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Finally, Some Good News for Disney

By Parkev Tatevosian, CFA – Aug 23, 2020 at 10:52AM

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The House of Mouse is going through one of its most difficult years ever.

The coronavirus pandemic is hurting many businesses around the world. The outbreak especially affects Walt Disney (DIS 0.85%) due to the physical nature of its operations: Cruises, theme parks, and movie theaters rely on bringing together large groups of people. Because of this, the company is experiencing significant decreases in revenue from those operations. 

Even though some of its theme parks have reopened, the customer response has not been as enthusiastic as the company was expecting. Additionally, Disney delayed the release of the potential blockbuster film Mulan several times, before eventually deciding to make the movie available directly to its streaming subscribers on Disney+ for a fee. Overall, the restarts of operations that were shut down are not going as well as expected. However, there was one exception, finally providing some good news. 

A man celebrating while watching his favorite NBA team on ESPN.

The NBA playoffs started Aug. 17. Image source: Getty images.

The NBA completed its regular season and has started the playoffs 

The National Basketball Association first suspended its season in March, after Rudy Gobert of the Utah Jazz tested positive for the coronavirus. Ad revenue for the league was up more than 12% from the same time the previous year (to $249 million) before the season was suspended.

At that time, it was uncertain if the league would cancel the season altogether or pause for a while and restart at a safer date. Fortunately, the NBA was able to safely restart its season on July 30.

Disney's ESPN and ABC networks have the rights to broadcast NBA games and generate significant ad revenue from those broadcasts. Given the surging demand for in-home entertainment, it would not be surprising if the games in the restart are fetching strong demand from marketers. 

The restart of the season drew a surge in viewership. In the first 12 days after play resumed, more than 47 million people tuned in, which was 49% higher than the 32 million that tuned in during the first 12 days of the season. If that is any indication of how popular the NBA playoffs will be, it's great news for Disney's ESPN and ABC. The two networks will combine to air up to 44 playoff games, including exclusive rights to the Eastern Conference Finals for ESPN and the NBA Finals for ABC. It will be interesting to observe if the increase in viewership will outweigh the decreases in marketing budgets as a result of COVID-19.

What this means for investors

Importantly, the NBA Finals alone brought in $288 million in advertising revenue in 2019. In contrast, the Super Bowl drew $336 million in 2019. The highest mark the NBA has brought in ad revenue for the finals over the last five years was $366 million.  

Additionally, the NBA agreed to host all of its games at the Disney World resort in Orlando. The league is reportedly paying Disney $1.5 million per day for the privilege. That will amount to almost $150 million to host the 22 teams for eight regular-season games and the playoffs.

Overall, the NBA continuing its season and playing all the way through to declare a champion is likely to bring in at least $400 million in revenue for Disney. Notably, the playoffs are not complete, and the risk of a COVID-19 outbreak that leads to another pause is ever-present. However, the restarted season is finally some good news for Disney's stock

Parkev Tatevosian 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 October 2020 $125 calls on Walt Disney. The Motley Fool has a disclosure policy.

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