ESPN Budget Problems Are Hampering Owner Disney

ESPN to axe several on-air personalities

Analysts are warning that Disney’s stock may run flat this year, not because it is doing so badly but because one of its properties, ESPN, has become a major drag on the entertainment giant’s budget.

This is the conclusion of Jefferies analyst John Janedis who sent the warning to clients on Monday saying he was raising Disney’s stock price target up from $100 to $110, but that price makes Disney fully funded.

Janedis thinks Disney’s trouble is with ESPN. On one hand, he feels advertising will slow for the foreseeable future. But, even more troublesome for the network’s owner are the fees and sports rights Disney has to pay to broadcast games on its sports cable network.

“The 2017 NBA rights deal alone cost ESPN $1.1 billion, double from the year before,” reports. “That’s $600 million less on the balance sheet as a result of that one deal alone. Rights deals like the NBA account for roughly halve of ESPN’s costs.”

One bright spot, according to Janedis, are the major budget cuts ESPN is posed to implement. For several weeks now, rumors have persisted that the network is on the verge of mass layoffs, especially on-air talent. The layoffs are expected to save the network tens of millions of dollars in salaries.

Still, Janedis warns that the network will have to cut a whopping $160 million to get back in line:

We believe ESPN will need to cut ~$160M in costs to manage to 8% programming and production expense growth. With the sports rights locked in, the largest opportunity ESPN has to cut costs is headcount. Recent press reports suggest that ESPN will cut from its on-air personalities (among other areas) over the next several months. The upcoming potential round of layoffs follows a prior round of that took place in October 2015. As a reminder, at that time ESPN laid off about 300 employees, or about 4% of its workforce, mostly non audience facing positions.

Last month it was reported that ESPN is losing as many as 10,000 subscribers a month, many because they are tired of the network’s left-wing politics. The massive drop off is causing further strain to the network.

With the impact of the flailing sports network, Disney’s revenue fell 3 percent, and its profits sank 14 percent in February.

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