Disney’s Next Business Venture is…Gambling?

Disney is known for its family friendly content — whether that be family-friendly rides, movies, books, or something else.

But Disney has also done some more “adult” things including releasing more mature movies, covering more adult topics, making thrill rides aimed at older kids/teens/adults, and even creating adults-only spaces on its cruise ships. And now it looks like Disney is planning on getting into a realm that is quite unique and much more “adult”…gambling.

What’s Going On?

During the earnings call for the 4th quarter of fiscal year 2021, Bob Chapek, the current CEO of The Walt Disney Company said, that they’re “moving toward a greater presence in online sports betting.” Chapek specifically noted that they “believe that sports betting is a very significant opportunity for the company” and that it is something they’re “keenly interested in and are pursuing aggressively.”

As you might imagine, Disney has looked at things like betting and gambling differently in the past, so how did we get here and what could the future hold? Let’s take a look.

How the View on Sports Betting Has Changed

According to The Hollywood Reporter, the Supreme Court of the United States of America “paved the way for legalized sports betting” back in May of 2018. At that time, the Supreme Court issued its ruling in a case that came before it called Murphy v. National Collegiate Athletic Association. As Forbes notes, through that ruling the Supreme Court struck down a ban on sports betting.

The Hollywood Reporter shares that just a day later after the Supreme Court’s decision in that case, ESPN’s president Jimmy Pitaro (who had only been in that position for about 2 months at the time) was speaking to reporters. According to The Hollywood Reporter, Pitaro sounded skeptical of ESPN playing an active role in the sports betting industry, calling the potential for this involvement “interesting,” “but only when it came to gambling-focused programming or segments on its TV shows.”

At the time, Conner Schell (who then served as ESPN’s head of content) said it was “something that we will be thoughtful about.” The Hollywood Reporter notes that this more “conservative approach” to getting involved in the sports betting industry continued throughout Bob Iger’s time as CEO at Disney.

During a 2019 earnings call Iger even said, “I do think that there’s plenty of room, and ESPN has done some of this already and they may do more to provide information in coverage of sports…But getting into the business of gambling, I rather doubt it.” 

According to the Orlando Sentinel, Disney once even “helped bankroll a ‘No Casinos’ campaign in 2018” in Florida.

Now, it appears the tone and focus of the Disney company, and their feeling toward sports betting/gambling has changed. As noted above, Bob Chapek (the current Disney CEO) has indicated that sports betting is an area they’re now “keenly interested in and are pursuing aggressively.”

Since the Supreme Court’s decision in 2018, sports betting has spread throughout the U.S. Forbes notes that “32 states and Washington, D.C. have launched legal markets and the industry is on fire and flush with cash.” In the first half of 2021 alone, Americans bet around $24 billion (yes, billion, with a “b”) with legal sportsbooks. This translates to around $2 billion in gross gaming revenue.

According to Macquarie Research, cited by Forbes, the sports betting industry is expected to produce about $30 billion in revenues (from an estimated $400 billion in total wagers) by 2030.

And it looks like media companies want a bit of the action. Forbes shares that companies like Fox and Sports Illustrated have “already cut deals with sports betting companies.”

So what makes Disney’s involvement so unique? Well, as we noted above, Disney is typically known for its family-friendly focus, something that gambling and betting strays from (at least in some people’s opinions). What makes things even more interesting is that Disney doesn’t have gambling on its cruise ships. It seems to be an activity Disney has pulled away from in the past but is now jumping toward (at least in the sports betting area). It’s a unique space for Disney to get into since it’s one they’ve since kept themselves out of.

What Disney is Saying Now

So just how has Disney changed their tune? Well, as we noted above, during the earnings call for the fourth quarter of fiscal year 2021 (the transcript for which can be found here) Bob Chapek noted that they would be “moving toward a greater presence in online sports betting.” Chapek noted, that given Disney’s “reach and scale, [they] have the potential to partner with third parties in this space in a very meaningful way.”

Following Chapek’s initial comments, one individual specifically asked for more details about Disney’s/ESPN’s potential involvement in this space. Chapek said that they think sports betting is a “very significant opportunity” and that the whole thing is driven by the consumer. Chapek noted that the industry is “driven by the consumer, particularly the younger consumer that will replenish the sports fans over time and their desire to have gambling as part of their sports experience.”

Chapek noted that these younger consumers want more of a lean forward-type of experience, something more interactive. According to Chapek, as Disney focuses on following consumer interest, they “necessarily have to seriously consider getting into gambling in bigger way.” He shared that he considers ESPN to be the perfect platform to get into this industry.

What about the Disney brand and its reputation for being family-focused? Chapek addressed that too. According to Disney’s CEO, they’ve “done substantial research in terms of the impact to, not only the ESPN brand, but the Disney brand in terms of consumers’ changing perceptions of the acceptability of gambling.” Chapek said that there’s a “very significant installation” and that “Gambling does not have the cache now that it had, say, 10 or 20 years ago.”

But it’s not an area they enter without any concerns. Chapek said that they have “some concerns as a company about our ability to get in it without having a brand withdrawal.” But based on the research they’ve done, Chapek said that it appears this issue might not be one to really be concerned about. Chapek shared that their research has shown “It actually strengthens the brand of ESPN when you have a betting component, and it has no impact on the Disney brand.”

According to Chapek, “to go after that demographic opportunity plus the, of course, not insignificant revenue implications, that is something that we’re keenly interested in and are pursuing aggressively.”

During an interview with CNBC, Chapek shared that they feel the sports betting option “really adds something material we believe to that proposition as the new younger audience wants to be a little bit more engaged in the outcome of the game.”

Chapek also shared that it also adds a more “interactive, a more gaming component to it as well so less of a sit back and more of a lean forward type of experience.” According to Chapek, Disney feels that certain sports rights coupled with the “benefits” that they’re “working on building into the sports viewing process really will, you know, take ESPN and reinstate it as a big growth business for [them.]”

So it seems the research they’ve done has made Disney feel they can enter the space without significant impact to their brand, while still allowing them to capitalize on the potential revenue available in that gambling space.

Click here to see more updates you missed from the 4th quarter earnings call.

What’s Different Now?

What’s changed recently to make companies like Disney and others view sports betting and gambling differently? Well, a lot of things, apparently.

According to The Hollywood Reporter, changes in consumer habits is one piece of the story. They note that “gamification” has become more common throughout various apps and media. The Hollywood Reporter also shares that “ESPN+, like other streaming services, is all but certain to add gamification functionality in the future as it seeks to grow engagement and its subscriber base.”

Another big thing is that major sports leagues have gotten on board when it comes to sports betting. The NFL announced that FanDuel, DraftKings, and Caesars would be its signature sports betting partners. It later shared that BetMGM, PointsBet, and WynnBET would be “authorized sports betting partners” for the season.

As for the NBA, they’ve previously revealed a deal with DraftKings and FanDuel. According to The Hollywood Reporter, “The MLB, NHL, UFC and other leagues have also signed betting deals.”

As one gambling historian told The Hollywood Reporter, when you have the major sports leagues and state governments on board, “it is hard to take a moral stance against being involved with gambling.”

One individual who spoke with Forbes shared a similar reasoning. Daniel Dienst, executive vice chairman of the Authentic Brands Group, shared that “Gambling, sports wagering in particular, has moved out of [the vices] world” and is now just “part and parcel to the culture of how people engage with sports.”

We’re also in the middle of an interesting financial situation that might be impacting things. Forbes notes that the Walt Disney Company “reported earnings under Wall Street’s expectations. Additionally, the company has been financially impacted and continues to be impacted by COVID-19. But a bright spot is sports.” ESPN+’s subscriber numbers increased by 66% over the fiscal year, and “90% of the most-watched broadcasts on Disney’s owned TV networks last year were sports events.” Disney has also made a rights deal with NFL that will start in 2023.

While sports has been an area of brightness, there are still gaps in the financial sphere to make up for. In the fourth quarter of fiscal year 2021, ESPN advertising revenue was “flat” compared to the same period from the previous year. Gambling could help Disney access new revenue streams, however, and potentially reach/keep their younger audience.

Disney may have started exploring the waters already. The Wall Street Journal shared that ESPN was reportedly “in discussions to explore a potential brand licensing deal with Caesars Entertainment or DraftKings that could be worth $3 billion.”

Sports-betting rules in Florida are also in a state of transition. The changes in Florida could have an impact on Disney’s potential future services and their view on sports betting overall. According to the Orlando Sentinel, earlier this year, Florida lawmakers voted to legalize sports-betting across the state. But they also specified that they would give “the Seminole Tribe exclusive control over this new, billion-dollar market.”

Other sports-betting companies didn’t exactly appreciate that deal (as you might have expected). DraftKings and FanDuel have been asking Floridians to “pass a constitutional amendment that would let other companies compete for your gambling dollars.” According to the Orlando Sentinel, Disney hasn’t funded their campaign to open sports-betting in Florida to other entities, but “the company clearly wants in on the gambling market it long opposed.”

But things with Florida’s law have now changed. The Orlando Sentinel notes that the new law legalizing sports betting was struck down by a U.S. District Court Judge in November. Despite that outcome, a new gambling oversight board passed as part of some new laws that coincide with Florida’s compact with the Seminole Tribe on gambling is moving forward. In December, Florida Governor Ron DeSantis appointed 3 members to the Florida Gambling Control Commission.

The compact that was signed between Florida and the Seminole Tribe allows the tribe to add sports betting to their casinos and gives them a monopoly on that (along with some other things). The compact allowed sports betting to be set up by the Seminole Tribe via an app so people could gamble from their smartphones. But federal law requires that the bets be made on tribal grounds. The Seminole Tribe argued that since the servers that would process the bets would be on Seminole lands it could pass that requirement. The court did not agree and struck down the entire compact. Despite this, according to the Orlando Sentinel, Governor DeSantis has said he “believes most of it to remain in effect.”

The Seminole Tribe is appealing the ruling, so the outcome of that situation could impact things in the future.

As The Hollywood Reporter notes, Disney also has a small stake in DraftKings through its acquisition of Fox, which gives it another reason to potentially be interested in this area.

What Could the Sports Betting Look Like?

If Disney does get involved in the sports betting industry, what would that look like? As The Hollywood Reporter notes, Fox Corp. has its own betting platform (Fox Bet), which is something Disney doesn’t have. Some sources have told The Hollywood Reporter that Disney has reportedly been in talks with some betting operators to set up a partnership.

There are many operators in this space, but BetMGM, Caesars, and DraftKings are reportedly seen as frontrunners in terms of a potential partnership with Disney.

Could Disney/ESPN ever host wagers directly? Forbes notes that during an investor conference in September, Chapek was asked this question. Chapek said that there’s “a long way between imbedding into ESPN as a business model and licensing out.” Chapek said “Let’s just say that our fans are really interested in sports betting. Let’s say that our partners with the leagues are interested in sports betting, so we’re interested in sports betting.”

What Problems Could Disney Face?

It seems the view on sports betting has changed for many and Disney is clearly interested in getting involved in the industry. But it won’t come without its own challenges.

One is potential oversaturation.  According to The Hollywood Reporter, one analyst, Neil Begley, has said that Disney and ESPN have strong advantages in the field given that they have “broad distribution and rights holdings.” But he said that the sports betting industry could be a “free-for-all among several of the big media groups, and there is risk of oversaturation, which could dilute the opportunity.”

Begley also noted that the gambling could become an issue given Disney’s family-friendly image, a topic we discussed a bit above based on the research cited to by Bob Chapek. Chris Lencheski, chairman and CEO of the strategic advisory firm Phoenicia Sport & Entertainment, has noted, however, that Disney won’t be the one entering the sports betting world, ESPN will. Drawing that line can help some differentiate and keep the effects of gambling from spilling over to Disney’s image.

But even if image isn’t an issue, Disney faces other challenges. Hal Vogel, CEO of Vogel Capital Management, has noted that sports betting is a field where there’s already a lot of competition. Disney is already starting from behind several others who have entered the field, so that’s something they’ll have to deal with.

Disney will also have to handle having both sports reporting and sports betting tied to ESPN, and Vogel notes that could eventually lead to conflicts of interest.

What’s Next?

Ultimately, there’s a lot to consider here. Disney will have to balance its family-friendly brand identity with this new, more adult activity over at ESPN. What will the sports betting look like? Who will Disney partner with? How will the company handle their involvement in the industry in the future? Will it end up obtaining the revenue Disney desires? Much remains to be seen, but it will be interesting to follow Disney as they enter this unique space.

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