I planned to wait to do a finance piece until after all of the conferences released their numbers, which tends to finish up by mid to late June. However, when the SEC and the Big 12 announced their revenue numbers yesterday the internets were flooded with flawed comparisons of how the two conferences stack up, generally due to one thing; miscounting inventory.
Everyone is claiming that it is the SEC Network that is the reason for the large jump, but it is just part of the picture. In the past few years the SEC has had more inventory than it could show on TV. You don’t get paid for what isn’t viewed. When they launched the SECN they were finally able to show everything and be paid for it. To do this they reworked their entire media deal, not just one channel. The restructuring for all of their rights not held by CBS now extends for 30 years with ESPN. In short, they went from having 60% of their inventory shown to closer to 100%. It isn’t surprising they jumped, at all.
On the other hand the Big 12 only sells about 80-85% of the total inventory. The remaining games are monetized by the individual schools in what is called “member controlled rights” or Tier 3. This allows the universities to do whatever they want with them, some sell them to established networks and some create their own networks. Since they can sell unused inventory back to Fox, the minimum a Big 12 school currently makes off of this Tier 3 inventory is $3 million. However, Texas sold theirs to ESPN for an average of $15M a year (currently that comes out to be around $12 million and will continue to escalate) and Oklahoma, Kansas and West Virginia monetized their rights for $7-$10 million.
If you just take the SEC’s conference inventory numbers and compare them against the Big 12’s numbers it will appear as if the SEC is outpacing the Big 12 by a large margin. And, it should, because you’re only comparing 80% of one pile with 100% of another. Apparently it isn’t obvious that doing this doesn’t paint an accurate picture.
To make it more accurate we need to add back that uncounted inventory and see how they stack up. Not all of the Big 12 schools release their Tier 3 details, so we’ll need to create some conservative estimates for some schools, but here is a quick peek of how the Big 12’s announcement is pretty similar to the SEC’s announcement, when you factor in all inventory sold:
What we have going on here is the law of averages. In the SEC all of the teams are averaging out to about $31.2 million. If they were apart, teams like Alabama and Florida would out pace the Mississippi State’s of the world. You see this in the Big 12 where some teams are above the average, namely Texas, Oklahoma, and Kansas, some are notably lower, like TCU and Baylor. TCU’s difference makes sense in that they still are not getting a full payment and they have a smaller alumni base to support their third tier. Even with that they are only $4 million below the SEC’s payment, but still tremendously higher than what they made prior to joining the Big 12.
At the bottom of the chart you see how the Big 12’s numbers average out. They show, quite clearly, that the Big 12 is paid almost exactly the same as the SEC for their inventory. In short what you have here is not one conference falling behind, but two conferences showing how they monetize their inventory differently. Since the Big 12 doesn’t sell that 20% of the inventory, they cannot report it in a press release, so it will always look smaller than the rest of the conferences when media outlets try and make quick comparisons. If the Big 12 pooled their inventory into a network and shared the revenue, their announcement would likely look exactly like the SEC’s, since this inventory is already sold. It isn’t worth more in a network, it is just presented differently.
I’ll dive more deeply into the revenue numbers again in the next month or two, but if you’ve found yourself taunting on fan boards or proclaiming that the Big 12 is falling to its doom; you may want to head back to school and brush up on your math.
These numbers are going to keep going up for both conferences over the next decade, so no one will be going broke any time soon.
If you have any questions or would like some numbers discussed, contact The Number Monkey on Twitter @TheNumberMonkey or via email [email protected]