The slow-motion implosion of Walt Disney Co (NYSE:DIS) television arm ESPN is a well-documented saga. Once the company’s flagship platform and breadwinner, the advent of streaming services and the rise of all sorts of digital diversions has turned the sports network into the bane of Walt Disney stock.
On the other hand, this is Disney, and nothing lasts forever. The planned launch of a stand-alone, streaming-video sports service looks — on the surface anyway — like it could stop the bleeding ESPN is causing. And, if nothing else, the cord-cutting movement that’s making a bad problem worse for ESPN has to slow down sometime, right?
Maybe, but it’s what’s happening “in the meantime” that should terrify current and prospective owners of DIS stock. Indeed, a handful of recent red flags underscore what a mess the sports channel is, and suggests Disney isn’t just struggling to salvage ESPN, but is downright desperate.
That desperation (coupled with a dose of indecision) is a red flag in and of itself.
3 Things That Hint at Trouble Ahead for ESPN
Most investors may not realize it, but television drives more revenue for Walt Disney than movies and theme parks do, and within the TV arm, ESPN is the biggest rainmaker. That’s why the demise of ESPN has proven so problematic from time to time for Walt Disney stock.
If you think CEO Bob Iger has a firm grip on the sports-programming venue though, think again. If anything, it’s slipping away. Three recent examples point to the growing degree of chaos at ESPN.
1. Barstool Van Talk Cancelled After One Episode
Were it any other media company, it might not be surprising. This is Disney, however, where its top brass are experienced veterans, and where the bar for getting anything on the air is set very high to begin with … or was, anyway. Now, that high standard may not apply all the time.
A late-night ESPN show called Barstook Van Talk — in partnership with sports website Barstool — was cancelled just after it aired once. As it turns out, the website said some rather crass and off-color things about ESPN personality Samantha Ponder, and the backlash was palpable.
Generally speaking, Disney would be expected to do more vetting, not letting such controversies pop up in the first place.
2. Disney’s Theme Parks Are Injecting Sports Into the Experience
As anyone who’s ever visited one of Disney’s theme parks or resorts knows, they’re a meticulous effort to completely remove guests from the real world and engulf them in a Disney bubble. For example, it’s an ironclad rule that employees can’t point their finger or use the words “I don’t know” as part of maintaining the magical, escapist illusion.
Now, Disney’s parks — at least one of them — is moving in the other direction. The Disney Springs shopping complex in Florida shut down (and demolished) its DisneyQuest arcade to make room for a new attraction called The NBA Experience. The move is essentially Disney doubling down on professional sports, ultimately hoping to revive guests’ and consumers’ interest in a pastime that could help ESPN and Disney’s ABC.
The shift is also very un-Disney-like, though, and anything but the fantasy Walt Disney envisioned years ago.
3. Another Round of Layoffs Is Looming
At this point, reports that ESPN is culling employees is nothing new. What is new, and alarming, is that ESPN is starting to give more and more of its biggest and best TV personalities the boot; not even names like Trent Dilfer and Jayson Stark were immune. The buzz is, more of the same job cuts are on the way the last couple months of the year, with no name being immune to being laid off no matter how recognizable the personality is.
Spending money intelligently and acting in a cost-conscious manner is one thing, but in light of the ongoing spate of pink slips Disney is still passing out, clearly management feels like it remains on the defensive rather sees itself as on the mend.
Bottom Line for Walt Disney Stock
Don’t read too much into the message. Walt Disney still makes incredible movies and its theme parks and resorts are still top notch. Even a back-pedaling ESPN is still generating positive cash flow.
On the flipside, that cash ESPN is adding to the bottom line is shrinking at what feels like an accelerating pace. As long as that’s the case, investors are apt to view Walt Disney stock more as a liability and less as an asset. Perception is everything.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter.
