ESPN Heading Towards Bankruptcy?

A lot is being made about ESPN and the firings that took place over the last few days. These laid off a lot of on air talent, in an effort to save Disney, the parent company, $5 billion.

The names that were let go are talent making a million or more a year. These people are familiar to many who watch the network and their firing is a headscratcher to many.

In this article we will clear up what is taking place while also looking at the future prospects of this network.

So let us dive right in.

Million Dollar Talent

The million dollar man (or woman) at ESPN is chum. These are the ones who are being shown the door.

Why is this the case when the network just signed Pat McAfee to a contract in the neighborhood of $16 million per year? This makes no sense.

Actually, it makes perfect sense. Talent like Stephen A. Smith make the $7M or $10M because their shows earn ESPN a great deal of bank. Someone like Jeff Van Gundy, who might be the best NBA analyst there is, can be replaced for a fraction of his salary. Let us be honest, nobody is tuning into a Warriors-Lakers game for Jeff Van Gundy.

This is what made many of these panelist and analysts expendible. Even if they were the top at what they did, it was not putting money in the pockets of the network.

It is why people like Jalen Rose, Todd McShay, and Steve Young were all shown the door.

Million dollar talent simply did not provide the return it once did.

ESPN And Bankruptcy

This is all a stopgap measure. There is no reason to believe this ship is done sinking.

More than a decade ago, there were 100 million cable subscribers. This numbers has dropped to 70 million. Cord cutting affected the entire industry.

For ESPN, this is a lot of money. The net result is that each month, they are pulling in roughly 30% less than they did before. Many are expecting this to drop into the 50 million neighborhood. It seems that broadcast television is suffering at an accelerating pace.

Of course, many bring up streaming. This is a money loser so far. ESPN will never be able to sustain any decent revenue with this.

The main reason is sports is seasonal. That means fans only watch part of the year. In other words, the sign up and cancel is real. Netflix witnessed this with its dropping of all episodes of shows. People would sign up, binge the season, and cancel.

What do you think college football fans are going to do? Will they pay their ESPN streaming fees in March-April-May if they do not care about other sports? The answer is no.

All if this is going to affect the revenues of the company. It is what is putting them on the path to bankruptcy. The idea of this staying out of the red is not likely.

Unfortunately for ESPN, the bad news doesn't end there.

Rising Fees

ESPN has to pay for its content. Unlike cablenews, which I feel is also in trouble, ESPN has a cost to what it shows. CNN and Fox cover the news. It is there, they report on it and pay their talking heads to analyze it.

With MLB, NBA, NFL,and all other leagues, the networks have to pay for the rights. This runs into billions of dollars. Of course, as these contracts come up, the cost only goes up. Do you know what the inflation rate is on broadcast rights to major sportings events is? It makes the CPI look small.

We now have the likes of Amazon and Apple playing in this arena. To them, their goal is different as compared to networks. To the latter, it is to make money. Amazon, as an example, comes out ahead if more Prime memberships are sold as a result of the association with a major sports telecast.

This means they can offset the cost in different ways. Also, the profitability of other areas, like IPhone sales, can subsidize the money paid for the rights.

How does ESPN compete with this? The answer is that is doesn't.

In Conclusion

Since 1979, this has been the premier sports network. This is no longer going to be the case. Just like the major networks not longer dominate the news like in the days of Brokaw, Rather, and Jennings, the ESPN domination is over.

This is going to end up being a footnote in history. The streaming service will not succeed and broadcast television loses another viewer with each Baby Boomer death.

Technology is changing all of the entertainment industry. Web 3.0 is going to assert itself in a major way. The business model of Twitter is incompatible with this, let alone a relic like ESPN.

What we saw with layoffs is only a temporary measure to a much larger problem.

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