Program spending leads to job cuts at ESPN

ESPN (opens in new tab), the Walt Disney Co.-owned giant of sports broadcasting, is firing about five percent of its workforce — about 400 of its 7000 employees — in an effort to reduce operating expenses. Many say the all-sports network, which is still growing despite this latest round of cuts, has spent way too much on exclusive sports programming — such as its recent acquisition of the exclusive rights to the U.S. Open Tennis Tournament, beginning in 2015.

“We are implementing changes across the company to enhance our continued growth while smartly managing costs,” ESPN said in a statement last week. “While difficult, we are confident that it will make us more competitive, innovative and productive.”

About 4000 employees work at ESPN headquarters in Bristol, CT. The cuts are happening across the Disney company. In April, Disney laid off about 150 people at LucasArts, the video-game making division of Lucasfilm, and about the same number at the Disney movie studio in April. That layoff was attributed to the decline in DVD sales as consumer habits shift to digital forms of home entertainment.

The New Haven Register reported that about 100 workers would be laid off in Connecticut. This, the newspaper said, has drawn fire from political leaders in the state because ESPN accepted incentives from the state in exchange for creating jobs. The company was included in Gov. Dannel Malloy’s First Five Economic incentive program.

ESPN joined the program in August 2011, agreeing to create at least 200 jobs over a five-year period. In return for creating the jobs, the company got a 10-year, $17.5 million loan from the Department of Economic and Community Development for the construction of a new media production facility that will open next spring.

U.S. Sen. Richard Blumenthal (D-Conn.) said ESPN needs to live up to the commitments it has made to the state as part of the First Five program.

“I hope and expect that they will keep that promise,” Blumenthal said. “Layoffs should always be a last resort, and I hope that ESPN can find other opportunities within the company for these individuals.”

Forbes said the layoffs at ESPN should come as no surprise. ESPN has purchased virtually ever sports property to come on sale lately, leaving its competition the leftovers. Just last week, ESPN spent $825 million for an 11-year contarct to broadcast the U.S. Open, beginning in 2015.

A former ESPN employee, reported, said that the cost cutting was due to massive programming investments threatening ESPN’s bottom line.

Disney has been successful financially, beating or matching earnings per share estimates for the last eight quarters. The company reported a 32-percent gain in net income for its fiscal second-quarter earnings two weeks ago. Fees from ESPN’s distributors exploded in the latest quarter.

ESPN has also seen costs increase with skyrocketing prices for the broadcasting rights to live sports. Live sporting events have become increasingly valuable in an age of fractured audiences and DVRs. That drives up rights fees, but also makes the programming more appealing to advertisers and allows ESPN to try to charge more from cable and satellite operators.

However, any threat to ESPN’s profitability is a threat to Disney’s bottom line. ESPN is responsible for almost 60 percent of the Disney’s profits, and the network comprises about half of Disney’s total value.