• by Wayne Friedman , October 19, 2023

For the first time in its history, Walt Disney broke out ESPN financial data -- separating its linear TV network business from its sports TV network group, according to the recasting of financial data from the company.

Fiscal year 2022 results showed all of ESPN’s revenues rising 8% to $17.3 billion, with operating income inching up 1% to $2.7 billion. 

The new “sports” business segment includes ESPN, ESPN on ABC, ESPN+, ESPN International and Star.

ESPN had been included as part of a Disney business segment that included linear TV networks.

The Entertainment business segment includes linear TV networks and all direct-to-consumer business (Disney+, Hulu, Disney+ Hotstar). The third business segment -- Experiences --includes Disney Parks and consumer products.

The disclosure comes after months where there has been rumors and speculation of either a possible sale, sports league partnership or a spinoff for ESPN.

While some analysts say the release was positive for Disney, others are still concerned about ESPN’s future.

“ESPN faces the fundamental challenge of not owning the underlying content,” says Laurent Yoon, media analyst of Bernstein Securities. “And with the cost of sports rights continuing to escalate, Disney needs to prove that ESPN can be the sports aggregator, and thus earns its keep in that manner.”

He is also concerned that while 56% of the company's nine-month 2023 linear TV revenue came from sports, sports’ operating income margins were just 11%. 

“Seems low but makes sense given the high cost of sports rights,” he writes. Good news is that sports revenue at ESPN continues to be “stable” -- growing 8% the past fiscal year.

On the flip side, he says: “sports [profit] margin is lumpy...  it is clear why Disney went through the trouble of resegmenting to showcase sports.” 

For example, he says, domestic ESPN operating income margins were from 23% to 34% for the second through fourth-quarter periods over the past two years. But the first quarters in 2022 and 2023 were at operation losses -- 7% and 1% respectively.

Looking this year specifically at ESPN+ --the network's streaming service --  it has improved on its goal toward profitability.

Revenues for the first three quarters of 2023 were $485 million, $531 million, and $480 million.

Guggenheim Securities says the implied net loss for the most recent third-quarter period narrowed to just $7 million in the third quarter. For the first two quarters of 2023, ESPN+ posted net losses of $69 million and $72 million.

It also shows that advertising revenue for ESPN+ was $31 million (first quarter), $44 million (second quarter) and $34 million (third quarter).

The financial release by the company also recast data of Disney’s entertainment-only direct-to-consumer (D2C) businesses as well -- due to the exclusion of ESPN+. 

Revenues were now $5.05 billion for the third quarter, $4.98 billion for the second quarter and $4.82 billion for the first quarter. 

Operating income for the D2C business was roughly the same -- posting a net loss in the third-quarter 2023 of $505 million. Recasting of losses for the D2C segment is now a net loss in the first quarter this year of $984 million; $587 million in the second quarter this year.

The first nine months of 2023 shows D2C with a net operating loss of $2.08 billion. 

Taking out all of ESPN now means Disney Entertainment was at $39.6 billion for the fiscal year -- up 8% from the previous year. (It previously totaled $55.0 billion.)