ESPN held talks with NBA, NFL and MLB in search for strategic partner, sources say

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LeBron James of the Los Angeles Lakers in a game against the LA Clippers at ESPN Wide World of Sports Complex on July 30, 2020 in Lake Buena Vista, Florida.

Mike Ehrman | Getty Images

As disney According to people familiar with the matter, ESPN CEO Bob Iger and ESPN head Jimmy Pitaro have been in early talks about bringing professional sports leagues, including the National Football League, the National Basketball Association and Major League Baseball, as minority investors.

The people said ESPN is in preliminary discussions with the NFL, NBA and MLB about various new partnerships and investment structures. “We have a longstanding relationship with Disney and we look forward to continuing discussions about the future of our partnership,” an NBA spokesperson said in a statement.

Spokespeople for ESPN, the NFL and MLB declined to comment.

The talks with the NFL have been in conjunction with the league’s own desire to take a company stake in its media assets, including NFL Network, and RedZone, said the people, who asked not to be named because the talks have been private.

The people said the NBA and Disney have discussed several possible structures around the renewal of media rights. Disney and warner bros discovery Has exclusive negotiating rights with the NBA until next year.

Iger said last week In an interview with CNBC’s David Faber, he said that Disney ESPN is looking for a strategic partner as it prepares to transition the sports network to streaming. He didn’t elaborate on what exactly that meant, except that a partner could bring additional value with distribution or content. He acknowledged that it is possible to sell a stake in the business.

Disney owns 80% of ESPN. Hearst owns the other 20%.

Iger told Faber, “We have a very unique position in the sport and we want to stay in that business.” “We will be keeping an open mind on looking for strategic partners that can help us with distribution or content. I won’t go into too many details, but we are excited about sports as a media property.”

In theory, a jointly owned subscription streaming service between multiple leagues could eventually give consumers new packages of games and other innovative ways to consume content.

The move would be logical for Disney as it seeks to move beyond the traditional cable subscriber model and underscores how badly the company wants to find a solution for the sports network as its linear subscribers decline. Nevertheless, ESPN ratings on major sporting events have increased in recent years., There’s no better partner for sports content than the league.

Superficially, this matters less for the NBA, NFL and MLB who sign lucrative media rights deals with multiple media partners that boost team revenue and players’ salaries with multiple media companies.

Professional sports leagues could face a conflict of interest if they took a minority stake in ESPN. Holding a stake in ESPN could put Disney’s competitors at risk, such as Comcastnbcuniversal, fox, Amazon, Paramount Global And Apple, Those who help the league make billions of dollars by participating in bidding wars for playing rights. Taking an ownership stake in ESPN may give leagues an incentive to increase the value of that entity rather than strike deals with competitors.

There will be hurdles for Disney, too. ESPN also employs hundreds of reporters who cover the major sports leagues. Selling ownership stakes to leagues could tarnish the perception of the fairness of ESPN’s reporting system.

Nevertheless, the league already has business partners with ESPN. It’s possible ESPN could take measures to ensure reporters can continue covering the league while minimizing conflicts, but that adds another layer of complexity to any deal.

A Streaming-First ESPN

ESPN is trying to forge a new path as a digital-first, streaming entity. Disney realized that ESPN would not be able to make as much money as the traditional TV model had previously.

Selling a minority stake in ESPN to the leagues could reduce future rights payments, allowing Disney to better compete with the larger balance sheets of Apple, Google and Amazon. It will also guarantee ESPN a continuous flow of premium content from the leagues.

As of last quarter, Disney’s bundle of linear TV networks still had revenue growth as increased affiliate fees for pay-TV providers — primarily driven by ESPN — made up for the millions of Americans who cancel cable each year. That trend finally came to an end last quarter, according to people familiar with the matter. Fee hikes have now resulted in steep cancellations due to rapid cancellations, and linear TV revenue outside of advertising has begun to decline.

“Much has been said about renting [sports right] Versus owning,” Iger said in his CNBC interview last week. “If you can rent it and remain profitable from renting, which we have been and we believe we will continue to be, then there’s value in being in it. We have great relationships with Major League Baseball, and the National Hockey League, and various college conferences, and of course the NFL and the NBA. It’s not just about live sports coverage of those leagues, those teams, it’s also about all the over the shoulder programming that’s offered on ESPN and what you can do with it in the streaming world.”

ESPN would like to transform itself into the streaming hub for all live sports. Management is looking to launch a feature that would allow or the ESPN app to funnel users to games no matter where they stream, CNBC Reported earlier this year.

Although striking a deal with professional sports leagues won’t be easy, it appears that Disney is stepping up its thinking to prepare for a streaming-dominated world that includes a full portfolio of sports rights.

“If [a partner] Come to the table with value, whether it’s content value, distribution value, whether it’s capital, whether it helps protect the business from risk — that won’t be the primary driver — but if they come to the table with value that enables ESPN to transition to a direct-to-consumer offering, then we’ll be very open-minded about it,” Iger said.

WATCH: Disney CEO Bob Iger talks to CNBC’s David Faber about ESPN and its future

Disney CEO Bob Iger on ESPN: Excited about sports but ready to find a new strategic partner