Steven Godfrey: ESPN could become ‘clearinghouse’ that sublets sports rights to streamers

Photo by Phil Ellsworth / ESPN Images

The future of ESPN’s business model is firmly up in the air as the company continues to fight the headwinds of cord-cutting.

In recent years, we’ve seen the network become more selective in its bidding on sports rights, undergo layoffs, and drive hard bargains during distribution negotiations, all in an effort to elongate the viability of the current model, which relies heavily on the pay-TV bundle. ESPN has also recently launched its direct-to-consumer service, ESPN Unlimited, in hopes of capturing consumers who remain outside the bundle and leveragingthe service in future distribution negotiations by placing exclusive content on its platform.

Even with all of those moves, ESPN is fighting an uphill battle. Most believe the economics of the cable bundle will never be replicated, at least to the level that made ESPN and its peers the envy of quarterly media earnings calls up until the mid 2010s, when cord-cutting began in earnest. That reality has led many to speculate ESPN could be ripe for a spinoff from Disney as the parent company looks to focus on growth properties like parks and cruises. While a spinoff isn’t in the cards at this very moment, questions about ESPN’s future remain as pertinent as ever.

And one veteran sportswriter believes there’s an avenue ESPN could explore to reform its business model for a future in which streaming giants encroach on sports rights.

Steven Godfrey, a veteran college football columnist, floated the idea on a recent episode of Yahoo’s College Football Enquirer podcast that ESPN could become a “clearinghouse” of sorts, sublicensing content to other platforms.

“One of the ways ESPN and/or Disney, if Disney does not spin off and sell ESPN, creates a new profit stream as cable dies out is by sublicensing content and becoming, basically, its own clearinghouse,” Godfrey posited.

“It becomes the middleman,” his colleague Andy Staples said.

“Yes. Imagine other content providers, services, streamers, whatever you want to call it, rather than dealing directly with the actual source, ESPN essentially becomes a kind of waystation, or a middleman, as Andy has said,” Godfrey agreed.

It’s an interesting theory, and one that’s worthy of consideration. ESPN has a long-established history with almost every league and entity in sports that sells media rights. One of the network’s core competencies is negotiating media rights deals. There’s reason to believe ESPN is more adept in this department than newcomers to the space.

Further, streamers have, at least for the most part, not been interested in buying sports rights wholesale. Netflix enjoys having a Christmas Day NFL doubleheader, but it doesn’t want to produce six or seven games on a Sunday afternoon, as Fox and CBS do. Similarly, Amazon has been quite selective about what sports it puts on Prime Video. The NFL in the United States, the English Premier League, the NHL in Canada, and cricket in Australia. Most recently, it agreed to a three-game package of Duke men’s basketball games.

Streamers want the best of the best, not your run-of-the-mill regular-season game.

That’s where ESPN, as an arms dealer of sorts, comes in. ESPN can buy packages wholesale, then sublicense some of the best games to other platforms at a premium. It has already done a similar deal for the College Football Playoff, sublicensing games to TNT Sports.

The idea of ESPN sublicensing some of its live sports inventory is nothing new, but it often involves less desirable inventory, like third-tier ACC football and basketball games, which it offloads to The CW. This is different. This is about offering premium inventory and a level of flexibility to high-paying streamers that isn’t possible in a standard media rights contract.

Now, there are plenty of reasons to be skeptical of this possibility. For one, it’s possible that deep-pocketed streamers will eventually be interested in broader sports-rights packages, pushing ESPN out of the wholesale market. And two, the market for sublicensing games might not be all that large, limiting potential earnings.

That said, there’s no reason ESPN can’t dabble in this world, especially as margins continue to slim. Whether it could ever become a meaningful part of the network’s overall business, however, remains to be seen.

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