Have ESPN’s Profits Obscured A Mediocre Return On Disney’s Big Acquisitions?

That’s the eyebrow raising conclusion Cowen and Co’s Doug Creutz reaches today in a bracing in-depth analysis of Disney‘s profits. The analyst has been cool on Disney for years and remains so even as company shares touch new all-time highs (including one today). But he says that ESPN has been its “primary driver of growth over the last 10 years” and fueled “the expensive transformations that Disney has undergone since Bob Iger assumed the CEO role in 2005.” Despite the much-heralded outlays for Pixar, Marvel, and theme park upgrades, returns on invested capital (ROIC) during the past decade for the other broadcast, movie, digital, and theme park businesses “have been pretty pedestrian.”

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Creutz says he has been trying to make this kind of analysis for about three years but was stymied by the scant details Disney offers about ESPN’s profits. He thinks he found a good work-around, though, by assuming that the sports net looks a lot like near-pure-play cable network companies including Discovery, Scripps Networks, and Viacom (where Paramount’s earnings “are a pittance compared to the cable network contribution”). That leads him to believe that ESPN consistently delivers a ROIC of about 48% because it “can set prices for its customers, and to a certain extent, for its suppliers” at the sports leagues. Pay TV subscribers pay about $5.50 a month for ESPN, even if they never watch it. (more…)

This article was printed from https://deadline.com/2014/05/have-espns-profits-obscured-a-mediocre-return-on-disneys-big-acquisitions-736395/