The Skipper

A year into helming ESPN's $8 billion sports empire, John Skipper knows success means staying ahead of the competition

Manti Te’o is crazy or stupid, and very possibly both. At present, the only thing the 14 people in an ESPN conference room can agree on is that, for good or ill, the story of the Notre Dame defensive standout and his imaginary dead girlfriend is going to eat up the first quarter hour, give or take, of the evening broadcast.

It’s an overcast morning at ESPN’s home base in Bristol, Conn., one day after the sports site Deadspin broke the news about the preternaturally gifted Te’o, a fearsome inside linebacker in the mold of a Jack Lambert or Ray Lewis. While details of the story remain obscured by Te’o’s silence—it will be days before he sits down for his first interview—not to mention the sheer, unprecedented weirdness of it all, suffice it to say that the Heisman runner-up has some ’splaining to do.

It turns out that Lennay Kekua, the 22-year-old girlfriend around whom Te’o rallied the South Bend faithful like some sort of distaff 21st century George Gipp, didn’t actually die on Sept. 11, 2012, from complications related to leukemia. That Kekua didn’t succumb to cancer is largely a function of her being a fictional construct.

Jack Obringer, the senior coordinating producer of the 3 p.m. and 6 p.m. editions of ESPN’s flagship program, SportsCenter, is running herd on the morning editorial meeting, and while there is probably no end to the number of stories he’d rather pursue—a Notre Dame alum, he’s still stinging from Alabama’s 42-14 rout of the Fighting Irish in the BCS national title game—the Te’o saga is simply too big to push into the margins of the broadcast. A potboiler that touches on nearly every murky corner of the American experience (Sex! Death! Football! The Internet!), this is a story that has more legs than a bucket of KFC.

But after it becomes apparent that an on-camera Jeremy Schaap interview has been nixed by Te’o’s agent, it seems as if one of the few promising leads may be a “get” with Alexandra del Pilar, a verifiably extant woman who is believed to have begun dating the football player in December. All told, 12 minutes are devoted to Te’o and yet it still seems as if very little has been resolved. “What’s our goal with this?” sighs a senior staffer who holds the classic news-meeting pose: arms crossed at chest height, right ankle balanced on left knee. “What are we trying to get at here?”

When the Te’o talk at long last gives way to chatter about that night’s Miami Heat-Los Angeles Lakers clash at the Staples Center, a pen-joggling producer in the back of the room erupts into applause. “Yay, a game! Finally!” he cracks, earning his own round of cheers. “The TMZ portion of the meeting is over!”

SMOOTH SAILING

Some 80 miles to the southwest as the crow flies, John Skipper is drumming his fingers on the desk in his office on Manhattan’s West 66th Street. In his capacity as president of ESPN Inc. and co-chairman of Disney Media Networks, Skipper spends maybe 30 percent of his working hours in New York, and yet the room is so sparsely appointed that it almost looks as though he’s renting by the month.

A tall, donnish man with close-cropped silvery hair and an accent with roots in the Carolina hill country, the 57-year-old Skipper carries himself with the air of a classics professor who also coaches the varsity basketball team. One of the few tokens that hints at his position as head of the world’s most powerful sports media brand is a sketch that hangs a few feet away from a wall-mounted HD television set; in the careful hand of a very young child, a basketball-playing dog leaps over the legend “AIR JORDOG.”

One year after officially taking the reins from longtime ESPN chief George Bodenheimer, Skipper allows himself a gentle joke at his own expense. “We have very good senior people in place. It’s pretty much the same management team, and I’m very pleased that we’ve gotten through one year and I haven’t messed it up,” he says. “I tell people on the [Bristol] campus when I run into ’em, ‘I know what you’re thinking, and I’m just as surprised as you that I’m still president.’ ”

Don’t let the folksy demeanor fool you. Skipper knows the business upside-down and backwards, inside and out.

“The way ESPN negotiates their rights deals reflects Skipper’s philosophy,” says a veteran sports-media consultant who has brokered more than $20 billion in college deals for ESPN. “Time was, they did a deal with a conference, they wanted to own everything. Now it’s a matter of quality over quantity—except for the sort of major events like the BCS, where they’ve really put their stake into the ground.”

Not only has Skipper negotiated rights packages, he also makes sales calls with blue-chip clients. “Look, it’s the variable in our business, right? We have distribution agreements that are generally long term and they define what we’re going to get paid, so the one way we can have a better year is if we sell more ads,” Skipper says. “So it behooves me to be involved in it because … that’s the biggest upside we have.”

A word about those distribution deals. With an average carriage fee of $5.26 per sub per month, the ESPN flagship alone stands to rake in as much as $6.23 billion this year. Factor in an estimated $1.9 billion in ad revenue and the network generates north of $8 billion, per SNL Kagan estimates. (Incidentally, the average sub fee for a U.S. cable network is one shiny quarter. In other words, ESPN’s affiliate rates are effectively 21 times that of the industry standard.)

While operators are forever sounding the alarm on rising sports costs destabilizing their business model, no one seems to balk at forking over ESPN’s monthly surcharge. In fact, Skipper’s affiliate team has over the last two years inked long-term renewals with Time Warner Cable, Comcast, Cox, Charter, Cablevision, Verizon FiOS and AT&T U-verse, all of which were sorted out without the usual run of public brinksmanship or service interruptions.

That is not to say there aren’t storm clouds on the horizon. Dish Network’s current carriage deal with ESPN is set to expire at the end of this year, and given the tenor of the satellite TV provider’s recent wranglings with AMC Networks and its decision to pull the plug on SNY, the home of the New York Mets, a friction-free renewal is far from guaranteed. And frankly, no programmer wants to spur any undue scrutiny on that front.

Last month, National Cable & Telecommunications Association president Michael Powell warned programmers that the escalation of sports rights packages (ESPN’s eight-year extension with the NFL will cost $1.9 billion per season, a 63 percent increase from the previous payout) could lead to the implosion of the cable model and attract the unwanted intervention of the federal government.

For his part, Skipper sees the sports debate as largely muddied by misinformation. “There clearly is a lot in the atmosphere about sports right costs and what that means for distributors and consumers, but you really have to separate us from the regional sports nets,” he says. “Nobody is really complaining about us. Never a peep was heard when we did our deals, because the operators understand that we bring the most value.”

While the allure of local sports franchises in major markets has made the RSN model one of the most enviable in media, there is a significant shortfall between what a regional network can deliver and the sort of audience ESPN can whip up on even a slow night. Per Nielsen, the top-rated YES Network in 2012 averaged 68,000 households per night in the New York DMA, while Yankees telecasts drew 290,000. In the same period, ESPN averaged 1.75 million HHs, or roughly 26 times YES Net’s prime-time deliveries. And while there’s an obvious disparity in distribution, YES Net still commands a princely carriage fee of nearly $3 per sub per month.

“ESPN’s average-minute audience is greater than all—it’s double that of all the RSNs combined, every single one of them,” Skipper says. “And that needs to be kept in perspective if people want to talk about what we receive from distributors versus what they receive.”

NOT PHONING IT IN

Though no one could have guessed that this would be the case back in 2006, mobile now stands as ESPN’s fastest-growing segment. Per Nielsen, the company last year ranked No. 1 in unique visitors (13.3 million) and total minutes (642 million) in the sports category across the mobile Web and apps. Moreover, ESPN.com dominates the mobile sports space with a 33 percent share of minutes, triple that of its closest competitor. And yet for all that, an early experiment in the wireless space was anything but promising.

Launched with much fanfare during Super Bowl XL in 2006, Mobile ESPN was billed as a unique way for sports fans to access real-time scores and news in the pre-smartphone era. All consumers had to do was plunk down $399 for a specially branded, black-and-red phone (a onetime fee that did not include a monthly service charge), and they got a direct line to Bristol. The trouble was, there were two significant flaws in ESPN’s business model. For one thing, the pricing was all out of whack for what amounted to a flip phone on human growth hormone. More importantly, much of the allure of the service depended upon inflexible number-portability regulations, which were legislated out of existence just three months before ESPN rolled out the mobile service.

“Our business plan called for us to take a certain percentage of the people who moved every month and sell them an expensive phone,” Skipper recalls. “As soon as number portability went in, the phone companies went nuclear with retention programs that included free phones, and so there went our business plan.” All told, a mere 30,000 subscribers signed up for Mobile ESPN. Shortly before ESPN shuttered the service on Dec. 31, 2006, Walt Disney Co. CEO Bob Iger said the company’s investment in the service amounted to $150 million.

Despite the loss, no one was hurled under the bus, least of all Skipper. Besides, the initial outlay gave rise to the company’s current mobile suite. “One of the bigger advantages is that our company has always invested,” says John Kosner, evp, ESPN digital and print media. “They invested when the bubble burst in 2001 and they invested when the economy went totally south in ’08 and ’09. They invested in the creation of the ESPN phone, which, however misguided this little hardware opportunity was, the investment in the software we benefit from today.”

Skipper says it was worth taking a big swing because the initial foray into mobile helped Bristol prepare for the smartphone revolution. “We took a chance … and cut our losses pretty quick. People lose the most money being stubborn,” he says. “But we did learn the business. We learned how to create content on a phone and we used that expertise to have the share we have now. It’s our highest share, north of 50 percent, because those same people we brought in-house to create the phone now create the content. So it’s a weird way to have gone about it, but we now generate significant revenue and operating profits on our mobile platforms.”

As Kosner puts it, the guiding principle behind ESPN’s mobile development is a constant recalibration of how best to serve up content to the nation’s restless army of sports fanatics. “There’s some serendipity to it. You realize that there are these periods of time where audiences are available for a media experience that simply did not exist in the past,” he says. “I’ve worked for John Skipper since 2000, and the idea of the going after something new, something you didn’t expect, is very motivating. And I think the fans respond to that as well.”

THE FOX IN THE HEN HOUSE

Back in Bristol, SportsCenter anchor Jay Crawford watches as ESPN The Magazine writer Gene Wojciechowski gives his assessment of the Manti Te’o circus. The sportswriter reaches a verdict of not guilty by reason of extreme gullibility. “He’s not the most socially adept person,” Wojo says. “I mean, it’s not like he’s dating Miss Alabama.” Speaking to a producer on the floor above the studio, Crawford agrees: “I think he bought it, man. I think he bought it, hard.”

On-air talent has provided one of the more reliable conduits for information related to the not-so-secret launch of Fox Sports 1, a new cable net many think has the best shot at challenging ESPN’s hegemony. “We have a lot of people under contract who are being contacted [by Fox]—and that’s perfectly acceptable, but it allows us to find out more about what they’re planning,” says Skipper.

Because News Corp. has a track record of disrupting the status quo (consider the Fox broadcast network and Fox News Channel), Skipper in no way dismisses the threat posed by yet another 24/7 cable sports outlet. At the same time, he doesn’t seem to believe that a successful run by Fox Sports 1 will automatically take food off his plate. “We take them very seriously and they have a chance to create a successful business,” he says. “Now, that successful business doesn’t necessarily mean that anything particularly dramatic will happen to us. We have a pretty unprecedented collection of live sports rights and we have significant digital businesses. So Fox can have a very successful business and none of that changes anything on our end.”

If that smacks of a certain kind of hollow bravado, it’s worth noting that Skipper doesn’t play the usual percentages games.

“John had this idea about sort of filling the gaps between the live-event programming and the news and studio programming with great storytelling,” says Connor Schell, vp and executive producer of ESPN Films and creator of the 30 for 30 documentary series. Along with ESPN’s resident multihyphenate Bill Simmons, Schell and Skipper discussed developing films that would tap into the prevailing nostalgia for sports figures of the 1980s and ’90s while offering a sense of discovery for younger fans. Says Schell: “He didn’t think about 30 for 30 from a ratings or business perspective—he charged us with making great content that the company would be proud of. And rather than sweat out the overnights, he’s just saying, ‘Let quality be our best marketing here. If these are really good, they’ll cut through.’ ”

Since then, the doc series has proven to be a critical and ratings success, winning a Peabody Award and drawing a record 3.6 million viewers on Dec. 8, 2012, with the 90-minute celebratory Bo Jackson biopic You Don’t Know Bo.

When asked again about how he thinks Fox Sports 1 will measure up, Skipper says he anticipates an August launch. But again, he doesn’t seem overly concerned. “Can we be disrupted? Sure. But it’s not easy to be disrupted if you don’t allow somebody to flank you,” Skipper says. He pauses a moment before finishing his thought: “We’ve been doing this for 33 years and so you literally can’t ask for a bigger head start. As long as we don’t let anyone else get a market share lead in mobile, or in apps or in something new that comes along, we’ll be hard to displace. Competition is great. But maybe it’s the other guys who should be worried.” —anthony.crupi@adweek.com; Twitter: @crupicrupicrupi.