Is The Professional Sports Bubble About To Burst?

May 2, 2017

You know that sound effect often used to signal a dramatic realization?

The one that goes Dun-dun-dunnnnn?

Perhaps it should be replaced with ESPN’s trademark Da-da-da, da-da-da jingle following a massive round of layoffs last week including many longtime on-air personalities.

I’m no media analyst, and I couldn’t run fast enough from a math course in college, but something’s in the wind. When a property like ESPN needs to swing the axe, it means trouble’s ahead.

And make no mistake, for the professional sports industry, this news should be considered more a signal than noise. Consider:

  • ESPN has seen a 12 percent decrease in subscribers over the past six years, according to Business Insider (March 1, 2017). That’s significant for cable’s most expensive channel, which takes in $7.21 per subscriber per month. Rough math, that’s an annual net loss of $1 billion in subscriber fees compared to six years ago (not adjusted for inflation).
  • The network is paying more than ever to broadcast the major professional sports leagues. Annually, it is shelling out $1.9 billion for National Football League rights, $700 million for Major League Baseball and $485 million for the National Basketball Association. That’s $3 billion annually. That doesn’t even include the $470 million it pays annual to air the college football playoffs.
  • Earlier this year, ESPN reported declining ad sales and missed revenue estimates by two percent, according to Fortune (Feb. 7, 2017).

Broadcast rights — not ticket sales, not concessions, not licensing and apparel, not corporate sponsorships — are the true lifeblood for pro sports. So what does it mean for the enterprise if the so-called “Worldwide Leader in Sports” is losing subscribers and ad revenue while paying more than ever for broadcast rights?

It means the business model has come to mimic the housing market that led to the Great Recession. Think about it:

Professional sports leagues are the overvalued houses.

Broadcast rights are the adjustable-rate mortgages.

ESPN is the feckless borrower.

And cable subscribers? I suppose we’re the investment bankers. Once willing to pay $150 per month for cable — and here’s where the analogy breaks down — we have begun to self-regulate, and we’re no longer willing to take on the cost of broadcast mega-deals. Sadly, ESPN assumed we were too big to bail.

I can’t recall professional sports ever seeming more vulnerable. At a time when franchises are being sold for more than $2 billion, taxpayers are funding billion-dollar stadiums and stars can command $43 million per year (get that money, Russ), it seems more than troublesome that one of the industry’s great institutions is resorting to layoffs to make ends meet.

Da-da-da, da-da-da, indeed.