ESPN is reportedly in brand-licensing talks with sports book operators. According to the WSJ on Friday, ESPN (owned by DIS, which is covered by Ben Swinburne) has held talks with multiple operators, including CZR and DKNG, about a potential licensing deal that would be worth >$3B over several years. The report is unconfirmed and none of the companies have commented on it to our knowledge. If a licensing deal were to be confirmed, the devil would be in the details, including how many years and what exactly is covered, though it sounds like a betting operator would be able to create an ESPN-branded betting product.

Potential positives. ESPN has long been viewed as the crown jewel of US sports media partnerships, with DKNG stock price up 17% and CZR up 11% on the day they announced their “link-out” digital partnerships with ESPN last year. As a customer acquisition tool, ESPN stands out with a massive sports-obsessed user base, reaching >200m US sports fans / month. We currently expect the US/Canadian sports betting / iGaming market to reach ~$20B in 2025, with 25% average margins, implying ~$5B of EBITDA. At the 15-25x 2025 multiples we use to value the opportunity for our stocks, a >$3B deal would imply >$120-200m of incremental EBITDA would be needed to justify the investment, or >2.5-4% share. We see ESPN as potentially delivering more incremental revenue to a legacy casino company than a legacy sports company as it would be attracting a different set of customers, though ability to execute efficiently would be key.

Two primary potential concerns:

1) Would it even be a success? Not all media companies make good betting companies. There are numerous examples of popular media companies in Europe that were not able to translate their media mind share into betting share, include Sun in the UK, Eurosport in France, Marca in Spain, and La Gazzetta dello Sport in Italy. The media partnerships in the US haven’t led to any clear winners so far either. While Sky Betting & Gaming is often held up as the example of a successful media brand translating into a successful betting brand, SBG’s success was driven by innovative technology and unique mind share in a much more concentrated sports media market than the US today.

2) The reported cost quoted by the WSJ would be significantly higher than already signed deals, and is it that much better? In the UK historically, Sky dominated soccer coverage, and soccer dominated betting. In the US today, while ESPN is the largest media asset, it shares sports coverage with NBC Sports (partnered with PointsBet), CBS (partnered with CZR), FOX (partnered with FLTR), Turner Sports (partnered with DKNG), and regional sports networks (e.g. Bally Sports). There is also now more competition from sports media apps, like Barstool, theScore, and Bleacher Report, and streaming services like FuboTV. While economics of most of the prior deals have not been announced, PointsBet (PBH-AU, not covered) in Aug 2020 paid just $393m over 5 years for exclusive rights for NBC Sports.