Inside the NBA and Disney's Winning Hand

This week, the stock market fell back to earth, nearly eliminating the post-election bounce. I warned about the speculation that drove the post-election pop last week, and it looks like most pockets of bubble buying have subsided.

Within the Asymmetric Portfolio, there’s been a pullback, but we are a long way from giving back gains of the past month. The simple reason is earnings.

Multiple companies reported phenomenal earnings over the past three weeks, and that’s what’s driving our performance. One such standout is Disney, which is up 16.2% in the past week. I’ll explain below why I think the momentum is just getting started.

In Case You Missed It

Here’s some of the content I put out this week.

Disney, ESPN, and Inside the NBA

A key to my bullishness on Disney is the theory ESPN (in which Disney has an 80% stake) will win the sports streaming market by a mile. Streaming follows the smiling curve, which I’ve laid out below, and there will likely only be one or two winners.

In sports, it may be ESPN and everyone else way behind.

I think streaming ultimately looks like this:

• Netflix: General entertainment streamer with something for almost everyone across the globe.

• Disney: Leading position in niche markets of sports, kids’ entertainment, and differentiated content (Disney animation, Marvel, Star Wars, etc). These three large niches and they’ll be bundled together into a “new cable” bundle.

Disney’s studio content is a differentiator, but it’s not enough to build a massive business, as Disney has proven with Disney+. What Disney needs is sports to take the business to the next level.

That’s where ESPN going over the top in 2025 comes in. Once ESPN goes over the top, it will be both a huge draw for the Disney bundle and a big revenue generator on its own.

But it needs big names — like the Inside the NBA crew — to pull in customers. That’s why yesterday’s news that TNT will license Inside the NBA to ESPN is such a big deal.

Top of the Funnel Magnets

There are two challenges for any streamer:

• How do you get subscribers to sign up in the first place?

• How do you keep them subscribed?

The last few years have shown the best way to attract new subscribers is some kind of “must-have” content. And the best “must-have” is sports.

The Olympics provided this for Peacock last summer, and the NFL is doing it for Amazon Prime on Thursday nights. Think of a popular show like Inside the NBA as a “must-have” for NBA fans.

In the sports landscape, ESPN has better rights than any competitor a year before launch. And the assets on ESPN are getting better with Inside the NBA.

I made the table below in September when speculating that ESPN could license Fox’s sports content. Fox doesn’t have streaming exposure, and it’s likely ESPN would provide the most sports reach and revenue for Fox. I think this still makes sense.

When combined with the “A Package” of NBA content, Inside the NBA provides another customer magnet and provides churn mitigation for NBA fans. If you’re any kind of NBA fan, how could you not have ESPN?

Is It Already Game-Over in Sports Streaming?

The chips are starting to stack on Disney/ESPN’s side of the sports streaming table.

How will anyone compete with ESPN in sports streaming?

The simple answer is that Netflix could bid on anything it wants, but Disney already has some of the best rights locked up for most of the next decade, and it’s Disney that has more cash from operations to pay for more content. Surprise!

Amazon and Apple could sign any deal they want, given their balance sheets, but streaming isn’t the focus for either. And they’re focused on making their core businesses more efficient to justify lofty valuations. Alphabet makes more sense as a sports streamer, but why pay big bucks for content when the NBA will post highlights an hour after games for free?

Is it worth signing a multi-billion dollar deal to try to compete with ESPN? For big tech, one-off deals with the NFL or NBA are good enough to keep existing customers from churning, and that may be enough.

I think the next decade is becoming very predictable in sports streaming.

1. Disney and ESPN have assembled the best roster of sports content with the biggest customer magnets (NFL and college football).

2. When ESPN goes over the top, Disney will bundle aggressively with Disney+ and Hulu and build a critical mass of subscribers.

3. Sports rights holders without a streaming service or losing money on their own service (Peacock, Paramount, and Fox) will be forced to muddle along on their own or find the best offer to license their content. ESPN will naturally be the highest bidder.

4. Over time, the ESPN sports content library gets bigger, and prices are ratcheted up. I could see ESPN itself charging $40 per month by the end of the decade and a Disney bundle being $50 per month or more, with advertising on top of that.

Even at that price point, ESPN could have 100 million subscribers, where cable hit its peak. And with a little advertising revenue added in (Hulu brought the best ad technology in streaming), ESPN’s streaming revenue could be $60 billion in revenue per year ($50/mo * 100 million subs). Disney’s streaming revenue could exceed $100 billion by the end of the decade, up from $24.9 billion in fiscal 2024.

These numbers sound crazy, but Disney clearly sees it needs to win in sports streaming, or the company will find itself in no man’s land.

Inside the NBA is a sign management is making the big, bold moves needed to win in sports streaming.

Expect more deals like this — like with Fox Sports — before ESPN goes over the top in fall 2025.

Disclaimer: Asymmetric Investing provides analysis and research but DOES NOT provide individual financial advice. Travis Hoium may have a position in some of the stocks mentioned. All content is for informational purposes only. Asymmetric Investing is not a registered investment, legal, or tax advisor or a broker/dealer. Trading any asset involves risk and could result in significant capital losses. Please do your own research before acquiring stocks.