After spending nearly two decades in upper management at ESPN, Laura Gentile is acutely aware of the advantages conferred to a company by attaining first-mover status.
But while other networks have raced into sports betting since the U.S. Supreme Court’s historic PASPA ruling, the Worldwide Leader In Sports has preferred to slow-roll its hand. Now, as reports circulate of ESPN’s discussions with a prominent sportsbook, the media giant is prepared to go all in.
“I think this is an example where we were well-suited to play it this way,” said Gentile, who serves as executive vice president of commercial marketing for the Disney Networks and ESPN. “It is crystal clear that there’s enough demand for sports betting and it’s time to move.”
Gentile made the comments Wednesday at the second annual ESPN Edge technology conference. The virtual panel, titled “ESPN Sports Betting & Fantasy: We Like Our Hand,” focused on the network’s expansion of sports betting content at a time when parent company Disney has signaled that it’s ready to move into the industry. The panel did not address recent reports that ESPN is nearing a deal with DraftKings to license its sports betting brand to the Boston-headquartered company.
“Sports betting conversations for us are ongoing,” said Mike Morrison, ESPN’s vice president of sports betting and fantasy. “We have a lot of partners in the industry that we’ve worked very closely with. We’re continuing to explore ways to work further with both our existing and potential new partners.”
At the moment, ESPN already has a marketing partnership with DraftKings and an odds integration deal with Caesars Sportsbook. Disney, the parent company of ESPN, has a minority ownership stake in DraftKings, but it owns less than 5% of the company.
All-in on sports betting
The panel opened with a glitzy two-minute presentation, with network personalities Mike Greenberg, Sage Steele, Steve Levy, and Mina Kimes uttering the phrase, “ESPN is all in.”
The showcase included a clip of a mythical, $100, eight-team college football parlay from host Scott Van Pelt that would have paid $17,545 in real money. Another clip on Sunday Night Countdown Presented by DraftKings featured a pre-game prediction on Atlanta Braves outfielder Ronald Acuna Jr. to hit the over on a prop of 5.5 hits, runs, and RBIs combined in a prime-time game later that night.
With a graphic of the prop on the bottom of the screen, announcer Karl Ravech informed viewers that Acuna scored at a 48% clip each time he appeared on base, above the MLB league average of 31%.
“If DraftKings and ESPN can come up with unique and original opportunities to marry the brands and fan viewing experience, there is no better partnership to change the way sports betting industry and media coexist,” BallStreet Trading CEO Scott San Emeterio told Sports Handle.
A report from Bloomberg on Oct. 6 that DraftKings was moving closer to landing an exclusive partnership with ESPN sent shares in DraftKings surging, as the company jumped 8% to $17.45 in pre-trading hours the following morning. DraftKings has since retreated over the last two weeks, falling as much as 25% to $12.44 a share, its lowest level since July.
Polling data in California that indicates two sports betting ballot measures will likely fail next month ostensibly has had an impact. But some institutional investors appear equally concerned with the structure of the potential deal. As of June 30, DraftKings had $1.5 billion in cash and cash equivalents, the company disclosed in an SEC filing, down roughly half from the same period a year earlier. When ESPN signaled intentions to license its sports betting brand in August 2021, the network reportedly sought a minimum of $3 billion, as well as a possible revenue-sharing deal with a sportsbook.
Since then, market dynamics have changed, with top gaming stocks down considerably from peak levels last year. The correction is in line with broader markets, which have slumped more than 25% as the Federal Reserve continues to raise interest rates in attempts to lower inflation.
What a DraftKings-ESPN Tie-Up Will Mean for Investors https://t.co/tHUANG8TIz
— Ty (@TypbSD) October 19, 2022
“It is extremely unlikely this deal would fetch anything close to the $3 billion figure that was floated last year,” Sharp Alpha Advisors founder Lloyd Danzig told Sports Handle.
Intense speculation about ESPN’s partnership with a sportsbook has raised questions about how a revenue-sharing deal could be designed. Most likely, any deal would be structured to contain guaranteed cash payments to Disney, as well as milestone-driven incentives to be earned, Danzig explained. One component of a five-year deal between PointsBet and NBC Universal involved the exchange of variable payments, where NBC received fees from PointsBet for the number of customers it referred to the sportsbook operator.
One hurdle is that comprehensive deals between sportsbooks and major media networks have been relatively sparse. While there have been numerous marketing deals and odds integrations over the last four years, the PointsBet partnership represents one of the rare deals where a media conglomerate received an equity stake in a sportsbook. NBC received a 4.99% stake in PointsBet under the deal, with the option of purchasing an additional 20% after five years.
There are signs, however, that more partnerships are on the horizon. Last week, reports surfaced that Fox and News Corp. are considering a merger in a reunion of two companies that split in 2013. A new sports betting division may combine News Corp.’s Foxtel, an Australian pay television company, with the sports betting operations from FOX Bet, sources told Axios.
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— Patrick Brennan – Global Media Buzz🇺🇦 (@GlobalMediaBuzz) October 18, 2022
“I have been telling anyone who would listen that these are the deals that were coming. While the perception that the only growth model is spending on customer acquisition costs is a lagging reality, the leading reality is strategic partnerships,” Jeffrey Kamys, chief investment strategist at Inherent Wealth Fund’s iBET Sports Betting & Gaming ETF (IBET), told Sports Handle. “We are seeing this in partnerships with major league franchises and now major media companies.”
Timing of launch
Under one scenario, DraftKings would pay ESPN more than $1 billion up front, along with a revenue-sharing fee, Susquehanna Financial Group analyst Joe Stauff wrote in a research note.
Susquehanna’s models estimate that at the end of 2023, DraftKings will have about $500 million in excess cash on hand. The bearish scenario for DraftKings would require the company to raise capital, according to Stauff. In another scenario, a bull case for DraftKings, the company would land an exclusive deal with ESPN that would not require an “upfront fee.” Under that scenario, DraftKings would not need to raise additional capital if the deal could be completed without an upfront fee.
Another analyst, Oppenheimer’s Jed Kelly, predicted earlier this month that a partnership could be reached around the start of the NBA regular season. (ESPN hosted its regular-season debut on Wednesday with a prime-time doubleheader.) If ESPN decides to launch this month, it will happen at the busiest period of the sports calendar. On Thursday, the four biggest North American pro sports leagues will all be in action, a rare occurrence known as the “sports equinox.”
DISNEY CEO Bob Chapek says ESPN will consider an online sports wagering business partner but THE WALT DISNEY COMPANY will never collect sports wagers or offer betting odds ! https://t.co/Xw1dnjDEkN
— Robert Remington (@rrrremington) September 17, 2022
Alternatively, ESPN could wait until just after New Year’s, as New York did last January when it debuted mobile sports betting. If the launch occurs in early January, the rollout will transpire around the College Football Playoff national championship and NFL playoffs, and prior to March Madness.
When asked by Sports Handle on Wednesday on the potential timing of rollout, an ESPN spokesman declined to comment.