The Journal. - Disney Gets Into Gambling

Episode Date: October 18, 2023

After years of internal debate, Disney did a deal with a gambling company and will launch a betting app next month through its sports channel ESPN. WSJ’s Robbie Whelan explains how the family-friendly entertainment giant got to this point. Further Listening: -The Troubled Second Act of Disney CEO Bob Iger  -The Showdown Over Hulu  -The Disney Boss Who Wouldn’t Let It Go  Further Reading: -Disney Goes All In on Sports Betting  -ESPN Explores Sports-Betting Deal Worth at Least $3 Billion  Learn more about your ad choices. Visit megaphone.fm/adchoices

Disney has made a multi-billion dollar business out of Mickey Mouse, princesses, and theme parks where dreams come true. So Disney, obviously, is a company whose main audience is kids and families, right? That's our colleague Robbie Whelan. and families, right? That's our colleague Robbie Whelan. For most of its history, it's about 100 years old. For almost its entire history, it has been synonymous with family entertainment.

Disney is also one of the largest entertainment companies in the world. It controls huge brands like Marvel, Star Wars, Hulu, and ESPN. But in recent years, some of Disney's core businesses have been struggling. Disney plans on cutting back on the amount of Star Wars and Marvel projects we'll be receiving due to the recent underwhelming box office numbers and... Hulu, once a key pillar in Disney's triple play streaming strategy,

could now be on the auction block. Subscriber growth for Disney Plus falling short of estimates last quarter. To try to stay on top, Disney is now trying something totally different. It's getting into gambling. Through its ESPN brand, the company is going all in on sports betting. And ESPN is going to put its name on a mobile app

called ESPN Bet that will launch next month. For the family-friendly company, this move is a gamble. Introducing gambling for some fans and for some executives, even inside Disney, felt very uncomfortable. Because gambling is not really thought of as an activity that's safe to do around kids. And they just aren't your grandparents' Disney anymore. Welcome to The Journal, our show about money, business, and power. I'm Jessica Mendoza. It's Wednesday, October 18th.

Coming up on the show, Disney bets big on sports gambling. This light-bodied, fruity cider offers a crisp, clean finish. Perfect for sunny days and warm nights. Enjoy it well-chilled or over ice. That's refreshing. That's Summersby. Must be legal drinking age. Please drink responsibly. Carlsberg Canada Inc. Waterloo, Ontario.

Before 2018, if you wanted to regularly bet on sports in the United States, it might have been handled by guys like this. Spreads 11. Oregon's down by 12. They're on the 45-yard line with no timeouts. That's from the mob show The Sopranos, for those who don't know. But in 2018, the Supreme Court struck down the federal ban on sports betting so states could make their own decisions. After that, sports betting grew significantly. It's now legal in 38 states and Washington, D.C.

This industry has just grown leaps and bounds in recent years, and it's become sort of an integral part of the sports viewing experience. They said this year it's going to be something like an $11 billion industry. Wow. And a lot of media companies are looking at that and they're saying, we can't miss this train.

One company that got a big boost from the 2018 Supreme Court decision was DraftKings. They began as a fantasy sports company. In August 2018, they launched their first legal online sports book in New Jersey, and they've expanded from there to a bunch of other states, New York, West Virginia, Indiana, places like that. They're now a publicly traded company, and they have become one of the most dominant companies in sports betting. Yeah, I see their ads everywhere. Yeah, I mean, it's basically, yeah, their ads are everywhere. They're ubiquitous when it comes to sports betting.

From turnover chains to giant drums, college football is fueled by traditions. And DraftKings Sportsbook's tradition, bringing you great offers. DraftKings takes bets online and through their Sportsbook app. And the betting options go way beyond who wins and loses a game. It's betting on almost every aspect of the game. You can say, oh, I think this person, I think LeBron James is going to score 35 points or more in this game. And you can place a bet on that.

You can even bet on how long the national anthem will be, or the color of the Gatorade that's going to be poured on the coach. These days, DraftKings is doing really well. They control something like 30% of the market for all sports betting in this country. It was through DraftKings that Disney dipped its toe in the new sports betting world.

In 2019, Disney acquired the entertainment assets of 21st Century Fox. And as a part of that, it got a 6% stake in DraftKings. But Bob Iger, the CEO of Disney at the time, kept his distance. And around that time, according to my reporting, some of Iger's sort of more deal-minded and expansion-minded lieutenants,

other executives at Disney, said to him, you know, we should really buy a bigger stake in DraftKings. This looks like a really profitable company. They're going to grow a lot in the coming years. Let's get involved in this. Let's buy more. And Iger told them, no, I don't think it's the right time. I don't think that's good for Disney's brand. We're a family brand.

Here's Bob Iger at an earnings call from around that time. I don't see the Walt Disney Company, certainly in the near term, getting involved in the business of gambling, in effect, facilitating gambling in any way. This isn't to say that Disney had never flirted with gambling before. But every time it did, it ended up pulling back. Like, for example, in the early 90s, Disney, for a very brief moment, talked about partnering with state lotteries. Disney backed off this very quickly.

They decided it actually is not great for their family-oriented image. Things changed in 2020, when Bob Iger stepped down as CEO of Disney and handed over the reins to one of his deputies, Bob Chapek. When Bob Chapek took over, he said, this is a comment he's made to a lot of people that's been repeated to me, which is he would say, you know, when it comes to sports betting,

I'm really not that precious about the brand. And what he meant was, you know, I don't think it's contradictory for Disney to have princess dresses and Donald Duck and Goofy, but also have, you know, a toehold in this really growing business of sports betting. For Chapek, getting into gambling made sense. ESPN was a big moneymaker for Disney, and the brand was an obvious way into the lucrative world of sports betting. I'm not sure if everybody knows that Disney is the owner of ESPN, the biggest sports network in America, certainly, and in some parts of the world as well. One of the biggest players in sports broadcasting and sports content. But ESPN couldn't create its own gambling platform. And the reason for that is that a company like ESPN can't operate legally what's called a sports book,

which is, you know, the entity that takes bets, places them and pays them out. And that's because you need a gambling license to do that. So Disney and ESPN began talks with DraftKings. They already had a relationship, but this would bring the two companies closer together. The ultimate goal? A shared sports betting platform. But before they could reach a deal, Chapek stepped down as CEO. And Iger, the longtime sports betting skeptic, came back. That's next. Travel better with Air Canada.

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In November 2022, Bob Iger returned as Disney's CEO. And the company was in rougher shape than when he left it. After almost three years of COVID, traditional TV wasn't doing well. And neither was streaming. Nobody was going to go to see their movies. No one was going to pay to go to their theme parks. And their stock price, like most companies' stock prices, plummeted, just fell like a rock. In this new financial situation, Bob Iger reconsidered sports betting.

He had, in the meantime, come around a little bit and changed his view. Part of that, interestingly enough, was because he saw his two sons. He has two adult sons who are both in their 20s. He saw them glued to their phones doing this sports betting on mobile apps all the time. And he's thinking to himself, if my sons love this and they're really into it and this is the thing for them, it must be pretty popular and it must be more normal now. And he changes his tune. The negotiations with DraftKings had been going on for years, but they were slow moving. Now we're kind of in the early part of this year.

ESPN is still in this back and forth with DraftKings. They say, we want X amount of money. DraftKings says, we can't pay you that much. They say, we want to be in control of all the marketing surrounding this app, and we want to call it ESPN Bet. DraftKings says, well, maybe we should have our name on the app, too. There's a number of things where ESPN and DraftKings just cannot come to an agreement. And into this picture comes Penn Entertainment. Penn Entertainment is not a very well-known sports betting company. They're a very old and fairly well-known casino company. They run casinos in places like York, Pennsylvania and Biloxi

and places where you don't really think of the sort of glitz and glamour of the Las Vegas Strip, but nonetheless places that do a good business with people who want to gamble after work or on their weekend or on the day off. Penn, like many other casino companies, tried to get into the sports betting game. So it acquired Barstool Sports, an American sports content website that features a mix of blogs, podcasts, and videos.

But Barstool was mired in controversies related to sexism and crude behavior at the workplace. Barstool's founder denied these allegations. To Penn, Barstool soon became more trouble than it was worth. So when Disney comes along with ESPN and says, look, we're looking for, you know, somebody to pay us the right amount of money so that we can be your marketing partner and we can put our name on an app that you run. That was music to Penn's ears. Penn dumped Barstool, selling the company back to its founder for a dollar.

But it kept the database of its 1.5 million online betting customers. And Disney and ESPN, they decided to move forward with Penn. We're ESPN. We're the biggest name in sports. It's actually advantageous to partner with a smaller company because the upside is much higher. That's their thinking at the time. This thing with DraftKings has gone on for way too long. It doesn't sound like they're being too reasonable on the terms of the deal.

Let's cut off those talks. Let's go with Penn. By August of this year, a deal was signed and announced. Disney will get about $2 billion spread out over the course of 10 years. ESPN has signed a long-term exclusive agreement with casino operator Penn Entertainment. So now ESPN is all of a sudden, over the course of a summer, a flurry of negotiations over the summer, they're front and center squarely in the sports betting world with a partner. And work started on a new app called ESPN Bet. they're front and center squarely in the sports betting world with a partner.

And work started on a new app called ESPN Bet. It's part of a bigger plan to rev up ESPN, so it'll have a sports betting platform alongside its standalone streaming service. Within a few years, we're not sure when exactly, ESPN is supposed to be its own standalone streaming business where people pay a monthly fee to watch live sports on it and to watch all of their shows. And in order to secure that future and make that work, they need millions and millions of new customers. And I think they're thinking that most of these new customers are going to be young people, and a lot of them are going to be young men. And so this is much more of a strategic play, I think, for Disney

than it is sort of a grab of a temporary revenue stream. So, Robbie, what's going to happen now? The plan is that ESPN is going to launch ESPN Bet next month in November, just about halfway through the NFL season. So people will be able to start betting on those games pretty soon. What we're also going to see is a big push by ESPN to promote this app and to sort of try to sign up more people to download it and create profiles on it once it launches next month. Do you have a sense of how the app is going to work? Well, I plan to download

it and I'll report back to you as soon as I figure out how it works. Yes, please. That's all for today, Wednesday, October 18th. Additional reporting in this episode by Catherine Sayre and Jessica Tunkel. The Journal is a co-production of Spotify and The Wall Street Journal. Thanks for listening. See you tomorrow.