Disney CEO wants to add sports betting to ESPN — a move we've long called for

Published Thu, Sep 15 202212:20 PM EDTUpdated Thu, Sep 15 20222:58 PM EDT

Kevin Stankiewicz @in/kevin-stankiewicz-b5593466 @kevin_stank

Disney (DIS) has grand plans to innovate at ESPN, including better integration with sports betting, CEO Bob Chapek told CNBC in an interview that aired Thursday. Sports betting has been largely an untapped area of opportunity for ESPN, and we've long thought that Disney should be doing a better job capitalizing on what the dominate sports network brings to the table with its brand and its reach. As for when consumers might see those plans in full, the timing is up in the air, according to Chapek, who also discussed potential cost-cutting measures across the company and the future of its co-owned streaming property Hulu (CNBC's parent Comcast owns one-third). ESPN Disney's intentions with ESPN have been in the news lately because activist investor Dan Loeb over the weekend reversed course on calling for the sports giant to be spun out . While we believe Disney's business is currently doing much better than its recent stock performance suggests, we also are very interested in the long-term vision for ESPN. We see untapped value. "We don't have an exact timetable right now because it depends how fast these things evolve. But we're really pleased with some of the conversations that we've had throughout the industry in terms of what's the future of sports, and how do we have a step function in the consumer experience, so that it's not just sort of your father's old sports experience, but something that's bigger and greater," Chapek told CNBC's David Faber, emphasizing the role that technology can play to "advance" the sports storytelling and to deliver personalized viewing experiences. Sports gambling, which in recent years has been legalized by an increasing number of states, also appears to be a key part to ESPN's future. Chapek said Disney does not plan to launch its own sportsbook, meaning it would take bets itself and issue payouts. However, he thinks the company — which owns broadcast rights to major professional and collegiate sports — can find a third-party betting firm to help deliver a "seamless integration." "One of the things [sports fans] want is the ability to have a frictionless sports betting potential with not having to have four screens in front of you," Chapek said. "We, as ESPN, have the ability to do that. Now we're going to need a partner to do that because we're never going to be a book. That's never in the cards for the Walt Disney Company." Reducing costs Disney has needed to spend heavily to grow its streaming platforms, especially flagship Disney+, which has turned in impressive subscriber growth since launching in November 2019. It ended its fiscal third quarter with 152.1 million subscribers, and an advertising-supported tier is on the way as the company seeks to reduce the streaming service's operating loss. Disney's SG & A-to-sales ratio was 19.1 at the end of the third quarter, according to FactSet. That's up from 16.6 in the same quarter in 2019, before the pandemic. An SG & A-to-sales ratio is calculated by dividing a company's selling, general, and administrative expenses by its sales. While the definition "good" ratio depends on the industry, a lower number is better. Chapek said Disney is focused on reducing costs across the company now that the most severe Covid-related impacts to its business are over. This is welcome news because we want Disney to have more cash available to clean up its balance sheet. "There's absolutely an opportunity there, an opportunity that's been underway for several months as we've now come out of the pandemic because, remember, Disney was one of the companies that was probably the hardest hit by the pandemic, and restarting the business was the focal point," Chapek said. "But now that the business has restarted, and restarted so strongly, with the strength not only of streaming, but of parks as well, we are now focused on the maintenance of the business, the running of our business," he added. "We're asking ourselves a lot of hard questions coming out of the pandemic [like] what does this SG & A world have to look like? Not relative to what it used to be, but in the modern era. [CFO Christine McCarthy] and I are ... arms locked on going and making big progress against that." Hulu While Loeb has changed his mind on ESPN, one idea the respected activist investor continues to push is Disney owning the entirety of Hulu so it can improve its streaming bundle. Disney has an option to buy Comcast's 33% stake in the streaming service as early as January 2024. It's worth noting that of Disney+, ESPN+ and Hulu, the only one that's currently profitable is Hulu. "As [2024] becomes more and more imminent, probably the chances of a Hail Mary pass coming in that enables all of us to kind of come to an earlier resolution of this is probably less than less," Chapek said. "I would like nothing more than to come up with that solution for an early agreement. But that takes two parties to come up with something that is mutually agreeable." Disclosure: Comcast is the parent company of NBCUniversal, which owns CNBC. (Jim Cramer's Charitable Trust is long DIS. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. 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Chapek, then Disney CEO, speaks during a media preview of the D23 Expo, on Aug. 22, 2019.

Patrick T. Fallon | Bloomberg via Getty Images