Will the Mouse House open its doors to sports betting?
As commuters jaunted off to the beach Friday for an early start to the weekend, reports surfaced that ESPN could jump headfirst into the burgeoning U.S. sports betting market. Although such a move has been considered a practical inevitability for several years, the news produced immediate shockwaves on social media hours before the start of the college football season.
According to a Caesars Entertainment a deal that could fetch a minimum of $3 billion for the sports media conglomerate, per the report. Under the deal, ESPN could license the company name to the sportsbook entity or possibly retitle the name of the book entirely (think: ESPN Sportsbook By DraftKings or ESPN’s Caesars Sportsbook, among other possibilities).
With the start of the NFL season less than two weeks away, the deal speculation has massive implications for the nationwide sports betting landscape. Will Hershey, co-founder & CEO of Roundhill Investments, believes the main takeaway of the report is simply that Disney-owned ESPN is open to branding a sportsbook.
“After all, if Disney is embracing betting, we have truly reached mainstream acceptance in the U.S. market,” Hershey told Sports Handle. “That’s a big stamp of approval for the entire industry, and especially speaks to the way large media companies view the size of the opportunity.”
Financial ramifications 3l2f26
If ESPN has entered advanced negotiations with either company on the game-changing partnership, it should come as little surprise. Last September, ESPN announced separate “co-exclusive link integration” agreements with DraftKings and Caesars hours before the regular season debut of Monday Night Football on the network. As part of the deal, Caesars Sportsbook (formerly William Hill US) became ESPN’s exclusive odds provider across multiple platforms, while DraftKings received designation as the exclusive daily fantasy sports provider for the network. Pursuant to the agreement, DraftKings committed to approximately $35-50 million per year for a period of up to 10 years, according to a U.S. Securities and Exchange Commission (SEC) filing.
As of February, Disney held more than 18.7 million DraftKings shares through ESPN TFCF Sports Enterprises LLC, according to the filing. That made Disney a beneficial owner of more than 5% of DraftKings’ Class A common stock. Disney received the shares following the 2019 completion of its proposed acquisition of 21st Century Fox. Disney this month announced that it recognized a non-cash loss of $217 million to adjust its investment in DraftKings to fair value during the three-month period ended July 3. During the year-ago quarter in 2020, Disney recognized a non-cash gain of $382 million on its DraftKings investment.
It is perfectly reasonable that Disney-owned ESPN would explore a path for monetizing online sports betting that maximizes profitability, while minimizing operational and regulatory burden, said Lloyd Danzig, founder and managing partner of Sharp Alpha Advisors. As the gold rush for market share intensifies, there are few signs that the push for customer acquisition will abate, Danzig explains. DraftKings and FanDuel are each on pace to spend more than $3 billion on marketing over the next four years, he adds, while Caesars Entertainment has pledged to invest $1 billion on marketing expenses over the next two years during the integration of William Hill.
“There is no sign this level of marketing spend will slow anytime soon,” Danzig told Sports Handle. “ESPN is a one-of-a-kind asset that provides robust brand recognition, unique media integration opportunities, and a massive base.”
'Worldwide Leader' reportedly in talks to license brand to major sportsbooks.
It's a next-level deal, and of course this @Disney development does not come without controversy or criticism. Surely more of both to come. #ESPN https://t.co/PUWw1d6Giq
— Sports Handle (@sports_handle) August 27, 2021
SportsCenter, ESPN’s flagship daily sports news show, draws 115 million monthly viewers, while ESPN+, the network’s live sports streaming service, had nearly 15 million subscribers at the end of the third quarter, Disney CEO Bob Chapek noted on the company’s quarterly earnings conference call. In total, ESPN Digital averages about 100 million monthly active s, Danzig indicated. Nevertheless, it remains to be seen how efficiently operators can convert and monetize such a large audience at scale, he cautions. Furthermore, one stipulation of a potential deal, according to WSJ, could require the sportsbook partner to commit a fixed amount in expenses devoted to advertising on ESPN’s platforms.
On Monday, the NFL announced that it WynnBET to become Approved Sportsbook Operators for the 2021 NFL season. The partnership comes on the heels of the NFL’s announcement in April naming DraftKings, FanDuel, and Caesars as the league’s first-ever U.S. sportsbook partners. Earlier in April, Genius Sports secured a historic partnership with the NFL for exclusive distribution of the league’s official sports betting data, in a cash and equity deal that could be worth more than $1 billion. Then, last week, Genius appointed former ESPN CEO and NFL Network executive Steve Bornstein as president of its North American division.
Sign of the times: NFL has reached agreements with FOX Bet, BetMGM, PointsBet, and WynnBET to become Approved Sportsbook Operators for the 2021 NFL season.
— Adam Schefter (@AdamSchefter) August 30, 2021
The wheels continue to spin. At the start of this month, DraftKings and Genius agreed on an expanded sports data supplier agreement in a transformative deal that could set the market for official NFL data rates. Will the successful bidder of a potential ESPN sportsbook need to have partnerships in place with the NFL and Genius Sports as a prerequisite for any deal? At the same time, will the introduction of a host of new bidders drive the cost of ESPN’s sports betting asset above $5 billion?
Crunching the numbers 5a75g
The $3 billion figure in the news report is a hefty price tag considering that all U.S. legal sports betting is on pace to generate a total of $4 billion in 2021, Eilers & Krejcik Gaming analyst Chris Grove told Yahoo! Entertainment. Chris Krafcik, Grove’s colleague at E&K, openly questions whether a sportsbook can turn a reasonable profit if ESPN stands firm on a multi-billion dollar deal. At a 7% hold, the book must handle more than $42 billion to break even, a figure that rises to about $51 billion if the hold percentage hovers around 6%.
ESPN deal in a nutshell:
1. Spend irrationally to acquire ESPN brand
2. Then spend irrationally to carve out share in a market full of irrationally spending actors
3. Make no money
— Chris Krafcik (@ckrafcik) August 27, 2021
Still, a partnering sportsbook could leverage Disney’s over-the-top streaming capabilities to further grow its player database. Through its acquisition of 21st Century Fox, Disney gained a controlling stake in Hulu, a platform which had 42.8 million subscribers as of the end of the third quarter. When it comes to technological developments such as on-screen betting and wagering through voice activation, Disney/ESPN could push the envelope.
An entry by Disney into the sports betting marketplace also carries significant problem gaming concerns. A sports betting kiosk next to Space Mountain may tempt a 50-something father of four during a family vacation to Orlando. Easy access to a sportsbook, though, could also appear on the radar of his inquisitive teenager. Consider a post from a Reddit , MISTERgrams, in response to a suggestion that Disney should look to monetize sports betting last summer on stock trading forum WallStreetBets. Although the is clearly being facetious, it’s a scenario that will make leading anti-gambling advocates shudder.
I can see it now: I bring my children to their dream vacation, perhaps it’s one of their Make-A-Wishes, and rather than ride the rides, I dip into the sports book to “take a break” with some free drinks and check on my seven leg parlay that includes cricket and college lacrosse.
By the end of the night, all my get-rich-quick tickets are torn and in the garbage as I throw up along the street of the evening parade that I tell the crying kids we can go to next year if they’re good.
—r/WallStreetBets post on ESPN’s involvement in sports betting — July 2020
Shares in DraftKings and Caesars were relatively flat on Monday, with both down fractionally as of noon ET. DraftKings traded around $60 a share, producing a market capitalization of $24.2 billion.
Disney, meanwhile, reached a two-week high at $181.39 a share, extending Friday’s gains. Last week, Disney jumped 2% in Friday’s session on the ESPN report.
