Three simple reasons for the ESPN layoffs

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The only thing anyone is talking about on the internet this morning is ESPN cutting ties with roughly 100 reporters and on-air talents, many of them very talented, while dregs of society Stephen A. Smith and Darren Rovell kept their jobs.

While people are mad or sad about certain people losing their jobs, they’ve also been arguing why all these layoffs are happening.

I’m going to try to make this is simple as possible for why they are happening, using actual facts and logic, and not screaming, “ESPN IS TOO POLITICAL NOW THAT’S WHY NOBODY WATCHES!”

If that were true, nobody would watch any sports channel, because every sports outlet was talking Collin Kaepernick last season, not just ESPN. They just happen to be the most readily available sports outlet, so they are the ones people saw most.

So here are three actual reasons why these ESPN layoffs are happening.

1. Live sports rights are expensive. And ESPN spends a TON on them

I’m not sure how much they are total, but ESPN spends roughly $1.9 BILLION just to broadcast Monday Night Football. That’s right, more than $100 million PER GAME. They also just inked a massive deal with the NBA that runs through 2024 that pays out about $1.5 billion per season.

So right there, before you get into MLB, college football, college basketball, specific conference payouts and what ever other events, ESPN is spending roughly $3.4 billion on two sports.

Let’s go ahead and double that for all the other things they do and say it’s $6.8 billion each year, just for the rights to show sports. This does not include talent, sending people to games, cameras, equipment and the tons of other things needed to air games.

Think about that. Before they air one game or post one story or show one episode of SportsCenter, they are roughly $7 billion in the hole. Again, that’s not an exact number, but we’re in the ballpark.

Now, ESPN offsets this by being the most expensive channel on cable, getting roughly $7.20 per person, per month from every cable subscriber, per Awful Announcing, whether you watch ESPN or not.

Currently there are around 89 million TV subscribers in the country who get ESPN, so 89 million x 7.20 is about $648 million each month in TV subscription money. Over a year, that’s roughly $7 billion in cable rights.

So ESPN roughly is about even when it comes to TV rights and how much they get back from cable subscribers.

But again, that doesn’t take into account all the other costs, which is hundreds of millions of dollars each year, to put the games and events on TV, online, or wherever else they go.

But that 89 million number can be misleading because…

2. Subscribers are dropping at insanely fast rates

According to Business Insider, cable TV hit a high of around 89 percent of TV homes in 2010. In the seven years since then, that number has fallen to around 80 percent, a more than one percent drop each year. Which, doesn’t seem huge, but over the course of seven years, that’s very roughly a loss of around 10 million subscribers in a 7 year span.

UPDATE (3:17 p.m.): It’s worse than we thought. Though the 10 million subscribers lost is right, Deadspin reports that they lost 10 million subscribers in just three years from 2013 to 2016.

In 2013, ESPN had over 99 million subscribers. Today, it has just under 89 million. Over the last three years the network has lost a couple hundred thousand subscribers each month; a 621,000 loss is eyebrow-raising but on-trend. And even if Nielsen had halved ESPN’s subscriber loss to 310,000 in the updated report, it wouldn’t change the fact that it has lost 10 million subscribers in three years.

Using our math of $7.20 per person per month from ESPN, that’s a loss of roughly $864 million per year, from 2017 fees, in potential money that they might have had if they had the same number of subscribers as seven years ago.

Unless something crazy drastic changes to bring customers back to cable, ESPN is still on the hook for around $7 billion annually in costs for the rights to games, while losing subscribers at a rapid pace.

People are dropping cable for all sorts of reason, one is cost, again it’s $7.20 per month just for ESPN, and your overall bill can be easily north of $125 a month, just to watch TV.

And then there’s streaming. For better or worse, the internet and the ability to stream games has taken a big chunk out of cable. For $10/month you can have Netflix and watch almost everything you want as far as TV shows go. Then there’s Hulu, Amazon, and tons of other options, including channels putting their shows online a couple days after they air on TV.

Heck, even ESPN streams a ton of content, granted you need either a cable or internet subscription to access, but it’s there on ESPN3. Add that in with people sharing those passwords for ESPN3 or for whatever other streaming service, and people aren’t spending as much on TV as they have in the past.

For some reason, people for dozens of years thought cable was the only way to watch sports. Now, with a password from a friend to get ESPN access and a $10 antenna from WalMart you can get all your cable sports, as well as your network games for virtually nothing.

Or, places like DirecTV, Sling, Amazon, and YouTube are providing “cheap” bundles for about $35/month, giving you 40-50 channels that people watch the most, rather than $120 for 400 channels, 350 of which you’ll never touch.

But it’s not just that subscribers are dropping…

3. There’s more competition than ever

All those streaming things I mentioned are just part of the problem for ESPN. It’s not just that subscribers are dropping, viewers are dropping, and not just because ESPN is full of hot take artists or that people think they’re politically motivated now.

Think back to 1997, that’s 20 years ago. How many sports channels were there on TV that were easy to access? At most, three, and for most, one or two. At that time there was ESPN, ESPN2, and maybe a Regional Sports Network (RSN) if you lived in an area that demanded it.

Hell, I remember when ESPN2 started my dad had to go buy a box from the cable company to access it, it was not widely and instantly available.

20 years later and there is ESPN, ESPN2, ESPNU, ESPNNews, Fox Sports 1, Fox Sports 2, NBCSN, CBSSN, so that’s at least eight other channels all just competing for NATIONAL eyes that cover all sports.

And then there’s niche national networks like MLBN, NBA TV, NHLN, NFLN, SECN, BTN, ACCN, PAC12N, Tennis Network, TVG (Horse Racing), that are competing for eyeballs because they think they can cover your favorite sport better than ESPN does. If you’re a big baseball fan for instance, and you want MLB highlights and insight, you’re probably not watching ESPN that night, but MLB Network because it is all baseball talk, not NFL, NBA and whatever else.

And then you have your RSNs, which can be multiple channels in some networks, and feature the teams and players you care about 24/7.

Add it all up, and ESPN went from facing literally zero national competition 20 years ago, to roughly 10 times the competition, all while having fewer viewers available because of declining cable subscriptions.

That competition means have to pay more for TV rights, and more for people who do everything from appear on-air, to running the cameras, to writing things up online. Because if you don’t want them, there are now a dozen-plus other places they can turn for jobs or TV money.

But the biggest area it hits is advertising. Again, this isn’t 1997 where advertisers only had ESPN to turn to and got maximum reach for their ads when they did decide to go there.

All those other networks and declining subscribers means that there are less people tuning in to ESPN, and ESPN now has to charge less for ads, because there are less people seeing them, and that leads to money losses, especially when you’ve already got around $7 billion just in fees to broadcast sports.

For now, ESPN is still profitable, but they realize that there is fast approaching the day where their $7 billion in TV rights fees will be far more than they bring in from cable subscribers and advertisers.

So there you go, add up those three factors and ESPN has to cut corners from somewhere. They aren’t going to alienate the leagues they cover and risk losing that TV coverage when TV rights are back up for renewal, and so the easiest solution is to let writers and on-air talent go.

 

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