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Here's Why Hosting the NBA Is a Genius Move for Disney

By Jeremy Bowman – Jun 19, 2020 at 5:58AM

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The flywheel is alive and well.

There's no question that Disney's (DIS -2.60%) business has been hit particularly hard by the coronavirus pandemic.

Many of its biggest revenue generators have been hobbled by the virus. Its theme parks around the world were closed, though it has reopened Shanghai Disneyland at limited capacity, and its cruise ships remain docked. It can't produce any live-action movies or television shows as Hollywood remains shut down, and movie theaters are mostly shuttered anyway. ESPN, one of its biggest cash cows, has no live sports to air.

That last item about to change, however. Disney and the NBA have forged a deal to resume in July the basketball season that was interrupted by COVID-19 back in March.

It's a clear win for sports fans, many of whom are desperate for that form of entertainment after this unprecedented drought, but it's also a big victory for Disney, which will play host to the weeks-long party that will eventually crown the 2020 NBA champion. Here's why the NBA could help the entertainment giant get back on its feet.

The Magic Kingdom at Disney World

Image source: Disney.

All eyes on Orlando

In the unique arrangement, the Disney World complex will host the 22 teams that have been selected to continue the season with an expected start date of July 31. To keep the players safe and hold down the risk of spreading the virus, they will essentially live in a self-contained ecosystem on Disney property, staying at Disney hotels and playing in arenas without fans.

It's easy to see how this will generate a ton of free press and goodwill for Disney. Already, fans are amusing themselves on social media and elsewhere talking about which hotels might host which teams. Disney and its facilities will be a constant backdrop for the rest of the NBA season as well. Just as you see cutaways to nearby skylines, mountain ranges, and tourist attractions when watching live sports in their usual venues, fans should expect cutaways to Disney's surrounding properties, and commentary from broadcasters who will also be staying on site. No doubt those scenes will look enticing to visitors desperate for vacations after enduring months of stay-at-home orders.

Meanwhile, expect the social media feeds of those pro basketball players to heavily feature posts about their experiences spending weeks at Disney World. What's the value of Lebron James posting a favorable tweet or a glossy Instagram? "King James" has 46 million followers on Twitter and 66 million on Instagram. Other NBA superstars also command a substantial following as well, and Disney World will be their home for several weeks.

It's also in the NBA's interest to make its arrangement with Disney run as smoothly as possible. After all, Disney, which owns ABC and ESPN, is the league's biggest customer, spending an estimated $1.4 billion annually to air NBA games, and during a chaotic and uncertain time, both the NBA and Disney want to show they can pull off this feat successfully, keeping players and associates safe and content, while entertaining millions of fans at home. Terms of the arrangement have not been made public, but analysts believe the NBA will be paying Disney tens of millions of dollars (at least) to host the remainder of the season.

For Disney, this deal offers not only an invaluable promotional opportunity, but also a chance to demonstrate to fans and tourists that it can keep them safe at its parks. Disney World is scheduled to reopen at limited capacity in July, and having the NBA there will add to the thrill of visiting. The games could also generate record ratings on TV as Americans are starved for live sports and many are still spending more time than usual at home as traditional entertainment options remain limited.

Finally, the move will help Disney bring back some of its furloughed employees.  

A long road to recovery

It will take more than the resumption of the NBA season to restore Disney's financial health. The company has taken on more than $6 billion in new debt since the pandemic started, and it skipped its last expected dividend payment. Analysts anticipate that Disney will post losses at least for this quarter and the next. The entertainment giant may not regain its prior levels of profitability until a vaccine is found and widely distributed, and people feel safe traveling again. Still, its ability to team up with the NBA in this way is a reminder of the power of its unique collection of assets and how they reinforce each other. Disney can both host and broadcast the games, while simultaneously using them to promote one of the world's biggest tourist attractions. No company could be better positioned to make the most of this particular opportunity.

Keep your eye on Disney stock next month. With the reopening of Disney World and the NBA coming to the resort, shares could move higher on the buzz and goodwill around the brand.

Jeremy Bowman owns shares of Walt Disney. The Motley Fool owns shares of and recommends Walt Disney and recommends the following options: long January 2021 $60 calls on Walt Disney and short July 2020 $115 calls on Walt Disney. The Motley Fool has a disclosure policy.

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