Apple Doesn’t Need to Buy ESPN to Win in Sports

(Bloomberg Opinion) -- Writing in his 2019 memoir, Walt Disney Co. Chief Executive Officer Bob Iger said that had late Apple co-founder Steve Jobs still been alive, “we would have combined our companies, or at least discussed the possibility very seriously.” Such a prospect has been the subject of persistent speculation for almost two decades, with a combination of the two US giants, both synonymous with excellence, never far from the rumor mill.

Wall Street analyst Dan Ives reignited the discussion this week by suggesting Apple should pursue a deal — not for Disney as a whole, but for a big piece of it: ESPN, its sports broadcasting arm. Such an acquisition, which could cost in the realm of $50 billion, would be a “no brainer” for Apple as it encroaches further into sports broadcasting, Ives argued. 

The logic for a deal is this: Apple wants sports rights. ESPN has them. Yet with cord-cutters moving away from cable, owning ESPN would bring Apple more baggage than benefit. Instead, a significant partnership, one that would tightly integrate ESPN content with Apple’s services, could see each company solve the other’s pressing challenges.

The discussion about ESPN’s future is taking place at a tumultuous moment in sports broadcasting. The sports rights consultant Ed Desser, a former NBA TV boss who has been advising on sports rights deals for more than four decades, likens the current shifts to the growth of cable TV in the ’70s and ’80s, when cable companies began buying sports content to put behind a subscription fee. 

Today, the move is from cable to streaming. Legacy companies, ESPN included, are starting to offer sports content over the internet, while being mindful not to cannibalize the much larger, but declining, cable and broadcast audience.

The tech giants, meanwhile, are buying up rights of their own, seeing sports fans as a way to attract “stickier” customers less likely to cancel a subscription on a whim. Amazon has made the biggest commitment in sports so far, Desser notes, with its $1 billion per year deal to show some NFL games. Apple’s most talked about sports deal to date is its $250 million per season deal with Major League Soccer, now home to Argentine superstar Lionel Messi, who can’t stop scoring.

When it comes to top-notch content, legacy broadcasters still have the lion’s share. ESPN boasts all four of America’s major sports leagues — football, baseball, basketball and hockey. Apple would have to wait many years to get a hold of those rights organically as deals expire. The first to come up will be the NBA in 2025 — and already, it’s a fight between media companies and Silicon Valley.

And it’s not just a question of money. Apple’s efforts to acquire the rights to show Pac-12 college basketball fell through in significant part over concerns from the teams that moving off cable and onto Apple TV+ would reduce visibility for players and sponsors. “You have to overcome the built-in tendency for sports decision makers to opt for linear TV,” Desser says. “That is the still the preference, even if it is a world of shrinking viewership.”

All of this seems reason enough for Apple to make a move on ESPN — and there are valid reasons for Disney to entertain such an offer. For the first time, broadcast and cable TV viewing made up less than 50% of US viewership, according to Nielsen data published this week. Sports fans will likely be the last holdout for cable, but the direction of travel seems clear. This transition is proving difficult for Disney; its flagship Disney+ service has lost subscribers in each of the last three quarters.

But here’s where any such deal falls down. For starters, Apple is an acquisition-shy company, at least when it comes to major multibillion-dollar deals, and this is one that would attract the attention of antitrust regulators. A $50 billion or more deal for ESPN seems wasteful if acquiring sports rights is the goal, since Apple would still need to bid for them in the future. And at a time of Silicon Valley belt-tightening, an ESPN takeover would increase Apple’s total headcount by approximately 3% and add around 1.5 million square feet of real estate.

Strategically, Apple also has shown that it is mostly interested in owning sports rights that it can scale globally, making content accessible on as many of the 2 billion active Apple devices out there as possible. The MLS deal gave the company just that. ESPN is US-centric, however, with no presence in the largest European markets — a big turnoff for Apple, if past actions are a guide. “They were very fussy when they spoke with the NFL last year,” noted François Godard of media research firm Enders Analysis. “They wanted global rights, they wanted to operate digital. The NFL would not give them what they wanted.”

Besides, Disney says it isn’t even looking to sell ESPN. “We’re considering potential strategic partnerships,” Iger said to investors earlier this month, “content opportunities where we retain control of ESPN.”

If anything is to materialize between the two companies, one option would be for Apple to offer a portal to ESPN content through Apple TV+ and its other services, with Apple taking a slice of subscription revenue in return.

Apple would enjoy the best of both worlds, bringing heaps of blockbuster sports to its users, without the need for Apple to shell out $50 billion for the privilege. And of course, should it want, Apple could still bid big for sports rights in the future as and when they become available — as I’m sure it will.

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(Corrects year in which NBA television rights expire in the seventh paragraph.)

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Dave Lee is Bloomberg Opinion's US technology columnist. Previously, he was a San Francisco-based correspondent at the Financial Times and BBC News.

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