Disney, a Symbol of Family-Friendly Brands
Concerns Arise Over Image Damage Due to Gambling, Causing Dilemma
Profitability Chosen Over Brand
Walt Disney, a symbol of family entertainment, is officially entering the sports betting business. Concerns about significant damage to its brand image are pouring in both domestically and internationally, drawing attention to the outcome of Disney's kind of 'gamble.' Disney plans to revive its deteriorating profitability by targeting adult males.
"What about brand value damage?" A gambling app launched after years of deliberation
According to the Wall Street Journal (WSJ) on the 13th (local time), ESPN, the largest sports channel in the U.S. and a Disney subsidiary, will launch a sports gambling application called 'ESPN Bet' next month. This comes after ESPN signed a 10-year contract with sports gambling company Penn Entertainment in August.
Disney has been contemplating entering the gambling business for years. Since it has a strong image centered on children and family values, such as Mickey Mouse and Frozen, it could suffer damage. In fact, last year, a major investor warned that if Disney entered the gambling business, they might have to sell part of their shares.
Disney first showed interest in the sports betting business in March 2019. At that time, it acquired Fox's major entertainment assets for $71.3 billion, including a 6% stake in the sports betting company DraftKings. Until then, Bob Iger, Disney's CEO, reportedly rejected suggestions from some executives to increase their stake in sports betting, saying it did not align with Disney's brand.
In February 2020, Disney's CEO changed, with Bob Chapek taking over. He reportedly showed interest in sports gambling and was less concerned about the Disney brand. Since then, Disney has sought partnerships with sports-related companies and signed marketing agreements allowing ESPN.com users to place online bets through DraftKings.
As Disney actively pursued the sports business, some employees expressed concerns internally. A notable figure among them was a veteran Disney executive responsible for social responsibility. He reportedly warned CEO Chapek in mid-last year that linking gambling addiction with Disney could severely damage the Disney brand value.
At the same time, multiple sources said that BlackRock, the world's largest asset management firm, contacted Disney's IR representatives to inform them that if Disney signed contracts related to the sports gambling business, some European funds adhering to ESG (Environmental, Social, and Governance) standards might reduce their holdings in Disney.
Targeting 'young men' amid worsening profitability... Will it succeed?
Despite much opposition, Disney is pushing forward with the sports gambling business due to profitability concerns. Recently, Disney's profitability has significantly deteriorated. Traditional TV and network businesses are struggling, and even the streaming service Disney+ has been delivering disappointing results consecutively.
As a result, Disney's stock price has halved over the past two years. Until October 2021, Disney's stock was in the $170 range but has dropped to around $80 this month. Disney has been making efforts to improve profitability by laying off about 7,000 employees this year and raising theme park admission fees.
ESPN, Disney's subsidiary leading this sports gambling business, is also facing difficulties due to declining cable TV subscribers and rising sports broadcasting rights costs, similar to traditional TV channel operators.
Through this sports gambling business, Disney aims to attract young male users aged 18 to 34 and overcome its worsening profitability. Currently, sports gambling is legally recognized in 38 U.S. states and the District of Columbia. Last year, the online sports gambling market reached $7.6 billion, and it is expected to expand to $11.8 billion next year.
Consequently, Bob Iger, who initially rejected acquiring stakes in sports gambling companies, citing conflicts with Disney's brand value, has changed his mind since returning as Disney's CEO. It is said that both he and ESPN President Jimmy Pitaro were influenced by seeing their adult sons enthusiastically engaging in sports betting on their smartphones.
In June, CEO Iger began discussing a partnership with Penn Entertainment and ended the existing relationship with DraftKings, which had ties with Disney. Then, in August, Disney signed a $2 billion contract with Penn Entertainment.
The WSJ noted, "Disney is going all-in on sports gambling," expressing interest in whether Disney can attract sports audiences without alienating Mickey Mouse fans.
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