The Pac 12's Business Model Will Change College Athletics
Published on: July 22, 2011 | Written by:
(Note: our sports business writer's employee would not appreciate him writing for this site. That is understandable since he works in the industry. Hence we have disguised him with the name Mookie Blaylock -- his choice.)
At the Southeastern Conference spring meetings in 2009, the SEC was sitting at the top of college sports by just about every non-academic measure. SEC basketball was still basking in the glow of Florida’s repeat national championships. On the gridiron, SEC teams had just finished a run of three straight National Championships - all double digit wins.
And at those meetings Commissioner Mike Slive announced the SEC’s new television contract with ESPN - a 15-year deal worth $2.25 billion - then the richest TV deal in college sports history. (The league’s TV revenue would ultimately more than double in the first year of the contract - from $60.1 million in 2008-09 to $153.3 million in 2009-10.)
At the time, it was described as a masterstroke. Media hailed Slive for putting the SEC teams even further ahead of their rivals off the field than they were on the field.
"I'm not sure if that kind of deal will continue to be available for the rest of us with that kind of money," Big 12 commissioner Dan Beebe told Sports Business Journal in 2009.
Well, fast forward two years, and it’s remarkable how the TV revenue landscape has changed. On the field, the SEC continues to be head and shoulders above the rest - the BCS Championship streak is now up to five (until Auburn vacates the 2010 title). However, the equation has changed off the field.
On May 3, 2011, Pac-12 Commissioner Larry Scott announced a 12-year deal with ESPN and FOX that is the richest in college sports history at $3 billion.
Prior to the new deal, the Pac-10 made less than $54 million annually in conference media rights. Enter Larry Scott and exit with the richest deal - roughly $250 million per season - in college sports. And yes, they are still playing football in the Pac-12, but if you don’t live on the West Coast you may not have seen the games because so few were broadcast nationally under their previous agreement.
"We had three goals in our process in our media negotiations," Scott said. "The first was to increase revenues to our schools at this important time. The second was to generate greater national exposure for Pac-12 sports. And the third was to create our own Pac-12 Network."
While the money is impressive - really, really impressive - it’s the structure of the deal that may ultimately be most remembered. Larry Scott looked at the old model - the SEC model, if you will - then looked at the Big-Ten’s network model and then looked to the future.
The days of just broadcasting a few football games on cable and network TV on Saturday afternoon with the occasional Saturday night prime time game may be numbered. A key component to the Pac-12‘s deal was a change in the structure of traditional college football schedules. ESPN plans to show Saturday football games, and in addition will show four Thursday and Friday night games. The Pac-12 Football Championship will be on a Friday night in prime time - avoiding the multiple games on Championship Saturday.
The new entity Scott helped create - Pac-12 Media Enterprises - will own the Pac-12 Network, the Pac-12 Digital Network and Pac-12 Properties, and is scheduled for launch in August 2012. The Pac-12 will keep full ownership of the network, which stands in contrast to the Big Ten Network, where the conference owns 51% and FOX owns 49%.
Scott and the Pac-12 knew what they were doing - they retained an affiliate of uber-agency Creative Artists Agency (CAA) as their media and financial adviser. With expert advice, creating a network isn’t that hard. Creating one that people will pay for is a lot harder. Scott knew that the success of the network would ultimately be determined by its inventory. Without premium inventory, it couldn’t be a premium channel. While the Pac-12 boasts perhaps the nation’s top Olympic/Non-revenue sports programs, not many people are clamoring for those matches on cable TV.
Scott withheld nearly half the inventory of Pac-12 football games for the conference network and the bulk of the men’s basketball games (approximately 120 games per season). While those are the jewels, the network will also show numerous women’s basketball games and 200 live Olympic sports, where the Pac-12 has dominated.
While the Pac-12 Network is different from the Big Ten Network, the twelve-team Big Ten (which will never be confused with the ten-team Big 12) probably has the closest comparables. And the Pac-12 will trump the Big Ten in content (more football and more men’s basketball games), it will also trump the Big Ten with more major media markets. The more details that come out about the Pac-12 model, the better it seems.
So the Pac-12 loaded up the potential programming, but the distribution piece is where the Pac-12 may shake up the landscape even more.
The Pac-12 is reportedly exploring three options: creating their own network channel from scratch, re-branding an existing channel or - the game-changer - forming a revolutionary digital partnership with one of the Sillicon Valley tech giants. Much has been reported on the Pac-12’s consideration of a partnership with Google (it may be worth noting that the Stanford president sits on the Google Board of Directors) or Apple. Another one that hasn’t been mentioned in most media reports, but that makes a lot of sense, is HULU.
If Scott and the league can pull off the new platform, instead of turning to your cable box for the Pac-12, you might soon be turning on your laptop or tablet or mobile phone to catch Stanford vs Cal. And while many scoff at the thought of watching games on laptop or mobile devices, Scott and the league aren’t thinking about 2011 for this - they're thinking down the road and betting that soon televisions, laptop computers and tablets will be one in the same.
In the short run, the league could be sacrificing revenue (giving up the money from subscription fees and not selling a portion of the network as the Big Ten did). However, because of the $250 million deal, they can select the structure that best fits their long-term needs and somewhat sacrifice short-term profits. The Pac-12 has the flexibility to sign a deal not just about the money, but about positioning itself and its network for the future.
What does all this mean for the SEC? The SEC-ESPN contract calls for a “look-in” review after the first five years of the contract.
"We knew when we made a 15-year deal that time was not going to stand still so we purposely built in these look-ins," Burke Magnus, ESPN senior vice president of college sports programming, told the Birmingham News. "They don't reopen the deal. There's no outs. It's an opportunity for both of us to really take stock of where we are and see what we could be doing better."
Whether or not the sides agree to increased revenue - which would likely include an extension to the deal - or not remains to be seen. You can bet ESPN won’t look at the SEC as a charity case, though.
When they do look in, they’ll find what they already know - they got the premier college football property on sale. They’ll also see that the SEC’s deal is stuck in 2009 ... when espn3.com was still espn360.com and a relatively radical idea (who will watch sports on a computer?).
In 2009, SEC was the rich trailblazer that could do no wrong. Now, when you look at the current landscape, suddenly the SEC model looks both cheap and antiquated. that's how rapidly college athletics is presently evolving. One day, you're brilliant, the next you're left behind.
Here's a look at the now-existing TV contracts in college football.
ACC $155mm 2011 to 2022-23 ESPN/ABC
Big 12 $90mm 2012 to 2024-25 FOX
$60mm 2008 to 2015-16 ESPN/ABC
Big East $36mm 2007 to 2013 ESPN/ABC
Big Ten $232mm 2007 to 2031-32 BTN
$20mm 2006 to 2015-16 CBS
C-USA $15.6 - 16.1mm 2011 to 2015-16 CBS College Sports
Mtn West $11.7mm 2007 to 2013-14 CBS Coll Sports
Pac-12 $250mm 2011 to 2022-23 ESPN and FOX
SEC $150mm 2009 to 2023-24 ESPN/ABC
$55mm 2009 to 2023-24 CBS