ESPN’s NCAA Hoops Broadcasting Rights Chip in for Disney’s $46 Stock Value

After Disney’s (NYSE:DIS) sports network ESPN renewed its deal with the National Football League (NFL), it struck another deal with the National Collegiate Athletic Association (NCAA) to acquire international broadcasting rights for Men’s basketball. ^[1] For Disney, ESPN is a significant business as the company charges a high fee per subscriber in addition to ad sales. Disney is able to do so as ESPN’s lead in sports programming is unparalleled. The new deal is another step to reinforce that leadership, although in terms of standalone financial value, it does not move the needle much for Disney. Disney competes with other media conglomerates such as News Corp (NASDAQ:NWS), CBS (NYSE:CBS) and Time Warner (NYSE:TWX).

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The deal with NCAA is priced at a payout of $500 million by Disney over the course of 12 years, in exchange for broadcasting more than 600 hours annually. ^[1] The deal size and length imply an annual expense of about $42 million for Disney.

Looking at ESPN’s EBITDA margin of a little over 40%, we estimate that the implied revenue gain could be of the order of $74-$76 million. This increment is negligible as ESPN brings several billions of dollars in revenues for Disney. Therefore, while the move is an essential part of ESPN’s efforts to maintain leadership in sports programming, the stand alone value is negligible.

Our price estimate for Disney stands at $46, implying a premium of more than 20% to the market price.

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1. ESPN and NCAA Extend Deal Through 2024, TV Week [↩] [↩]