ESPN is an extremely profitable company and recently made two very expensive deals for television rights to tennis and college footbal. And yet, on Tuesday the network had its first round of layoffs since 2009. So what gives?
Deadspin's John Koblin and veteran ESPN expert James Andrew Miller are both reporting ESPN is laying off between 300 and 400 employees today. That's a fairly significant chuck of the estimated 7,000 employees at the Worldwide Leader. ESPN is owned by Disney, and the word came down from on high, like the top of Space Mountain, that ESPN needed to make cuts. ESPN brings in over $10 billion in revenue each year. It's worth almost half as much (an estimated $40 billion) as all of Disney ($84 billion). When you look at those numbers, the layoffs make no sense.
Despite the fact that ESPN brings in more revenue than almost any other arm of the Disney empire, the soaring costs of putting sports on TV were credited with a decline in Disney's profits last year. And Deadspin's Koblin reports ESPN's recent shopping spree forced some changes:
So where in the world did this come from? ESPN is monstrously profitable and we hadn't heard a word about this until this morning. Well, ESPN has been gobbling up live rights to events left and right, and those rights are really expensive. We've heard they needed to reduce costs as a result. Also: ESPN's parent company Disney is apparently asking all divisions to cut costs.
ESPN closed an 11 year deal worth over $770 million to broadcast the U.S. Open tennis tournament starting in 2015. The network also paid an unknown ransom for the rights to launch the Southeastern Conference Network in 2014, a channel dedicated to NCAA football's most powerful conference. That's the one with Alabama, LSU and Auburn, among others. ESPN declined to announce the financials of the deal, which, when you consider how much they paid for the Open, is not a good sign. So, yes, that means your already ESPN-inflated cable bill will be get even bigger next year.
"We are implementing changes across the company to enhance our continued growth while smartly managing costs," ESPN's statement on the layoff reads, via Sport's Illustrated's Richard Deitsch. Some back of the envelope math suggests the SEC network could fetch over $240 million in subscriber fees alone. That's a lot of money from one single source.
Sources are telling Deadspin the layoffs are tied to ESPN not meeting its profit margins for this year. They chose cutting staff was the best way to do it. The network also just finished building a new SportsCenter set that cost a reported $125 million.