Tier Three Analysis
In Part One of this series I looked at how Tier One inventory was created and how it performed over the past several years, then followed it up with Part Two, which covered Tier Two inventory. I will reference aspects that were explained in that article within this analysis, if you have not yet, please feel free to start with the first:
Within that article it was mentioned that Notre Dame shook up the college football broadcasting by breaking with the CFA to create the first Tier One contract, which was then followed by the SEC breaking away to make a deal with CBS and ESPN to create the first Tier Two inventory.
Since then all of the Power Five conferences followed suit with both Tier One and Tier Two media rights deals. However, within the past 20 years these two types of deals still didn’t utilize all of the inventory a conference or school may have to sell. While you were lucky to see your team on television one or two times a year in the 80s, you may only see two or three football games at the turn of the millennium. That left nearly 50% of a conference’s football inventory unsold or basically given away to regional sports networks for exposure.
This all changed in 2004, ten years after the SEC basically created Tier Two, when the Big Ten pushed ESPN to monetize this remaining inventory that was either unsold or broadcast on ESPN’s old ESPN Plus regional packages to increase the Big Ten’s revenue. When ESPN declined, the Big Ten packaged all of this unsold inventory and partnered with Fox to create the Big Ten Network in 2007 and, effectively, creating Tier Three inventory as we know it today.
However, outside it being the rest of the rest in terms of inventory, how it is monetized from conference to conference varies drastically. In the past three or four years the massive increase in media rights deals for the Power Five conferences came not from the increased value of an individual game, but instead by following the Big Ten’s lead and having a fire sale; selling any and all inventory they had on hand. Tier Three additions to media deals are like shopping at Costco, networks buy it cheap and in bulk.
Additionally, the audience for college football is only so large and the channels that broadcast the games, which take three to three and a half hours each, only have so many slots in a day to show the games. The networks want to make sure they play the best games at the best times when they can get the largest audience to maximize advertising revenue. You cannot put all 470+ college football games that were broadcast this year on the top four channels or they wouldn’t have room left for shows that draw much bigger audiences than college sports.
This Tier Three has exploded in recent years, which explains why everyone has so many questions about it. Prior to 2011 there were very few games on in this segment, now it is the largest category, accounting for 45% of all of the college football inventory. Of that, 42% of those games (19% of the total inventory) are played on “established” sports channels, like ESPNU, while the remaining 58% (26% of the current inventory) now resides on conference networks or regional deals, like the Big 12’s member controlled rights.
The interesting thing is that most believe that conference networks are created to reap huge windfalls of money due to how cable channels are bundled. However, creating the channel and it making money is more an offshoot of the conference receiving exposure for the broadcast. As conferences grew in size, they had more games to put on the air. Those established channels, however, per our lead into this topic, only have so much space available to show a game. ESPN, for instance, only has space for four games on a Saturday, but there are thirty three football games shown on average each week.
Thirty three football games is enough to fill eight channels for twelve hours on Saturdays, not including highly profitable sports commentary shows, like College Gameday. There simply isn’t space to pay for them all as the bulk of college football games don’t have large audiences.
Of the 470+ games that are broadcast in a season, only 256 of them are rated by Nielsen to track how large their audience may be. The rest of the games, e.g. those that are not rated, are considered to have “negligible” viewing audiences. Of 256 rated games, half of them have audiences under a million people. To put that in perspective, that is lower than recent episodes of Spongebob Squarepants, Mickey Mouse Clubhouse, Property Brothers, American Pickers, or reruns of Full House. Just to name a few.
On the other end of the spectrum, Madam Secretary, which you may never have tuned into, averages a higher audience per week on CBS than the best SEC games generate in any given season and twice as much as the average audience of all of the SEC on CBS games. College football, even in the SEC or Big Ten, is not the NFL, where tens of millions of people tune in to every game. Each conference has big names and strong teams and sports benefits from 93% of it is watched live, which makes it a premium. However, The risk for networks is estimating who may have good seasons, because above all as was shown in the past two analysis, winning teams generate the biggest audiences.
When looking at the value of a Tier Three package, you really need to look at where a university pulls its students. Some schools draw nationally and have a smaller group of local students. Most state schools, on the other hand, draw primarily from an area of about three to four hundred miles around the university. Let’s look at two ways schools have handled this same situation differently.
Notre Dame is located in Northern Indiana, just east from Chicago. While it definitely has a local presence and is quite popular in Chicago, particularly on the South Side, its alumni are in two main bands. The first resides within the metroplex from Boston to DC, an area of nearly fifty million people nowhere near South Bend, Indiana. The second grouping is on the West Coast, namely California.
When Notre Dame considered how to work its sports conference affiliation, being tied to a Midwestern or Southern conference made little sense. Instead it made a deal with the ACC, to play five football games a year against the conference, which had schools up and down the east coast, including Massachusetts, New York, Pennsylvania, Florida and Virginia. The rest of their football schedule allowed them to ensure they kept games against USC and Stanford to keep their West Coast ties, while the rest of their non-football sports would bundle up within the ACC’s Tier Two and Three media deal with ESPN, where all of their men’s and women’s teams would be featured on the East Coast.
It is a perfect match for what the university is trying to market.
Along the same lines you have a school like Iowa State. Unlike Notre Dame, it doesn’t really have any national cache and the bulk of its student body comes from an area about 400 miles around Ames, IA. Of the 36,000 students, 58.5% of them are native Iowans and, of the 6,231 members of this year’s freshmen class, 57.5% of them are from Iowa and many more from the states bordering Iowa. Compare that with Notre Dame which only has 35% of its students from the Midwest, even less from Indiana, and you can tell that Iowa State needs to market itself far differently from Notre Dame. Playing hockey games in Boston isn’t going to help Iowa State generate more applications from its current market.
Instead, using the membered controlled rights portion of the Big 12’s media deal, Iowa State packaged every athletic event that wasn’t sold and created Cyclone.tv with cable provider MediaCom, whose footprint just happens to reside within Iowa and the five states that border it. It isn’t national, it isn’t in 80 million homes, but it is on 24 hours a day broadcasting only Iowa State events in the targeted area where the university markets to the vast majority of its students. Outside that boarder there is a digital subscription for content.
Both schools increased their exposure by targeting their core constituencies, just in vastly different and highly successful ways. Notre Dame gets paid about $5 million a year for all of their non-football sports and Iowa State will make about that on their venture. But if you ask Athletic Directors Jack Swarbrick and Jamie Pollard it isn’t about the money, even if it is nice.
It is about exposure.
If you are out there fighting battles for your team on message boards and like to get one up on someone by quoting tier three revenue figures, please, just stop. If all you’re talking about is revenue all you are proving to the world is you know nothing about how universities view their rights. No Tier Three media deal is going to turn a university from a pauper to a prince, that’s not their ultimate goal.
While rights generate revenue, what is even more important about their use is exposure for the university.
When Notre Dame and the SEC broke from the CFA, the reason was not to generate more money. Even the greatest media deal pales in comparison to the revenue brought into an athletic department via ticket sales, merchandise, and boosters. Additionally, the exposure received for the university has an even greater effect. So much so, in fact, that it is called the “Flutie Effect”.
In 1984, Doug Flutie, quarterback for Boston College, threw a 48 yard “Hail Mary” pass in the last seconds of their game to beat Jimmy Johnson’s defending national champion Miami Hurricanes in Miami. This “Hail Flutie” as it is sometimes called, not only shows up in highlight reels 30 years later, but also had a massive effect on Boston College.
Doug J. Chung, who has studied this type of marketing at the Harvard Business School, stated that “The primary form of mass media advertising by academic institutions in the United States is, arguably, through their athletic departments.” Chung fond that Boston College saw a 30% increase in applications over two years following the win over Miami. Similarly, Northwestern University, a school not typically associated with sports, saw its applications rise 21% after it won the Big Ten Championship in football.
This increase in applications not only increases university revenue significantly through growth, but also with the image that more people are applying that are accepted. One of the leading indicators in the US World Report’s annual reviews of universities is their acceptance rate. Turn down more than you take and you get a better score. As inaccurate of a measure as it is, the score puts you higher on the list and implies you’re a “better school”, when in fact nothing changed but your applications.
This is the major reason why conferences are expanding their media relations. It is not to be the biggest guy on the block in a revenue deal, most of them are nearly identical when you look at the revenue compared to what was sold, but to be the biggest guy on the block with the exposure your university receives via the media. More exposure equals more growth and more prestige; together that provides revenue increases in tuition that make media deals look like rounding errors.
Currently CBS has the best exposure for Tier One games in college football, because it invests the most into marketing its games. ABC is second, but, while it keeps high ratings, loses exposure for schools due to regionalizing big games to “mirror” the broadcast between multiple games on multiple channels. Along these lines, ESPN provides the greatest exposure for Tier Two games currently, at least with the flagship channel and ESPN2. After that is an amalgam of cable networks who do not market their games as well or to as wide of a market.
Due to this, the SEC has held the exposure edge since 1994 with their CBS deal. While the Big Ten is close, all of the Power Five play catch up to that decision. The entire purpose for the third tier games, then, is to advance that exposure.