Big games are big business, and no one knows that better than ESPN parent Walt Disney (NYSE:DIS). The media giant acquired ESPN as part of the $19 billion Capital Cities/ABC deal in 1995. It probably seemed as if ABC was the star attraction at the time, but the ESPN subsidiary that was part of that transaction is the most valuable cable property today.
Wunderlich Securities analyst Matthew Harrigan estimated that ESPN was worth $50.8 billion two years ago. He based his price on the property by performing a discounted cash flow analysis, going with the hefty $4.5 billion that ESPN was supposed to generate in cash flow in fiscal 2014.
Things may appear to be challenging for both Disney in general and ESPN in particular in this era of millennial cord-cutters, but it wouldn't be a surprise if ESPN is only more valuable today. It's true that ESPN has been hit by a decrease of subscribers as consumers cancel their cable and satellite television plans. ESPN's domestic subscriber count has gone from 99 million in fiscal 2013 to 95 million in fiscal 2014 to just 92 million last year. However, a combination of growing affiliate revenue (what cable and satellite television customers pay for access) and robust ad sales find ESPN's business growing even in this trying climate.
Disney's doesn't specifically break out its ESPN performance, but it did reveal that growth at its media networks division for fiscal 2015 -- with revenue and segment operating profit up 10% and 6%, respectively -- was due in part to higher affiliate fees and higher advertising revenue at ESPN. In short, it's still growing.
There are a lot of moving parts to ESPN, and Disney -- with its 80% majority stake in ESPN (Hearst Corporation owns the other 20%) -- clearly stands to benefit. There are several ESPN-branded networks beyond the main one. There is ESPN2, ESPNU, ESPNEWS, and ESPN Classic. There are also 17 international channels that reach another 127 million households across 60 different countries in four different languages. ESPN also expanded its reach with the launch of SEC Network.
ESPN's empire doesn't end there. It has stakes in several international sports networks outside of ESPN. It also watches over ESPN.com -- of course -- and ESPN Radio. There's also a magazine, the WatchESPN streaming app, and other online diversions including espnW.
So, yes, ESPN is huge and getting even bigger. With ESPN collecting more than $6 from cable and satellite companies per subscriber -- more than 4 times greater than any other individual non-movie cable channel -- it doesn't seem to matter that subscriber growth has been problematic closer to home. ESPN doesn't make all the right plays, but it's still winning the game.