Why hugely profitable ESPN is laying off workers

The cost of sports programming is soaring, making Disney's cash cow a little less beefy.

By Jonathan Berr May 21, 2013 2:20PM
File photo of an ESPN banner during a game at Floyd Stadium on October 5, 2010 in Murfreesboro, Tennessee (© Joe Robbins/Getty Images)Walt Disney's (DIS) ESPN, long considered a cash cow for the media giant, is laying off hundreds of workers as it faces escalating costs for sports programming and increased complaints about the fees it charges.

A tipster to Deadspin pegs the job cuts at about 400. The network acknowledged "difficult" changes across the company Tuesday but would not confirm any specific layoff numbers. This is the first staff reduction at the channel since 2009, according to the blog.

Like its broadcast counterparts, ESPN has been socked with skyrocketing costs for sports programming. Last year,  the channel, along with News Corp.'s (NWS) Fox and Time Warner's (TWX) TBS, spent $12.4 billion for the broadcast rights for Major League Baseball from 2014 to 2021, an agreement that will double MLB's annual payout. In 2011, ESPN signed a $15 billion deal with the NFL for "Monday Night Football" that goes through 2021. The deal equals $1.9 billion a year, a 73% increase over the old contract.

For Disney, ESPN is the gift that keeps on giving. In the most recent quarter, Disney's Media Networks business, which includes the sports channel, earned $1.72 billion in operating income on $3.45 billion in revenue. The network charges cable and satellite operators $5 per household per month, the most of any channel. TV providers have grumbled about the fees for years, which ESPN has justified with ratings that continually rank at or near the top. Sports also are attractive to advertisers, since they are still watched live and continue to draw huge audiences.

ESPN is facing increased competition from CBS (CBS) and Comcast's (CMCSA) NBC, which have their own sports networks, and Fox, which is planning to launch one. There are also calls from Sen. John McCain, R-Ariz., to allow consumers to buy only the cable channels they want instead of being able to buy only tiers of channels.

Higher costs, rising competition and changing market conditions prove that the "worldwide leader in sports" has a tough road ahead as people who aren't sports fans wonder why they should be charged for ESPN.

Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter @jdberr

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254Comments
May 21, 2013 2:52PM
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They should start first with laying off all the overpaid folks like Stephen A. Smith and Skip Bayless. These guys along with most of their sport reporters, they have not a clue about Sports. They are actually an insult to sports. These guys praise guys they like and never let up on those that they don't. They think they are bigger then the GAME and make things way too personal. They aren't bigger than the game and they should stop acting like they understand the psyche of players. It's a shame that All the great sport reporters have died off or retired.

TV Sports reporting has gotten so bad, it's better to cut the sound off on your set as opposed to hear what these guys say. ESPN Radio is only good for updates. How can all you do is sports yet they know little to nothing about sports. I loved the time Mark Cuban came on First Take and literally blasted Steve and Skip into submission. They were clearly out of their league and know very little about sports. Mark reminded them of that fact.
May 21, 2013 2:36PM
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I stopped watching ESPN's programming, outside of the broadcast of events, a long time ago.  Ever since they were acquired by Disney, their programming went down hill.  When I was in college, I'd watch the same episode of SportsCenter (the previous night's West coast edition) from 9 am until class.  I haven't watched SportsCenter in probably 6 years.  It used to be funny, now it's like watching a cable news show...they beat the same topic into the ground over and over.
May 21, 2013 3:01PM
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first person that NEEDS to be fired: Skip Bayless

May 21, 2013 2:57PM
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Last hired, first fired.  Send Ray Lewis packing.  I am not looking forward to his loud mouth.
May 21, 2013 3:04PM
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Used to watch Sportscenter all the time, now I would rather watch reruns of Gilligans Isle. It has the journaliism standards of People magazine and panders to certain sports figures. If Stephen A Smith is the best they can do as an analyst they may want to use some of the characters from the Magic Kingdom.

May 21, 2013 3:23PM
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Please get rid of:

Skip Bayless

Screamin' A Smith

Chris Berman

Stuart Scott

May 21, 2013 2:58PM
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Could probably avoid these layoffs if they weren't paying theirs execs millions of dollars in bonuses every year!!!
 
May 21, 2013 2:43PM
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After Berman, how about Stephen A Smith?
May 21, 2013 3:30PM
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S.A.S. would only cry "racism" if he was laid off.

He is a fool and a loudmouth and his damn forehead gets bigger and bigger every year........hahaha

May 21, 2013 3:34PM
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Stopped watching ESPN a long time ago, got tired of their Hosts/Anchors/Announcers being so full of their own opinion, they suck........
May 21, 2013 3:26PM
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All these networks now feel that their show is more important than the event they are covering. Real sports fans don't need everything explained as if they have never seen the game before. It would be nice if they minimized the talk and let the game speak for itself.  In addition, they continue to cut away at key moments of games to show members of the audience and then miss a key piece of action. Quit trying to be Commedy Central and get back to your roots 
May 21, 2013 3:31PM
May 21, 2013 3:38PM
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who watches ESPN anymore?? sportscenter is a show designed to make humor out of a sporting event, the odd basketball game, the odd baseball contest, thats it....whos watching cheerleading championships, and 9 ball ?? poker lost its lust, and if you want sports information, you watch baseball channel to get baseball news, NHL network to get hockey news, soccer channel to get that info and NFL channel for the best highlights in that sport. ESPN killed itself beginning with Dan Partrick and Kieth Oberman clowning around every night, then the onslaught of black announcers trying to make ebonics the sporting worlds premier language...ESPN is dead
May 21, 2013 3:16PM
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Don't forget about their parent company......Disney. Need I say more? How can THE major sports network screw up MNF? What a bunch of losers. If it can be screwed up......leave it to Disney. George Lucas will rue the day he sold his beloved franchise to these hucksters. ESPN has been going down hill since it's purchase along with ABC.
May 21, 2013 2:33PM
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Who cares Dan Patrick is better anyway.
May 21, 2013 3:00PM
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I will however give them props for shows like 30 for 30 highlighting the Draft. Elway to Marino. That was good stuff. IMHO.
May 21, 2013 2:29PM
May 21, 2013 3:34PM
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They are being laid off so Lumberg's stock goes up a quarter of a point.
May 21, 2013 3:35PM
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"Skyrocketing costs" are not outlined in the article.  Perhaps it is NOT the employees who are a part of that, since all we see on the street is wage shrinkage back to the early 1990's levels.  Obviously, cost-cutting is not being analyzed very well at ESPN.

 

We can only assume that the other networks are outbidding ESPN for rights to programming.  Yes, the schools and other sellers will get their money for awhile...  then the networks will start dropping off like flies.  No bailouts, please!

 

Our speculative economy is driven by tax breaks and who's getting out of paying what, and it's the death of us.  We're stuck in a cycle of monopolism/bust, with no end in sight.  I don't think the networks are going to survive very well, dump the stocks while you can!

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