The Locker Room
By Dan Callahan
We had talked about this very subject three times over the past two years. When does sports programming hit the wall? When does the money run out? When is the investment too much? It had been written about on a number of occasions, but I wondered just how many sports fans really believed it was going to happen. Well, last week it did. ESPN popped the bubble, hit the wall, and it was time to retreat.
You’ve heard about all the layoffs, now over 100 and there will be more, but in truth, people started leaving and retirements started over two years ago at ESPN. Estimates are there have been over 150 already leave ESPN, some you know about, some you noticed, and some you didn’t. It’s tough. I feel for those people that lost their jobs. Many of them had nothing to do with the reasons. Sometimes you can work hard, do a very good job, but you still bite the bullet because something happens at the corporate level.
This is going to be a tougher situation for those now gone from ESPN. You can already see former employees sprinkled across the sports dial on Fox, the MLB Network, NFL Network, and others. Leaving for more secure places has been going on for some time. Now those spots and expansions are pretty much gone.
ESPN has stated that the digital world created much of the reason for the major cutback, and there will be more. Funny how things go. ESPN was a big promoter of digital. However, that is not nearly the only reason for the downfall.
There was a time when ESPN was on every satellite and cable company basic package. ESPN commanded a ridiculous rate of $7.21 a month per subscriber compared to the NFL Network at $1.40, Fox Sports $1.15, TNT at $1.76. ESPN at its peak strength was pulling in an average of $7.56 billion in annual revenue from subscriber fees alone. That’s $7.56 billion per year!
Just five short years ago ESPN was in 100 million homes. That has fallen to 87 million, 13 million subscribers have said fare the well. Everybody doesn’t love sports like me, you, and so forth. Subscribers started putting pressure on satellite and cable companies to take ESPN off the basic package. Rather than continue to lose subscribers the satellite and cable people dropped ESPN from the basic package and made it a separate buy. You might compare it to a government law that forces you to pay for something you do not want or need, but somebody has to pay for others that need or want it, can’t or won’t pay for it, so you get the shaft. In the television industry, business doesn’t work that way.
Now ESPN started taking the hit, and not the satellite and cable companies. Suddenly the over-payment for media rights to programming by ESPN who was possessed to dominate became a huge factor. An example. ESPN paid two and half times more for the NBA package than any other network even bothered to bid. ESPN has paid more for just about everything then it needed to. We’re talking billions of dollars.
And then comes the programming changes, and no doubt, some of this comes from needing to cut back on cost, but how many argument shows can you have? Two guys set down, pick out a subject, and start hollering. That stuff gets old. Then you get all the “expert” shows, and hours upon hours of people telling you what you just watched. I know what I saw. The programming got old, stale. Then came way too many political statements. That hurt too.
Linda Cohn, one of the first female studio hosts, and one of the longest running employees at ESPN said this week that no question, the political stances taken by some on air people did damage. “That’s definitely a percentage of the problem,” said Cohn. “How much, is hard to say, but some of the political stances concerning social behavior contributed to the problems. I don’t know how big a percentage it played, but if anyone wants to ignore that fact, they’re blind. It was without question, a factor.”
The layoffs aren’t going to save ESPN. The cutbacks are not even close to being over, and the ramifications are going to be considerable across the world of sports down the road. As soon as contracts expire, the bidding process begins anew for all pro and college sports. Obviously, ESPN will be bidding far less. That’s what you do when the option is closing the doors.
Does this mean that some other networks will come swooping in and take some of the programming away from ESPN? Maybe. Does this mean some other networks will outbid ESPN? Probably. But that doesn’t mean it will be as much. The other networks aren’t blind. They may well win some of the programming, but the bidding wars of the past are likely over. So that means there’s less money. Also, you learn from your mistakes, or in this case, somebody else’s mistake. So who takes the hit?
Let’s look back in time. Remember when all the conference raiding was going on and people wanted to expand to increase the “footprint” and the “television market.” Guess what, that’s not going to matter as much. For instance, the Atlantic Coast Conference stretching all the way from Miami to Boston looks even more disjointed today. The market doesn’t matter if there is no big payola.
How many times have you seen it in life, and how many more times will it happen. Sometimes it seems like people pay little attention to history. Conference expansion was inviting because of money. Money was falling from the sky like rain. Move, move, move, expand, expand, expand. Take advantage and we’ll be bigger and better, and we’ll be on TV. Well, everybody is on TV, and this is just another of those examples, then when all the cards get flipped on the table, and the end result is determined, most of the time you wish you had just left things alone. Sometimes good enough is good enough. Now conferences have ridiculous borders, great rivalries have been lost, and for what? A bigger football print and television viewing numbers that are about to matter a helluva lot less.
Jim Delaney, commissioner of the Big 10 is likely the smartest commissioner in college sport, or the luckiest. Maybe both. Financial people involved in the industry estimate that in the future ESPN will likely bid no more than 70 cents on the dollar compared to its present contracts. How big a cut is that? Just ask Virginia Tech the difference in revenue when a 55,000 home crowd suddenly falls to 38,000.
The Big 10 just three months ago locked up all its television network packages for the next seven years. By the way, the two richest football programs in the nation are both in the Big 10. Over the past two years Michigan has averaged $97.1 million in revenues, Ohio State $86.6 million. Obviously that may not matter for the next seven years, but there will be preparations for the cutbacks coming down the road. How much of Michigan’s $97.1 million is television contracts? I don’t know, but minus 30 cents on the dollar will have significant impact on that aspect of it. It might mean no more spring trips to Italy.
But the ACC, SEC, Pac 12, Big 12, real soon, and in seven years the Big 10, are going to be receiving considerably less television money. How big an impact will this have? Why do you think ESPN advised the Big 12 against expansion? Why did ESPN refuse to sign a Big 12 contract? Those answers are obvious now.
I suspect in the coming months, there will be lots of media interviews with athletic directors, and I suspect the NBA is concerned, and so are a lot of sports that got money, but not much viewership. Politically correct programming is likely going to take a hit. If you can’t make a buck, best not spend a buck. Things are going to change, maybe a bit less programming which really, might not be such a bad thing. ESPN was also too lavish in its salary structure, and there will not only be fewer people on the payroll, but many that stay, will stay for less.
Just when you think you’re about to rule the world, you find out you don’t. Usually that’s because the people decide to speak. For the most part, that’s what happened at ESPN. Nobody calls all the shots, nobody dictates, but the people. ESPN for a variety of reasons lost the support of too many “American” families.
I asked the question numerous times over the past two or three years. When is sports programming going to burst the bubble? When will the money run out? Just how much will the people pay? ESPN just hit the wall.