Why Did Disney Expand Its Sports Kingdom With Out-of-Favor Networks?

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Disney’s chief executive, Robert A. Iger, will wake up Friday morning as the most powerful person in United States sports, with a massive portfolio of media rights to the N.F.L., the N.B.A., tennis majors, college football and more than 40 major American sports teams.

No one has ever controlled such a vast swath of the sports broadcasting landscape at one time. But the portfolio, expanded this week in a megadeal in which the Walt Disney Company bought most of 21st Century Fox, will not necessarily make other sports media moguls envious.

Disney acquired 22 regional sports networks from 21st Century Fox valued at about $20 billion. But their long-term viability is questionable given consumers’ rapidly changing viewing habits and the ongoing disruption in the pay-television market, experts say. The regional networks give Iger an outsize sports kingdom, but many of them are widely considered undesirable.

“R.S.N.s seem to be the first thing that people want to get rid of, because it’s so expensive,” said Joel Lulla, a longtime sports industry consultant who teaches sports media at the University of Texas.

“When the bundle completely frays, how many people are really going to want to pay that kind of money for R.S.N.s?”

The agreement adds properties throughout the country — Fox Sports Arizona, Fox Sports Carolinas, Fox Sports Midwest, Fox Sports West, etc. — to Disney’s widening ESPN umbrella. But it is unclear how much access ESPN will gain to the broadcast rights for 44 professional teams in those local markets.

Each regional network — including the YES Network, which broadcasts Yankees games — has a series of complicated contracts with the teams and pay-television distributors that places limits on how the owners of the networks can exploit those rights. The contracts often make it especially difficult for anyone who does not have a cable subscription to buy access to the content, which is problematic as more and more consumers turn away from cable subscriptions.

Fox retained ownership of its two national networks, Fox Sports 1 and Fox Sports 2, as well as the Big Ten Network. Disney might also complete a $15 billion acquisition of Sky, and its international sports offerings, of which Fox currently owns a 39.1 percent stake. Sky’s signature property is soccer’s Premier League. However, NBC Universal controls the Premier League’s English-language rights in the United States.

Iger said on Thursday that he considered the regional sports networks more than just a toss-in to the package that included 20th Century Fox studios, FX and Hulu.

“I think you have to look at the regional sports networks as a compliment to ESPN, not an overlap,” Iger told CNBC. “ESPN has essentially a national program footprint, and the R.S.N.s are more local in nature, and they’ll be able to complement one another.”

Perhaps, but in recent years Fox Sports executives grew frustrated that the regional networks’ complex contracts prevented them from putting more live games on the company’s national cable network, Fox Sports 1.

Regional sports networks have found that the most loyal fans have been willing to pay the cable costs associated with keeping access to the local games. But viewing habits are changing rapidly. Some sports fans appear willing to lose access to local games in order to avoid fees. Comcast, which has some 900,000 subscribers in New Jersey, lost only about 1,000 them during a fee dispute with YES that kept Yankees games off their system in 2016.

ESPN’s own subscriber base has shrunk to 88 million, from 100 million in 2010, and it has tried to find ways to deal with cord-cutting. The network is saddled with massive, long-term contracts with leagues like the N.F.L. Many of the regional networks also have expensive deals for broadcasting rights of the teams in their area.

Fox Sports Southwest, for example, is in the middle of a 20-year deal worth a reported $3 billion with the Texas Rangers. The ratings for broadcasts featuring two of its other top properties, the San Antonio Spurs and the Dallas Mavericks, fell by 34 and 47 percent, respectively, last season. Fox Sports Arizona is in the third year of a 15-year deal with the Diamondbacks worth $1.5 billion.

Disney seems willing to overlook that in order to gain a more local footprint. Some of the regional channels are lucrative, such as YES, which was sold to Fox for $3.9 billion in 2014. In 2016, a Nielsen study found that regional sports networks in certain markets, like Detroit and St. Louis, were more important to viewers than ESPN or HBO.

“Even with the cord-cutters, you’re still gaining 85 million subscribers,” said Lee Berke, a consultant who co-wrote the original business plan for YES Network. “That’s a substantial amount of revenue you can’t walk away from.”

Disney’s hope is that a new streaming service coming in May, ESPN Plus, will be able to recapture some of the viewers who have fled hefty cable fees. As an additional source for content, games from the regional networks could eventually appear on the service if contracts can be amended and fees can be agreed upon, reducing the network’s reliance on cable in local markets. But it is unclear how soon those offerings could take effect.

“It’s just not really clear to me how they’re going to integrate,” Lulla said.

Others, however, say betting against Iger is a losing proposition.

“Bob Iger is the best, smartest, most effective leader in media,” Ted Shaker, a consultant and former executive producer of CBS Sports. “If he sees it, I think it’s probably there.”