Our research suggests it will, but not for a few more years.
Disney’s ROI Return on Investment Star Wars
When Star Wars: The Force Awakens arrives in theaters, the question isn’t whether it will shatter records—it’s by how much. Many sources estimate The Force Awakens will be the highest-grossing film of 2015 both domestically and internationally, with figures in excess of $1.5 billion. An analysis by Morgan Stanley in November estimates it will be among the top three highest-grossing films of all time. While these are impressive numbers, what do they mean for Disney’s return on a $4 billion investment in Lucasfilm Ltd? Disney’s ROI Return on Investment Star Wars.
Merchandising
Merchandising has the potential to be even more lucrative than the film itself. When Disney bought Lucasfilm Ltd in 2012, they certainly had an eye toward integrating Star Wars into their already dominant brand merchandising, and that’s exactly what they’ve done. Star Wars-themed attractions are slated for construction in both Disneyland and Disney World. There are stormtrooper necklaces from Kay, a Millennium Falcon bed from Pottery Barn, and even intergalactic Coffee-mate creamers and a Luke Frywalker Mr. Potato Head. In 2014, global retail sales of Star Wars merchandise were $2.4 billion, making it the fifth-most popular licensed brand in the world—but another Morgan Stanley analysis estimates that The Force Awakens could double that figure to $4.9 billion, making it the number one best-selling brand worldwide.
Considerations
Considering these enormous numbers and the fact that The Force Awakens is just the first of five or six Star Wars films slated to release by the end of 2020, it’s obvious that Disney’s purchase of Lucasfilm was a smart investment—but it may take longer than expected for Disney to break even on the purchase. For one, Disney doesn’t necessarily get royalties from the sale of every single Star Wars toy—more than likely, most of the toy companies pay a one-time licensing fee to Disney for rights to the brand and then keep the revenue for themselves.
Moreover, because of Hollywood’s opaque accounting practices, it’s unclear how much of a cut Disney will receive from the first few weeks of ticket sales. We estimate that, when all is said and done, Disney will retain anywhere from 40% to 60% of the film’s gross ticket sales—but even if The Force Awakens exceeds every expectation and pulls in $1.5 or $2 billion, that won’t be enough to break even on their buyout of Lucasfilm.
The Crowd
However, the great thing about a franchise like Star Wars is its ability to reliably draw a crowd again and again. Disney has a Star Wars film slated to be released every year between now and 2019. Even if next year’s Rogue One spin-off doesn’t quite pull Disney’s revenues over the $4 billion mark, Episode VIII almost certainly will. It may end up taking five years, but by the eighth installment’s release in 2017, Bob Iger and the rest of Disney can confidently say they made a good investment.
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Penn Entertainment (Nasdaq: PENN) has rebranded its online sportsbook with a 10-year, $2 billion licensing deal with ESPN. The new look mobile app and website launches today, November 14th, and is available in 17 states including Arizona, Colorado, Illinois, Iowa, Indiana, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, New Jersey, Ohio, Pennsylvania, Tennessee, Virginia, and West Virginia. The state of Nevada is noticeably absent due to the state’s requirement for in person registration at a participating casino and ties to some of the biggest brands on the Las Vegas strip such as MGM, Caesars, and Wynn, each with their own sports betting apps.
ESPN Bet is a bold endeavor for PENN to gain market share from industry leaders DraftKings (39%) and FanDuel (31%). PENN currently has only 2% of the legalized online betting in the U.S. but believes licensing the ESPN brand will allow it to reach its 20% market share target by 2027. It’s been a rough 2023 for PENN in the gambling space. Earlier this year, PENN acquired the remaining 64% stake in Barstool Sports for $405 million. PENN purchased a minority 36% stake in the Barstool in 2020 for $163 million. However, the acquisition of Barstool in February turned negative quickly as PENN was denied gaming licenses attributed to the controversial and polarizing content and personalities of Barstool Sports. As a result, PENN was compelled to sell Barstool back to founder Dave Portnoy for $1.00 in August, just months after the acquisition of the company. PENN reported a loss of disposal of Barstool in the amount of $923 million in its latest 10-Q, which included $715 million of goodwill and intangible write offs. The sale back to Portnoy included the right to 50% of any future sale of Barstool; although, Mr. Portnoy claims he will ‘never’ sell the company again.
ESPN is diving deeper into the world of sports betting after strategically incorporating more betting odds and information into its broadcast content in recent years. The ‘worldwide leader in sports’ rebranded its Daily Wager show to ESPN Bet Live in September and moved its studio to ESPN headquarters in Bristol, Connecticut after three years at the LINQ Hotel on the Las Vegas strip. The LINQ residency was a partnership between Caesars Entertainment (owner of the LINQ) and ESPN. Now that ESPN has joined forces with PENN, it was time for a split and change of venue.
Although there are concerns about ESPN’s sports broadcasting rights and its new venture into sports betting, the Disney owned company has placed wagering restrictions on select employees that could learn inside information as part of their coverage. The increasing commercial interest in U.S. sports betting is a result of the Supreme Court overturning the Professional and Amateur Sports Protection Act (PASPA) in 2018. The PASPA previously prohibited sports betting outside of the state of Nevada. Earlier this month, DraftKings reported revenue for the third quarter increased 57% to $790 million. Online sports betting revenue in the U.S. is expected to reach $7.6 billion in 2023 with projections to increase to $14.4 billion by 2027. 