ESPN pays a lot of money to the NFL, and it's worth it

Monday-Night-Football
ESPN's 'Monday Night Countdown' broadcasting team (from left to right) last season featured Suzy Kolber, Steve Young, Matt Hasselbeck, Randy Moss and Charles Woodson.

ESPN has a well-known problem with cord cutting, even if its executives think the threat is greatly exaggerated.

But often overlooked among the stories of millennials shedding their cable package is the increasing amount the Worldwide Leader is forced to pay to sports leagues to air live events and highlights.

As Bloomberg pointed out in a huge cover story over the weekend, the budget for an entire season of Game of Thrones costs HBO around $100 million, less than what ESPN pays for the rights to air a single Monday Night Football game.

"We offer NFL content every day of the year across multiple networks and platforms – all of which we are able to sell ads against," ESPN said in a statement. "Calculating the value of our agreement simply based on the schedule of primetime games is a woefully inaccurate accounting of our investment with the league.”

Regardless of the clunky comparison, ESPN pays a staggering $1.9 billion a year to the NFL, which grants the network the rights to air highlights, studio programs and broadcast Monday Night Football

Ratings were mixed this season. According to Reuters, ESPN averaged 11.4 million viewers for the 17 games it aired this season, the second worse since taking over the Monday Night Football franchise from sister network ABC in 2006. ESPN was dealt a bad hand by the league for much of the season with uninteresting matchups (ESPN lacks the flex rights of NBC), but ended the year on strong note, averaging 18.6 million viewers for Week 17's matchup between the Cowboys and Lions, the highest number since 2014. 

The NFL isn’t the only league costing ESPN a lot of money. The network's deal with the NBA, which offers a lot more flexibility than its contract with the NFL, is said to cost $1.4 billion a year, and ESPN also has expensive contracts with Major League Baseball and the NCAA to air college football games. 

Sources at ESPN said that while the costs are high, they are worth the money spent due to the demand for live sports events and the network's ability to monetize the content over a growing array of digital products. 

ESPN has also tried to reign in costs. In 2015, the network laid off 300 employees, and plans to lay off some on-air personalities this year. But the network has mostly tried to combat the declining revenues through an onslaught of digital initiatives aimed to prevent millennials from abandoning its products.

Often overlooked in the doom-and-gloom stories is that ESPN is by far the industry leader in sports on digital media, with a global scale simply unattainable by its competitors. The network also has an enviable mobile audience of 18- to 34-year-old sports fans helping to pave the way to the network's digital future. So while it's true the network faces increasing cost pressure, ESPN's current position certainly offers it opportunities to experiment and grow new digital revenue streams. 

One idea ESPN is doing to sustain its mobile future is to borrow some ideas from a company many blame for the cord cutting trend in the first place — Netflix.

According to John Kosner, ESPN’s head of digital and print media, the network is planning on rolling out a Netflix-like interface within the ESPN app, allowing users to access episodes of popular shows like Pardon the Interruption and SportsCenter alongside live sporting events.

“The beauty of Netflix to me is that they’ve said, ‘We’re going to make our best stuff available to you anytime you want it,’ ” Kosner told Bloomberg. “They do it brilliantly, but it’s not rocket science.”

For now, only cable subscribers will gain access to these features, which is an important distinction for ESPN. The network isn’t ready to ditch its declining but still lucrative cable businesses — it’s actually trying to defend them at all costs.

“Everything we do supports the pay television business,” Kosner said.

Which is why ESPN has held back from fully embracing Netflix’s business strategy — letting individual users subscribe — and instead decided to go the route of bundling with new digital services aimed a millenials.

ESPN is available as part of bundles offered by Google’s YouTube TV, Dish Network’s Sling TV, Sony’s PlayStation Vue, and a new service Hulu expects to launch soon. Even though the plans are cheaper than a traditional cable subscription, Bloomberg reports that ESPN still gets the same per-subscriber fee, so the digital services don’t hurt their profit margins.

“This is a time of tremendous experimentation at ESPN, there are not a lot of known certainties,” Jim Miller, the author of Those Guys Have All the Fun: Inside the World of ESPN, told Richard Deitsch on the SI Media Podcast last week. “The only certainty is that (Disney) has said, ‘Stop spending money like a drunken sailor.’”