Walt Disney Co (DIS  ) is reportedly working with the NFL on a deal that would give the NFL a minority position in ESPN.

Needham analyst Laura Martin noted that this deal structure can add enormous value to both enterprises. However, only the final deal terms determine the distribution of value creation. The analyst has a Hold rating on Disney.

Martin noted that DIS could no longer compete with Amazon.com Inc (AMZN  ) or Apple Inc (AAPL  ) for NFL or other sports rights based on cash alone because these are much larger companies than DIS that do not need to make money near-term from their streaming businesses.

Giving the NFL (and other leagues) a minority equity position in ESPN allows the leagues to share in equity upside, in addition to cash payments, which saves cash for DIS in the near term and assures ESPN access to the best games the leagues have to offer. Aligned interests benefit DIS shareholders.

The analyst maintained her first-quarter 2024 revenue estimates of $24.2 billion (up 3% Y/Y) but lowered her estimates for adj EPS by 16% to $1.02 (up 3% Y/Y) owing primarily to lower profitability in Sports, partially offset by better than previously estimated results in Entertainment and Experiences.

• Martin's Sports segment revenue estimates are unchanged at $4.7 billion (up 2% Y/Y).
• The analyst maintained her Entertainment revenue estimate of $10.8 billion (up 2% Y/Y).
• Martin's Parks and Experiences segment revenues are unchanged at $9 billion (up 5% Y/Y).