The rise and fall of ESPN: Inside Disney’s $11 billion meltdown

ESPN. Everything was CNN. ESPN went from a small shoestring operation in Connecticut that originally broadcast things like the World Series of Slow Pitch Softball to a total dominant force in the world of sports, which by 2011 was beaming into 100 million households across the world. But fast forward just a decade later, they're down 30 million of those subscribers, and there's big questions about the viability and future of ESPN. So what explains the rise, the fall, and the ways it might save itself about ESPN? That's what this video is about. If you're new here, my name is Michael. I make videos about the rise and fall of iconic brands in the United States as a way to think through and explain business. If you like that kind of stuff, I've put together all the lessons I've learned from making almost 30 of these videos now in a single-page document that you can download It is usually the first link in the comments below. Uh, you can get it for free and save yourself the time watching all my videos as I walk through the forest here. Founder Bill Rasmussen was the guy behind ESPN, and it was his wild and crazy idea that nobody thought would work. He scraped together $9,000 from a credit card advance, put a satellite dish in a field out in Connecticut, and created the first ever 24/7, 365 sports network. Eventually, he talked to Getty Oil, the oil corporation, to put $10 million into the business in exchange for 85% of it. Not a bad purchase by them. In those early days, it was a scrappy operation. They broadcast whatever they could—dice, snooker—and their very first presentation was, you guessed it, the World Series of Slow Pitch Softball. Riveting TV. They were so scrappy that, in fact, the first headquarters for ESPN didn't even have running water on site. They used portable toilets. And for food? That was some food trucks they brought in. But from day one, they had one thing going for them that was critical to the success of ESPN, and that was SportsCenter. It was basically the nightly news, but it was all sports. And the good news is you didn't have to wait if you were a sports fan to try to watch the highlights the next day on the news, if they showed them at all. And you certainly didn't have to wait for the next day's sports page in the newspaper to learn what had happened with your favorite team. What made all this happen was a revolution of technology. Satellite television was becoming a real thing. In 1975, the very first of these satellite TV channels for pay, HBO, had come along and, well, it was time for the sports version to happen. And that was ESPN. And early adopters in the tech world, they would basically put these giant satellite dishes in their backyard so they could get things like HBO and now ESPN. These satellites also sparked a gold rush in terms of local cable systems. What would happen is, is these local entrepreneurs, they'd raise some money or they put their own money in. They go to a local town or city and say, hey, we want to run cable lines throughout the town and offer cable TV service to all the local folks. And they'll pay us by the month to use them. And we'll connect them all these satellite dishes and beam programming, make it happen. And they did. The way these local deals happened was critical into the success of ESPN. Because what happened in a lot of these local towns was they didn't want 45 different cable operators to have lines running all over the place. It'd be a mess. So they would go and give a monopoly to one company and say, congratulations, you're the cable operator that gets to be here. And that did one thing for ESPN, which was they had to be carried by these local cable operators, because if they didn't, people would revolt. And it was the only way to get people to sign up for cable and to keep them around. The formula, the timing, the dynamics, everything was perfect. And by 1985, ESPN reached 28.5 million paying subscribers either directly or via these cable systems. And it was a perfect storm. You had cable systems that were hungry for carrying content like ESPN. You had consumers who were super hungry to watch sports that they couldn't see before. And you had ESPN who was gonna bring the content. At the time, ESPN realized something that was really smart. Content was gonna drive viewership and retention. And in 1980, they did the very first thing, which was to go out and get the college basketball Men's Madness tournament. And they also went beyond that. They started to go in and do things like televise the NFL Draft. You wonder why the NFL Draft is like an event now? Well, it's because ESPN made it one. Remember how Getty Oil had seen and invested in, well, ESPN, which is kind of crazy as an oil company, right? Well, in 1984, the serious guys showed up, and that's when television giant ABC came in and went and bought 85% of ESPN to roll it into their own platform and put their own money behind it. And doing that meant ESPN could suddenly expand, invest more, and play the game like the big boys did. What ABC realized was all these dynamics created a magic opportunity for ESPN. They would go in and just like they had done with March Madness and other properties they had at the time, they would go in and outbid everybody else for exclusive rights to the live sports entertainment that everybody wanted to see. Football, baseball, Major League whatever, they would go after it. The NBA. And if they outbid everybody else and they had these properties that were must-see TV, they could then turn around and tell the cable systems, look, you're going to pay us what we want to charge or you're going to lose a bunch of customers. So therefore, do it. And those cable systems, they had no choice but to turn around and charge their customers more. So indirectly, you and I were subsidizing a big business for ABC and ESPN through our cable fees. ESPN kept playing this winner-take-all game. In 2005, they bid $1.1 billion in one to do Monday Night Football. It's about 16 games a year, one night a week. And then they didn't stop. Eventually they paid $1.9 billion a year later on, and today they paid $2.6 billion. Just crazy numbers. And again, it's for like 15, 16 games out of the year, one night a week. Crazy. And ESPN just kept doing it. They wanted to box everybody else out from competing with them. Didn't matter. They could charge and pay whatever they wanted. They turn around and hang it on the cable systems, and those guys would turn around and hang it on you and me. NBA, college football, Major League Baseball, whatever it cost, they would spin it and they would win it. And ESPN was not a bunch of dummies. They also realized that with this audience, they could fill up other content and the SportsCenter franchise kept growing. They would basically create stars out of the anchors that they would have doing SportsCenter every night. Originally Chris Berman, who was not making much money when they started but was making more when they finished, to Stuart Scott, to Rich Eisen. Stuart Scott was so valuable to the network at one point because he brought in a new demographic of young people and that sort of thing that he was making $4 million a year to co-host SportsCenter. Just crazy. And what Johnny Carson had been to late night, these guys became to sports and young people. We welcome them into our homes. We knew them. Their catchphrases became part of the lexicon. I remember going into high school and people would be doing some Stuart Scott catchphrase, you know, during lunch one day. Oh yeah, right. Crossing Sports. I'd be like, oh, I guess I better watch SportsCenter if I want to be part of the cool kids. So this whole formula worked. And by the 2010s, ESPN was the most expensive thing that you would get in terms of your cable package. It was included in the base price, which meant that let's say your cable bill was $100, uh, $9 of that would be going just for one channel, just for ESPN. If you do the math here, right, they had 100 million subscribers by the early 2010s. $9 a month for 100 million subscribers means they were making almost a billion dollars in high-margin licensing revenue from these cable systems per month. Just incredible. If the cable systems jumped in and said, no, no, we're not going to pay that, you need to give us a better deal, ESPN would just come in, rip their channels off of that cable system, and then start running ads saying how greedy and bad that cable system was. And guess what would happen to the cable system? Eventually all their customers would start calling up and saying, why can't I watch my NFL team? Where's my NBA? You guys suck. Pay up, cable system. And in reality, it's because ESPN was charging an arm, a leg, some ankles, some knees, and everything else in order to have these basic sports properties and ESPN on that cable system. Competitors were minimal. I mean, you couldn't compete with somebody like this. They were going to outbid you at every step, whether you were Fox or some of the regional guys. Didn't matter. ESPN was going to use their power, having all the licenses and all the subscribers, and they were going to come out and outbid you on everything. And so you look at this, what happens is Basically, ESPN has found the infinite money glitch. They figured out a way to basically bring in more revenue whenever they want. They spend a little bit more, need more profit, well, we'll just raise the prices and everybody will have to suck it up. So this particular fact caused a culture of overspending at ESPN. Uh, one of their famous projects was they went in and spent $500 million on a new sports complex and a new office complex for them to operate out of Connecticut. Just massive investments in all kinds of different stuff, including that and a bunch of different projects that basically went nowhere. Different web projects. And of course, they were very happy to pay for talent. Didn't really matter. They were bringing in so much money and profits. Just keep spending. Project after project was seemingly without budgetary constraints. Need some more money? Just go to the cable systems. Tell them we need some more and they have to pay. Not all the money was wasted. I mean, this money spent on talent was well worth it. I mean, as we talked about before, Stuart Scott was worth his $4 million a year to bring in a different type of audience and young people and stuff like that. Chris Berman, who famously made $16,500 a year when they started back in 1979, well, he eventually got paid too. And the good news was that talent of SportsCenter and the different things they had in terms of custom ESPN shows, it brought in viewers. People would watch the live stuff and then stick around to hang out with the personalities and talk about the sports that they loved. Totally worked for the 2008 College Football Championship Series. ESPN took it so far that they outbid rival Fox by over 50%. Fox's previous contract, they outbid them by $25 million. You couldn't compete with ESPN. So by 2011, this combination of technology where you had to go through the cable systems, the personalities that people loved, and their exclusive licenses for all these sports that people were hungry for— NFL, NBA, baseball, all that stuff— it It all created this massive money printing machine for ABC, which was now owned by Disney. And in 2011, ESPN generated over $11 billion in high-margin revenue for Disney. It was an incredible business. And in the early 2010s, ESPN was the undisputed king. At the time, it looked like it was unstoppable until, well, things started to turn against ESPN. The first problem was cord cutting was becoming real. People giving up on expensive cable TV subscriptions and going directly on the internet, looking at sites like YouTube and stuff like that that would give you all the entertainment you want without paying $150 a month for a bunch of channels you didn't even watch. Cable subscriptions peaked around 2011 at about 100 million, and they started a slow, long decline here in the United States such that by 2023, nearly a third of those people who were once cable subscribers weren't paying anymore. And that's bad if you're ESPN and you get paid per subscriber per month. So what did ESPN do? Well, starting around that time as it lost subscribers, it started charging the cable systems and the subscribers that they had even more. Their fees since 2011 into 2023 are up 74%. While they were around, say, $4 or $5 depending upon the cable system back around 2011, today they're over $9.40, $9.42 exact. In terms of the price per month per customer. The irony is that raising prices meant that local cable systems started to charge more prices so they could be profitable too, which actually accelerated the cord cutting that many people were doing, including me. YouTube, streaming, Netflix, all that kind of stuff. Many under-30 people, they just didn't even watch broadcast TV at all. My kids today, when they watch a commercial, they look like they're going to be sick. So getting them to watch broadcast TV, Good luck. You're seeing that trend a lot. Remember how SportsCenter was so popular and so successful because it brought you the highlights before anybody else did? Well, that also changed too. Twitter and other social media sites added the ability to watch video clips. So now I didn't even need to go to SportsCenter to see a highlight again. I just open up Twitter and see it 15 seconds after it happened because somebody just uploaded it. ESPN basically was successful because it did a deal with two doubles. Number one, it made a deal with the cable providers and agreed to get paid by them on a per-subscriber basis. On the other side of the spectrum, it agreed to overpay and pay up to the major league sports networks to be able to have exclusive access to their content. And this is a great scheme that'll work well until it stops working. So while subscriber counts were going down and therefore revenue was going down for ESPN, the other side of the coin is that the fees required to keep their monopolies on the major league sports, those were going up. Remember how we talked about that they had won the rights to Monday Night Football for $1.1 billion? Well, later deals, including right now, have them paying $2.6 billion. Despite losing a third of their viewership and subscribers as ESPN. As of today, ESPN has $9 billion annually committed to pay for sports rights. That's a number that works really well when you have 100 million paying subscribers. But when that number drops to 70 or even keeps dropping further, your business is going to be in real trouble because you got to pay out those fixed costs and your revenue keeps declining year after year. There's this concept in business where you bundle together different things, different services into one big service, and you could charge a premium for doing that. You make it easier on consumers, and you get economies of scale by buying more of those things and getting lower supply costs. Well, that all works great until a bigger shark comes along, a bigger bundler. And there are some bigger bundlers out there— Amazon and Apple and folks like that. They are ones who are very excited to bring in more eyeballs into their universe by covering sports and that sort of thing. And what you saw in this mid-2000s, mid-2010s era was folks like Amazon, Apple coming in And Amazon, for example, paid $1 billion for the rights to do football on Thursday nights just by itself. They had decided to add sports eyeballs to their bundle, and they were suddenly a very big competitor for ESPN, and again, pushing up the prices for these major league sports licenses. And ironically, the bundler themselves, ESPN, was getting bundled by somebody else. And if you wanna see this in practice, in my video right here on Toys R Us, you can see how Walmart participated in the killing of Toys R Us by bundling toys into its offerings in its stores. And the sports leagues themselves, those guys didn't get to be billionaires by being nice givers. They got to be billionaires by being good at business. And they've decided they don't like having ESPN as a middleman either. So many of them, including the NFL, the NBA, and folks like that, they've decided to come out and go direct to consumer on their own. Again, putting pressure on the number of people that are going to pay up for ESPN. And fast forward to today in the early 2020s and Ford's 2025, the things that made ESPN work, those are all eroding. ESPN no longer has the revenue to be able to outbid everybody else. The personalities that mattered and made SportsCenter work, those don't matter in the world of TikTok. Nobody cares. And the cable providers, well, they're dying too. They have no more money to supply ESPN. In response, in the late 2017 era, ESPN and Disney did what you should do in a situation like this, which is stop spending so much damn money. So they started to go through their first rounds of layoffs. They did it again in 2023. Disney went across their entire content portfolio to find $5.5 billion in savings by basically removing headcount and getting rid of facilities. Look, Disney didn't get to be as big as it is by being stupid. They've got smart people in there and they can see where this all goes if things don't get better. So they're basically in a turnaround mode. They've got to reshape this business. The reality is there's no white knight to save this business. In 2023, Disney CEO Bob Iger was asked if ESPN was for sale. Would they consider taking it out? He said, look, we'll consider taking on partnerships, but the business is not for sale. He recognizes no one's going to save them. And you could say, well, why doesn't ESPN do what the NFL did and everybody else does and go direct to consumer and have a streaming service? Well, there's a problem there. They've signed many deals that have often prevented them from doing that with local cable operators and such. And then they also have another problem, which is they have to strike a balance where going direct to consumers and charging just for ESPN might accelerate the rate at which people are leaving cable, making them shrink and hurt even more. But in 2025, ESPN, Disney, they've finally seen what they have to do, which is they figured out and negotiated all those contracts and figured out the way to go direct to consumer. In late August 2025, they released ESPN Unlimited. You could pay $30 a month. Yeah, $30 a month to get all the ESPN channels and have them broadcast to you without going through a cable system. That's a lot of money. I ain't paying it. If you go read about some of the reviews and what people think about ESPN, uh, whether it's worth $30 a month or not, I don't know. But you know, it reminds me of stuff that happens online all the time. There's this word called enshittification, which basically talks about how every online system, every online community eventually goes through a point where it starts out great and through natural forces it eventually gets pretty crappy. And that's the same path that ESPN has gone down, especially if they've started to work to cut costs and chase revenue as much as they can. And in chasing revenue, things like SportsCenter have totally changed. Gone are the days of unbiased, kind of middle-of-the-road coverage of sports. Instead, what you're seeing is a lot of focus on the big markets. Good luck tuning into SportsCenter or ESPN and not seeing coverage of a New York, LA, or Dallas team. It just doesn't happen. And then they've also gotten rid of a lot of the reporting. Those guys don't report anymore. You go look at somebody like Stephen A. Smith, that sort of thing. He's a commentator just pretending he's a reporter and oftentimes spouting opinions without doing any research at all. That's not journalism. That's just eyeball-getting hot takes and nobody likes it. But to be fair, not all the changes have been bad. I personally like Pat McAfee, who's a former NFL punter who does something more optimized for younger people. I like the Manningcast where they do overlay as a second coverage. On the football stuff, which is super smart. But again, when they start to get rid of things like Bill Simmons' Grantland, Around the Horn, and stuff like that, and the documentaries they used to do, there's just a lot of dumbing down of ESPN going on. And I think a lot of your customers, they don't like it, including this one. ESPN has also seemingly sold its soul, where once it was supposed to be a wholesome type place. You can't open up ESPN these days without them trying to sell you access to ESPN Bet, their licensed sportsbook that's run by Penn Gaming. And while Disney has gone after and chased the almighty dollar, doing a deal valued at over $2 billion with Penn Gaming. And good, the shareholders wanted that. But in reality, does anybody really want to be watching Monday Night Football and have it be one big ad for gambling to their kids? I certainly don't. So that leaves us here in 2025, um, basically to renew with the NFL. They just did a complex deal in order to retain their coverage with the NFL and had to give up 10% of their business. That's an outcome that nobody would have even considered a decade ago. And they just did another round of layoffs as well. If you look at a lot of the people who left, you know, it's a lot of question marks about why are the people who are really good journalists and deep and thoughtful about stuff, why are they the ones getting the ax? The dollar explains it all. And that leads us to where we are today in the future for ESPN. I mean, the reality is Disney is milking it for all the cash that it can get out of it and investing just enough to try to get it into a place where it'll be ready for a new world. And while cable is clearly going to continue to decline and eventually die. It'll be interesting to see if these other moves that ESPN is making in terms of different types of personalities, the direct-to-consumer stuff, and the change in the way they're doing their business will actually succeed or not. And I've looked at a lot of businesses, and I'll tell you, I wouldn't want that job. It looks like it's going to be pretty damn hard. And if they pull it off, well, more kudos to them, because I'm not sure I could. The biggest takeaway for me of this story for sure is what they did with the level of spending in the decade of the 2000s. I have been in this type of situation before. We have a business that is absolutely killing it and you would just seems like you can't lose money's coming in. It's very profitable. And then you look up and you've just taken your eye off the ball in terms of spending. And if I had been there in that room with the Disney executives, with the ESPN executives in the 2000s and seen all of this over-the-top spending, I would have put brakes on that and build up a cash hoard. To be ready for a rainy day. Because that's what you got to do. Even if things are going great, you got to make sure you stay super frugal, keep costs down, and build up cash. Because eventually, and it happens to everyone, bad times will come and you want to be ready for them. All right, this was a complex story, so it was longer than my normal videos. Let me know what you think about the length. Let me know what you think about my beard. And let me know what you think about this video in the comments below. And what do you think ESPN should do? I try to read all your comments. We'll see you next time. Thanks.