ESPN Still Discussing Sports Betting Partnership With Online Sportsbooks; California Ballot Initiative Could be Playing a Role in Timing

The sports broadcasting giant ESPN, a unit of The Walt Disney Company (NYSE: DIS), appears to be continuing discussions to form a partnership with a sports betting company. The betting giant DraftKings, Inc. (NASDAQ: DKNG), with whom ESPN already has a marketing partnership, would seem to have a leg up on other online sportsbooks in these talks  (Disney already owns a 6% stake in DraftKings as part of its acquisition of Fox’s entertainment assets.  The winning online betting firm would presumably rename its sportsbook to include the ESPN name if an accord is ultimately reached.

In early October, various media sources reported that an ESPN-DraftKings deal was expected to be announced shortly, but no accord has yet been announced.  

At the October 19 ESPN Edge Conference, which brought together leaders in sports media and technology, ESPN executives implied that a linkage between ESPN and a sports betting firm makes economic sense. Laura Gentile, EVP of Commercial Marketing for Disney Networks and ESPN, said, “It is crystal clear that there’s enough demand for sports betting, and it’s time to move.” 

Mike Morrison, VP Sports Betting & Fantasy at ESPN, seemed to be even more explicit in his comments. “Sports betting conversations for us are ongoing. We have a lot of partners in the industry that we’ve worked very closely with. We’re continuing to explore ways to work further with both our existing and potential new partners.”

A link-up between a major sports betting company and Disney would have significant synergies for both parties as it would allow ESPN to benefit from massive growth in legalized sports betting, particularly among young customers, while the sports book would be linked with the leading broadcaster of many sports that are heavily bet on, including college football and college basketball. Many fans watch sporting events on the ESPN app, and it seems likely that a significant number of viewers would be interested in pressing a button on the app that would allow a wager to be placed. An online sportsbook’s in-game wagering could therefore be significantly boosted.

An issue in all this is the massive reported fee — around US$3 billion over a multi-year period — that Disney reportedly wants in exchange for allowing a sports book to rebrand itself with the powerful ESPN name. Such an outlay would be quite substantial for any online sportsbook.

Perhaps Disney is waiting on the outcome of the November 8 election results regarding the potential legalization of sports betting in the giant California market before finalizing any partnership agreement. Under Ballot Proposition 27, private sportsbook companies like DraftKings and FanDuel could partner with a California tribe to offer mobile sports betting. There would be a 10% tax on sports betting revenue that would fund problem gambling programs  (This revenue tax would be far lower than the 51% tax imposed in New York). If California’s voters approve Proposition 27, the value of an ESPN-sportsbook combination would likely be greater.

Also on November 8, Disney will report 4Q fiscal 2022 earnings (year ended September 30, 2022) and hold an earnings conference call with analysts. The company could comment on the status of discussions with sportsbooks at that time. DraftKings releases its 3Q 2022 earnings on November 4.

Information for this briefing was found via Edgar and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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