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Walt Disney Co (DIS): Should ESPN Drop MNF?

Bernstein researchers explore why ESPN and Disney stock might be better off without airing live NFL

   

Bernstein analysts are leaving for the weekend with a note out exploring whether Walt Disney Co (NYSE:DIS) should ditch Monday Night Football. Content costs have been one of the biggest weights on ESPN — which itself has been one of the largest weights around the neck of Disney’s operations and DIS stock — making the large NFL contract a noteworthy candidate for the chopping block.

The Walt Disney Company
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ESPN currently has a $1.9 billion-per-year deal to produce Monday Night Football that expires in 2021. Bernstein estimates that NBC pays about half that for Sunday Night Football, which often delivers better ratings. Meanwhile, Twenty-First Century Fox Inc (NASDAQ:FOXA) and CBS Corporation (NYSE:CBS) “both pay annual rights fees similar to NBC for their Sunday afternoon packages (and their turn in the Super Bowl rotation).”

One option would be to drop Monday Night Football outright. Bernstein says the roughly $2 billion per year in savings would result in a 50% jump in operating income. And while it wouldn’t be a good look for ESPN to not televise any NFL games anymore, that isn’t to say that ESPN would have to discontinue any NFL programming anymore.

“ESPN could still cover the NFL, to their heart’s content,” the researchers said. “It’s not like the presence of the NFL would disappear from ESPN. Just seventeen Monday night games would. The more we think about it, the more it seems to us that Disney shareholders would be much better served by ESPN dropping MNF, re-investing some of the savings in other rights, and taking the rest to the bottom line.”

They also posit that Disney could simply try to bid for Sunday Night Football, which would be a more attractive offering and lower costs. The NFL would be stuck holding the check for Monday Night Football, though it could still end up re-upping with NBC, presenting ESPN with a take-it-or-leave-it offer on MNF.

Bernstein’s conclusion on DIS stock?

“Especially to the extent ESPN drives pricing hard on its flagship network in the next renewal cycle. It seems to us the harder they drive that pricing, the more something has to give either on these sister networks or on the minimum thresholds — putting at risk $1bn of affiliate fees, and accelerated adoption of non-sports cable bundles. Just one more reason for ESPN to consider dropping MNF and saving $2bn.”

As of this writing, Robert Martin did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, http://investorplace.com/2017/05/walt-disney-co-dis-should-espn-drop-mnf/.

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