Activist Investor Wants ESPN Spun Off From Disney

Image Credit: iStock, David Peperkamp

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It’s a small world, after all – much too small for ESPN, at least according to one maverick investor.

Activist Dan Loeb announced Monday that his Third Point investment firm has acquired a “significant stake” in Disney and wants the world’s biggest entertainment company to spin off The Worldwide Leader in Sports.

Handoff Economics

Like other activist investors – and he is one of the best – Loeb tends to insinuate himself into troubled companies, pushing for the overthrow of management, and demanding profits. But Disney, while its shares are down 20% this year, isn’t what you would call a layabout. Last week, the company reported sales growth and earnings that vanquished Wall Street projections like a Marvel Cinematic Universe foe. Disney even passed Netflix in total streaming subscribers, a major symbolic achievement.

So why hive off ESPN? Just like a good running back, Loeb believes it can shoulder some of the (debt) load for the team:

  • Loeb believes Disney can keep ESPN’s sports content on its ABC network through contractual agreements and the independent sports company can assume some of its debt. Similarly, while ESPN+ is growing, with subscribers reaching 22.3 million, up 62% in the last year, the sports streaming service is still losing money and is weaker than Disney+. ESPN also expects a $3 billion hit from cord-cutting in the next few years.
  • Loeb said Disney should focus on non-sports entertainment and combine streaming service Hulu into Disney+. Comcast, which owns 33% of Hulu, has an agreement to sell its stake in two years, and Disney, which owns the other two-thirds.

“ESPN is a great business that currently generates significant free cash flow,” Loeb said in a letter to Disney CEO Bob Chapek, adding for good measure that the Mouse House’s board could use an infusion of talent. “Despite these advantages, we believe that a strong case can be made that the ESPN business should be spun off to shareholders with an appropriate debt load that will alleviate leverage at the parent company.”

At a Loss: Nexstar Media, America’s biggest local TV station owner, agreed Monday to buy majority control of the CW Network from co-owners Warner Bros. Discovery and Paramount. The company isn’t expected to pay anything, however, because it will absorb the network’s current losses, which may top $100 million, according to The Wall Street Journal. Sounds like the kind of distressed asset Dan Loeb loves.