Magazine

In The Zone


COVER STORY PODCAST

On Sept. 19, millions of fans tuned in to a rare Monday night pro football doubleheader. Interlaced with plays were cutaways to a telethon to help victims of Hurricane Katrina. Viewers of ESPN and ABC saw some of the biggest legends in sports fielding calls from a studio in Manhattan's Times Square: Frank Gifford, Bart Starr, Gale Sayers, John Elway, Eric Dickerson, Donovan McNabb, George Bodenheimer...huh? George Boden-who?

What most folks watching didn't realize was that the stiff-looking guy with the phone in his ear is perhaps the single most influential person in all things sports. As president of the ESPN Networks and ABC Sports, George W. Bodenheimer runs one of the most successful and envied franchises in entertainment, the jewel of Walt Disney Co. (), and among the most powerful brands of the last quarter-century. While his round-the-clock networks are all about being brash and in-your-face, Bodenheimer is the rare media mogul who is adamant about staying behind the scenes. ESPN's top public-relations executive had to practically drag Bodenheimer out of a production booth and push him in front of the cameras to make an appearance at the Katrina telethon, which he helped pull together with the National Football League in a matter of days. "It's just not about me," he could be heard mumbling as the PR chief made sure his tie was straight.

That modesty has worked well for the 47-year-old Bodenheimer, and ESPN has flourished in his seven years at the helm. Sure, the ESPN he inherited had already extended itself from TV to print, the Internet, and other platforms. And its smart-aleck, testosterone-laden culture was already a trademark. But Bodenheimer's vision of his company, where he started in the mailroom, is as a ubiquitous sports network -- and more. To really understand ESPN, you need to see it as a cluster of feisty, creative enterprises under one killer brand. Its units, spread out mostly over offices in Connecticut, New York, and Los Angeles, act like startups, full of passionate staffers who are given the freedom to drive forward but always with a mission to keep the customers (rabid and tech-savvy fans like themselves) happy. Bodenheimer "realizes ESPN has to be fast-paced," says Simon Williams, CEO of consultant Sterling Branding. "In his realm, if you stand still you're dead."

So, through 50 different businesses, Bodenheimer has pushed ESPN into broadband, on-demand video, wireless, high-definition, even books. His company has the X Games. It has burgers and fries at ESPN Zone restaurants. Video games are coming soon. All the while, the daily news and highlights show, SportsCenter, is as much must-see TV for millions of Americans as the nightly news shows were a generation ago. Put it all together, and Bodenheimer's competitors can't help but express awe. So ESPN has become a model for a wide range of companies, media and others, struggling to make their brands work in new markets. "They have always had a halo to do things like a SportsCenter really well," says Jeff Price, chief marketing officer at Sports Illustrated. "Nobody has created those touchpoints with consumers like they have." Adds Adam Silver, the top TV executive at the National Basketball Assn.: "George lets others shine, but don't be fooled by the aw-shucks manner. He's an extremely effective manager who has put his company at the cutting edge of the digital revolution."

REMEMBER TO HAVE FUN

Never one to gloat about the successes, the understated Bodenheimer confesses that the track he has been pounding is getting a whole lot steeper lately. At his back is a slew of rivals gaining momentum. First among them is Comcast Corp. (), the No. 1 U.S. cable operator. Looking to build a cable sports network to rival ESPN's, Comcast is also ESPN's biggest distributor, so its plans could aggravate what's already a delicate relationship. Right about now, Bodenheimer is placing a hefty bet on an ESPN-branded cell phone and has said that making the new business a winner will be one of his biggest challenges of the year. The cell phone is a move into an alluring market -- delivering sports data and images to insatiable fans at all hours. But the payoff is uncertain at best, and the venture, announced on Sept. 27, could ultimately dent earnings and tarnish the brand. Bodenheimer's angst was turned up a notch or two higher when a key executive, Mark Shapiro, resigned in August. As head of programming and production, Shapiro was seen as a driven ideas guy who kept new shows flowing and viewers tuning in. He was also an effective bad cop to Bodenheimer's good cop at the negotiating table.

Shapiro is often compared with Bodenheimer's high-energy predecessor, Steve Bornstein, ESPN's president during much of the 1990s. The 26-year-old network's initial blast of growth came under Bornstein, whose swagger infused the place with the cocky culture so strong today. Bodenheimer's core strength, say longtime staffers, has been to preserve and encourage that vibe without making it all about George. His message to the staff is something like: ESPN isn't mine, it's yours, so run with it. And remember to have fun.

Bodenheimer is in Brooks Brothers most days, but his operation is anything but buttoned-down. It's more about hoodies and DC skateboarding shoes, which is to say it's all about being young. When ESPN The Magazine launched in 1998, designer F. Darrin Perry gave its pages a bold look with bright colors and unconventional type. That high-octane feel extends even to the magazine's offices in midtown Manhattan, which are designed to look like a gym, complete with an old school scoreboard. On any given day at the main ESPN campus in Bristol, Conn., now encompassing 100 acres dotted with dozens of satellite dishes, you might find former All-Star second baseman and Baseball Tonight host Harold Reynolds waiting in line for brick-oven pizza in the fancy staff cafe, or SportsCenter anchor Stuart Scott looking for someone to spot him on the bench press in the state-of-the-art gym. A new $160 million digital center and studio, crammed with robotic cameras and lighting rigs, is ringed with flat screen TVs beaming sports in crisp hi-def. A central control room houses producers at computers editing a constant stream of digital-video game feeds.

The whole scene is NASA meets the bleacher creatures. "People have a passion for sports," says Rich Weinstein, the ESPN account director at ad agency Wieden + Kennedy, which has captured the spirit of ESPN through its award-winning spots for the network. "If your job is your passion, it brings a new perspective to the creative process. George was here when this was a startup, and he has preserved that feeling." True to form, at a strategy session this summer for the new phone, the boss rolled up his sleeves, snapped open a Diet Coke, and burrowed down into every marketing idea the team pitched. Un-mogul-like, he never checked his BlackBerry or cut off discussion. Then he took the group out to a swanky trattoria.

Bodenheimer, who squeezes in a golf game when he can, loves to break the ice by talking about -- what else? -- sports. He tries to stay engaged with workers across the company without micro-managing. "The great thing about George is that he can stand back and let his managers create," says Gary Hoenig, editor-in-chief of ESPN The Magazine. Going up against venerable Sports Illustrated, ESPN's seven-year-old biweekly has made great strides. Since 1999, circulation has grown by about 1 million, to 1.8 million, while SI has held steady at 3.3 million, according to the Audit Bureau of Circulations. Hoenig also credits Bodenheimer with granting him the freedom to develop lucrative specialty newsstand magazines like one on fantasy football.

Tanya Van Court, whom Bodenheimer hired from Cablevision in April, 2004, to oversee a revamp of broadband service, insists, too, that the boss never meddles. During the eight months that the new product ESPN360 was in development, "he would send hand-written notes with suggestions every week and a half or so," she says. "He would offer up [notes like], 'make it the ultimate on-demand product for the sports fan and one that is as flexible as possible."' When ESPN360 launched last January with programming tailored for broadband -- including short clips recapping Sunday games -- it just may have hit on a new model. ESPN insiders liken it to cable TV in its infancy in the 1970s. So far, ESPN360 is available to nearly 5 million users through 14 different broadband providers.

IRRESISTIBLE ECONOMICS

Can Bodenheimer the delegator and his decentralized, free-thinking culture keep up the winning streak? "The next two years will be a real big test for George," says Sean McManus, head of competing CBS Sports and a friend of Bodenheimer's. All around it, companies are imitating ESPN's cool and edgy packaging of sports. And if live sports is the last great mass market to lure advertisers, then how long can ESPN expect to dominate? Throw in a sports-crazed, often-elusive audience of young men bordering on the fanatic, and the economics are irresistible. That's why so many players are pushing into Bodenheimer's domain, from teams and leagues launching their own channels to cable and satellite operators creating new offerings. "ESPN listens to its audience very closely," says Sterling's Williams. "If it keeps doing that, [that] should be the glue that holds it together."

Even so, the ESPN chief these days finds himself playing more defense than offense to keep games out of competitors' hands. One sign of the times: big hikes in the prices ESPN is paying to lock up new pro football and Major League Baseball rights contracts. The $2.4 billion, eight-year MLB deal announced on Sept. 14 represents a 50% annual increase in fees. And in April, ESPN ponied up $8.8 billion for a new eight-year Monday Night Football deal with the NFL for only one night of football. ABC will no longer broadcast games, including the lucrative Super Bowl; NBC grabbed ESPN's old Sunday night spot. The bottom line: ESPN will pay nearly twice as much a year than it did last time around, though other goodies were included, such as wireless rights that will allow ESPN for the first time to deliver Monday night highlights to cell phones. "You have to ask yourself how much growth will be left if they keep spending like this," says Richard Greenfield, an analyst at Fulcrum Global Partners LLC. Counters Bodenheimer: "Look, we are a sports-media company, and we program sports. It's like saying a seafood restaurant is being defensive when it reorders lobsters."

Bodenheimer, of course, lives in a world that's not totally of his own making. His ESPN is part of a tempest-rocked ship known as Disney. For years, ESPN has been able to do its own thing for one reason: It was the outfit former CEO Michael D. Eisner could count on for the numbers. Now, with Eisner gone, Bodenheimer will work closely with an old friend, new CEO Robert A. Iger, a onetime exec at ABC Sports. The bond between Bodenheimer and Iger is strong, one pro league executive suggests, because they see themselves in each other -- "two executives who have always been underestimated." Says Iger: "People sometimes mistake being polite for being easy. That's not the case with George. He's a man of great integrity, but he can be tough." Some speculate that Iger might bring Bodenheimer to Burbank, but for now he needs his friend to stay put, keeping ESPN the financial bulwark it is to counterbalance the fickle businesses of theme parks and hit-driven TV and movies.

Indeed, ESPN revenues alone this year could be about $5 billion, with operating earnings of nearly $2 billion, according to projections from various analysts. The revenues -- about 60% from distribution fees and 40% from advertising -- would represent about 15% of Disney's total. Analysts estimate that revenues could grow to nearly $6.8 billion in 2008. More important, ESPN is so central to cable menus that it gives Disney bargaining power with distributors to pick up other Disney channels, be they SOAPnet or the ABC Family Channel. Emblematic of ESPN's clout, its longtime head of affiliate sales, Sean R.H. Bratches, was promoted a year ago to oversee distribution for all of Disney's cable channels and broadband services. Using ESPN's leverage was a favorite tactic of Eisner's. So precious was ESPN to the Mouse House that the former CEO told investors several years ago: "We bought the ABC media network and ESPN for $19 billion in 1995. ESPN is worth substantially more than we paid for the entire acquisition."

MUSCLES FLEXED

It's all the more remarkable, then, that ESPN was created with such modest intentions. It was founded in 1979 by former Hartford Whalers play-by-play man Bill Rasmussen on a patch of mud in the blue-collar central Connecticut town of Bristol by putting $9,000 on several credit cards. Rasmussen started the Entertainment and Sports Programming Network (ESPN) as a way to beam University of Connecticut Huskies games to a larger audience using satellite dishes. But it soon became clear to Rasmussen and his son, Scott, that they were on to something with national potential. Getty Oil would kick in $100 million a year after Rasmussen put on the first shows. Five years later, ABC bought out Getty's position (then owned by Texaco Inc.) and in 1988, Hearst Corp. bought a 20% position that was held at the time by RJR Nabisco. Hearst still has a 20% stake, but Disney is the active manager. "Nobody could have anticipated how much of a financial juggernaut ESPN would become," says Fulcrum analyst Greenfield.

Over the years, ESPN began to flex its muscles like the jocks it had helped turn into celebrities. It charged its cable and satellite distributors nearly twice as much for its service than any other channel fetches. (Today, ESPN gets an estimated $2.80 per subscriber per month, vs. about 40 cents for CNN, according to Morgan Stanley ()). Double-digit hikes each year created a lot of ill will, culminating in a showdown two years ago that erupted in the halls of Congress. The battle pitted Bodenheimer against James O. Robbins, the outspoken CEO of cable operator Cox Communications Inc., who, acting on behalf of his industry, complained to lawmakers about the steep fees.

The brawl put Bodenheimer in an unwelcome spotlight, where he defended ESPN's pricing by blaming the high cost of rights deals with the leagues. Eventually Cox won lower annual fee increases, down from about 20% to about 7%. But ESPN claimed victory, too: New agreements included the operators' carriage of the latest ESPN channels, such as its Spanish-language outlet ESPN Deportes. "We achieved everything we wanted in that negotiation," says Ed Durso, ESPN's top executive for government and public affairs. "George rose to the occasion."

Bodenheimer knows the next battle is the big one. News Corp. () founder Rupert Murdoch, with 15 regional sports channels, is only making noises about a national sports channel. Comcast is making plans. It has held several meetings in recent weeks to talk strategy and has even contacted ESPN executives about jumping ship, say sources close to both companies. Comcast already owns the Philadelphia 76ers, the Philadelphia Flyers, and a bunch of regional sports networks in cities from Philadelphia to Chicago to San Francisco. And it's no secret that Comcast CEO Brian L. Roberts and President Stephen B. Burke, a former Disney executive, want a piece of the ESPN business model. When the Philadelphia-based cable operator made its unsolicited $54 billion bid for Disney in February, 2004, it was driven in part by a desire to capture ESPN.

Having its own hot sports channel would give Comcast ESPN-like leverage, amplifying its powerful 22 million subscriber base -- even if its expertise is largely that of a distributor, not a programmer. For now, it's sticking to plans to convert its relatively unknown Outdoor Life Network, available in 64 million homes, into an ESPN for the new millennium. OLN got some buzz by airing Lance Armstrong's cycling feats every summer from the Tour de France. The rest of the channel's programming, from bull-riding to fishing shows, has niche appeal at best.

But Comcast is moving fast. It signed a $300 million, five-year deal in August to broadcast National Hockey League games on OLN starting this fall, with an option to bail out after two years. (ESPN ditched the sport after its contract expired this year following the acrimonious lockout.) Now, Comcast needs to cinch some of the remaining 60 games available from MLB and win a package of Thursday and Saturday games from the NFL, which draws the largest TV audiences in sports. "Without the NFL, I don't see anybody being a threat to ESPN," says John Mansell, a senior analyst at Kagan Research LLC.

GAMES IN YOUR POCKET

Even as he fends off rivals, Bodenheimer is about to lead his troops into ESPN's trickiest brand extension so far. The idea is that ESPN could be missing the chance to stay in touch with fans who get off the sofa or walk away from their computer screens. Says Bodenheimer: "We want fans to know you don't have to let the rest of your life get in the way of being a sports fan. You can take it with you." In the past year he has met frequently with the Mobile ESPN development team to sign off on everything from the phone's black-and-red design on a Sanyo handset to the special displays constructed for big retailers. ESPN is leasing network time from Sprint Nextel Corp. () and will outsource billing, messaging, and customer service (its price is yet to be announced). The opportunity to partner with ESPN was a no-brainer for Sprint Nextel CEO Gary Forsee. "As proud as we are of our brand, we'd be hard pressed to say Sprint can successfully go after the segments that ESPN [does]," he says. "But ESPN is the world leader, right?"

Still, the risk for ESPN is that if the phone bugs out, users won't be cursing some wireless outfit -- they'll be blaming ESPN. "Content providers need to focus on what they do best," says one TV executive. "Hardware plays are fraught with problems." And the venture will require patience. "Sometimes it is up to two years with this kind of business before you reach enough scale with subscribers to be able to turn a profit," says Marina Amoroso, a wireless analyst with researcher Yankee Group. Bodenheimer says he's aware of the perils, "but it is a riskier move not to do this."

The last thing Bodenheimer needs now is to worry about top talent. Yet shortly before programming whiz Shapiro quit, Chief Marketing Executive Lee Ann Daly resigned as well. Losing Shapiro, who quit to join Washington Redskins owner Dan Snyder in remaking Six Flags Inc. (), is the most problematic. Shapiro's handiwork is all over the network. ESPN Original Entertainment, the cable network's venture into movies, episodic dramas, and talk shows, was his creation. He gave juice to Sports Century, the Emmy Award-winning series of profiles of top athletes (and a horse, Secretariat).

In June, Disney heaped new responsibility on Shapiro, promoting him to executive vice-president, overseeing programming at both ESPN and ABC Sports. To all the world it looked as if his next step would be into headquarters. Then, in early August, Shapiro met with Bodenheimer to tell him he was thinking about leaving. He'd had a feeler to head news operations at NBC. A few weeks later he accepted the offer from Snyder. "I knew at some point I was going to go entrepreneurial. It was just a question of when," says Shapiro.

Questions remain about why Bodenheimer and Iger waited so long to lock Shapiro into a new contract. But it is known that top executives at ESPN had been fielding complaints from the brass at pro sports leagues for some time that they could no longer work with Shapiro. Several league officials said they had never dealt with a negotiator as aggressive or as eager to pass himself off as the smartest guy at the table. "ESPN had just had tough relations with their customers, the cable guys," says one TV executive. "They could ill-afford to have bad relations with their suppliers, too. They need the leagues." Shapiro shakes off such criticism. "Of course I'm going to be tough in negotiations. That's my job...not to say to [the leagues]: 'Here's a check, fill out how much you want."' Still, by the end of Shapiro's tenure at ESPN, officials in at least two leagues refused to deal with him unless Bodenheimer was in on the talks.

"MINUTE-TO-MINUTE BATTLE"

Shapiro may have also ticked off Disney top brass when he turned down an offer last year to become president of ABC Entertainment, the No. 2 job under then-ABC executive Susan Lyne, who would have become chairman, say sources within the company. The plan was to eventually move out Lyne and put Shapiro in charge, those sources say. Shapiro told Iger he was excited about running prime time -- but ultimately turned him down flat. Bodenheimer denies that there was any ill will toward Shapiro at Disney.

Bodenheimer says he is confident that the culture he has fostered, one of tapping ESPN's inner strengths, will ultimately make Shapiro's departure less of a blow. "Mark was obviously a significant contributor," says Bodenheimer. "He's a great talent, but we have a tremendous reservoir of talent here." In fact, Bodenheimer used Shapiro's departure to realign top management in early October into new segments: content, technology, sales and affiliates, and international. John Skipper, the much-admired senior executive who oversaw advertising and new media, will now run content, assuming much of Shapiro's programming mantle.

How Bodenheimer leads will go a long way in determining whether ESPN remains preeminent, especially as competitors zoom in on niches like volleyball, tennis, you name it. "ESPN will always be a general store of sports," says Brian Bedol, co-founder of college sports channel CSTV, "but it may have to learn to coexist with the leagues and new media companies [that] want to reach fans with very special interests. Technology today is allowing for a direct relationship with those fans."

Nobody wants to understand fans more than Bodenheimer, who will often leave the luxury boxes at games and walk through arenas studying the crowds -- unrecognized, of course. "It's a minute-to-minute battle to retain viewers in today's media world," says Bodenheimer. "That's why I want to know what fans are saying -- about sports, about ESPN." It's also why the most powerful man in sports needs to stay at the top of his game.

By Tom Lowry, with Mark Hyman in New York, Ronald Grover in Los Angeles, and Roger Crockett in Chicago


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