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The Value of ESPN Surpasses $50 Billion

Apr 29 2014, 8:04am CDT | by

The National Football League announced last week that ESPN would host the first playoff game in its 35-year history in January 2015. The Wild Card playoff game is a carrot for the $15.2 billion ESPN...

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12 weeks ago

The Value of ESPN Surpasses $50 Billion

Apr 29 2014, 8:04am CDT | by

The National Football League announced last week that ESPN would host the first playoff game in its 35-year history in January 2015. The Wild Card playoff game is a carrot for the $15.2 billion ESPN committed over eight years in its latest NFL TV rights deal, which kicks off next season. ESPN’s commitment to the NFL is worth almost twice as much annually as the pacts signed by NBC, Fox and CBS. An NFL playoff game marks the latest milestone for the network and further strengthens the stranglehold it has on sports programming.

The NFL is the engine that makes ESPN go with year-round programming dedicated to America’s favorite sport, but the self-proclaimed Worldwide Leader in Sports has built an empire on the back of valuable programming across all sports that dwarfs any other network. The result is a company worth $50.8 billion, according to Wunderlich Securities research analyst Matthew Harrigan, who did a valuation analysis last month of ESPN’s parent Walt Disney based on discounted cash flows (the Mouse House’s current market value is $137 billion). The Disney-owned ABC Network is a footnote compared to ESPN at a valuation of $3.2 billion, according to Wunderlich.

The only U.S. media companies worth more than ESPN are Time Warner and Twenty-First Century Fox, and they are both conglomerates with a broad array of brands and assets (Comcast also fits the bill, but it is largely a cable distributor). The reality is there are not a lot of publicly traded companies worth more than ESPN’s $51 billion valuation (80 U.S. companies as of last week across all sectors led by Exxon Mobil at $432 billion). ESPN is more valuable than Hewlett-Packard, Lowe’s , Sprint and Twitter based on Wunderlich’s estimate and the most valuable media brand in the world.

ESPN’s value is derived from the massive cash flow the company generates, which is expected to reach $4.5 billion this year, up 39% from five years ago. For comparisons sake, CBS Corp., the highest rated broadcast network, had operating income of $1.6 billion last year.

ESPN’s advantage over its network and cable brethren lies in the affiliate fee and ad revenue model that generates huge sums of cash. ESPN’s average monthly affiliate fee was $5.54 in 2013, according to SNL Kagan. The next highest national cable channel was TNT at $1.33, followed by Disney Channel at $1.15 and $1.13 for the NFL Network. ESPN2 is not far behind at $0.70 with ESPNews, ESPN Classic, ESPNU and ESPN Deportes each around $0.20 a month says SNL Kagan.

While battles over affiliate fees for regional sports networks rage in Houston and Los Angeles, ESPN quietly bumps its fees 5% or more year after year with must-see programming that cable distributors can’t possibly live without. ESPN has splashed billions on sports leagues and college conferences to get its hooks in the NFL, NBA, MLB, championship golf/tennis, college football/basketball and dozens of additional offerings. The result is an expected $6.3 billion from domestic affiliate fees this year that acts as a consistent, guaranteed revenue stream for Disney.

The story is even better on the advertising side. The U.S. economy has been sluggish the past five years as it recovers from the Great Recession, but ESPN ad revenues are up 63% to a projected $3.9 billion this year, according to Wunderlich. Total ESPN revenue, including ads, affiliate fees as well as ESPN.com, ESPN The Magazine and the international business, is expected to hit $11.2 billion this year.

It has been expensive for ESPN to corner the market on sports programming, particularly with new entrants like Fox Sports 1 and the rebranded NBC Sports Network looking to make a splash on the national stage. ESPN’s sports rights costs jumped from $2.8 billion in 2009 to $4.1 billion last year. But ESPN has locked up many of its deals through 2020, and the only major sports TV packages coming up for bid are Big Ten football and the NBA, which ESPN is expected to back up the brinks truck to secure. Despite the jump in programming costs, ESPN’s profit margins stayed high by keeping the lid on production and other costs. Operating margins hovered around 40% in recent years and Wunderlich expects them to stay there for the next five years at least.

Sports programming remains one of the best bets on TV for advertisers because it is viewed live and commercials are not skipped with the push of a button. A study on time-shifted viewing habits by Discovery Communications found that 94% of programming on sports channels is consumed live (it is even higher for live sporting events) compared to 70% on network television.

One of the biggest winners from ESPN’s remarkable rise is publishing giant Hearst, which owns 20% of the company (Disney owns the remaining 80%). Hearst’s traditional newspaper and magazine businesses have been hammered in recent years by stiff economic headwinds and the shift to digital formats, but the company reported record revenue and profits in 2013 on the back of ESPN’s success. One estimate had ESPN responsible for half of Hearst’s profits last year. For ESPN’s corporate owners, the network is the gift that keeps on giving.

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Update
10

7 weeks ago

RM47mil KWSG contributions still unclaimed

Jun 9 2014 7:54am CDT | Source: Business Times Malaysia

KUALA LUMPUR: About RM47 million of contributions in the Teachers Provident Fund (KWSG) still remain unclaimed, the Dewan ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
9

7 weeks ago

Gold shop lost almost RM1mil

Jun 9 2014 3:50am CDT | Source: Business Times Malaysia

KANGAR: A gold shop owner lost almost RM1 million after after the safe on in his shop was bro ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
8

7 weeks ago

Motion to debate MAS losses in Dewan Rakyat rejected

Jun 9 2014 3:39am CDT | Source: Business Times Malaysia

KUALA LUMPUR: AN emergency motion to debate the losses incurred by Malaysia Airlines last year, amounting to RM1.2 billion was rejected by the Dewan Ra ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
7

7 weeks ago

MH370 Tragedy: Hisham: RM27.6 mil spent on 1st phase of SAR

Jun 9 2014 2:11am CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia spent some RM27.6 million in its first phase of the search operations for missing Malaysia Airline flight MH370, said Acting Transport Mini ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
6

7 weeks ago

9.1m litres of diesel seized in a month

Jun 8 2014 1:11am CDT | Source: Business Times Malaysia

PUTRAJAYA: The Domestic Trade, Cooperatives, and Consumerism ministry has seized some 9.1 million litres of diesel and property worth RM58 million since mounting ‘Operasi Diesel Selatan’ in the sout ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
5

7 weeks ago

Girl, 9, awarded RM2.78m compensation for medical negligence

Jun 6 2014 4:56am CDT | Source: Business Times Malaysia

KUALA LUMPUR: A nine-year-old girl who suffered brain damage during her birth at a government hospital was awarded over RM2.78 million i ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
4

7 weeks ago

Malaysia's total trade in April up 12pc

Jun 5 2014 11:52pm CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia's total trade in April 2014 rose by 12 per cent from a year ago to RM123.86 billion due to growing trading activities, International Trade and Industry Minister ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
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3

7 weeks ago

Works Ministry to spend RM20m for upgrading works at 50 accident black spots

Jun 4 2014 11:35pm CDT | Source: Business Times Malaysia

JOHOR BARU: The Works Ministry will implement upgrading works at 50 accident prone locations in the country that have been identified this year involving an allocat ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
2

7 weeks ago

Najib launches loan scheme for Ramadan traders

Jun 4 2014 10:24pm CDT | Source: Business Times Malaysia

PUTRAJAYA: Prime Minister Datuk Seri Najib Razak today launches RM45 million Ramadan ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
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1

7 weeks ago

Residents bring up objection against Kidex to Suhakam

Jun 4 2014 4:49am CDT | Source: Business Times Malaysia

PETALING JAYA: A group of 20 Petaling Jaya residents held a meeting with the Human Rights Commission of Malaysia (Suhakam) over their objection against the proposed RM2.2 billion Kinrara Damansara Skyw ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 

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