Prime-time playerJanuary 27, 2013: 8:45 AM ET
Sports fans have made ESPN the most profitable network on cable. Will its magic work in print? And can it withstand an assault on local sports broadcasting by Fox?
Editor's note: Every Sunday, Fortune publishes a story from our magazine archives. In the wake of the Manti T'eo scandal, sports network ESPN has taken some heat for not reporting the news that T'eo's dead girlfriend was a hoax. Instead, sports website Deadspin broke the story. This piece from 1998 looks at ESPN's expansion of its empire into print and asks if the network can also handle a magazine.
By Tim Carvell
FORTUNE -- If you happen to be of a certain age and a certain temperament--if, say, you're the sort of person who gets a catch in your throat remembering the '69 Mets--and you ever want to feel really old, really fast, sit down with anyone under 25 and start describing that medieval and mysterious time...before ESPN.
"Back then," you'll say in your best crotchety-old-man voice, "if you lived in Seattle and wanted to see Sunday's Jets game, you simply couldn't. If you were lucky, you might see the highlights."
"No way!" the youngster says, eyes wide. "You had to wait all the way till 11 just to see the clips?"
"Not until 11," you say, leaning back in your rocker. "Remember, there was no SportsCenter back then. You had to wait until Monday Night Football, when you'd get to see the best highlights of Sunday's games." You twist the knife: "And if you missed that--"
"You never got to see it again."
At this point, of course, the young'un will conclude that you're making all this up, just like those stories about the days before remote controls. In much the same way that it has become hard to imagine news coverage without CNN, or surly teenage girls without MTV, it is now difficult to fathom how sports fans ever existed without ESPN. In two decades of unparalleled growth, ESPN has built a business empire on a simple observation: To a sizable chunk of the population, there is no such thing as too much sports. Consider: In the pre-ESPN era, the three major networks got by with 18 hours of sports coverage per week--combined. ESPN now provides 24 hours of coverage every day, and if you don't like what you find there, you can click over to one of its sister networks, ESPN2, ESPNEWS, or the Classic Sports Network. Tired of watching TV? Then flip on ESPN Radio, or surf the Internet until you find ESPN SportsZone. Don't want to sit around the house? Take a road trip to the ESPN Club sports bar at Disney World, or head out to L.A. to browse at ESPN--The Store. Don't worry about missing the games--you can check in on them with your ESPN To Go Motorola pager, or simply have scores and highlights beamed directly into your head via the ESPN BrainChip. (Okay, we made that last one up. There is no ESPN BrainChip. Yet.)
In exchange for the public service of making sure you're never too far from a final score, ESPN has been rewarded with an ardent set of admirers; says Bob Ley, one of the anchors of the network's trademark show, SportsCenter, "This network doesn't have viewers, it has fans." Those fans--mostly young, mostly male--are important enough to both advertisers and cable operators to make ESPN the most profitable cable network. The network doesn't break out figures, but entertainment analysts at Paul Kagan Associates estimate that it generated cash flow of $326 million last year on revenues of $1.06 billion.
How valuable is ESPN? When Disney went shopping for a network two years ago, it looked at CBS but settled on Cap Cities/ABC, which owns 80% of ESPN, because, Disney chief Michael Eisner says, "It had more of a well-rounded portfolio of entertainment assets. And of course, the best asset in that portfolio is ESPN." Eisner adds a remark that amounts to the highest possible praise, coming as it does from the man who's put the Disney name on everything from neckties to Broadway shows: "The ESPN brand has been very brilliantly managed."
Now, ESPN is gearing up for its boldest brand extension yet: The network has invested over $50 million to launch a biweekly magazine that will compete with the only comparable brand name in sports information, Sports Illustrated. But even as it pushes its name into the print realm, the network is defending its core broadcasting business against the Fox Sports Network, which has come up with the ingenious counterprogramming scheme of creating a national network that also broadcasts local games to their hometowns. This sudden flurry of competition raises an intriguing question: How much information do sports fans really want? Because while there may be no such thing as too much sports, there could soon be such a thing as too much sports coverage.
At 7 P.M. on Sept. 7, 1979, the very first installment of ESPN's SportsCenter was transmitted to 1.4 million cable households. The show bore scant resemblance to the slick production it is today--the half-hour segment consisted mainly of an anchor sporting a helmety hairdo, explaining the new network's mission. No highlights were shown. Two scores were read. An unassuming man named Bill Rasmussen stood alongside a satellite dish to explain how the signal traveled to your home.
For Rasmussen this broadcast, however imperfect, was the realization of an idea he'd had scarcely more than a year before. It was on Memorial Day 1978 that Rasmussen had been fired from his PR job with the Hartford Whalers. Suddenly unemployed, he met Ed Eagan, the producer of a local TV show, and the two began discussing a network that would broadcast the games of local teams in Connecticut. A call to a satellite operator revealed that satellite time was surprisingly cheap--and what's more, thanks to a quirk in the rate card, it was actually cheaper to buy it around the clock than just for prime-time hours. From there the plan snowballed quickly.
The pair realized that if they were going to use satellites to carry their network and they had 24 hours a day to fill, they might as well make theirs a national network--a satellite, after all, can carry a signal to New Orleans as easily as to New Haven. Needing both funding and programs with national appeal, they approached Getty Oil for the former and the National College Athletic Association for the latter. Each entity, impressed by the prospect of the other's involvement, signed on at almost exactly the same time. Those two names enabled the network to draw the interest of its first major advertiser, Anheuser-Busch. In 15 months, Rasmussen went from unemployed to CEO of a national cable network.
The haste with which ESPN had been formed was evident from watching it: The day the network went on the air, it was housed in a tiny building in Bristol, Conn., with much of its technical equipment wedged into a trailer. It had hired inexperienced broadcasters from small markets--Ley, for instance, showed up for work on the third day of the network's existence, having spent the first two finishing up his old job as a soccer stadium announcer.
But if the early years of the network were a little rough around the edges, it didn't matter much, because hardly anyone was really watching. Cable was, back then, a fringe medium, something people bought to boost their reception, not because they wanted extra channels. Even cable operators didn't fully comprehend that ESPN meant added value to their clientele: Rasmussen recalls that when he attempted to charge operators to carry the network, "they were incredulous that we wouldn't give it to them for free." Indeed, the only way ESPN could persuade many cable operators to carry its programming was if the network paid them.
It didn't take long for that balance of power to shift. As the 1980s began, ESPN started to grow up, turning the early rounds of the NCAA tournament and the NFLdraft into television events. The network's amateur sportscasters grew into assured on-air personalities, like Ley and the network's other early hires, the nickname-spouting Chris "I'll Never Be Your Beast Of" Berman and the love-him-or-hate-him college basketball announcer Dick Vitale, whose grab bag of sayings--like "prime-time player, baby!"--became widely imitated. Rasmussen made a hasty exit--tiring of corporate politics, he left the company in 1980, taking stock that he and his family later sold for some $30 million--but he left behind an able staff that made the most of the network's eclectic mix of events.
Their efforts did not go unnoticed: Word of mouth spread, and sports fans began subscribing to cable just to get ESPN. Demand soon reached a point where cable operators couldn't afford not to offer it. ESPN used this newfound leverage to its advantage: In 1983 the network approached the operators and demanded 10 cents per subscriber per month. Unlike four years earlier, the operators now had no choice but to pony up, making ESPN the first basic cable network to receive an operator's fee in addition to advertising revenues. The fee has since risen to an average of 62 cents per month and is the highest in the industry.
Had the network merely stayed the course it was on in the mid-1980s, it would still be among the most successful on television. But in 1987, ESPN made two acquisitions that elevated its level of play. The first was highly publicized: ESPN bought the rights to telecast football games on Sunday nights, which gave the network a huge jolt of prestige. The second, less remarked upon, was a consultant named John A. Walsh. He turned ESPN from a network that happened to show a lot of sporting events into the network that is the primary destination for sports junkies.
Walsh, a paunchy print veteran who looks, by his own admission, "like Santa Claus from Mars," was hired by Steve Bornstein, then senior vice president of programming and production, to analyze the network's content. Formerly the managing editor of U.S. News & World Report and Rolling Stone, and the founder of Inside Sports magazine, Walsh brought a newsman's sensibility to ESPN's operations, in particular its thrice-daily recap of the day's games, SportsCenter. For instance, he says, "in those days, if the best game of the night was the Celtics and the Lakers, it was mandated that you had to do every NBA highlight before you could do any other sport. So you had to do the Kings-Clippers highlights before you could get Mike Ditka resigning." Why, he asked, couldn't SportsCenter be arranged like an actual newscast, giving precedence to what was most interesting? Bornstein, impressed by such observations, hired Walsh to be the network's managing editor. Walsh began hiring reporters, creating bureaus, and building an organization that could cover sports the way CNN covered the rest of the world. His efforts soon began paying dividends: As stories like Pete Rose's lifetime ban from baseball and Reggie Lewis' heart attack broke, ESPN was no longer chasing other networks' stories. It was leading the way.
In addition to raising its standards, Walsh established a voice for SportsCenter--and since SportsCenter is on, either live or in repeats, for nine hours of ESPN's broadcast day, that meant Walsh created a voice for the network as a whole. The voice was knowledgeable without being smug, funny without being glib, and utterly enthralled by sports. It was the voice, especially, of two of Walsh's key hires, Dan Patrick and Keith Olbermann, who turned SportsCenter's 11 P.M. broadcast into a combination of hard-core sports coverage and a Bob-and-Ray routine, slipping dozens of catch phrases and in-jokes into their rundown of the day's events. Sports fans tend to be an obsessive bunch to begin with--anyone who can tell you the batting averages of the 1978 Indians is suffering from something undiagnosed--and the newfound accessibility of SportsCenter made ESPN a little like an extra sports team, to be followed as enthusiastically as the Lakers or the Celtics. The ESPNauts' adulation sometimes verged on maniacal: One night, Olbermann co-anchored SportsCenter with Craig Kilborn, filling in for Patrick. For fun, they began exclaiming "Salsa!" after each basket during the highlight reels. At a game the next night, a fan held up a sign after each basket: SALSA!
If ESPN became the broadcast equivalent of a sports team in the 1980s, then it makes sense that in the 1990s it followed the trend in pro sports: Just as team owners sanctioned replica jerseys, theme restaurants, and collectibles, ESPN has pushed its brand name beyond the confines of its one cable channel. Overseeing this expansion has been Bornstein, a veteran of sports broadcasting--he began his career as a cameraman, and signed on with ESPN as a program manager three months after it went on air--who rose through the programming ranks to be named, at age 38, ESPN's president and CEO in 1990. Bornstein's philosophy is simple: "Anywhere sports are appreciated," he says, "is a logical expansion opportunity for our company."
What this has meant is that in five of the past six years the network has introduced a line extension. In 1992, ESPN Radio hit the air; in 1993, a second channel, ESPN2, was launched (it is now in 55 million homes, within shouting distance of ESPN's 73 million); 1995's big launch was the ESPN SportsZone website; in 1996, the network launched its third network, ESPNEWS--essentially all SportsCenter, all the time--which is now in six million homes; and last year ESPN acquired two-year-old upstart Classic Sports Network, now beaming vintage games and interviews to ten million homes. All along, Bornstein has been spreading the ESPN gospel overseas. As of last year, the network supplies sporting news and events to every single continent. (The final hurdle was Antarctica, where ESPN set up a receiver for its eight--count 'em, eight--viewers.)
This expansion has created breathtaking value. After all, back in 1990, Cap Cities/ABC was offered the 20% chunk of ESPN it didn't own for $350 million; it passed, and Hearst eventually paid $170 million for the share. Five years later, during Disney's buyout of Cap Cities, that stake was valued at over $1 billion. Cap Cities' then-chief Tom Murphy contends to this day that his decision not to buy in was his single greatest business blunder. "It was," he says ruefully, "a billion-dollar mistake."
The latest--and in some ways, most ambitious--target for Bornstein is ESPN's counterpart in print journalism, Sports Illustrated (which is owned by Time Warner, the corporate parent of FORTUNE.) Revered by fans in much the same way that ESPN is, SI is a formidable competitor, the first, really, that ESPN has faced. In cable, on the web, in Disney World--in all the places ESPN has ventured, it has been the first big sports brand on the block; now, it is entering a field that has already been claimed, for 44 years, by someone else. What is more, it is entering that field with a possible disadvantage: The magazine is planned as an oversized fortnightly, like Rolling Stone, but while that format may work for music (or, ahem, business), it's more problematic for the fast-changing world of sports, where players get injured and streaks get snapped in the blink of an eye, making a cover that sits on newsstands for two weeks grow stale. Says Time Inc. editor-in-chief Norman Pearlstine: "I can't find anything they're going to do that SI won't be able to do faster and better." Retorts ESPN Magazine managing editor John Papanek, who briefly served as SI's top editor in the early '90s, "We're not trying to do things better than they are, we're trying to do things differently than they are."
Indeed, while the magazine won't be out until later this month, the vision articulated by Papanek aims directly at a huge gap left by SI's coverage: SI covers sports from the viewpoint of the enthusiast, but not the fanatic--its emphasis is on sport as the Playing Field of Life, not on the sort of nitty-gritty, forward-looking armchair analysis that the sports junkie craves. Clearly, there is some appetite for an alternative sports publication: Thanks in part to extensive promotion on the network, ESPN Magazine is on target for its goal of 350,000 readers for its initial issue--a far cry from SI's 3.2 million circulation but robust for a startup magazine.
If nothing else, the magazine will serve as retribution against SI and Time Warner for launching their fledgling sports news channel, CNN/SI, in 1996. Eisner's voice rises when he describes Time Warner's decision to "start a cable service right in our face," and adds that "CNN/SI is competitive to ESPNews, and therefore I have no hard feelings about ESPN's magazine being competitive with Sports Illustrated. Not that I would anyway."
There is a certain irony in the fact that SI and ESPN are now competing in both print and cable, since Time Inc. had the opportunity to buy ESPN in 1983 for a price in the $200 million range. It passed. Had the company bought in, it not only would have reaped a return on investment of over 2,000%, but it could also have averted crises like the cash drain that occurred last year when ESPN Magazine was assembling its staff. Espn placed calls to many of SI's top talents, some of whom strongly considered leaving; a generous round of counteroffers from Time Inc.--including in one case a movie deal with sister company Warner Bros.--kept nearly all staffers onboard.
If SI is at all worried about the incursion of a well-capitalized brand name into a space that it has controlled pretty much exclusively, it can take some comfort in the fact that ESPN is in the same position, facing the first challenge to its core franchise from a deep-pocketed competitor. The Fox Sports Network has capitalized on a phenomenon that sprouted along with ESPN: As cable grew, in most cities cable operators began offering a channel that could broadcast local teams' games. Since most people are more interested in their home teams than in games elsewhere, these local games would draw ratings as much as six times higher than ESPN's. But when the games ended, the local channels' programming--if there was any at all--was poor, and viewers clicked back over to ESPN. In this, Fox spied an opportunity: What if all these stations could be tied together into a nationwide network, each offering local games to its respective city but also showing national, high-quality sports news and events?
What if, indeed. Starting in 1996, News Corp. created a partnership with John Malone's Liberty Media to do just that. Liberty brought to the table 13 regional sports networks and News Corp. contributed its national f/X network; each party also kicked in some $200 million to fund the venture. In 1997 the duo invested $850 million to buy 40% of the eight East Coast and Midwestern regional networks owned by Cablevision's Rainbow Media. Later that year they picked up the rights owned by Detroit's PASS network. All told, in a period of just over two years and at a cost of more than $1 billion, News Corp. and Liberty have assembled enough owned and affiliated regionals to create Fox Sports Network, which consists of 22 stations reaching 58 million homes and holds the local broadcast rights to 24 major-league baseball teams, 25 NBA teams, 19 NHL teams, and a slew of college and local teams. The network has also developed a passel of awfully familiar-sounding shows--most notably, a rundown of the day's games and news called Fox Sports News--to air during the rest of the broadcast day. ESPN has always faced competition from those local stations, but Tracy Dolgin, Fox Sports Net's COO, expects that the high quality of the network's national offerings, combined with its ability to sell both nationwide and local advertising, will make for a powerful new business model. "It's a brave new world," he exults. "It's a hybrid of national and regional, and it can deliver everything a network can deliver."
Bornstein makes a show of indifference about the new competition. "My hope," he says evenly, "is that it'll elevate the whole business of sports and the quality of product on the air." Behind the scenes, however, ESPN is trying to beat Fox at its own game. Disney has interceded to secure the games of the two teams it owns, the Anaheim Mighty Ducks and the Anaheim Angels, for ESPN's first regional network, ESPN West (or, as Fox Sports executives waggishly call it, "ESPN Anaheim").
As ESPN prepares to enter the local markets, team owners' tongues are no doubt unspooling, Tex Avery-style, in anticipation of a windfall. For if ESPN and Fox start wrestling over local rights, the real winners in their bidding wars will be the sellers. Certainly, that has been the case in the bidding for national broadcast rights, where ESPN has steadily increased its payments rather than risk losing its games to cash-happy newcomers. The escalation has resulted in such eye-popping deals as ESPN's recently announced eight-year, $4.8 billion NFL contract--a per-game cost increase of 135% over its previous contract, signed just five years ago. Need proof that local-rights fees are about to go nuts? Listen to Fox Sports' Dolgin: "It's not possible to overpay," he says blithely. Bornstein is a tad more realistic about the value of rights; asked if it's possible to overpay, he laughs and says, "Of course." But with spendthrifts driving fees upward, Bornstein has scant choice but to pay up or risk being shut out.
Those bucks will be passed: At least some of the network's increasing costs will be borne by the cable operators in the form of higher fees, which, in turn, result in higher cable bills--a development about which cable operators are not the least bit pleased. But even if operators can shoulder some of the burden of escalating rights fees, the fact remains that ESPN's basic cost of doing business is growing at an alarming rate. When asked about this phenomenon, Bornstein points to ESPN's new networks and ventures and proclaims, "The beauty of it is, this is an expanding marketplace for us."
But is it? Between ESPN's four networks, Fox's regionals, CNN/ SI, and the sporting events offered by the Big Four broadcast networks, TNT, USA, HBO, and local stations, how many hours of the week can Bornstein expect his audience to give him? Fifteen? Twenty? Eighty? How much SportsCenter can anyone watch? Isn't there, after all, such a thing as Too Much Sports?
"I've been asked that question for 18 years," Bornstein says, "and I think the answer is no."
Flash forward 20 years.
"Back in my day, son, there were only five sports channels."
"Five? But what about ESPN Hockey? What about ESPN TigerWoods? And where was Fox Sports Bowling?"
"Didn't exist. Why, sometimes, you could go up to 20 minutes without watching a competition or a match of some kind."
"But how did people live without ESPN12? Who covered the Table Tennis Tournament of Cham--"
"Hush, son. Commercial's over."