From Keith Olbermann to Bill Simmons, Why ESPN Is Sacking Top Talent

ESPN Sacks Top Talent - H 2015
Bryan Bedder/Getty Images for Paley Center for Media

ESPN Sacks Top Talent - H 2015

Disney's sports power faces financial and league pressure as the pricey (and outspoken) Olbermann and Simmons are shown the door.

In 2013, when ESPN president John Skipper brought Keith Olbermann back to the network where he had napalmed so many bridges, both men had high hopes for a new beginning. A year later, Olbermann's late-night ESPN2 show was languishing in time-shifted hell, often delayed hours by minor college contests. A move to 5 p.m. didn't help (the show lures just 167,000 viewers, down more than 20 percent year-over-year), and a promise of appearances on SportsCenter never materialized. ESPN didn't even secure Olbermann an MLB press credential, despite several requests.

Olbermann's New York-based show also is expensive, costing about $10 million a year to produce. And yet, sources say Skipper was willing to renew Olbermann if the host tempered his fiery commentaries when it came to NFL commissioner Roger Goodell (Olbermann called for his ouster for his handling of domestic violence issues), indicted outgoing FIFA chief Sepp Blatter and MLB commissioner Rob Manfred. (ESPN denies Olbermann was asked to limit his opinions.)

The financial and political concerns highlight the challenges ESPN is facing and the reason it has lost Olbermann and Bill Simmons, another top talent whose periodic outbursts led to his May ouster. (Simmons, who was making $5 million a year and overseeing the digital vertical Grantland, is in talks for a deal with HBO.) And on Thursday, ESPN confirmed another long-rumored exit: Colin Cowherd will leave for an expected deal at Fox Sports, though ESPN did aggressively work to keep Cowherd.

Indeed, despite ESPN's status as the biggest revenue producer in television, with by far the highest subscriber fees, the cost of doing business is rising exponentially. The network pays nearly $2 billion annually for NFL Monday Night Football. In October, ESPN extended its TV deal with the NBA through the 2024-25 season, paying $1.4 billion annually, a threefold increase over what it currently pays.

For years, those lucrative sub fees and the network's unmatched ability to reach younger male viewers have supported a bulging sports portfolio. But the cable industry is contracting. Over the past year, ESPN has shed 3.2 million subscribers, according to Nielsen. Network executives counter that the subscriber loss — ESPN now is in 92.9 million homes — has not affected ratings or ad rates. But cord-cutting only will increase as more content providers — including the sports leagues themselves — offer content streamed online. ESPN is available on Sling TV, a partnership the network has no plans to abandon, but consumers also are demanding so-called skinny cable and satellite bundles, some of which eliminate expensive sports channels. In April, ESPN sued Verizon, alleging the company's custom TV package violated its distribution agreement.

Ironically, in an a-la-carte world, ESPN's rich subscriber fees — more than $6 per sub, the envy of the cable TV business — could become its Achilles' heel. Analyst Michael Nathanson predicts ESPN would cost $36.30 a month on its own, by far the most of any network. Adds analyst Steve Birenberg, "The Street is modestly nervous about ESPN due to the role of sports in driving consumer cable bills higher and the skinny bundles that are rolling out."

That's because the network's business model, adds Birenberg, "requires reaching virtually 100 percent" of cable and satellite subs, "as that assumption is built into the sports rights they are locked into." So the network that for years bid up the price of football, basketball and baseball rights because it knew its steady cash flow was bigger than other outlets could find itself with a product too expensive for its audience.

In fact, ESPN has been in cost-cutting mode for a few years, the result of a companywide review mandated by Disney CEO Robert Iger. In 2013, ESPN cut 400 of its 6,500 employees, shuttered its 3D network and closed regional offices. In the most recent six-month period, Disney's media networks segment housing ESPN showed slightly declining operating income while the other four segments rose. Cable was the culprit, dropping 6 percent to $3.05 billion while broadcast shot up 61 percent to $542 million. Iger specifically blamed rising ESPN costs.

Disney CFO Jay Rasulo attributed second-quarter declines to the College Football Playoff, an NFL Wild Card game and the SEC Network. But he said the company expects "relatively flat programming and production costs in the second half of the year" for a "full-year outlook [that] is unchanged."

Dropping some network stars won't make a sizeable dent in ESPN's overall bottom line, but If executives are jettisoning talent to rein in expenses (and avoid uncomfortable calls from league partners), analysts suggest it would be in keeping with Disney's corpo­rate posture. Adds Birenberg: "Seems like they pinch pennies more often. Hard to complain with the results." Disney stock, in fact, is up 20 percent this year and up 150 percent in the past three years, far outpacing rivals.

ESPN's other Grantland-like vertical, the yet-to-launch The Undefeated, which will focus on the intersection of race and sports, remains in limbo after Jason Whitlock was removed as the site's editor. ESPN executives stress that they "remain committed" to The Undefeated. And they point out that Grantland's traffic has not taken a dip since Simmons' departure. The site averaged 7.2 million unique users in May, up nearly 50 percent year-over-year, according to comScore, the site's best month since Simmons launched Grantland in 2011.

July 16, 10:45 a.m. Updated with news of Colin Cowherd's exit for Fox Sports.