Daniel Loeb vs Disney
Plus, China’s grand football plan is in trouble, Tiger Woods swings back at Saudi golf, and much more
Having scored a couple of goals in my midweek game of football, I had a thought to ring a couple of agents to find myself a club before the close of the transfer window on Thursday. After all, English Premier League clubs have already broken their gross spend record, with a minimum of £1.5bn already committed to buying players, according to Deloitte’s Sports Business Group.
It raises the question of whether clubs are spending lavishly without giving any thought to the return on investment. Agents are quick to point out that plenty of players are failing to live up to the fee.
Perhaps this summer of transfer madness will be the subject of an eventual ESPN documentary . . . The question is whether it’ll still be part of Disney once activist investor Daniel Loeb is done. That corporate battle has big implications for sport, as you’ll find out below. Further on, we have a special dispatch from FT South China correspondent Primrose Riordan on the crisis in Chinese football. Do read on — Samuel Agini, sports business reporter
Once again, it’s Dan versus Disney.
Earlier this month, the activist investor Daniel Loeb took a $1bn stake in the entertainment conglomerate, according to a person familiar with the investment, reinvesting in Disney for the second time in as many years but now pushing for stark changes at the company. They include a shake-up of the board and cost-cutting throughout the business, as well as a potential spin-off of the company’s cable sports network ESPN.
It’s a topic that has percolated throughout Disney, and within the sports world at large, for some time. On the surface, the maths are tempting: Disney’s linear television networks yield margins of 30 per cent with operating profit of $8.4bn last year. ESPN has rights to nearly all of the top sporting events in the US, from the National Football League to the National Basketball Association to Major League Baseball to the college American football playoffs, golf, and more. Viewers are increasingly following ESPN’s sports content from its linear cable channel to its streaming product, ESPN+.
It’s for these reasons that Loeb’s Third Point believes ESPN could be an enticing standalone business. Doing so could help alleviate Disney’s $46bn debt pile. Shares have fallen 25 per cent so far this year, in part because of the increasingly competitive market for streaming which has forced Disney and competitors like Warner Bros Discovery and Netflix to rethink their approach.
But within the sports world, simply spinning off ESPN is a thorny proposition. Its value is intrinsically tied to the volume of sports rights it holds, and in recent years, leagues have held all the leverage in negotiating substantially more valuable broadcast rights agreements. In the past two years alone, US rights packages for the NFL and the Uefa Champions League have more than doubled in value. Rights for Major League Soccer and Indian Premier League have fetched record sums, while enlisting emerging media partners like Apple and, in the IPL’s case, selling streaming privileges to a start-up joint venture over incumbent Disney.
Media analysts MoffettNathan wrote it seems “financially dangerous” to divest ESPN, in part because consumer cord-cutting continues apace. Another external factor is the ongoing shake-up in US college sports: realignment of popular football- and basketball-playing universities into new conferences has led to the renegotiation of broadcast rights, as the new Big Ten deal, inked last week with CBS, Comcast’s NBC and Fox and worth $7.5bn over seven years, shows.
Loeb, for his part, has long been known as a particularly shrewd activist. In a 2013 campaign against Sotheby’s, Loeb wrote that the auction house was akin to “an old master painting in desperate need of restoration”. His tactics thus far with Disney have been softer in tone: praising the company’s trajectory and emphasising Third Point’s “confidence” in the business as the reason for his investment. Disney pushed back against Loeb’s prompt for a board refresh but said it welcomes “the views of all our investors”.