Expansion Project Vol I
Expansion Project Vol II
Buyouts bind schools to conferences. Grant of Rights bind inventory to media contracts. So, at the end of the day, what we need to look at is how expansion effects a media contract.
There are a lot of media deals in play currently, much more than four years ago when realignment was in full force. Before we get to the specific deals in place, let’s take a moment to discuss how inventory is divided.
First, when talking about inventory, when relating to conferences, all we care about is video broadcast rights. It doesn’t matter if they report additional numbers differently to the government, all that is being sold by conferences is video broadcast, which includes all formats, including digital. We don’t care about merchandising or radio or any of that stuff right now because all of that, for every school, is sold by the individual school. It is not pooled within a conference.
Video broadcast, however, is pooled and is sold within three tiers:
Tier One Inventory: Tier One inventory is the best of the best, the national games. To be classified within this group they need to be broadcast on major over-the-air channels; e.g. ABC, CBS, FOX, and NBC. Generally speaking these games offer the greatest exposure and audience for a conference. An example of it is the SEC on CBS, all of those games are tier one. Since these are all the big games, and there are not many of them, Tier One games are valued higher per game than the rest.
For the Power Five these football games tend to payout around $4 to $6 million a game.
Tier Two Inventory: Tier Two inventory is anything carried by a nationally branded cable channel. There is a giant range between channels here, but ESPN is the biggest of them all. The “flagship”
is starting to generate ratings for college football that are close to Tier One channels on specific games. However ESPN has way too much volume to be considered a Tier One provider. In fact 21% of college football games were shown on the flagship, higher than any other network. Due to that we’ll keep them here for now since the average ratings are half that of ABC and CBS. Along with ESPN, tier two networks include the rest of the ESPN family, Fox Sports 1, NBCSN, and CBSSN and broadcasted 73% of national college football games in 2014.
If Tier One games are paid due to quality, Tier Two is paid due to quantity.
For the Power Five these football games tend to payout around $1.5 to $3 million a game.
Tier Three Inventory: Tier Three inventory is inventory that does not have a national audience. This could be a conference network, selling inventory to a regional network, like FSN or Raycom, or a school network like BYU.tv, Cyclone.tv, or the Longhorn Network. What makes this tier special is until the creation of the Big Ten Network this inventory was never monetized outside pay per view or within a local sale. The big change over the past five years is that now every conference monetizes it in some way and makes about the same amount off of it. The value of these games, however, are exceedingly low compared to the other two. This is volume sale, pure and simple. No top end games make it to this level, except for marketing purposes.
For the Power Five these football games tend to max out around $500k to $1.5 million a game, but could be much less.
In short, a conference’s media package is built with a mix of two types of games; quality and quantity. Within this structure and specifically for the Big 12, you have the following media deals to consider:
Regular Season – Currently all tier one and two, or around 75% of all the Big 12’s home games for football and men’s basketball, are sold and allocated to Fox and ESPN through 2024. Both TCU and WVU have been “buying in” and will be full members next year. The current contract runs through 2024, one year longer than the Pac 12 who will set the market in 2023. This will be the first time in the major media era when the Big 12 will have both its Tier One and Tier Two contracts coming due at the same time. Current average on this deal is approximately $20 million per school, though it escalates yearly. Early years make less, later years make much more.
Member Controlled Rights – Per the Big 12’s media agreement, each team is allocated one football and about five men’s basketball games per year to monetize however they want. Bundling these with other properties, like Olympic sports, gives each team around 500 – 1,000 hours of programming a year. Texas, with LHN, and Iowa State, with Cyclone.tv, have launched school based networks. Most of the other schools have sold inventory to regional cable affiliates or have launched digital networks. There is a clause in the deal that allows any unused football or basketball games be sold back to Fox as well. Value on this is determined by each school and the Big 12 has reported the minimum has been $3 million rising to $15 million per year for Texas.
Playoffs – Each of the Power Five receive around $50 million a year from the playoffs, regardless of performance or conference size. Like every other contract, this number is paid off in the mid-point of the deal. Years prior are less and later are more.
Sugar Bowl – The Big 12 has partnered with the SEC to host the Sugar Bowl, selling the rights to ESPN for an average of $40 million per conference per year. This revenue will only occur eight of the twelve years of the playoffs, with the Sugar serving as a host bowl for the playoffs, like this year, on a rotation.
Post Season – Like years past, there are also all of the other bowl games which generate around $25-30 million for the Big 12 each year, due to their participation.
Other – The Big 12 pulls in around $20-30 million a year in various other areas, like the NCAA Tournament.
Add all of these up and the Big 12 is paying out around $336 million a year, not including member controlled rights and spreading the gain for the Sugar Bowl over 12 years. While that escalates to around the mid-forties by 2025, $33M per team should give us a solid place to start when comparing teams over the next couple years.
One thing that is unique with the Big 12’s current media arrangement, however, is that around 75% of its games are broadcast on major media channels. This is what keeps the Big 12 paid as much as the Big Ten and SEC who both use conference networks to line their pockets. The Big 12 does not use a conference network, in part because it can sell a higher percentage of its inventory to major channels.
Expansion throws this delicate balance off kilter. And it did the same for the other conferences who expanded. Inventory is critical because there is only so much that can be shown on TV in any given day. When the SEC expanded to 14 many believed that it was to create a conference network, but the plans for a network at 12 were already in the works based off the development of the Longhorn Network. Expanding to 14 changed the game because now they had to create a conference network. At over 90 football games a year, not to mention men’s basketball, they had over a third of their games go either unviewed or were distributed on digital outlets, not Tier 1 or 2. The only way to get them on TV was to change their inventory pool and create a conference channel.
If the Big 12 grows to twelve teams that will add about 14 new football games to the mix, giving the Big 12 a total of 81, instead of 67. They would either need to cut a deal with their current partners to buy more of their inventory or they will have to buy some back and build a conference network. The Pac 12, by comparison, only had 45 games on major channels last year, to the Big 12’s 50. The rest went to the Pac 12 Network.
Creating a conference network is no easy deal either, considering how the Big 12’s member controlled rights are split. Most of the teams have sold those rights from around $3-$15 million per year and two of the schools, Iowa State and Texas, have created school channels off of those rights. The extra could just be absorbed by member controlled rights, but, with the same inventory being sold, the value of the media contract would just be split twelve ways instead of ten.
The added value would have to come from those member controlled rights, just like the Big Ten’s value in BTN increased by adding more inventory. The key point is while doing that generates more money it does not generate more money than selling the inventory to established media partners. Getting more than zero is one thing. Getting more than what you’re already being paid for tier two is another. In a perfect world they’d be able to keep their 75% ratio of games on T1 or T2 partners, but that would depend fully on who is eleven and twelve.
Unlike the Big 12’s situation, when the Big Ten formed BTN none of those games were sold by schools. Additionally the Pac 12 and the SEC waited until they could buy back all the rights easily. The Big 12 is not in a position to do either currently, as many of the schools have sold rights to Fox and Texas’ LHN is owned by ESPN. One of the two networks would need to step in and buy the other out. Whoever it is would likely want a very long term commitment for that sort of investment.
Additionally, taking that step ruins one of the major advantages the Big 12 currently has, which is both of its contracts both come due at the same point in 2024. This will allow them to take their full inventory to market after the Pac 12 does the same thing with their Tier 1 & 2 inventory. The Big Ten renegotiates some of its inventory in 2017, but much is locked up with BTN through the 2030s. Additionally, the SEC is now locked up for 25 years with ESPN, which I’ll discuss in future articles analyzing each Power Five conference’s media deals.
To think the Big 12 will give up that advantage, not to mention dividing the playoff and Sugar revenue with less teams, just to have a conference championship game is silly. Especially when you figure that they are going to be paid the same as everyone else for the foreseeable future even without having a team in the playoffs.
To quantify what effect a school would have on the Big 12’s media we can make two assumptions. The first is that what schools are paid today in their media contract is a general indication to their media value in any other conference. Only a handful of schools generate higher value than the rest and there are only two or three of them in each conference. Every school that has moved so far from the Power Five, outside buy in or buy out situations, has retained the same value they would have had if they stayed. Additionally, the schools who do generate the most value are least likely to move since they are the big fish of their pond. Those schools not in the Power Five will get a modest bump for playing against higher valued competition, but not to an equal degree of a Power Five team for several years. There are simply no unaffiliated schools left who generate that sort of value.
Starting next year the Big 12 will need any expansion candidates to bring over $30 million in yearly value, which includes anything gained from a conference championship game that could range from $15-24 million a year (so $1.25 to $2 million per team at twelve). That difference is nearly identical to the value lost by sharing the Playoff and Sugar Bowl revenues with more teams. Anything less will be a net loss, anything more will be a gain.
If you have any questions or would like some numbers discussed, contact The Number Monkey on Twitter @TheNumberMonkey or via email [email protected]
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