Finance Schminance

Conference Confusion

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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]

25 COMMENTS

  1. The minimum is 2 million, not 3 million. Kansas State, Iowa State, Oklahoma State, Texas Tech, Baylor, TCU and West Virginia cap out at a few million. I see West Virginia media continue to refer to their IMG deal ignoring that deal includes radio rights, coaches shows, signage and sponsorship deals. So while the contract averages out to 7 million a year, its not all Tier 3 rights in comparison to the SEC. A lot of misinformation out there, including this article trying to correct it.

    • Yes, it is difficult to do apples to apples. Most schools I removed a radio cut from, I didn’t with WVU because I’ve seen it listed a few different ways. Additionally, the new SEC deal gives the corporate marketing and some other stuff to ESPN too, so it isn’t ~just~ TV.

      As for the minimum, I’ve also seen $2m reported, but last year nearly every school was reporting at least $3M so I went with that number in estimates. Iowa State is a little different in that they waived all revenue for the first year Cyclone.tv was in service. However, you could reduce the entire take by $10M and you’re still in same ballpark in conference revenue. The over all point was you cannot count all of one and only part of another and draw a conclusion from it. The fact is, even if they are not even, they are close. If something is going to make the Big 12 unstable again, it won’t be revenue.

      • Big 12 schools will do fine. But the only school that is going to be in the ballpark of the SEC and Big 10 going forward is Texas. Any spin from reported “Tier 3 media rights” should be taken with a giant grain of salt.

        The good news is Texas is happy. And since no one can move on their own, even Oklahoma, the Big 12 is as strong as ever. Just have to hope for status quo from Texas. I heard the academic side is growing very concerned.

        • Not sure where you are seeing the this huge jump that will take the SEC to or surpass Texas levels. With cable subscriptions on the decline, and Verizon trying to remove ESPN and all its channels from tier 1 channels, advertising money on digital ads now outpacing television, how do you see the SECN, which already has close to 100% coverage, as growing much larger than what we are seeing with the BTN or your current numbers?

          • I don’t know why Big 12 people always bring up a changing delivery model. As if the Regional Sports Networks aren’t dependent on the same model, even more so to support the professional teams they bought the rights to in smaller and segmented markets.
            Regardless, we’ll see over the next couple years where the numbers lie. Have little doubt the distribution will be considerably higher than almost all Big 12 schools. Even with creative accounting in the line items from the 990s

          • It relies almost exclusively on carriage rates, locally or nationally. As cable continues to decline or at best stagnates, that takes away from the SECN’s bottom line. If Atlanta, Houston and Orlando have half the amount of subscribers in 10 years, and most of them aren’t in the demo, that does not paint a pretty picture for revenue. Like you said, we will see, but this is going to be determined in more like 5-10 years, not a few. Over the next few years the SECN will do just fine. This is a long term proposition and you are betting on cable over the next 20 years. I don’t like that bet.

          • And the Regional Sports Networks who are paying Big 12 schools rely on those same carriage rates. If the SouthWest has half the amount of subscribers, what does that do to Fox Sports South West ability to pay and offer the same deals they do today? I’d rather have a digital platform built out like the PAC 12 or a huge media partner like ESPN or Fox behind my digital presence anyway. Whatever change we see in the delivery system, the Big 12 isn’t in a more advantageous position.

          • I agree with this, whether you are paid carriage or your inventory is purchased with carriage, the end result is the same valuation.

          • I guess I am seeing a bigger future outside of cable. You are paying a awfully large premium for a digital partner at that point.

          • A Utopian future of a la carte and less expensive programming is a fantasy IMO. Too long a conversation to have. If Conference Networks have to pivot in the future, everyone will. I don’t believe having one off’s specific to a single school is going to benefit anyone. A conference model pooling their content is always going to come out ahead, unless you’re named Texas. Which is why the Big 12 will the conference picked apart in the final round of realignment. The question is if it happens before the or after the GOR expire.

          • With the NFL just signing the rights to stream one of their worst games for over 8 figures, I am glad we will not have a 50% digital partner to split it with for the next 20 year. Seems excessive for how easy it is to distribute. ESPN isn’t in the charity business. It was 20 years for a reason.

          • Which is why people are probably underestimating how the PAC 12 is structured. They can pivot which ever way it goes. They own all the content content along with the infrastructure they’ve built. Will be interesting where the next round of movement goes, but pooling your content as a conference is a better model unless you’re Texas IMO. We’ll see.

          • I agree. The PAC’s deal is underrated for having 100% ownership. They have huge population centers and are also the conference that will benefit most by having a global distribution. Lots of Californians living everywhere. Lots of foreigners who go to school in PAC states and then move back home.

        • Texas will outpace the SEC and B1G, that’s the uniqueness of the Big 12’s model, for good or bad. Some schools will make the same as the SEC/B1G, some will make more, and some will make less. If that extra inventory were pooled and split evenly, then the distributions would be similar to the B1G or SEC, obviously with yearly fluctuations.

          • Oh so you say “probably on par” and I should trust what you are saying over the article? I don’t think so. The article is more accurate than you want to admit.

          • Not going to waste time arguing with you. The numbers in that chart are grossly inflated. One example. Kansas State’s 990 claimed 3.8 million which included RADIO.
            Oklahoma wasn’t anywhere close to 8.5 million. Their contract with Learfield for their 3rd Tier TV rights pays them on average 5.8 million over the next 10 years.
            Texas Tech and Iowa State aren’t anywhere close to 5 million a year for their 3rd Tier TV rights.
            This article, while well intentioned, is using highly inflated numbers. Not surprising from a website Big 12 Fanatics.

    • And to add to that, several other Big 12 schools signed tier 3 tv deals with Fox shortly after that. And those schools don’t have the national name that Oklahoma does, so they won’t even be getting the $4 million/yr over contract average.

    • Amazing propoganda by the Big 12 conference and their member schools. Bowlsby says the other day everyone in the conference makes between 2-15 million a year on their rights. What he should have said, everyone in the conference makes between 2-4 million a year on their rights and Texas makes 15.