Analysts Weigh in on ESPN's $5.6 Billion Baseball Deal

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ESPN Doubles Down on Baseball With $5.6 Billion Pact

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Wall Street analysts say a new ESPN deal with Major League Baseball will be less profitable for the Walt Disney sports network, but helps it lock up additional key sports rights longer-term.

The entertainment conglomerate unveiled the eight-year agreement, estimated at a $5.6 billion price tag, with Major League Baseball for games starting with the 2014 season on Tuesday.

ESPN Doubles Down on Baseball With $5.6 Billion Pact

"While the rights increase is substantial, we continue to believe in the rising value of sports content, particularly in a world where content is increasingly viewed on a time-shifted basis," said Barclays Capital analyst Anthony DiClemente. "ESPN now has the rights for the three most popular professional sports locked up...ESPN has locked up the rights for Monday Night Football through 2021, NBA basketball through 2016, and now MLB baseball through 2021."

He reduced his fiscal year 2014 earnings estimates for Disney though "given lower ESPN margins" due to the higher rights costs.

"We assume a lower margin on the new deal, but still expect it to be profitable," UBS analyst John Janedis echoed.

He also estimated that the new deal was "significantly more expensive," but highlighted that it contains increased exploitation rights, "making the new/prior deals somewhat uncomparable on an apples-to-apples basis."

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Davenport analyst Michael Morris said he was "less enthusiastic about national baseball contracts than we are about NFL, college football and NBA basketball." But he said that MLB content meets two programming needs for ESPN.

"It provides a significant amount of summer primetime content and it provides significant material for highlights shows, including Baseball Tonight," he wrote in a report.

"To the extent that ESPN is able to continue to raise affiliate fees in excess of 6 percent and take advertising market share with live, male-targeted programming, long-term sports rights agreements remain attractive investments in general," Morris said.

DiClemente said the deal will also affect News Corp. and Time Warner. "Fox and TBS currently pay roughly $250 million and $150 million, respectively, to the league for their MLB rights packages" that expire in 2013, he said. "A new deal could see increases in the same ballpark as the ESPN deal."