conspiracy theories about the new Mavericks’ owners intentionally tanking the team to force the Texas legislature to legalize gambling or they’ll move the team to Las Vegas 🤦 

Thanks for reading! Let me know what feedback you have.

Also, if you enjoyed this breakdown, please consider sharing it with your friends and network by clicking the social media icons at the top of the newsletter.

Until next time, sports fans!

-Alex