Disney: Forging a 3-Headed Sports Streaming Giant With Fubo Deal

Key Points

• Disney and FuboTV's deal highlights the increasingly competitive media environment around live sports.
• Fubo's value nearly quadrupled in the span of one day.
• However, Disney may be the company that is now set up for big long-term gains as it looks to consolidate power in live sports.

The battle to gain influence in the live sports market is heating up among streaming platforms. Netflix NASDAQ: NFLX has been pushing hard over the past few months to integrate live sports. Its Mike Tyson versus Jake Paul boxing match attracted 65 million viewers and led to 1.4 million new subscribers in the days after. The company also saw record-breaking success in broadcasting two Christmas Day National Football League games.

Walt Disney NYSE: DIS is striking back hard. On Jan. 6, the communication services company revealed that it would be purchasing a controlling stake in the sports streaming platform FuboTV NYSE: FUBO. On the same day, shares of Fubo skyrocketed by an incredible 251%. They rallied another 15% in after-hours trading. Below, I’ll explain the details of the deal, as well as the important implications for both Fubo and Disney.

Breaking Down Disney and Fubo’s Massive Deal

Under the terms of the deal, Disney will split off the Hulu + Live TV part of its streaming business and combine it with Fubo to form a new company. Disney will own 70% of the resulting company. It will continue on as a publicly traded stock under the ticker symbol FUBO. The Fubo management will continue to run the company; however, Disney will appoint the majority of the board of directors. The streaming services will have a combined 6.2 million subscribers in North America. This nearly quadruples the number of Fubo subscribers, a clear reason for the skyrocketing share price.

A very important development is that the agreement settled all litigation involving Fubo with FOX NASDAQ: FOX, Warner Bros. Discovery NASDAQ: WBD, and Disney. The three giants were collaborating on a previously announced streaming service, Venu Sports. Their goal was to combine their live sports rights to create an industry juggernaut. It would have killed Fubo, which had less than 2 million subscribers on its own. Luckily for this small fish, Fubo won a preliminary injunction against Venu launching. Fubo’s lawyers successfully argued that these three giants combining to create one sports streaming app violated antitrust law. Fubo's lawyers said that had they not won the injunction, the company would have run out of cash by the first quarter of 2025.

Is Fubo Still a Buy After Trippling Its Value?

For Fubo, the deal is clearly a massive win. We may never know, but it's possible this was the result management was hoping for with the lawsuit all along. Moving forward, Fubo is also now supported by Disney’s vast financial resources, know-how, and content. Fubo will be able to create a new Sports & Broadcast service where it can utilize Disney’s plethora of broadcast networks. Fubo was in a very tough spot prior to the deal. Analysts expected revenue growth to start decelerating rapidly, and the company still hadn’t been able to achieve profitability despite generating over $1 billion in annual revenue.

Now, Fubo and Hulu can combine forces to try to reignite growth. Hulu was part of Disney’s streaming segment, which made $321 million in Q4. The combined entity is now expected to have positive cash flow going forward, per the special call the firms held. This also puts the firm in a much better spot. However, it's still very difficult to say that Fubo stock has more room to run after this massive price uptick.

Disney: Maneuvering Into an Envious Position in Live Sports

With this deal, it appears Disney was done messing around with Fubo. Fubo dropped the lawsuit, clearing the way for Venu Sports to become a reality. Disney also plans to launch its ESPN Flagship streaming service later in 2025. The combination of Venu, ESPN Flagship, and Fubo could be a fierce three-headed monster that Disney controls when it comes to live sports. Yet, shares of Disney didn’t budge on the day. The company will still be losing the Hulu + Live TV part of its business, which is generating approximately $5.3 billion in annual revenue.

Disney wouldn't have made this deal if it believed this loss was worth more than the potential gain. Venu Sports can now proceed. Given the massive power that Fox, Disney, and Warner Bros. Discovery still collectively hold over live sports, it should be a very difficult platform to compete with. The $42.99 stated price point blows Fubo’s $79.99 starting price out of the water. As a believer in live sports being increasingly important in the future of digital media, I see the deal paying off big time for Disney in the long term.