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To answer some of the questions you are getting about the logical error:

The logical error is assuming that sports franchises are overvalued just because the entertainment options that report on sports (ESPN) may be overvalued.

The OP is saying that reddit/r/cfb, reddit/r/nba, bleacher report, twitter, youtube etc. all now actively compete against ESPN's cash cow, highlights / analysis.

People are tuning in to live sports more than ever, and sports are the only consistent option for TV advertisers to capture viewers due to the importance of watching sports live.

Several major college football conferences will be renegotiating their TV rights over the next 36 months, including the Big 10. Most people expect it to be the highest price ever paid for TV rights because there are so few 'live' options left for advertisers and the Big 10's viewership is increasing rapidly. At the same time, less and less people think ESPN is important.

This is not only a more concise but also a clearer explanation.

well put!

I thought you had a great comment, but when I read the rebuttals, I realized that it needed a more detailed explanation for people who do not watch sports and assume that ESPN is "sports".

Since you cannot buy ESPN alone, we do not know who is cancelling ESPN because they never cared about ESPN and are simply ending their relationship with cable. I know that if it wasn't for live sports, I would not have cable and from talking to friends that also seems true. Those 7m subs that ESPN lost, may all be people who switched away from cable because ESPN wasn't important to them. If that is the case, ESPN may be able to actually get more value from less subs.

There are going to be a lot of bloggers out there that do not understand how value is migrating from one group to another. Its a complex problem for cable companies and ESPN and I think ultimately, sports franchises are going to be able to capture most of the value.

This is not quite accurate. You'd have to figure that if people are canceling subscriptions as part of a random process, then they ought to also be signing up for a subscription randomly too. When it averages out, ESPN should be seeing about as many people canceling as they see signing up if it all just comes down to noise.

If it's not all noise, then there are a few different scenarios:

1. Some exogenous factor is causing more people to cancel in general than to sign up. This would mean that across the board every television content provider would be seeing similar subscriber loss as what ESPN sees. I'd argue that we're not seeing that, even though there is huge rage against the major cable providers. People are tuning into live sports on network TV more than ever ... so if they are doing that, yet ESPN sees consistent subscriber loss uncompensated by complementary new account sign ups, it's evidence that people are indeed choosing to drop ESPN specifically.

2. There could be an exogenous factor causing people to sign up for cable more than drop it -- in which case ESPN's subscriber loss would be even worse. I don't think we're seeing this either.

3. It could be the endogenous factor that ESPN's content offerings are no longer compelling. This is generally directly tied with advertising metrics, so if advertisers are putting a red flag on ESPN, you can bet that they did lots of due diligence to ensure they were measuring the right thing, and not some accidental side effect of exogenous changes in cable habits overall.

On this last point, I think it bears pointing out that ESPN has a lot of different digital properties. There is the WatchESPN app which provides a ton of free content that doesn't require anything but an internet connection, even though it also provides more premium content that does require you to obtain login credentials through a supported cable provider based upon your level of ESPN subscription.

It's very easy to see how they could use the overall viewership statistics of WatchESPN combined with the specific statistics based on the subset of viewers who actually log in via a subscription to watch WatchESPN content. From that you could derive reasonable estimates of the changing number of subscribers.

Add on to that things like fantasy sports accounts, "insider" subscribers, and so forth, and it should give you a decent holistic understanding of whether subscriptions overall are increasing or not specifically in response to ESPN's offerings.

Especially considering ESPN is tied into cable TV, which is a huge bundle of channels, 99% of which are garbage.

Is it really the case that fewer people think ESPN is important or is that more people think cable is useless and dropping it. Many of which didn't watch ESPN to begin with. The real issue is the non sports watchers are no longer subsidizing the sports watchers. B

I believe that is the real issue. I didn't want to include it in the parent to keep it clear so I wrote it below.

Not a logical error at all, much less a major one. The obfuscated "taxation" of American households led to higher bids for airing games which led to salaries for players and higher valuations for teams. The cost to ESPN of the entertainment (Mike & Mike, Bill Simmons, etc) is a laughable fraction of the cost of broadcast rights.

So I believe the author is possibly correct in his assertion that cutting off the money from non-fans (since fans will presumably pay in some way) will materially affect the valuation of these leagues.

One could argue the non-fans do not substantially subsidize NFL programming - Disney is able to capture most of this value internally as opposed to the specific leagues.

i.e. the value from bundled programming profits don't get passed on to the NFL

To be precise, I'd say the article's core argument is something like: The obfuscated upper bound of $40/mo/subscriber cannot be recovered since the transparent pricing upper bound is $20/mo/fan. ESPN currently accounts for approximately half of all revenue for major league sports teams. The internet is driving unbundling which is forcing a move from obfuscated to transparent pricing.

With that premise and those numbers from the article, the crash will be something like a 35% drop in revenue (bounded by 25% and 50%) for sports teams when the transition from obfuscated to transparent pricing is complete. That seems like a big deal.

I think the mistake is assuming that $20/mo/fan is the upper bound. That's just a baseline direct subscription number. What ESPN should do then is offer a menu of more specialized sports products on top of that baseline. I do think there's going to be a painful transition in their business model in moving from leveraging a price from a wide range of cable subscribers, to offering premium products directed at sports fans. But, for all the pain, I think there's plenty of money to be made.

$20 a month woudl be cheap when compared to the Murdoch Tax in the uk to watch skysports.

Or £5 ($8) a month for BT Sport, which has some Premiership football, though not all.

I'm not a [watching] sports fan — is BT Sport making much impact in Britain?

Its upsetting News international who have been lobbying to hobble BT

Pricing per-month is not the way to go. They need to move to streaming, and price per-event. $5 per event sounds like a great deal, and I bet I'd end up spending more than $40/month at that rate at least at certain times of the year (i.e. when my favorite sports are in season).

Another dimension here, the millennial sports fans I know don't like ESPN (TMZSPN). I feel like they're digging their own grave especially with stunts like the terrible treatment of one of the Millennial Gods, Bill Simmons and their dismantling of Grantland. You can feel out this ESPN sentiment on various sports subreddits too, like r/nba, a community of 300K users, who from time to time will collectively pile on disdain for ESPN, usually for their often sensationalist (terrible) coverage, dramatizations, politics, and censorship of important issues like ones that make the NFL look bad. Not entirely sad to see ESPN on the wayside.

Maybe a new request for startups could pop up, "Kill ESPN".

The future of twitch.tv, maybe.

I couldn't agree more. And when you look at ESPN's actual sports programming it's mostly SportsCenter and talking heads, ie, non essential viewing to sports fans. MLB and NBA are all on local affiliates or TNT/TBS, and NFL has one game per week on ESPN and the rest on Fox, CBS, and NBC (and NHL is somewhere not on ESPN). Basically ESPN has a nice hodgepodge of college and pro sports, but isn't really necessary to any one fan base.

Where's the logical error? If ESPN switches to an MTV type model to survive as you assert, then they're going to stop paying tens of billions of dollars each year to the leagues. The leagues and sports will survive, of course, but the transition will be very painful.

ESPN is a big company.

Agreed, this seems to conflate sports in general with the specific issues faced by sports-entertainment complex that is ESPN.

The dramatic increase in the valuation of sports is largely due to it being one of the few remaining forms of entertainment that can still reach people with advertisements. Most people watching games want to do it live, which means they cant block or skip through commercials like they would with an everyday TV show.

The comparison with MTV is insightful. But what do you see as the equivalent of "dozens of access/consumption points" in sports? (I'm not following any organized sports)

Not sure about dozens, but: you can get push notifications to your phone about teams you follow; scores & updates available right within your fantasy sports app; highlights endlessly replayed on Vine etc; blogs and analysts on Twitter to provide insights without need for a bloviating ESPN pundit; endless ways to identify with your favorite teams, non-score updates & behind-the-scenes stuff via Facebook and Instagram; near real-time sports news on any number of sites.

Just thinking out loud, there are a few angles to it.

#1 is that ESPN doesn't own the rights to air all sports (1), they have rights to certain events or leagues to air games on certain nights. For example, ESPN only airs 1 NFL football game per week, which is on Monday night. CBS, Fox, & NBC air games (which are subject to localized markets) on Sundays at various times.

Another example, DirectTV (a satellite provider) offers a content package called NFL Sunday Ticket which gives subscribers the ability to stream any game live in any market (which is in many NFL fans opinion, the superior option).

... which brings another note to the parent topic - I would assert Sports (specifically the individual sport leagues) are effectively monopolies. The NBA is the professional basketball league in the USA. Its largely considered the best league in the world. It's product is very difficult to replicate. So those specific "properties" will continue to try to maximize their value as well as grow their audiences - and its not like you know Seinfeld is super popular so you can just write a new show and call it Friends.

2. When I was growing up, Sports highlights were ESPN's bread and butter. You couldn't watch every game the day or weekend before, so you watched ESPN that morning or night to see what happened and the spectacular plays. Well, now twitter or youtube or reddit are better sources of highlights than ESPN. They are on demand, close to real time, and (IMO) often higher quality.

3. Lastly, the "analysis" and ancillary Sports content that ESPN works hard at, is very competitive now. There are great podcasts and blogs for every sport and most teams. Those channels can be accessed almost anywhere - and they are often more "targeted" than what ESPN is offering.

For example, I am a Memphis Grizzlies NBA fan. Let's equate that to I'm an Enterprise SaaS fan. Well, r/MemphisGrizzlies is kind of like Jason Lemkin's SaaStr - a site dedicated primarily to my specific niche. ESPN would be more like TechCrunch at large.

1: https://en.wikipedia.org/wiki/List_of_ESPN_sports_properties

The other problem I think ESPN has is that they've dumbed down their content a bit, in an appeal to the masses. Now hardcore sports fans are moving to other venues to follow sports because ESPN isn't what it used to be.

Sports subreddits are a prime example of how hardcore fans are finding more focused and higher quality venues to follow sports. The comments on r/NFL or r/NBA seem to be of a much higher quality than those on espn.com. As you said, over time it means fans just use those sites as their sports portal rather than espn.com or Sportscenter.

> ... a major logical error ...

followed by

> Anecdotally ...

Perhaps you should rethink the flow of your argument, here?

> Anecdotally, I would assert sports (NFL, NBA, futbol/ soccer) seem to be growing more popular to every day people.

Are they? As average IQ continues to rise (the Flynn Effect), I would expect to see fewer and fewer people being as heavily devoted to sports as previously, not because sports fans are stupid, but because intelligent people are capable of enjoying more than just sports. The folks in my D&D game like to talk about the game sometimes, but they have other fun things in their lives too.

Please tell me you're not suggesting that D&D is a game of higher intelligence.

Clearly there would be a significant IQ difference between the average sports fan and the an average D&D player.

If you are comparing fans of esports vs. D&D players, that gap would probably be narrow to non-existent.

> Clearly there would be a significant IQ difference between the average sports fan and the an average D&D player.

Really? What do you base that claim on? The fact that lots of "geeky" people play D&D doesn't mean that the average person playing D&D is actually smarter than the average sports fan. In college I knew some smart people who played D&D, but I knew some dumb people who played it, too.

The fact that all of those players were in college makes them above average to begin with. Show me the D&D groups made up of high school dropouts.

The people I knew in college who watched sports were also in college...

Also, attending college does not guarantee that one is above average intelligence. The average intelligence of college attendees is higher than the average intelligence of all adults, but there are certainly some college attendees with below-average intelligence.

Cord cutters will not be Sports Fans for the vast majority. Some will pay for online service but MOST are not able to watch sports.

As cord cutters increase the sports fans will decrease.

The money can only go up if the prices continue to go up to attend the games or watch live.

Personally I watch basketball and more and more esports have been more my focus. I don't watch football, baseball nor hockey which I did when I was younger.

Lots of cord cutters are buying antennas specifically for live sports. That's what I did.

So you watch NFL and some college.

NBA, MLB, NHL and many NFL and College basketball are not antenna sports for the most part.

>not because sports fans are stupid, but because intelligent people are capable of enjoying more than just sports

So it's not that sports fans are stupid. It's just that non-stupid people aren't so interested in sports. Got it.

There has been and still is something of a shunning of sports among the "intelligentsia". There have been studies about it, and how people who wish to be perceived as smart tend to avoid the things viewed as common. That still continues but I think it's reducing in frequency at least with respect to sports.

I work with a lot of really smart people. A big chunk of them are invested in sports and discuss games at work, wear jerseys on Friday, etc.

Also, if the average person is really interested in sports, then generally rising IQ wouldn't change the number of people interested in sports. The number of average people is still the same when everyone's IQ rises.

> It's just that non-stupid people aren't so interested in sports. Got it.

No, it's that they have other things they are interested in. Rather than spending 50% of their time on sports, they might spend 10% of their time on sports and 40% on something else. That's not a negative thing: it's just indicative of the fact that the brighter one is the broader one's horizons.

> There has been and still is something of a shunning of sports among the "intelligentsia".

No doubt because sports is something at which one can excel while not being particularly intelligent. Again, that's not a negative statement: it's just that physical and intellectual ability don't seem (to me) to be highly correlated.

> I work with a lot of really smart people. A big chunk of them are invested in sports and discuss games at work, wear jerseys on Friday, etc.

I was very careful not to say that intelligent people hate sports, because I too know many intelligent people who enjoy them. All I'm suggesting is that I suspect that as IQ rises people will spend less of their time on sports because they will spend more of their time on other pursuits.

> No, it's that they have other things they are interested in. Rather than spending 50% of their time on sports, they might spend 10% of their time on sports and 40% on something else. That's not a negative thing: it's just indicative of the fact that the brighter one is the broader one's horizons.

Has it occurred to you yet that your beliefs here might just be incorrect? You're clearly biased against sports and sports fans, and you're letting that affect your critical thinking.

Less intelligent people might spend 50% of their time on sports. They might also spend 0% of their time on sports. There are a million hobbies that people can have and relatively few of them have anything to do with intelligence. Smart people can (and do) watch sports, just as dumb people can (and do) hike, bike, fish, paint, cook, homebrew, and play D&D.

> it's just that physical and intellectual ability don't seem (to me) to be highly correlated.

That's true. There seems to be little correlation between the two. It's critical to realize that the two are not negatively correlated either, though.

> I was very careful not to say that intelligent people hate sports, because I too know many intelligent people who enjoy them. All I'm suggesting is that I suspect that as IQ rises people will spend less of their time on sports because they will spend more of their time on other pursuits.

I'm doubting that's really the case. Has interest in sports declined since the 1930s? Because measured IQ has certainly risen.

I can't watch live TV due to the ads, and sports is no exception. If you've seen the statistics on actual play time during your average football or baseball game, you know how large a majority of time is given to mindless banter and commercial breaks. My sports viewing recently has been limited to gifs of incredible athletic feats, which are the rare moments you watch the games for anyway.

There's so much quality content produced for or available on on-demand streaming these days, to the extent of it being called the golden age of television, that when I have 2-3 hrs I could devote in front of the TV, I'm not going to give it up to a long sequence of commercial breaks. I'll catch the highlights of the game afterwards or just check the score on my phone.

That being said, going to live sporting event with friends always makes for a good time.

NFL All Access is $100/year. It doesn't show live games streaming, but you get the full replay after the game AND the option of watching the 'condensed' version which cuts out all of the crap. I haven't paid for it yet, but I've seen the condensed games elsewhere.

Not being live will hurt that option somewhat, but since most sports I watch are time-shifted anyway (F1 races in the middle of the night, Football games whenever I can find time to watch, etc), it's not that big a deal.

Actually, right now, there's a free week trial and an $85 for the remainder of the year option. For the free week, you have to cancel or they bill you automagically. But I'm thinking of giving it a try (I don't have cable, and I'm a fan of an out-of-market Football team).

I agree, and there's a world of "high intelligence" entertainment options opening up every day - deep videogames, compelling serialized TV, hyperniche social media content. The old model of sports entertainment - mostly passive spectating - seems counter to the richly interactive, highly social trend that software is leading us toward.