ESPN has gone from being a workhorse to an albatross at Disney (NYSE:DIS), but there is -- or at least was -- a chance that the world's leading sports programming network could deliver strong operating earnings growth when the media giant needed it the most. ESPN could've been the secret weapon that helps Disney offset the weakness at its currently shuttered theme parks and its studio entertainment arm with no open movie theaters to distribute its films. 

The bullish case for ESPN is that, with sports leagues around the world canceled and folks still paying full price for the cable network, Disney would be scoring juicy margins for its sports programming empire. ESPN doesn't have to pay for games that aren't played, and the network has relied on documentaries, talk shows, and replaying classic games as ways to fill the void. However, now cable and satellite television providers are starting to ask for a rebate from ESPN. At least one attorney general is asking that the pay-TV companies pass along those potential savings to consumers. It's quite possible that the ESPN tailwind of the past six weeks could be a headwind in the very near future. 

The set of the Mike & Mike show on ESPN.

The set of the Mike & Mike show on ESPN. Image source: ESPN.

Playing to win

There's a consumer appetite for live sports. That became evident this past weekend, when ratings for the NFL draft -- when pro football teams select their new players among eligible upperclassmen -- clocked in 37% ahead of last year's viewership. Even the less glamorous second and third nights of the draft outdrew the initial World Series and NBA Finals games from last year. 

The big audience turnout for the draft should prove comforting for Disney and its majority-owned ESPN. We may be streaming Tiger King and the third season of Ozark, but there's still some serious percolating demand for live sports in some shape or form. 

Folks pay more for the ESPN family of sites than any other cable network. If your pay-TV bundle includes ESPN and its siblings, you're probably paying more than $9 a month for the sports programming. Investors used to relish ESPN's dominance, but with cord cutters kicking cable and satellite television services to the curb, and bidding wars for sports rights driving content costs higher, it's the iconic sports network getting squeezed. 

Savvy investors picking up on the ramifications of what the suspension of the NBA season on March 11 would mean in terms of relaxing Disney's costs -- and the ripple effect into other leagues that would eventually halt or delay their seasons -- figured that ESPN would be a baseball diamond in the rough. ESPN would continue to collect the chunky affiliate fees, but any potential dip in advertising revenue or online streaming subscriptions would be more than offset by the surge in operating profit. 

We'll get a clearer picture on how the last couple of weeks of March played out for ESPN when Disney reports its fiscal second-quarter results next week, but now we're learning that cable giants want some of their money back. A growing number of service providers don't want to pay ESPN's affiliate fees for April, arguing that the media network giant isn't delivering on their live sports programming obligations.

It gets worse. New York Attorney General Letitia James is asking the seven major cable and satellite television providers in her state to provide financial relief for its customers. If it turns out that consumers don't have to pay for ESPN, you can be sure that the pay-TV companies won't be paying either. In short, ESPN should provide a tailwind for margins in next week's quarterly report, but it will probably be a headwind again for the new quarter.