ESPN

Booyah! Acquired, the worldwide leader in acquisitions and IPOs, kicks off Season 4 with a classic: ESPN. How did a failed former TV weatherman end up building the world’s most valuable media company on top of a dump (quite literally) in Bristol, Connecticut? We follow the incredible entrepreneurial journey from Getty Oil diversification strategy to Berkshire Hathaway home run to Disney crown jewel. This Is Awesome, Baby!! Sponsors: Vanta: https://bit.ly/acquiredvantaServiceNow: https://bit.ly/acquiredservicenow26Legora: https://bit.ly/acquiredlegoraStatsig: https://bit.ly/acquiredstatsig26 More Acquired! Get email updates https://www.acquired.fm/email with hints on next episode and follow-ups from recent episodesJoin the Slack http://acquired.fm/slackSubscribe to ACQ2 https://pod.link/acquiredlpMerch Store https://www.acquired.fm/store! © Copyright 2015-2026 ACQ, LLC Links: ESPN’s first moments on air: https://www.espnfrontrow.com/2018/12/espn-remembers-lee-leonard/The Outsiders Book: https://www.amazon.com/Outsiders-Unconventional-Radically-Rational-Blueprint-ebook/dp/B009G1T74O/Carve Outs: Ben: Numbers Geek with Steve Ballmer: The Basketball Box Score Mystery https://www.geekwire.com/2019/numbers-geek-steve-ballmer-basketball-box-score-mystery/David: Fast Company on Masa, “The most powerful person in Silicon Valley” https://www.fastcompany.com/90285552/the-most-powerful-person-in-silicon-valley

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Ben Gilbert?

  Hey to David, I'm kind of sick of the old theme music and to be completely honest, I never really liked it.

• 0:17Ben Gilbert?

  Welcome to season four, episode one of Acquired, the podcast about technology acquisitions and IPOs. I'm Ben Gilbert.

• 0:25David Rosenthal?

  I'm David Rosenthal.

• 0:26Ben Gilbert?

  And we are your hosts. Today, we are covering a company that is absolutely synonymous with sports, ESPN.

• 0:33David Rosenthal?

  The worldwide leader.

• 0:34Ben Gilbert?

  Indeed. And as they say, in the very first moments of their 1979 broadcast, if you're a fan, if you're a fan, what you'll see in the next minutes, hours, and days to follow may convince you, you've gone to sports heaven.

• 0:50David Rosenthal?

  Indeed. Acquired has gone to sports heaven here.

• 0:53Ben Gilbert?

  It was obligatory. For long time listeners of the show, you know that we cover typically one acquisition and that we talk about it and we grade it and we have a pretty standard format. This episode covers not one acquisition, but three, each one sort of fairly monumental. And I want to outline what that's going to be so that the story has a little bit of structure to it. As I mentioned, the first broadcast was in 79. ESPN was acquired by ABC in 1984. Just one year later, in a surprising turn of events, the smaller Capital Cities Broadcasting Corporation incredibly bought ABC, took its name, and got ESPN along with it. And then finally, in 1996, 95, 96.

• 1:36David Rosenthal?

  Yeah, 95, yep.

• 1:38Ben Gilbert?

  There was a $19 billion buyout of ABC by the one and only Disney.

• 1:43David Rosenthal?

  And a little teaser, the Capital Cities acquisition had a little help on the way from a certain oracle in Omaha.

• 1:51Ben Gilbert?

  Indeed.

• 1:52David Rosenthal?

  That we'll get into.

• 1:53Ben Gilbert?

  Excited to dive into that. So as David was pointing out to me when I was sort of teeing up, you know, how should we introduce this? The through line and the most important part of all of this, you know, these acquisitions that each sort of included ESPN was ESPN itself. And so much so that by 2006, a UBS estimate was that ESPN alone was worth 40% of Disney's total value.

• 2:14David Rosenthal?

  Yeah. I love the UBS estimate, man. That was like, that was right before I joined UBS, so.

• 2:20Ben Gilbert?

  Oh, well, it could, it definitely wasn't accurate then.

• 2:23David Rosenthal?

  Yeah, not yet a David Rosenthal estimate.

• 2:27David Rosenthal?

  Would have been two years later.

• 2:29Ben Gilbert?

  Indeed. So this episode will largely focus on ESPN through the mid 90s and the sort of digital and streaming eras are a whole nother story that that we'll need to tell at some point. But this era of ESPN and its sort of rise to truly be the worldwide leader in sports really deserves its own episode that we're going to dive into today. Speaking of ESPN and inside baseball, yes, pun definitely intended, we did a really fun limited partner bonus show last week. We took our LPs behind the curtains of how VC firms really work from corporate structure to incentives. If you're interested or just want to support the show, you can click the link in the show notes to become a prestigious acquired LP or go to kimberlite.fm/ acquired. If you're new to the show, you should check

• 3:14Ben Gilbert?

  out our Slack at acquired.fm. It is full of brilliant people that are providing their hot takes on the tech news of the day, often M&A and IPO related, and is also just a really great, really helpful, really friendly community. So I've really enjoyed, particularly over the last month or so. We've been on break over the holidays, just getting to chat with folks in there has been really cool. All right, listeners, now is a great time to tell you about a longtime friend of the show, Vanta. AI has scrambled the whole security picture. It used to be that you proved that you were secure once a year on audit or a static PDF, then everyone would nod and you're done. But in an AI-first world, that doesn't hold up anymore.

• 3:55David Rosenthal?

  Yep. Your risk surface changes every week now. A vendor turns on an AI feature or someone writes in a new model without telling IT and your posture is different than it was last week, let alone at your last audit. Vanta's own research found that around 70% of companies have this quote unquote "shadow AI" running with no security review at all.

• 4:16Ben Gilbert?

  Right. And that's where Vanta comes in. They're the leading agentic trust platform, meaning they've built the thing that closes the gap. And the way that they close that gap is Vanta Agent. Think of it as a GRC engineer, that's Governance, Risk and Compliance, except that it's software and it doesn't sleep. It finds the issues, drafts the fixes, and cuts the time that you'd spend on vendor assessments in half.

• 4:38David Rosenthal?

  In half? Which is exactly why more than 16,000 companies today run on Vanta. Companies like Ramp, Cursor and Snowflake all stay audit ready and catch the risks that crop up between audits across every vendor, every AI tool, the whole environment.

• 4:56Ben Gilbert?

  And that's the real value. Trust has to be continuous now, which is why Vanta automates your security, your compliance and the work to earn and prove trust. We're huge fans of Vanta over here and literally hundreds of acquired listeners have become Vanta customers at their companies over the years. So you can get $1,000 off Vanta at vanta.com/acquired. That's V A N T A dot com slash acquired for $1,000 off and just tell them that Ben and David sent you. David, how are you feeling about the history and facts on this one?

• 5:28David Rosenthal?

  Ben, I am cool as the other side of the pillow.

• 5:35Ben Gilbert?

  I'm glad you teed me up to say that. I'm glad I didn't know how you were going to respond.

• 5:40David Rosenthal?

  That was both awesome and so awkward. All right, listeners, let's take it in. We start back in the 1970s. It's disco time. Things are crazy in America, particularly crazy in the burgeoning cable industry, which is brand new, where all the entrepreneurs in America are headed. And we start with a guy named Bill Rasmussen. Bill was a former Air Force supply officer. He ends up getting into the television business, first as a weatherman at an NBC station in Western Massachusetts. But his lifelong dream is

• 6:21David Rosenthal?

  to get into sports and he just loves sports. He's a sports nut. So he's doing the weather in Western Massachusetts and he starts just like reading sports scores at the end of the weather telecast. And turns out people like it. He moves around to a few stations in New England, ends up kind of transitioning from weather into sports because he's a natural, becomes a sports director. And then in 1974, he becomes the communications director at the Hartford Whalers hockey team.

• 6:52David Rosenthal?

  Real auspicious beginnings here. The Hartford Whalers, at the time, their big star was Gordie Howe. And he was like, larger than life. He had his own business interests and Bill starts working for him personally as well, and his family. It all's going well until Memorial Day weekend, 1978, when Bill gets a call from the Hartford Whalers that he's being fired as communications director. And then gets another call from Gordie, from Gordie's wife, actually saying, yeah, and we're firing you from the family as well. Rough day, rough day. I couldn't verify this, but I believe his, his son, Scott Rasmussen,

• 7:32David Rosenthal?

  who had dropped out of college, was pretty young, in his early twenties, was also working at the Hartford Whalers, also gets fired that day.

• 7:39Ben Gilbert?

  Oh, my gosh. Too many eggs in one basket.

• 7:41David Rosenthal?

  Lot of, lot of eggs in one basket. But, you know, they're, they're pretty optimistic guys. They decide that father and son, they're gonna team up, figure out what's next. So the first call they place is to a local guy during, Hartford's in Connecticut, right? Yeah, they're in Connecticut. Local guy in Connecticut, who is an insurance agent named Ed Egan. He's working for Aetna.

• 8:06David Rosenthal?

  This leads to ESPN, we promise.

• 8:09David Rosenthal?

  And, and Ed.

• 8:10Ben Gilbert?

  This went from like, the most exciting episode ever to like, the strangest, most boring episode ever.

• 8:13David Rosenthal?

  Strangest, most boring episode. But we promise there's more to come. Ed, just like Bill when he was a weatherman, he really wants to get into sports. And he's been trying to convince Bill to start a cable network focused on Connecticut sports. And this was when Bill was, of course, the communications director at the Whalers and the centerpiece he thought would be showing the Whalers games on this new cable channel. Bill calls him up and he's like, hey, I just got fired. I'm looking for something to do. What do you think?

• 8:40Ben Gilbert?

  I like your idea. I may not be as helpful anymore as I used to be able to.

• 8:45David Rosenthal?

  And but Ed is Ed is undaunted. They chat and they decide like, okay, well, we're not going to get the whalers, but like, they're still pretty interesting. Like, people care about local sports. We can show Connecticut sports. We probably just need some stuff to kind of fill in the gaps between Connecticut sports. There's not enough of that. So why don't we add some entertainment programming as well? And then they're like, oh, this is perfect. We've got the perfect name for this. It's going to be the Entertainment and Sports Programming Company, ESP. Like, what good, like, it's perfect.

• 9:14Ben Gilbert?

  It's very descriptive. It's short. It's only three letters.

• 9:18David Rosenthal?

  Exactly. You know, it's just like ABC, NBC, ESP.

• 9:21Ben Gilbert?

  ESP.

• 9:22David Rosenthal?

  ESP. So they incorporate the company, the Entertainment and Sports Programming Company, on July 14, 1978. And it's worth taking a step back here. I mentioned earlier that cable is kind of the, it's like the internet of the time, like where all the entrepreneurs are heading at this point in the late 70s. So at this point, it's less than 20% of US households have cable. The big, over-the-air terrestrial broadcasting companies, you know, NBC, ABC, CBS, they're still what people think of when they think of television.

• 9:53Ben Gilbert?

  UHF, VHF, over the airwaves.

• 9:55David Rosenthal?

  Exactly. You've got the big rabbit ear antennas, you know, on top of TVs and on top of houses. And cable really got started as a delivery mechanism for houses in rural, in rural parts of the US where the terrestrial broadcast signals didn't reach.

• 10:13Ben Gilbert?

  Which, which is amazing in its own right to think about, gosh, we can't reach this over the airwaves, so we will run a cable.

• 10:18David Rosenthal?

  We're literally going to run a cable there.

• 10:20Ben Gilbert?

  And that's more efficient. Like, that, that's kind of mind blowing to me that, like, it's more efficient than, I guess, the capex of building big radio towers is tough and...

• 10:28David Rosenthal?

  Yeah, I guess so. Well, I think, could be wrong here, but I think this is also part of, like, they ran wires, cables along railroad lines, right? And that was for telegraphs, but they might also then use that for...

• 10:39Ben Gilbert?

  I know that was like Sprint's beginnings that we talked about on the Sprint T-Mobile episode.

• 10:43David Rosenthal?

  Sprint T-Mobile episode. By this time, by the late 70s, people had started to realize, huh, there's something slightly more interesting here than just rebroadcasting the big three stations. Like, this, what's cool about cable is... It's not regulated. So like over the air broadcasting.

• 10:57Ben Gilbert?

  That is cool.

• 10:57David Rosenthal?

  Yeah, that like is kinda like the internet, you know, you know, you can ABC, NBC, CBS, like they're basically controlled by the government, not controlled by the government, but they're regulated on what they can show, what they can say. Um, but cables, the Wild West. And so HBO uh was the first kinda cable network, got launched in 1975, a couple of years earlier. And then there's this crazy guy who's gonna resurface down in Atlanta named Ted Turner. He owns a bunch of broadcast stations and he's experimenting. He's like, well, I'm gonna take my Atlanta station and I'm just gonna rebroadcast it all around the country. Uh, and everybody's gonna get my Atlanta. See, he had bought the Atlanta Braves baseball team. We're gonna show Braves games to everybody. It's gonna be great. So people are experimenting. It's against the backdrop

• 11:42David Rosenthal?

  of all this that the Rasmiesons and Egan, they're digging in and they hear about this new kind of sustaining technology, if you will, in in Clay Christiansen terms, uh, that's coming along for the cable industry called satellite transmission. And it's supposed to be this like great new thing. They don't, they have no idea what it is. They're just like, great. We're starting a new cable network. We want some of that satellite stuff. So they find out that RCA, the big electronics company, they've just launched two satellites into space for video transmission. So the Rasmiesons, they call up RCA and they're like, hey, we want some of this satellite stuff. Will you sell it to us? RCA, they're trying to sell satellite space. Uh, nobody's bought it yet. So like, oh, great.

• 12:26David Rosenthal?

  We got a customer. Great. We can, we can sell you that. What, what do you guys, you know, you, you ESP guys, uh, what do you, what do you wanna show?

• 12:33Ben Gilbert?

  You must be, you know, traditional media folks, like you know about this. Uh, we assumed there would be this mad rush of all these media people that wanted to use them. So, you know, take your deep media background and pitch us.

• 12:43David Rosenthal?

  Yeah, pitch us. What are you, what are you, what are you gonna show? And they're like, Connecticut sports.

• 12:49David Rosenthal?

  And the RCA guys are like, um, so you know, the thing about satellite, like what it does is it takes a video signal and it instantaneously transmits it all around the world. So you think Connecticut's sports are gonna be And entertainment. And entertainment are gonna be what people want to see all around the world. And they're like, huh. And then RCA is like, and there's this other thing too, that you know, with satellite, like it doesn't go down, you know, it's, it's on 24 seven. So like, whatever you put on this video feed is going to go out 24 seven. And this is like, kind of blows their minds because at this point, before satellite and cable and satellite, the broadcast networks, and even most cable networks that were using

• 13:32David Rosenthal?

  satellite, they signed off at like 11 o'clock Eastern. So like, people used to, this is crazy, I mean, this is before our time, but like, you know, our parents' generation, you'd watch TV, it'd get to be 11 o'clock and then, you know, NBC, CBS, they'd be like, well, we're signing off for the night. TV was done. TV was over for the day. And then you just get like a test pattern on the screen. So they're sitting in this meeting and they're like, huh, interesting. So how much would it cost to get a feed on one of your satellites? And they're like, $35,000 a month, actually $34,167 a month. And so they're like, done, we'll take it. They have no money at this point. Like, send us the invoice. Net 30, can we have like net 90? Yeah. How about net 180?

• 14:17David Rosenthal?

  So they go back and they're like, okay, great. Now we gotta scramble some money together. We gotta not only pay RCA for space on their satellite transponder, but we need to set up like a whole studio to broadcast. We need to buy some satellite dishes to broadcast. Where are we gonna do that and how are we gonna get the money? Turns out there's a town nearby called Bristol, Connecticut.

• 14:41Ben Gilbert?

  Which ESPN aficionados know as still the the home of the worldwide leader in sports.

• 14:48David Rosenthal?

  Yeah, worldwide headquarters. The town had this big open space, a bunch of acres that they were looking to lease out to a commercial business. And it's just a field, like a muddy field. And but it's nearby. And so they say, great.

• 15:05Ben Gilbert?

  And do you know what it was before it was a field?

• 15:08David Rosenthal?

  I didn't find that. What it?

• 15:09Ben Gilbert?

  It was a dump. ESPN's headquarters today are still built on an old dump.

• 15:15David Rosenthal?

  On an old dump. Amazing. The most valuable media business in the entire world.

• 15:21Ben Gilbert?

  Yep. And what's interesting about that is since there's no like trees that are growing there, it's this big wide open thing. It's actually perfect for broadcasting satellite because it's a complete clear shot.

• 15:31David Rosenthal?

  Exactly. They talk about this. They had actually first looked at another nearby town, but they couldn't get enough space. And it was they didn't have a clear line of sight for the satellites. So obviously, the dump in Bristol was the perfect spot. Also, just like RCA, they leased this land, they have no money. And they start a plan to build the studios and truck in some satellite dishes. So they go out and they start like they hit the fundraising trail. They raise their seed round, a little bit of money from other members of the Rasmussen family. And they get a venture capitalist in in King of Prussia, Pennsylvania, of all places, just like right where I grew up.

• 16:09Ben Gilbert?

  Silicon Prussia.

• 16:10David Rosenthal?

  Yeah, Silicon Prussia, who invests, I think, the exact amount of one month of of the RCA lease. So like $34,000. And so like, okay, great. This will get us going for like, a little bit of time. Let's hit the fundraising trail for real and go get some real dollars to fund this whole thing.

• 16:29Ben Gilbert?

  And interestingly, I was thinking about what their pitch must have looked like. So 20% of the US had cable at this point. So they're very much doing the same sort of philosophy and pitch that Netflix was doing when Netflix started, you know, starting this DVD based business when no one yet had DVD players. It's like, oh, we're right on this inflection point. Everyone's about to have cable. Like, we got the we timed it perfectly.

• 16:52David Rosenthal?

  Yep. Yep. And indeed, they did. But also, just like Netflix in the beginning, all of the sources of investment dollars at this point, they're looking at these guys and they're like. No.

• 17:07Ben Gilbert?

  We're gonna need some very protective provisions in these documents.

• 17:10David Rosenthal?

  Yes, exactly. That's anyone who's even interested. For a long weeks, months, nobody's interested. They end up getting connected somehow with the Getty family in Los Angeles. So like, you know, listeners, if you've been to LA, you've been to the Getty Museum, which is an amazing art museum in LA.

• 17:29Ben Gilbert?

  You might know of Getty Images, the stock image site, which is one of the sons or nephews. But of course, the big behemoth and true sort of moneymaker and parent of the Getty empire.

• 17:40David Rosenthal?

  Is Getty Oil.

• 17:42Ben Gilbert?

  Yeah.

• 17:42David Rosenthal?

  And the family is just like nuts. They're crazy stories that we won't get into here, but like, this is a family business in every sense of the word. And one of the things that they're trying to do at the time, this is again, 1978, they're trying to, as much as possible, diversify out of the oil business. The family's going through generational transfer. They're looking for ways to get their money out of, out of oil and diversify it. And so this comes along and they're like, well, okay, why not? And there's a guy, Stuart Eby, who works for the family, who he's really like the champion of, of getting this done. So they start talking to the Rasmussen's about funding this and they're like, pretty, pretty interested.

• 18:24David Rosenthal?

  The deal's taking a while, though, and the Getty board and the senior family members, they're like, are these guys for real? Like, who are these guys? And.

• 18:33Ben Gilbert?

  ESP, that doesn't even have a good ring to it.

• 18:35David Rosenthal?

  Yeah. Bill realizes he needs to prove that they have something that like is gonna, once they get the money and get all this live, that they have like really compelling content to put on, to put on the channel. So he flies to Shawnee Mission, Kansas. Ben, do you know what is in Shawnee Mission?

• 18:53Ben Gilbert?

  I have no idea. No.

• 18:54David Rosenthal?

  The headquarters of the NCAA.

• 18:57Ben Gilbert?

  Ah.

• 18:58David Rosenthal?

  Indeed. And so in March of 1979, they're still negotiating with Getty. And Bill emerges from Kansas with a deal in hand, signed deal with the NCAA to air all of their championships across all sports and regular season games across 18 sports. Everything, including the then super prestigious men's basketball tournament, the NCAA tournament. I think the year before was the Magic Johnson and Larry Bird faced off in the.

• 19:30Ben Gilbert?

  How on earth? As I was doing research, it was, it became apparent that they would have a hard time getting pro sports rights. So like, oh, we'll go with amateur. But like, the NCAA at the time, it was no small thing.

• 19:42David Rosenthal?

  No, it was, it was like, dang, college football was huge. Bill, you know, great entrepreneurial fashion manages to get this contract. So he gets rights to every game that hasn't already been given to the big three networks. But that turns out that that's a lot of games. Cause even in the NCAA tournament, the big three networks were only showing like the final four. So all the games leading up to it, they thought nobody cared about them. Turns out, they were wrong. So Bill emerges with this contract, and then immediately after, that gets Getty across the line. They invest $15 million, which is going to be enough to pay RCA for a couple of years, build out the Bristol facility, get the satellite dishes, hire the first talent.

• 20:28Ben Gilbert?

  I think they now, that what they bought was 85%.

• 20:30David Rosenthal?

  Yeah, so, okay, this is what I was gonna get into. They invest $15 million for 85% of the company. So like, listeners out there, man, you think PCs are rough today.

• 20:41Ben Gilbert?

  It's a tough Series A.

• 20:42David Rosenthal?

  Yeah, that is a, now, $15 million was a lot of money. So to be fair, it was kinda like doing your seed A, B, and C rounds all at once, but still.

• 20:53Ben Gilbert?

  Yeah. The other interesting thing is, do you know what else happened as a part of that financing? There was a commercial agreement as well, but not with, with Getty.

• 21:03David Rosenthal?

  Are you referring to the beer agreement?

• 21:05Ben Gilbert?

  I am.

• 21:06David Rosenthal?

  Yes.

• 21:08Ben Gilbert?

  Yeah, so, I will, yeah. So Anheuser-Busch came to an agreement with ESP. This is still before ESPN. It's the largest advertising contract in cable television history at $1.38 million that they will be the exclusive beer advertiser on the new ESP network. Because, and there's some quote that one of the executives there had, where they, they say something like, "Cause we just thought, you know, beer and sports just go together."

• 21:37David Rosenthal?

  This will come back in one second on the day it goes live later in the fall. But before they go live, after they sign this deal, I couldn't find out who kind of initiates this, but somebody, whether it's Getty or Anheuser-Busch or somebody within ESP, they're like, you know, guys, this ESP thing, it sounds kind of corny and it doesn't sound super professional.

• 22:02Ben Gilbert?

  And it's confusing because three-letter acronyms are, you know,

• 22:06David Rosenthal?

  The broadcast companies, yeah. Exactly, exactly. So they started looking out and, you know, other cable networks that were getting started at the time, they all called themselves networks. It was like the, you know, .ly, you know, domain name of the, it was labs or whatever. Yeah.

• 22:23Ben Gilbert?

  Which is fascinating because like what, you know, we have all sorts of different definitions for network today. It doesn't quite make sense of why you would call your one sort of channel that runs across a cable a network. I guess because all the endpoint homes were networked to over cable to the one broadcast source.

• 22:41David Rosenthal?

  Maybe it was that they, they had affiliate distribution agreements with different cable operators throughout the country, that could be, which we'll get into in a minute here too. Anyway, everybody loves it. They say, great, we're going to change the name of the company. We are now the entertainment and sports programming network, ESPN.

• 22:58Ben Gilbert?

  Worldwide leader.

• 22:59David Rosenthal?

  Worldwide leader.

• 23:00Ben Gilbert?

  And actually, I think there was a brief period there where they, they changed it to ESPN TV. It was like ESPN dash TV. And then they're like, oh, we can't launch with that.

• 23:08David Rosenthal?

  Yeah, that's, that's too much. That's too much. Let's go with ESPN. So they launched, they end up launching with ESPN. Also, before they launched though, remember Getty just bought way more than controlling interest in this company, 85%.

• 23:20Ben Gilbert?

  Yeah, you're now an oil company subsidiary.

• 23:22David Rosenthal?

  Yeah, exactly. And if you know anything about, you know, the history of investing in startup ventures and what investors did back then, you know, the popular thing to do was fire the founders and bring in professional management. And Getty, in wanting to act like a true venture capitalist at the time, that is what they did. Now, in this case, it's debatable whether they did this because they felt like they should or because it was the right thing. Probably both. The Rasmussen's were.

• 23:51David Rosenthal?

  Amazing entrepreneurs. I mean, getting that NCAA contract was like, nobody else could have done that except somebody who was a true entrepreneur and at Egan too. But they weren't really equipped to like, you know, build out a media empire.

• 24:04Ben Gilbert?

  And to illustrate that point, so they got sold by these cable guys that they should spend all this money on a satellite transponder. And the way that they sort of orchestrated getting that all connected, apparently, and this is like ESPN urban legend, the cable was connected to the satellite only five minutes prior to the first broadcast.

• 24:26David Rosenthal?

  I believe it.

• 24:26Ben Gilbert?

  So like, not exactly sort of like operational experts in this industry.

• 24:30David Rosenthal?

  I believe it.

• 24:31Ben Gilbert?

  But, you know, extremely enterprising entrepreneurs.

• 24:34David Rosenthal?

  Extremely. So that summer, the Getty family basically forces Bill and Scott and had to kind of step back from day to day involvement. They make Bill the chairman of the company, but it's kind of in name only. He ends up leaving fully the next year in 1980. But they bring in this guy, Chet Simmons. And Chet was a legend. He had been president of NBC Sports at NBC. And they convinced him to come in and take over as president of ESPN. And he brings along with him this guy named Scotty Connell, who was his kind of number two at NBC Sports and who was responsible for All Talent. And the two of them, they bring into ESPN even before launch and then in the first few months after launching, like some names you might have heard of, George Grand, who depending on

• 25:18David Rosenthal?

  your age, you may or may not have heard of, Chris Berman, Dick Vitale, Bob Lee, Greg Gumbel, amazing talent into this brand new startup cable network.

• 25:28Ben Gilbert?

  And almost all these guys, except for Dick Vitale, are like 23 to 26.

• 25:33David Rosenthal?

  Yep.

• 25:33Ben Gilbert?

  So like the Chris, you know, we all sort of like know of Chris Berman today, you know, you know, I think Bob Lee was 23.

• 25:40David Rosenthal?

  Yeah, I think that's right.

• 25:41Ben Gilbert?

  Young, you know, super young, hot shot broadcasting crew.

• 25:44David Rosenthal?

  Yep. They, they were absolute pros at identifying and nurturing talent.

• 25:49Ben Gilbert?

  Yep.

• 25:50David Rosenthal?

  So September 7th, 1979, they go live and the first show that they have, they had talked about this before launching. They, they thought, you know, We're gonna have sports. They decided to drop the entertainment. You know, I don't know if that was the Rasmussen's or if that was when Chet Simmons came on board and they made this really, we're gonna be 24/7, the world's first 24/7 cable network and first 24/7 sports destination.

• 26:15Ben Gilbert?

  It's kind of amazing. They kept the E even though they decided before launch, they were never going to be anything besides sports.

• 26:19David Rosenthal?

  Besides sports, but they thought the linchpin to all of this would be they would do a half hour highlights show at 6:30 PM, kind of right in the middle of prime time every day. They're gonna do this every day and they would recap the highlights and the scores of all the sporting events in the country throughout the day.

• 26:35Ben Gilbert?

  Duh, duh, duh.

• 26:36David Rosenthal?

  Yeah.

• 26:36Ben Gilbert?

  Duh, duh, duh.

• 26:38David Rosenthal?

  This was like super innovative because the only way to get sports scores was if your weatherman decided to read it on your local, local TV channel or to open up the paper into the next morning. And even opening up the paper next morning, the paper went to print in the East Coast before the West Coast games were done. So there was no way to get scores real time. They thought this would be like, kind of the linchpin to all of it. And they decided, oh yeah, it's like the center of, of, you know, the day. It's the SportsCenter. And so when they launched at 6:30 PM on September 7th, 1979, the first thing that went live was SportsCenter.

• 27:14Ben Gilbert?

  Yeah.

• 27:14David Rosenthal?

  And it was beamed via satellite to 1.4 million US households on day one. And the network has been going ever since.

• 27:25Ben Gilbert?

  Lee Leonard and George Grand on for 30 minutes.

• 27:28David Rosenthal?

  On for 30 minutes, followed by, by an incredible

• 27:33Ben Gilbert?

  What a lineup.

• 27:34David Rosenthal?

  Fast-paced action of a slow pitch softball game. The teams of which were the, oh shoot, I've blanked him right down. It was two other beer companies. The, the teams were, that was their names.

• 27:47Ben Gilbert?

  Oh, no way.

• 27:48David Rosenthal?

  It was not Budweiser. And so they got into a huge row with Anheuser-Busch, which had just paid them

• 27:54Ben Gilbert?

  On the very first broadcast.

• 27:55David Rosenthal?

  1.4 million dollars. And then on the first broadcast.

• 27:58Ben Gilbert?

  I think then they had wrestling. They had some college soccer. Like it was a, it was a long night following, following SportsCenter.

• 28:03David Rosenthal?

  It was a hodgepodge, shall we say.

• 28:05Ben Gilbert?

  We will put this link in the show notes and I, we just tweeted out a link before recording this episode. Episode two with with just some sort of photographs, the whole thing. You have to watch this like first few minutes of the first SportsCenter broadcast to understand how different it was than the SportsCenter you know today. They say like, welcome to the SportsCenter. And there's like a five to 10 second video clip of like zooming in on some clouds. And then there's like this weird slow pan to a guy in a studio who's sitting at the desk. And it's like,

• 28:36David Rosenthal?

  I think it was George Grant.

• 28:37Ben Gilbert?

  Yeah, you're kind of like, whoa, you're like in an abandoned warehouse. This is not, this is weird. This is, and it's all terribly colored and you know, it was 70s television.

• 28:48David Rosenthal?

  And apparently there was no air conditioning in the studio.

• 28:51Ben Gilbert?

  But of course they have to wear suits.

• 28:53David Rosenthal?

  And of course they have to wear suits. And so people are just like sweating and.

• 28:56Ben Gilbert?

  Not to mention 70s suits being so stuffy.

• 28:58David Rosenthal?

  Yeah, polyester. Oh, it was great. It was great. So from that inauspicious beginning, again, on the back of this NCAA agreement, March comes around of 1980, they start showing the tournament games. And they had hired this guy, former coach, to be the announcer for most of the tournament games, Dick Vitale, and it just like takes off. People can't stop watching all around the country. All this, you know, these exciting games and the single elimination tournament, this great announcer gets super excited. Calling them and people start coining, I don't know who actually who, if it's attributable, who first coined the term.

• 29:39David Rosenthal?

  People start calling this March Madness. It didn't exist before 1980 when ESPN starts showing it.

• 29:45Ben Gilbert?

  And this is a theme that I want to keep sort of listening for throughout the episode is, is ESPN in the business of market capitalization or market creation? When I first started looking into it, I was like, wow, ESPN was like right on the crest of all these waves. Like this is amazing. They got March Madness right as it was happening. They got, you know.

• 30:04David Rosenthal?

  No, they created March Madness.

• 30:05Ben Gilbert?

  Yeah, later on, we'll get into Sunday Night Football and Monday Night Football. And actually what ESPN did was create a platform on which live sports entertainment could become the phenomenon that it is, rather than sitting there and capturing the phenomenon that it is.

• 30:20David Rosenthal?

  Yep. I think it's worth a pause here. We've talked about this a little bit, but there were two real innovations that ESPN kind of had right off the bat. One that we alluded to is this concept of 24 hours. Like, they were the first 24-hour television network. Obviously Ted Turner was rebroadcasting the Atlanta Superstation, but CNN hadn't launched yet. And like, what's crazy is like, the media business, you got to think back to then, like, it was headquartered in New York, and all anybody thought about was the East Coast primetime. So again, this, you know, the sign-off at 11:00 PM Eastern, that's 8 o'clock on the West Coast.

• 31:01Ben Gilbert?

  It probably really benefited. I mean, I know Bristol, Connecticut is not too far from New York, but it really probably benefited them to be sort of out in the middle of nowhere and not caught up in sort of the group think of how do you run a media company in the city?

• 31:12David Rosenthal?

  I think most of the, a huge portion of the cable penetration at that point was in the middle of the country and on the West Coast. Again, where like, the whole media industry and the broadcast industry hadn't built up as much. So that was one. And then two, they were like, there were other, you know, sort of niche cable stations out there. There were lots of crazy things happening. I feel like ESPN was the first really huge niche community that got built. Like, and I mean niche in terms of like, a hyper-focus on one thing that like, lots of people are passionate about, not niche in terms of small, you know, because like, the broadcast networks, they did everything. Like, NBC Sports, you know, that was a small portion of what NBC

• 31:56David Rosenthal?

  did. Whereas ESPN was like, just one thing, and they started creating this community, you know, around it.

• 32:03Ben Gilbert?

  So it's interesting, like, the notion of like, the internet as infinite shelf space, or as sort of infinite pages in your newspaper. Like, cable was the first time, we always make fun of it. It's like, oh, there's only 50 cable stations. The internet has infinite. But like, going from 3 to 50 was kind of, you know, you could, there were still some pretty big niches available for you to own.

• 32:22David Rosenthal?

  Yeah, totally. So, on the back of this, and the innovation they were driving around it, like March Madness and the like, they also got the NFL Draft. In April and they made the NFL draft a thing like it was never broadcast before ESPN and they were always trying to get into the NFL and this was the first thing that they could get was the draft.

• 32:40Ben Gilbert?

  The NFL throws them a bone like, yeah, you can't have any of our, you know, games. Certainly not the, the Super Bowl, but here, take the draft.

• 32:47David Rosenthal?

  Take the draft, right? And they made it into like, you know, an appointment viewing an event and the clock and everything.

• 32:53Ben Gilbert?

  Yep.

• 32:54David Rosenthal?

  So a couple of years later, they're growing like gangbusters.

• 32:56Ben Gilbert?

  Also, don't forget in 83, they did have the USFL.

• 32:59David Rosenthal?

  That's right. That's right. There were, there was a period in time where there were a few leagues competing with the NFL in the US around this point.

• 33:11Ben Gilbert?

  Yeah. And I think the AFL may have been a separate league and then got folded into the NFL and created the NFC.

• 33:18David Rosenthal?

  There were one or two others as well.

• 33:20Ben Gilbert?

  Yeah. And I think the USFL was around for three years. The ESPN got exclusive rights to it. They were like, oh my God, this is going to be huge. We're going to blow. And then ESPN has definitely had some, for as much as they've sort of bet correctly and created waves, they definitely have also had some where that just sort of fell apart.

• 33:36David Rosenthal?

  Well, part of what happened, I think this is right. So the Chet Simmons, who had come in to replace Bill as president from NBC Sports, after three years, he left and he became commissioner of the USFL. And I think that's what kind of got that relationship going. But yeah, despite that, growth was great. And a few years later, they're in like 1982 at this point, they're growing, they're adding more cable operators that are carrying ESPN, they're adding more advertisers, but all this is costing money. And of course, they're covering more events that cost money. They're at a point where they're burning $8 million a month in 1982 and Getty.

• 34:12Ben Gilbert?

  Three years after they start broadcasting.

• 34:14David Rosenthal?

  Three years after they start, yeah. And Getty is financing all of these losses because they own the business, you know? It's not like they're out raising money because they already own the business.

• 34:22Ben Gilbert?

  Right.

• 34:23David Rosenthal?

  They're getting pretty nervous though. They, they don't like this. And as we mentioned already, the family is starting to think about like, hey, we might need to exit this whole thing.

• 34:32Ben Gilbert?

  We're not actually sure why we did it in the first place.

• 34:35David Rosenthal?

  Well, this whole thing and their oil business as well, which will come up in a sec. So in 1982, the family, the Getty family sells a 10% stake in ESPN to ABC to help offset some of these losses. And I don't, I don't.

• 34:50Ben Gilbert?

  Like they're a broadcasting company. It kind of makes sense. They could be helpful here.

• 34:53David Rosenthal?

  Yeah, exactly. You know, help professionalize this thing. And Chet, who had come from, from NBC had just left. So they do that. Now, that was a pretty bad move. I couldn't, I don't remember exactly how much they sold it for. It wasn't that much money.

• 35:06Ben Gilbert?

  And it came with the right for ABC to buy a majority share later on. Kind of like the Disney BAMTech deal that we talked about earlier and what's probably season one or something, but.

• 35:17David Rosenthal?

  Yep, yep. Um, yeah, that was back in season one. Because right around that time ESPN comes up with a third super critical innovation. And that is that they changed the business model for cable. So up until this point, when ESPN first started and they were going out to all these local cable operators all throughout the country. They were having to pitch them to carry this channel in their lineup. And, and for most of them, they said, yeah, great. Like I'll carry it if you pay me. So ESPN was actually paying, uh, most of their operators to carry the channel.

• 35:58Ben Gilbert?

  And then you get sponsors to offset the costs that you have to pay for distribution.

• 36:01David Rosenthal?

  For distribution. Right, right. So a couple of people at this point come in. So, so Chet Simmons leaves. A new president comes in from CBS, Bill Grimes. So now ESPN has DNA from NBC, ABC and CBS. All in the executive ranks. And another guy starts like right out of college, a super young guy named George Bodenheimer. And he starts as a driver, like literally he would drive to the Hartford airport. Pick up all the talent that's coming back from like broadcasting these games all around the country. Bring them into the studio and ESPN, he kind of gets to know everybody and he quickly moves into affiliate relationships. So now he's going out, flying around the country and talking to these cable operators. And he starts to realize like, hey, ESPN is like the customers of these cable operators.

• 36:46David Rosenthal?

  They love it. They can't get enough. If they didn't.

• 36:49Ben Gilbert?

  Why are we paying them?

• 36:50David Rosenthal?

  If they didn't have it, they would revolt. What if we, what if we flip the script on these cable operators and we say, yeah, I know we've been paying you, but like, now you gotta pay us and if you don't pay us, we'll pull the signal from you. And so this happens a couple of times and.

• 37:08Ben Gilbert?

  This has happened in a few sort of instrumental moments in businesses in history where they realize, wait a minute. We're actually doing them more of a favor than, than, than they're doing us. And you, you can actually successfully reverse the flow of money.

• 37:20David Rosenthal?

  We cannot overstate how important this was to ESPN and to the entire cable network industry, all the cable industry. This completely changes everything, so much so that George Bodenheimer, years later in the 90s, under Disney, after Disney acquires what ESPN would become, he becomes the president of ESPN.

• 37:39Ben Gilbert?

  Pretty good idea.

• 37:41David Rosenthal?

  Yeah, pretty good idea. So they pulled the plug on a couple of stations and exactly that happens, all the subscribers of these cable distributors, they start revolting, they start like picketing, they start showing up at the offices, like demanding ESPN back.

• 37:54Ben Gilbert?

  All right. So basically, if we want to take this to business school, basically what happened is the end customer developed a stronger relationship with a supplier to the cable provider than the cable provider itself.

• 38:06David Rosenthal?

  Exactly.

• 38:07Ben Gilbert?

  And would sort of, they were provider agnostic and would go wherever that supplier was. And so if you're the cable networks, like, is there anything you could have done to prevent this?

• 38:16David Rosenthal?

  You mean the cable distributors?

• 38:17Ben Gilbert?

  Yeah, yeah. Is there anything you could have done to prevent this sort of disintermediation of you, where you become commodity and the real value is content? And really, the question is here, you know, there's two ways to create a ton of value, own the linchpin of content or own the linchpin of distribution. And I suppose they needed to maintain a monopoly on distribution in order to secure that they would be the only game in town to have access to that content. And as soon as they became commoditized, and what people viewed as unique was the content, they were going to get, you know.

• 38:48David Rosenthal?

  I think this is probably inevitable. I mean, the same thing played out with the internet, right? Like, in the first boom of the internet, remember telecom companies were so highly valued and like ISPs and all that, and they controlled distribution and blah, blah, blah. And AOL was this integrated provider, they were an ISP and content company. But, you know, fast forward to today and like Netflix, Google, you know, what, Facebook, what have you, are exponentially more valuable than Comcast, you know, whoever's providing the pipes to Verizon or whomever to the home, or to, for wireless. So yeah, this is pretty big. The first big deal that ESPN does with a very large cable provider, where the cable provider pays them was with Cablevision,

• 39:33David Rosenthal?

  the Dolans, the Dolan family in Long Island.

• 39:35Ben Gilbert?

  Who went on to own the Cleveland Indians.

• 39:37David Rosenthal?

  Yeah, and the New York Knicks and many other, and Madison Square Garden. Anyway.

• 39:43Ben Gilbert?

  But mostly the Cleveland Indians.

• 39:47David Rosenthal?

  They do a deal where Cablevision is now going to pay ESPN 10 cents per subscriber for every Cablevision subscriber. And that's the dawn of the affiliate fee era.

• 40:00Ben Gilbert?

  Beginning ESPN's real behemoth business model.

• 40:03David Rosenthal?

  And that becomes 2/3 of ESPN's revenue over time. Shortly after this, by 1983, ESPN has now become the biggest cable network in the US. And not just the biggest, but you know, the only one that's like making money from the cable providers in addition to advertising. In January 1984, we'd mentioned the Getty family woes. They end up selling the whole thing, Getty Oil, to Texaco for $10 billion. And Texaco, of course, is this huge oil conglomerate. They're not a family-run business. And they like, you guys have all the like, there's all this stuff that comes with Getty Oil. We gotta get rid of this thing. So turns out there was a guy on Texaco's

• 40:45David Rosenthal?

  board named Tom Murphy. And Tom Murphy was the president of a little company called Capital Cities. Ben, what was Capital Cities?

• 40:57Ben Gilbert?

  Boy, so Capital Cities, it is worth winding back the clock to understand what Capital Cities is and just what an incredible business story this is. So Capital Cities started with Tom Murphy in 1954, when he was recruited to run a struggling TV station called W T E N in Albany, New York, after graduating from Harvard Business School. So Murphy was a lean operator, and he was able to get the station to profitability by 1957. So just a few years after taking over, it's sort of new ownership, he's, he's new management. They lean it out and make it profitable. So he and the owner, Frank Smith, then decided to buy two more stations over the next couple of years in Raleigh, North Carolina and Providence, Rhode Island. And Capital Cities Broadcasting was born.

• 41:43David Rosenthal?

  So, you know. Is it capital of these states? Like, is that the?

• 41:48Ben Gilbert?

  I think so. I mean, Providence, I think is Albany definitely is. I think Raleigh is.

• 41:53David Rosenthal?

  Yeah, I don't know.

• 41:54Ben Gilbert?

  Yeah.

• 41:54David Rosenthal?

  Interesting.

• 41:55Ben Gilbert?

  Things we didn't research.

• 41:55David Rosenthal?

  I always wondered where like the capital came from.

• 41:57Ben Gilbert?

  Yeah, yeah. So Murphy, of course, you know, he's got responsibilities across capital cities. He needs to get out of running the Solbity Station. So he needs to hire someone to do that. He hires Dan Burke, who's another HBS grad, also no broadcast experience, but you know, really clear linear thinker, trusts him. I think it's an intro from one of their brothers or something like that. So hires him to run that station. So from this day forward, the DNA of capital cities was set. They were completely like bottom line driven, super lean, and they were very decentralized. So what was important was that if you you think about sort of the Berkshire Hathaway style of management, we're not going to have a big, you know, central staff. We trust the managers to run their businesses.

• 42:41David Rosenthal?

  They're just like, you guys run the stations.

• 42:44Ben Gilbert?

  Yep.

• 42:44David Rosenthal?

  We're allocating capital here.

• 42:45Ben Gilbert?

  Exactly, exactly. So Murphy and Burke were a fantastic duo over the next several years with Murphy, who became CEO as kind of the master strategist and the capital allocator. And Burke, who was the COO, the lean mean operator, sort of this this dream team of executives. So throughout the 70s and through sort of the mid 80s, they operated a super calculated strategy of expanding across local TV stations, some newspapers, and in this new cable medium, buying some cable stations all across the country.

• 43:15David Rosenthal?

  Cable distributors, right? So they're they're they're starting to buy up.

• 43:19Ben Gilbert?

  Yeah, I think that's right.

• 43:20David Rosenthal?

  Yeah, it was distributors of the, you know, of the, they're much smaller than cable vision, but the types of folks that, you know, ESPN as a network is then going out and doing these affiliate agreements with.

• 43:30Ben Gilbert?

  Exactly, exactly. And another sort of tenant here is they only expanded within their media and publishing vertical, while others in the industry like CBS were embracing sort of an 80s era conglomerate mentality really hard. They were buying minor league baseball teams, they were taking limos around town, you know.

• 43:46David Rosenthal?

  Just wait till we get to RJR Nabisco.

• 43:49Ben Gilbert?

  Capital Cities, their playbook was extremely simple. They would buy a station, they would operate it leanly and profitably, so they would get some great cash flow from it. Then, you know, with those nice cash flows and on their ability to show those cash flows, they would raise some debt capital at favorable terms. Then they would go buy another station, then they would quickly pay down that debt that they used, and then they would expand, lather, rinse, repeat, to dozens and dozens and dozens across the US. And, you know, they weren't big on PR, they weren't like, people still don't really know the name Capital Cities. It was kind of this like, almost sleeping giant of just really well-executed, disciplined businessmen. They were totally obsessed with decentralization. They actually printed on their annual report every year,

• 44:34Ben Gilbert?

  "Decentralization is the cornerstone of our philosophy. Our job is to hire the best people we can, give them all the responsibility and authority to perform their jobs." David, is this where, I can take us through, in January of 1986, they made one very unconventional

• 44:49David Rosenthal?

  Yeah, well, before we get to that.

• 44:51Ben Gilbert?

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• 45:05David Rosenthal?

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• 45:19Ben Gilbert?

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• 45:29David Rosenthal?

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• 45:47Ben Gilbert?

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• 46:03David Rosenthal?

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• 46:19Ben Gilbert?

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• 46:29David Rosenthal?

  So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely, at scale, go check out servicenow.com/acquired and tell them that Ben and David sent you. So we just mentioned, you know, Texaco had just bought Getty and Tom Murphy, you know, the CEO of Capital Cities is on the Texaco board. So Bill Grimes, you know, the new president of ESPN, who'd come from CBS, he figures all this out. And so he's like, all right, you know, he's worried about his job. He's worried about ESPN, what's going to happen to it as part of Texaco.

• 46:59Ben Gilbert?

  Yep.

• 47:00David Rosenthal?

  He goes to see Tom and he says, you know, Tom's based in New England, just like him. He says, "Hey, you should buy ESPN. You know, you're on the board of Texaco. Like, you know, like, they don't want this. They want to get rid of it. You should buy ESPN. It's a natural fit. We're the best cable network out there. You own cable distributors. You own all this stuff. Keep it decentralized. Do all this." Tom says, "You know, that's a great idea. I just can't do it right now. I'm working on something bigger."

• 47:27Ben Gilbert?

  And this is a trademark Tom Murphy thing where he would know exactly what price he wanted to pay for something. He would know exactly how operationally efficient he could run it afterwards and he wouldn't pay a dollar more.

• 47:38David Rosenthal?

  Yeah.

• 47:38Ben Gilbert?

  So it was one of those things where he would look at it and then it was just obvious to him. Nope, sorry. It looks great, but no, not right now.

• 47:44David Rosenthal?

  So, but he has this master plan. He's working on something bigger to come in one sec, but he's on the board of Texaco. Texaco starts a bidding process for ESPN. They're divesting the company. There are two main parties who are interested in buying it. One is...

• 48:01David Rosenthal?

  Ted Turner down in Atlanta, you know, he's, I think, I think CNN is, I think, has launched at this point. So he's like, you know, the canonical cable entrepreneur. He's the

• 48:10Ben Gilbert?

  It turned out it wasn't Atlanta sports that people wanted to watch nationwide, but it was a cable news.

• 48:14David Rosenthal?

  News. And so he sees, you know, he sees ESPN. ESPN's bigger and is like, and in fact, the 24 hour aspect of CNN was copied from ESPN. And so he's like, great, I want to own ESPN. He's like putting together bids. The other interested party is ABC. ABC, they already have this 10% stake that they owned in the ESPN and option for more. So the first thing they do, they buy 5% more from Getty and Texaco. So they get up to a 15% stake. I'm not sure why they did that or how much they pay for it, but they do that. Bidding's going back and forth between them and Turner. And again, remember, Tom Murphy's on the board of Texaco. Somehow, ABC ends up winning the deal. Now, they probably would have anyway because they already owned 15% of the company and had

• 48:56David Rosenthal?

  the inside track. Anyway, they buy the remaining 85% that they don't own of ESPN from Texaco, Getty, and the Rasmussen still owned their original 15%. They buy it all out. They now own 100% of ESPN.

• 49:11Ben Gilbert?

  Which I think is the first and last time that somebody owned 100% of ESPN.

• 49:16David Rosenthal?

  Well, the first time was when the Rasmussen started it.

• 49:19Ben Gilbert?

  Yeah.

• 49:19David Rosenthal?

  And then this is now the only moment in history where ESPN is wholly owned by ABC. They pay $188 million for the 85% that they don't own.

• 49:30Ben Gilbert?

  And remember, it was valued at like $18 million when Getty sort of first bought it. And then, of course, put a ton of cash into it along the way.

• 49:37David Rosenthal?

  Hey, 10x. We'll take it. It's like the Tencent episode. Yeah, 10x. I'll hit that bid.

• 49:44Ben Gilbert?

  Yeah.

• 49:45David Rosenthal?

  Again, for like the reasons that are completely unknown and just terrible decision. For some reason, ABC, remember, Tom Murphy has no control over ABC at this point. They turn around immediately and they resell 20% of ESPN to RJR Nabisco.

• 50:05Ben Gilbert?

  I thought it was Hearst.

• 50:06David Rosenthal?

  No, no, no, no. Hearst then buys it from Nabisco. This is, this is crazy. This is, this is nuts. This is where-

• 50:12Ben Gilbert?

  Can you elaborate on the RJR part of Nabisco?

• 50:14David Rosenthal?

  Yeah. Okay. So, so Nabisco, people probably, at least our, our US listeners probably know Nabisco. They think, you know, it's like cookies and crackers and it's a, it's a CPG company. It's like, you know, Procter and Gamble or whatever. They had merged with RJ Reynolds. What's RJ Reynolds? Sounds innocuous. Turns out RJ Reynolds is a tobacco company. Camels, Winstons, Salem's, they're headquartered in Winston-Salem. All of, it's the biggest US cigarette company. And at the time, cigarettes were, you know, a big thing. And they would have become embroiled in all sorts of lawsuits. But because, you know, they had, of course, their CPG products to sell, but mostly these cigarettes

• 50:56David Rosenthal?

  that they're trying to pump out to the US, they had all of these spokespeople who were professional athletes.

• 51:02Ben Gilbert?

  Oh my god.

• 51:03David Rosenthal?

  And in particular, one of their strongest channels for advertising cigarettes was NASCAR. And professional racing. And ESPN had really put NASCAR on the map. So NASCAR was one of these kind of backwater sports that ESPN, as they were starting, like they needed content. They really kind of elevated. And so Nabisco, RJR Nabisco was super interested in ESPN, had this, thought they would have this great synergistic relationship. They end up buying, buying this 20% stake from ABC.

• 51:36Ben Gilbert?

  It was something like ABC did that to like free up cash. Like they wanted cash for some reason.

• 51:41David Rosenthal?

  Yeah, I'm not sure why they did it. I mean, it was terrible idea on so many levels. So now, and Tom Murphy meanwhile must have been just like-

• 51:50Ben Gilbert?

  Just watching this.

• 51:50David Rosenthal?

  Facepalming, watching all of this. Because his grand plan soon gets revealed.

• 51:56Ben Gilbert?

  Yeah. So in January of 86, this is their, you know, they made a series of very conventional, small acquisitions that, you know, were in total something to write home about, but individually, nothing to write home about. This is very different. So with the help of some financing from, from Warren Buffett, who sort of identifies the twinkle of a soul in another in Tom Murphy.

• 52:17David Rosenthal?

  Very simpatico.

• 52:18Ben Gilbert?

  Yes, yes. Invests both debt and equity and Capital Cities executes a $3.5 billion purchase of ABC and all their related broadcast assets in New York, Chicago, and LA. The Wall Street Journal runs the headline the next morning, "Minnow Swallows Whale."

• 52:37David Rosenthal?

  And this is in the beginning of 1985. So like, you know, months after all of this went down with ESPN and ABC and Nabisco.

• 52:46Ben Gilbert?

  So why would they even need to raise the debt capital to do this? Capital Cities itself was not even worth $3.5 billion at the time. So even if they sold every single share in their company to buy ABC, they would not have been able to raise enough money. And in fact, this purchase was the largest non-oil and gas transaction in business history to this point, which is like, you know, we're watching WhatsApp get picked up for, for 20 bill. Like this $3.5 billion completely unheard of outside of oil and gas.

• 53:16David Rosenthal?

  Completely unheard of.

• 53:18Ben Gilbert?

  So just to kind of close the loop here in Capital Cities, Murphy and Burke had the track record to show that they could run this same playbook and bring in, you know, their, the operating margins that they were used to of over 50% with all the Capital Cities properties to ABC, which was currently in the low 30s. And so indeed, they did this, they generated a ton of cash and they were able to pay back all that debt in less than three years, which was earlier than expected. And so three years out, suddenly like, you know, Capital Cities is not, you know, under all this debt anymore. They're, it's looking really good.

• 53:53David Rosenthal?

  And remember ABC, again, which had just acquired ESPN. ABC Broadcasting, they only made revenue from advertising. They weren't getting these affiliate fees from the cable operators. ESPN now, they're getting to this, the importance of operating margins. Yeah, that's the jewel. Like, they're getting, as we said, affiliate fees become twice as big as advertising for ESPN over time. They're getting, like, it's so much a better business.

• 54:20Ben Gilbert?

  Yep. So, of course, Capital Cities takes the name of ABC because, you know, they own it. It's an unbelievable brand. It was really much more of a sort of reverse acquisition for ABC. So their, their culture, product, headcount, balance sheet, everything looked much more like Capital Cities than it ever did ABC, even though the company is, is sort of called ABC now. So crazy aside, before finishing this up, Dan Burke's son, Steve Burke, also rose to prominence through, through Disney and then through the media industry. He's now, in 2019, the current CEO of NBC Universal.

• 54:52David Rosenthal?

  I know.

• 54:53Ben Gilbert?

  It's a total dynasty.

• 54:54David Rosenthal?

  Crazy.

• 54:55Ben Gilbert?

  It's worth noting, so a decade later, well, actually, I'll come back to this as we dip into Disney here a little bit.

• 55:01David Rosenthal?

  Well, so, okay, so that transaction gets done with Capital Cities minnow swallowing the whale of ABC in March of 1985. Immediately, remember Nabisco, like, they're trying to pump out these cigarettes. They go see Tom Murphy and say, oh, hey, you know, you really wanted ABC, right? You didn't want this ESPN thing. Let us just buy it all out from you. We'll pay you $500 million for it.

• 55:27Ben Gilbert?

  Whoa.

• 55:28David Rosenthal?

  And actually, that probably was really hard to turn down for Tom and Capital Cities because they just, you know, raised all this debt to buy ABC.

• 55:36Ben Gilbert?

  Right.

• 55:36David Rosenthal?

  Nabisco thinks they're gonna get it, but, you know, Tom is smarter than that. And he says, "Thank you very much for your offer. I am going to turn it down." But, you know, that's pretty incredible. Nabisco is willing to pay $500 million for ESPN. I think it was valuing it at $500 million.

• 55:53Ben Gilbert?

  And what's the timeframe from when?

• 55:55David Rosenthal?

  This was 1985, and it was just before in 1984, when ABC had bought it for $188 million for 85%.

• 56:05Ben Gilbert?

  Wow.

• 56:06David Rosenthal?

  So, you know. People are starting to realize

• 56:09Ben Gilbert?

  What they have here.

• 56:10David Rosenthal?

  The value in this thing.

• 56:11Ben Gilbert?

  Yeah.

• 56:11David Rosenthal?

  1986 was a huge year for ESPN on the business side. Together now with ABC, all under one house, they get, ABC and ESPN together, under Capital Cities, they get NFL rights for the first time.

• 56:27Ben Gilbert?

  Boom.

• 56:28David Rosenthal?

  Boom. And this has been, as you were alluding to, Sunday Night Football, Monday Night Football. It becomes huge. And not only that, the business innovation at ESPN, like, we can't overstate how important it was. They've already started extracting fees from cable operators. They had to pay a ton of money to get the NFL rights. The NFL, of course, knows how, knew how valuable this was.

• 56:50Ben Gilbert?

  But it was nowhere near sort of the crazy prices that it is today.

• 56:52David Rosenthal?

  That is today, but still, for the time, I mean, it was a lot of money. What does ESPN do? They go back to their cable operators and they say, hey, we just acquired these rights. This is gonna be, you know, ESPN was already super valuable. Now it's gonna be astronomically valuable, but it cost us a lot of money to do this. We're actually gonna, you know, the amount that we paid for these rights, we're gonna push it down to you and we're gonna increase your affiliate fees commensurately to offset 100% of the cost that we're paying for these rights.

• 57:20Ben Gilbert?

  And there's, of course, nothing that those cable affiliates can do.

• 57:23David Rosenthal?

  They can't do, and there's a whole big showdown. And again, a couple of them say, like, we're not doing that. We walk. And within weeks, their subscribers are calling them up. They're petitioning, they're canceling, like, they're, they really, they have no leverage.

• 57:36Ben Gilbert?

  And to give you a sense, it's been sort of climbing. I think originally, we talked about it being 10 cents. 2013, it rises to like five bucks. I think it may have risen to somewhere in sort of the $8 range. Like, it's really, over time, it really grows.

• 57:50David Rosenthal?

  Yeah. And on the back of that, I mean, to give you a sense, that is, you know, by this time, they are over five, the carriage fees, the per subscriber fees that cable operators are paying ESPN is over five times any other channel out there. CNN, what have you, you know, A and E, like, all these other cable channels. ESPN just dwarfs all of them.

• 58:12Ben Gilbert?

  Yeah. ESPN is the thing people watch on cable, and ESPN knows it.

• 58:16David Rosenthal?

  Yeah.

• 58:17Ben Gilbert?

  All right, listeners. Now is a great time to talk about a new partner of ours here on Acquired, Logora, the agentic operating system that is redefining how the world's best legal teams work.

• 58:30David Rosenthal?

  Yep. It's sort of obvious that AI is going to completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. Logora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry?

• 58:47Ben Gilbert?

  So the founders did exactly what great founders do, operate with obsessive customer focus. They embedded inside a massive law firm for months. They sat with the lawyers just watching how the work really gets done.

• 59:02David Rosenthal?

  And that's how you get features that customers love, like tabular review, where you drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Logora's bet here is interesting. Since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work. And this means that the pie can grow even as each individual task takes less time.

• 59:26Ben Gilbert?

  And they recently launched Logora Agent, offering greater intelligence and performance. The agent lets lawyers set an objective, then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required.

• 59:45David Rosenthal?

  And Logora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early Logora numbers essentially speak for themselves. When they have a head-to-head pilot with their top competitor, they win 70% of the time. Logora now has over 100,000 lawyers on the platform from 1,200 legal teams in 50 countries. And crazily, they went from 1 million to 100 million in ARR in about 18 months.

• 1:00:15Ben Gilbert?

  Truly insane numbers. And that is the real test. Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm or you're in-house at a company, you can learn more at logora.com/acquired and just tell them that Ben and David sent you.

• 1:00:40David Rosenthal?

  So, okay, quickly back to RJR Nabisco, our tobacco peddling friends. If you are familiar with the Warren Buffett type of history, not Warren himself, but you know, private equity and leveraged buyouts, you might know a little bit about the most infamous deal that the firm KKR ever did, which was in 1989, they do the largest LBO in history, leveraged buyout in history. They acquire RJR Nabisco for $24.5 billion. And this becomes the subject of the book Barbarians at the Gate. Classic, classic book. Also got made into a movie. We should note here too,

• 1:01:22David Rosenthal?

  a lot of the history that we're taking for ESPN comes from a great book. Those guys have all the fun. Focus is really more on kind of the cultural history of ESPN, but it's just such, so great. Like oral histories and interviews with everyone has a bunch of the business history too. So Nabisco gets acquired by KKR. They take out an insane amount of debt to finance this thing, like absolutely insane. They start selling off assets to start paying down the debt. And one of the things that they sell off is their 20% stake at this point in ESPN that they sell to the Hearst Corporation for $175 million. Oof. Wow. Oh my gosh. People just like, especially these, these non-media

• 1:02:06David Rosenthal?

  businesses that owned parts of ESPN, they just do not understand the value.

• 1:02:11Ben Gilbert?

  Well, it shows a lot of that timing dictates so much in the price that these things get sold for. It's sort of like when you buy a house and suddenly like you must get rid of your house. You can't wait around for the best offer. Like you're now a seller, not a, not a, you know, it's not like you're not raising right now. You are very actively raising right now.

• 1:02:31David Rosenthal?

  Very actively. That's, that's not a good place to be. So Hearst still to this day owns 20% of ESPN and have been repaid on their investment, which many hundreds of times over.

• 1:02:41Ben Gilbert?

  Can we talk about that? Like, we're about to get to this Disney thing, but like in everybody's head, like Disney owns ESPN. Disney owns 80% of ESPN. They operate ESPN, but Hearst. Still owns 20% of the freaking business.

• 1:02:51David Rosenthal?

  It's crazy. Hearst does, they don't do anything. They're a minority shareholder. So Disney operates it. The P and L flows through to Hearst, but Hearst, of course, the William Randolph Hearst organization, you know, the publishing magnet, subject of the movie Citizen Kane, there's other things within the Hearst Corporation now, Conde Nast and that like the likes of that. But their 20% stake in ESPN is all of it, basically all the value there. It's totally crazy, especially in this, the price of this deal, like by the late eighties, early nineties, like ESPN is, is ESPN at this point, we're talking Dan Patrick and Keith Olbermann on SportsCenter, Stuart Scott, like booyah, you know, you got Rich Eisen and Keddie Mayne and Linda

• 1:03:35David Rosenthal?

  Cohen, like it is a cultural icon.

• 1:03:38Ben Gilbert?

  It's what you leave on in the living room while you're making breakfast.

• 1:03:42David Rosenthal?

  Totally, or, or 24/7. I mean, in my house growing up, it was literally like ESPN was on all day.

• 1:03:49Ben Gilbert?

  You and like 40 to 50 other million Americans.

• 1:03:52David Rosenthal?

  I know, it was awesome. 1994, they hire the famed ad agency Wyden Kennedy, that of course had always done Nike to do the This Is SportsCenter commercials. Oh my god, so good.

• 1:04:07Ben Gilbert?

  The best one ever, I think, is the Lance Armstrong cycling in the basement.

• 1:04:11David Rosenthal?

  Yes, yes.

• 1:04:13Ben Gilbert?

  Or LeBron's, LeBron's throne.

• 1:04:16David Rosenthal?

  Yeah, yeah, yeah.

• 1:04:18Ben Gilbert?

  It's like, I can't, it's like Stuart Scott or someone walks, or LeBron tries to walk back to his cube in Bristol and he sort of looks and his chair is not there and he looks in the cube next to him. And I think it's like Stuart Scott is sitting in a throne at his desk and Stuart turns around, he's like, oh, sorry, is this your chair?

• 1:04:37David Rosenthal?

  So, so good. I mean, those guys like, we, go read, Those Guys Have All The Fun, the, the book, because it really gets into all this, but you know, just every, the popular culture, like you can't, you cannot understate the impact of, you know, Stuart Scott and Cool Is The Other Side Of The Pillow and booyah and just like. It changed everything.

• 1:04:57Ben Gilbert?

  Yep.

• 1:04:58David Rosenthal?

  Uh, everything. Um, so anyway, ESPN is crushing it through the early 90s. And then in the summer of 1995,

• 1:05:09Ben Gilbert?

  Yeah.

• 1:05:10David Rosenthal?

  Our friend, Mr. Buffett makes another reappearance.

• 1:05:12Ben Gilbert?

  He does, and he, uh, he suggests to Tom Murphy that, uh, he should get together with Michael Eisner, who's the CEO of Disney.

• 1:05:20David Rosenthal?

  This is at the Allen and Company.

• 1:05:21Ben Gilbert?

  When they're, when they're both in Sun Valley at the Allen and Company, uh, gathering.

• 1:05:25David Rosenthal?

  Yep.

• 1:05:26Ben Gilbert?

  Of, uh, media and now technology, uh, 100 millionaires and billionaires. This is amazing, kind of how fast this deal got done. And so in a matter of days, they had worked out the terms and Disney buys.

• 1:05:37David Rosenthal?

  Of course, because Berkshire Hathaway is still a large investor in capital cities at this point.

• 1:05:41Ben Gilbert?

  Mm hmm. Disney buys ABC, which contains Capital Cities or is Capital Cities and contains ESPN for $19 billion, which represents 13x cash flow and 28x net income.

• 1:05:54David Rosenthal?

  Yeah. And was at the time, the third largest acquisition ever. Of course, the RJR Nabisco buyout had happened, um, a few years before. That was the largest. It doesn't go so well, but third largest deal ever. And of course, the cable network division of, uh, of ABC Capital Cities is the jewel, uh, at this point, and of which all of that is ESPN.

• 1:06:17Ben Gilbert?

  Yeah. I, I think it's something like of that 19 billion. I think it was something like four billion alone is attributable to ESPN. It may have been, it may have even been more than that.

• 1:06:29David Rosenthal?

  I mean, hard to say exactly. Whatever it was, by the kind of mid 2000s, the cable network division within Disney, which does include, uh, you know, the Disney Channel and some other things, but ESPN is, you know, 90 plus percent of it or whatever.

• 1:06:45Ben Gilbert?

  Mm hmm.

• 1:06:45David Rosenthal?

  Um, that is driving over half, over 50% of all the operating profit for the Walt Disney Company. Like theme parks, movies, you know, everything, you know, merchandise, all of it. ESPN is over half of the profit.

• 1:07:01Ben Gilbert?

  Yeah. And if we really want to fast forward and, and, you know, I think the modern era of ESPN is a very, it's a, it's a different story that we should tell in its own right, but a quick snapshot. So, uh, there was a analyst estimate from an investment bank in 2015 that ESPN alone was worth $50 billion.

• 1:07:16David Rosenthal?

  Yeah. Crazy. I mean, really, you know, it's funny, we did our, back in season one, our Disney trilogy, which was great, and there certainly are more, um, more episodes we'll have to do to add on to that in the future. But this is like, this is the foundation of it all. Like, of course, Disney was a great company before the ABC Capital Cities deal. But like, if you look at just pure value creation within Disney, like, you know, Lucasfilm, Pixar, Marvel, whatever they've done, you know, in the past, like, these are peanuts compared to ESPN.

• 1:07:50Ben Gilbert?

  So one really interesting way to reflect back on this is a phenomenal book called The Outsiders, which is about unconventional CEOs who sort of defied what other people were doing at the time in their industry and ran, ran their business a different way. And the first chapter is about Capital Cities. So, super instrumental to the research for, for this episode, had this great comment to give the rise of Capital Cities some context. "If you had invested a dollar with Tom Murphy when he became CEO in 1966, that dollar would be worth $204, at the time he sold to Disney. That's a remarkable 19.9% IRR over the 29 years, which significantly outpaced the S and P 500 10.1%."

• 1:08:35Ben Gilbert?

  I mean, just continuous maniacal ludicrous growth.

• 1:08:40David Rosenthal?

  Well, you see why Warren Buffett likes him.

• 1:08:43Ben Gilbert?

  Yep.

• 1:08:45David Rosenthal?

  We're going to wrap up History and Facts on this episode here. Ben, as I think you alluded to, at some point, there, there is another major acquisition in the story here that happens in the, either in the 90s or 2000s, we'll have to do the work, of a company called Starwave, actually, here in Seattle.

• 1:09:02Ben Gilbert?

  Yeah, like a mile from where we're sitting.

• 1:09:03David Rosenthal?

  Yeah, which becomes, we're doing an in-person episode today, which is awesome. That becomes the backbone of all the digital assets of ESPN.

• 1:09:12Ben Gilbert?

  ESPN.com, fantasy, what would become the apps, you know.

• 1:09:15David Rosenthal?

  Bill Simmons, podcasting, all of that. That'll be a super fun one for, for another day. So, but we won't get into that here. Acquisition category for this. Okay, so which, which acquisition are we categorizing?

• 1:09:27Ben Gilbert?

  I suppose it's a business line in basically every case.

• 1:09:30David Rosenthal?

  Yeah.

• 1:09:30Ben Gilbert?

  Because there's not that much integration that really happens here in any of these things. It's not like they're integrating a product into their sales channel. They're of course buying like ESPN just had an insane amount of talent. One of their differentiators where they were an amazing sort of magnet and talent development pipeline. But like a lot of these times where we talk about plugging in a product to improve your flywheel effects, there's that to some degree. And in fact, Disney talked about, Mike Eisner, at the time of this big acquisition, was doing the press circuit and talking about how ESPN was a brand upon which they could, could apply Disney's resources and really fuel that brand to be other things. That was less successful, I think, than like ESPN Zone and all these different ESPN,

• 1:10:12Ben Gilbert?

  the magazine was fine, but like the core business is still really the carriage fees.

• 1:10:17David Rosenthal?

  But ESPN didn't need Disney to do a magazine, like, you know?

• 1:10:20Ben Gilbert?

  Right. And it's not like, you know, prominent ESPN things in the theme parks are driving a material piece of it. So to me, it was a amazing business line that with sort of the right continued management and access to capital and could kind of keep growing on its own. And the business line itself just kept getting bought.

• 1:10:39David Rosenthal?

  Yeah. And even going back to the original Getty Oil investment, like that's what it was. It was diversifying out of oil. It was a business line, like they weren't going to integrate that into the oil company.

• 1:10:50Ben Gilbert?

  And for folks new to the show, we have categories for this. People, technology, product, business line, asset consolidation or other. And that's sort of grown over time. The way that we differentiate between product and business line is, you know, if, if a product would be Facebook buying Instagram and then plugging it into their existing business, this, this is sort of, this is not that. This is its own business.

• 1:11:10David Rosenthal?

  Yep. Our next section that we do is what would have happened otherwise? I was also struggling to think about this, but I actually think the, to me, the interesting story here is not what would have happened otherwise. It's like. What should have happened otherwise, but didn't like, you know, Nabisco, like cigarettes, like all that, like there were so many things along the way, like getting all like any other business that hadn't captured such huge waves and brought such huge innovations to the industry would have been capsized by all these machinations like Getty, Texaco, RJR Nabisco, like ABC before Capital Cities, like the management and ownership, stewardship of this company was terrible, yet it

• 1:11:55David Rosenthal?

  survived and thrived. I think just because the wave it was running was so powerful, you know?

• 1:11:59Ben Gilbert?

  Yeah, I would say often really what it was was amazing management under questionable ownership. Unfortunately, a lot of the time that ownership was minority. So they could sort of continue to run the business.

• 1:12:08David Rosenthal?

  Or at least acted like minority, even when they were a minority.

• 1:12:11Ben Gilbert?

  Yeah. Yeah. So I think it's almost like it really threaded the needle on managing to realize its true potential without anything disastrous happening.

• 1:12:20David Rosenthal?

  Yeah. Yeah. You know, again, these huge innovations, you know, 24 hours, like community, like especially around SportsCenter and, you know, and the affiliate fee business model, like these are, these are huge innovations.

• 1:12:34Ben Gilbert?

  Yep.

• 1:12:35David Rosenthal?

  Tech themes?

• 1:12:35Ben Gilbert?

  Yeah. So my first one is a point that was made in The Outsiders. There are studies, and this kind of I think happens over and over again, that show that two thirds of acquisitions destroy value. And of course, that's why we are doing this show because we thought it'd be fun to cover ones that managed to not and figure out how did they manage to not destroy value. Capital Cities, over and over again, was masterful at it. So I was trying to sort of tease out what made them so good. So Murphy was able to acquire companies with confidence because the first piece is the business was already so decentralized that whenever they would acquire a company, integration would be easier because there wasn't significant integration to do. They really sort of like installed the right managers and sort of trusted them to run it. And number

• 1:13:18Ben Gilbert?

  two was they were so efficient at growing margins in their own business and knew that sort of their, their playbook could do that, that they could effectively lower the acquisition price because they knew that they could accelerate payback. And so when they could bid higher than someone else and of Of course, they didn't really end up buying a lot at auctions, but when they did identify something they wanted and they'd go after it, they know exactly what their price could be because they knew exactly what the resulting cash flows would be five years out, or at least could do pretty effective forecasting. So they were able to get conviction in acquiring these assets. So I just thought that was worth mentioning as we really, people often ask David and I, like, what, so what have you guys learned from the show? Like, what are the, what are the things that make a technology acquisition successful?

• 1:14:03Ben Gilbert?

  And this is one where in this particular type of business model, in this media business, you know, running this, this combination of decentralized and lean really did allow them to efficiently make acquisitions that were very likely to be successful.

• 1:14:15David Rosenthal?

  Yeah, it's been fun learning about capital cities and learning from, learning from you. Ben did most of the research on it. It's not a story that's oft told, you know, Tom Murphy is, you know, nobody knows Tom Murphy like everybody knows Warren Buffett. But you can just learn so much from how these, how these people have allocated capital and operated.

• 1:14:35Ben Gilbert?

  Yep.

• 1:14:35David Rosenthal?

  You know, my big one, my big learning from this is, in a lot of ways, this is obvious, but it hadn't really quite crystallized for me until this episode that like, to often to get a like huge, huge generation defining company, which ESPN absolutely is like, I put it in the same category as Google or Facebook or Tencent or Alibaba or whatever, just wasn't an independent entity. This combination of like, you have to both ride a huge, you know, technology wave. In this case, the technology wave was cable, but you also, if you can marry that with a business model innovation,

• 1:15:15David Rosenthal?

  like, that's how you can become just so incredibly dominant. You know, in ESPN's case, like literally 5X bigger than any other cable network.

• 1:15:22Ben Gilbert?

  I think you talked about this a bunch on the LP show, like really digging into what is the appropriate and sort of the highest form of perfection of business model for a given medium. And can you really exploit that new piece of technology with the appropriate business model to sort of, you know, flank an industry from the side instead of ever needing to attack anyone head on?

• 1:15:41David Rosenthal?

  Totally. And I think about like Tencent did this equally as well, right? Like, you know, they ride the wave of PC usage and then mobile, you know, usage and penetration in China. And they marry that to a huge business model innovation with the freemium business model.

• 1:15:57Ben Gilbert?

  Yep.

• 1:15:58David Rosenthal?

  And no one can touch them, you know, except maybe ByteDance.

• 1:16:04David Rosenthal?

  That's my big one.

• 1:16:06Ben Gilbert?

  Well, I had, just to revisit one that we mentioned earlier, I think it is interesting reflecting back on what activities did ESPN perform that were sort of market capitalizing, effectively wave riding? And what ones did they do that were market creating? I think they mostly are in the business of market creation. And I think that they're, you know, this even continued after, like far after where this episode ends, sort of with fantasy football being the driver of why people like the NFL. I think ESPN has actually done a lot of work in creating why the NFL is a platform for American social activity. And I think.

• 1:16:49David Rosenthal?

  Just like they did with March Madness and NASCAR and so many others.

• 1:16:53Ben Gilbert?

  Yep. Yeah, there it's, you can almost think of them as a platform company in the way that sort of Microsoft created a platform on which other people could make more money than Microsoft itself made in total. I think that's probably the case with ESPN too. They were just a sort of an unlock for creating a ton of value in the ecosystem.

• 1:17:10David Rosenthal?

  Yeah, totally.

• 1:17:11Ben Gilbert?

  And then lastly, it's interesting to just reflect on the media industry and sort of there's content and there's distribution and ESPN has always been content. And reflecting back on the Kara Swisher episode, many people have tried throughout the years, including AOL to, with AOL Time Warner, to achieve the dream of marrying content with distribution. And we're kind of seeing Disney do that now in a new era where they're trying to, you know, pull, this is again, a foreshadow, but pull off of Netflix and pull off all these streaming services and introduce Disney+ And I think it's interesting to just look at this acquisition in the context of that eventual dream of marrying both together. And it's funny that it kind of incredible that ESPN was able to spend the money to produce the content,

• 1:17:57Ben Gilbert?

  but then make the money from getting other people to distribute it for them.

• 1:18:00David Rosenthal?

  Yeah, yeah.

• 1:18:01Ben Gilbert?

  Talk about differentiated content.

• 1:18:03David Rosenthal?

  Yeah. Well, and you know, another thing we haven't talked about here that probably wasn't as important in the time period of history where we're focusing on ESPN here, but it's critical now is the live component, especially as, you know, everything has transitioned over the last few years to streaming and whatnot. Like, what is the most only really remaining defensible piece of traditional television type programming? It's live. And what is the most compelling live programming? It's sports.

• 1:18:36Ben Gilbert?

  Yep. Want to grade it?

• 1:18:39David Rosenthal?

  Let's do it. What are we grading?

• 1:18:42Ben Gilbert?

  I think we should grade the Disney acquisition of Capital Cities, but it's worth talking about the others, too. So I think the Disney acquisition of Capital Cities was an A or an A plus or something, and we can talk about that. The Capital Cities acquisition of ABC is whatever, whatever we decide for Disney is the same thing for Capital Cities acquiring ABC because really like it's, was it a good idea long-term to own ESPN for a much more nominal price than the super high value that it's worth today? Was yes in both cases.

• 1:19:10David Rosenthal?

  The ABC acquisition of ESPN, that's just like, no doubt, A plus.

• 1:19:16Ben Gilbert?

  Right, right.

• 1:19:18David Rosenthal?

  Whatever enterprise value of 200 and some odd million that they paid for it.

• 1:19:24Ben Gilbert?

  Yeah. And then the only people that I suppose it may not be an A plus for or an A4 or whatever is Getty, when they sort of acquired it from the Rasmussen's.

• 1:19:32David Rosenthal?

  Tenex.

• 1:19:33Ben Gilbert?

  It was a 10x. They did have to pour a lot of money into it over time.

• 1:19:37David Rosenthal?

  Getty, I think the, yeah, the, it's almost like you can, you can bucket out the winners and losers here, or like the winners, the big winners and the not so big winners. Getty in the not so big winner, Texaco for sure. They were like barely even played at the table. Nabisco, loser. Hearst, Hearst might be the biggest winner of all. They didn't have to do anything.

• 1:20:01David Rosenthal?

  Paid 175 million for 20% of the company.

• 1:20:04Ben Gilbert?

  I wonder if Hearst's market cap, are they publicly?

• 1:20:08David Rosenthal?

  They're not a public company.

• 1:20:09Ben Gilbert?

  If they were a public company, I wonder if their market cap would be lower than their share.

• 1:20:13David Rosenthal?

  Yeah, you have like a Naspers situation with Tencent.

• 1:20:16Ben Gilbert?

  Yeah, discounted because you can't get it liquid.

• 1:20:18David Rosenthal?

  Yeah, yeah, I'm sure it would be, but yeah, Hearst is still a private, family owned company.

• 1:20:23Ben Gilbert?

  Is ESPN too expensive now with not enough perceived headroom for where it could grow for anyone to want to buy it from Hearst?

• 1:20:34David Rosenthal?

  Could be.

• 1:20:34Ben Gilbert?

  Why wouldn't Disney?

• 1:20:36David Rosenthal?

  But it doesn't matter, right? Like they've been getting cash flow distributions for decades. You know? Yeah, but that is a good question. Like, would anybody want to buy that from Hearst right now? I don't know.

• 1:20:46Ben Gilbert?

  Yeah. All right, where are you on Disney acquiring ABC slash Capital Cities containing ESPN?

• 1:20:54David Rosenthal?

  Well, I mean, no doubt it's an A, right? Like even without the exact numbers at my fingertips, if half of your operating income as an entire company is coming from ESPN, you know, within a decade of the acquisition, no matter what you paid for it and 19 billion, I forget what Disney's market cap was at the time. Whatever it was, anyway, I would say with plenty of fudge factor based on what these numbers were that we don't have at our fingertips, I'm fairly confident it was an A.

• 1:21:24Ben Gilbert?

  Yeah, it is worth noting the contrast to like our sort of two biggest A pluses of all time, or maybe three are Next, reverse acquiring Apple.

• 1:21:34David Rosenthal?

  Yep. Facebook acquiring Instagram.

• 1:21:37Ben Gilbert?

  Instagram and Booking, Priceline acquiring Booking.

• 1:21:40David Rosenthal?

  Priceline acquiring Booking, yep.

• 1:21:42Ben Gilbert?

  And this is different than Next in that it was not company saving, like Disney.

• 1:21:48David Rosenthal?

  Would have been fine, right? But nowhere near what they are.

• 1:21:51Ben Gilbert?

  Right. So, you know, if we're like reserving the pluses for company saving or something, it wasn't that.

• 1:21:56David Rosenthal?

  Yeah, I agree. And I'm not a plus. I'm an A.

• 1:21:59Ben Gilbert?

  It's an A.

• 1:21:59David Rosenthal?

  Because they still paid $19 billion for it. Like, you know, it's not like.

• 1:22:03Ben Gilbert?

  Right. I mean, yeah, yeah.

• 1:22:05David Rosenthal?

  It's not like they, you know, invested when this isn't like Tencent here.

• 1:22:10Ben Gilbert?

  Right. And let's even say half. So in 95, they paid, call it $10 billion ish for ESPN, just kind of as a conservative thing. And today, or in, I won't say peak, in the late 2000s, it was 50 billion. Like it's a 5X over a decade. It's great.

• 1:22:26David Rosenthal?

  And that's, that's value. They also have been getting tons of cash flow from it over those years. So, um, yeah, I think definitely.

• 1:22:34Ben Gilbert?

  Owning ESPN today.

• 1:22:35David Rosenthal?

  For sure. For sure. Now, when we talk about Starwave and ESPN going forward, next time, uh, we can't promise it will be actually next time, but at some point in the future, unacquired.

• 1:22:46Ben Gilbert?

  We should do it.

• 1:22:48Ben Gilbert?

  Carvouts?

• 1:22:49David Rosenthal?

  Carvouts.

• 1:22:50Ben Gilbert?

  I have an incredibly appropriate one. So there is a very cool podcast that has been started by the folks at Geekwire, um, in addition to their, their regular podcast, uh, called Numbers Geek. And, uh, Todd Bishop, the co-founder of Geekwire.

• 1:23:04David Rosenthal?

  Friend of the show, Todd Bishop.

• 1:23:05Ben Gilbert?

  Indeed. And, uh, you know, a special guest on the Push Pop, Push Pop Press episode. Boy, that was early on. His co-host or maybe his featured guest every time is Steve Ballmer. And Steve, uh, Steve Ballmer, of course, the former CEO of Microsoft, owner of the LA Clippers. Now the, uh, that he's used sort of his, his private family wealth to, uh, release USA facts. So really diving into making it easy to understand sort of, um, the important numbers about the, the US, both in government spending, but across a lot of important issues. So they do this great podcast called Numbers Geek. The most recent episode was fascinating. It was called the Basketball Box Score Mystery. Todd presented Steve with a, uh, stat sheet, very, very detailed stat

• 1:23:50Ben Gilbert?

  sheet from a basketball game, a famous basketball game, and obfuscated the names of all the players and the names of the teams. And he said, Steve, analyze this and give me your best guess at what two teams were playing, what this game was, and who each of these players were on the stat lines. And it's really fun because, uh, you know, Ballmer is such a, uh, a basketball geek and has been for a long time, long before buying the Clippers, to sort of have him sort of, uh, try and analyze and, and understand everything from, oh, I bet this player was injured and this other player was taking some of his minutes because he was injured. I think this might've been a playoff game. So it's a really cool, and as I was thinking for this episode, you know, just a great tie in with ESPN.

• 1:24:31David Rosenthal?

  Hmm. My carve out, I'm gonna have to listen to that. That sounds awesome.

• 1:24:35Ben Gilbert?

  Yeah, it's cool.

• 1:24:36David Rosenthal?

  My carve out is also near and dear to the show and our community's heart is a great, great, long piece that Fast Company just released on SoftBank and Masa and his ambitions and where the Vision Fund and SoftBank and WeWork and everything goes from here by Katrina Brooker and championed by editor and huge supporter of Acquired, David Lidsky. So, thank you so much for all your support.

• 1:25:07Ben Gilbert?

  David is, I mentioned the Slack earlier, David is like an awesome, awesome member in the Slack.

• 1:25:12David Rosenthal?

  So great. And this piece is, is really, really good. I, I wish it, I wish it had been out when we did our episode on the Vision Fund. But so the, my favorite moment is this image of when SoftBank Corporate acquired ARM, which we'll have to do an episode on someday.

• 1:25:31Ben Gilbert?

  Oh, yeah.

• 1:25:31David Rosenthal?

  And the deal getting done in the Turkish Mediterranean in an empty restaurant that Masa had bought out and then like helicoptered in all the principals from ARM. Amazing.

• 1:25:41Ben Gilbert?

  Why not?

• 1:25:42David Rosenthal?

  Amazing. So.

• 1:25:43Ben Gilbert?

  It's awesome.

• 1:25:45David Rosenthal?

  All right, listeners. Now is a great time to talk about one of our favorite companies, Statsig.

• 1:25:51Ben Gilbert?

  Yes. There is a reason why the best product teams rely on Statsig, whether they are iterating on their core product features or shipping AI-powered experiences at scale.

• 1:26:02David Rosenthal?

  Yep. In the crazy speed of today's AI world, shipping fast is just table stakes now. It's basically trivial to build and deploy your app constantly. The real advantage is how quickly you learn what changes actually created value for customers and how fast you can use that signal to guide what you ship next.

• 1:26:22Ben Gilbert?

  This is where Statsig comes in. It brings experimentation, feature flags, and product analytics into one unified system so teams can ship safely, test rigorously, and directly link what they changed to how users actually behaved.

• 1:26:35David Rosenthal?

  So if you want to make learning your competitive advantage, whether you're building new AI experiences or just evolving your existing core product, go to statsig.com/acquired to get started.

• 1:26:46Ben Gilbert?

  Well, folks, thanks as always for going on this journey with us. If you aren't subscribed and you want to hear more, you can subscribe from your favorite podcast client. If you like the show and want to dive deeper with us as a limited partner, you should join the club. You can click the link in the show notes and get access to a special deeper episode in between every episode that we release on the main show, or you can go to kimberlite.fm/acquired. We'll see you next time. We will.