Gold Standard or Tulip Bulbs? The Big East and the Overall Sports TV Rights Market

Posted by    |    August 17th, 2012 at 5:30 am

From the first time that I wrote about the Big Ten’s plans for expansion way back in the winter of 2009, I emphasized the importance of the conference’s television contracts and revenue, particularly the setup of the Big Ten Network.  Up until that time, the standard thinking of conference realignment among college sports fans was that it should be focused upon geography.  Back then, Penn State in the Big Ten looked like a major geographic outlier among the power conferences.  Then, we entered a 2-year period where 1 out of 4 schools at the FBS level switched conferences (plus a trickle-down effect to non-football conferences such as the Atlantic 10 and Colonial Athletic Association), including a marquee brand name to the Big Ten (Nebraska), two massive markets to the SEC (Texas A&M and Missouri), ownership of the Rocky Mountain region by the Pac-12 (Colorado and Utah), consolidation of the East Coast power base by the ACC (Syracuse and Pitt) and massive upheaval in the Big 12 and Big East.  With such a massive number of movements that were seemingly driven by television money, my previous minority view was turned on its head where all that many people are thinking about the is value of the latest TV deal.  This leads to continuing rumors of the ACC getting raided by the already raided Big 12 simply based on TV money*.

(* It’s August 15th, which was supposed to be the deadline for ACC schools such as Florida State and Clemson to bail for the Big 12.  Where are the “done deals” that were supposedly ironclad a few months ago?)

The general argument, which we have explored on this blog several times, is that sports programming is particularly valuable in this age of fragmented viewing audiences and high DVR usage.  There is no other type of programming that delivers younger male viewers (the most expensive demographic for advertisers to reach) that watch TV live* (meaning they actually see the commercials) than sports.  As a result, this has been pushing rights fees further and further into the stratosphere for all types of leagues (whether college or pro).  Currently, the Pac-12 has the largest TV contract out of any college conference even though it is only in 5th place for TV ratings among the power conferences for football and 6th place for basketball.

(* Of course, “live TV” is a loose term for NBC Sports.  I’ll spare you a lengthy treatise of how much I loathed the over-the-air NBC Olympics coverage since this issue has been rehashed extensively in many other places, but suffice to say, I’m never watching Animal Practice just on principle.  There was a brief moment when I thought that Bob Costas was trolling us by saying that “they would be back in an hour” for the end of the Closing Ceremonies, as if it were some type of perverse joke in light of all of the #NBCfail commentary over the past 2 weeks, but NBC proved that they can’t even be trusted to do tape delays correctly.)

The Big East is the next college conference that’s coming up to bat for a new TV deal and it will be a litmus test of how the overall sports TV rights market is faring prior the next large group of marquee properties that will be hitting the open market over the next few years (Major League Baseball, NBA and the Big Ten).  Regardless of any critiques of the Big East’s leadership over the years, the conference certainly understands how important the new TV contract will be for its long-term stability, which is why it has hired former CBS Sports Vice President Mike Aresco as its new commissioner.  (For what it’s worth, I believe that this is a fantastic hire for the league.)  Negotiating media deals has become possibly the #1 priority for all conference commissioners, so it makes sense for any league to place a huge premium on those who have worked at the highest levels of the TV sports industry.  At the same time, the Big East has hired Chris Bevilaqua as a consultant, who was the lead negotiator for the Pac-12 in that league’s record-breaking TV deal.  So, the conference seems to be setting forth the best TV negotiation team possible.  The question will be whether the Big East will be judged on its fundamental intrinsic value (which is much lower than the 5 power conferences) or get paid a hefty increase simply because of the overall TV sports bull market.

On the one hand, the Big East has been battered with the loss of West Virginia, Syracuse and Pitt.  Even if replacements such as Boise State could match or exceed the quality on-the-field of those programs, those were tradition-rich schools with a large amount of national TV brand value.  (I know that Syracuse has blown chunks for the past decade and Pitt is only starting to recover from the Wannstache era, but they are still in the old school fraternity of college football, whether it’s fair or not.)  At this point, the only school left in the Big East that was a continuous member since the BCS system started in 1998 is Rutgers.  (Temple was in the conference at that time, but they were kicked out in 2004 and just invited back in to start in 2013.)  From a national perception standpoint, the Big East is at an all-time low since it is a league full of noveau riche schools in a college football world that values blue blood lineages the most.

On the other hand, the Big East has the potential benefit of market timing that, say, the ACC didn’t have (as the Carolina-centric league signed its current deal with ESPN right before the bull market for sports TV rights began and then negotiated a decent increase only after expanding with Pitt and Syracuse).  At the same time, there is a reinvigorated competitor of Comcast-basked NBC Sports Network that has been hungry for additional sports content yet hasn’t been able to procure much beyond the properties that NBC already had such as the Olympics and NHL.  As a result, there is this belief/hope that NBC is going to be willing to overpay for Big East content because it has few other choices with the other power conferences off of the table and all NFL packages locked up for several more years.

If the major college conferences were all negotiating new TV deals at the same time today, I would rank them as follows in terms of value: (1) SEC, (2) Big Ten, (3) ACC, (4) Big 12, (5) Pac-12 and (6) Big East.  Of course, the Big East is fortunate that none of those other conferences are going to have new TV deals soon, so it can possibly be the beneficiary of overall market timing.  As we saw with the tulip bulb craze of the 1600s, a dramatic rise in the overall market isn’t always necessarily rational (and on the flip side, just as we saw with stock market crash and bank runs in the 1920s, drops in the markets fueled by panic aren’t always rational, either).

My feeling is that the new Big East TV contract is going to be the proverbial canary in the coal mine of whether we’re in the sports TV rights equivalent of the US real estate market in 2006 (when it was at its peak before the global financial meltdown) or networks will start fighting back to have a cooling off period.  In the real estate boom, even houses in poor locations were being swept up in paper value, while the real estate bust has shown that the old “location, location, location” maxim is more important than ever.  So, is the Big East a penthouse on the Upper East Side of Manhattan (which intrinsically has a high market value no matter what is happening in the overall real estate market) or a spec house in an exurb that is completely beholden to overall market forces?  Loose lending practices artificially fueled the housing market and we may be seeing the same thing with cable subscriber fees driving up sports TV rights fees.  As carriage disputes between TV networks and cable/satellite companies continue to escalate and become more common, there’s a not-so-insignificant risk that the market could snap back harshly if the gusher of cable subscriber fees doesn’t continue.

We have seen a wide range of estimates for how much the Big East deal is going to be worth, with a low point of around $4 million per year per all-sports school to high estimates of the league ACC-type dollars that would be in the range of $17 million per year per school.  This reflects the corresponding wide range of interests involved, with those low numbers likely being provided by people on the TV network side (who have a heavy interest in seeing a slowdown in the rise of sports rights fees) and the high numbers being thrown out by those that make their livings negotiating against the TV networks.  Indeed, Chris Bevilaqua himself stated that the low predictions are being provided by those with “some kind of agenda”, but that cuts both ways.  For instance, Neil Pilson, who was the former president of CBS Sports, seems to have been quoted in virtually every single article that I’ve seen regarding the new Big East television deal for the past 6 months (in just the past 24 hours, he’s been quoted by the New York Times and ESPN) and has always given an extremely rosy prediction.  At a surface level, this sounds great to Big East fans, who see this as someone that has a lot of industry experience that is willing to give on-the-record predictions (as opposed the anonymous “TV industry sources” that are often quoted).  However, dig a little deeper and you’ll see that Pilson, as the owner of the largest TV sports consulting business in the country, has quite possibly more incentive than any single person out there to see all sports TV rights continue to skyrocket.  His incentive is that if the Big East can procure a large TV deal simply because it’s live sports programming for the sake of being live sports programming (ratings, popularity and national interest be damned), then his own clients that draw much larger audiences (e.g. the International Olympic Committee, NASCAR, the Rose Bowl, etc.) can effectively name their own prices and TV networks will have to pay up.  That’s why Pilson is so willing to go on the record with reporters regarding the Big East – he is attempting to use the conference’s new TV deal as a catalyst to pump up the overall sports rights market even further into the stratosphere.  If the Big East is getting $17 million per school per year essentially for existing, then how much is the Big Ten going to be worth with much larger fan bases and TV appeal?  What about Major League Baseball and the NBA?  These leagues and their respective TV consultants would love nothing more than to see the Big East to receive a payday on steroids.  To be sure, Pilson’s optimistic predictions for the Big East may end up being correct, but it just needs to be noted that he’s not a neutral observer in the least (just as the anonymous sources that are providing the opposing sandbagged figures have their own agendas).

Regardless, if there’s any semblance of reason out there, then the truth will likely be somewhere in the middle.  NBC Sports Network effectively needs any type of halfway decent live sports content, so it has a larger incentive to pay a premium to the Big East.  Comcast is NOT a charity, though, as evidenced by the aforementioned Animal Practice interlude to the Closing Ceremonies of the Olympics.  This can’t be emphasized enough: Comcast is going to pay the least amount that they can possibly get away with in order to win the Big East rights.  As a result, that floor is going to be determined by how much interest ESPN and, to a lesser extent, Fox have in the Big East.  If the conference wants to obtain maximum value, then it particularly needs to have ESPN legitimately involved in the bidding process or else Comcast isn’t just going to hand over large rights fees for the hell of it and negotiate against themselves.  In my humble opinion, ESPN isn’t going to want to let NBC Sports Network get the Big East for free, but the guys in Bristol aren’t going to go balls out to retain the Big East, either (and Comcast, who has gone toe-to-toe with ESPN in tough negotiations on many fronts, definitely knows that).  That points to a potential Big East contract that’s in the middle of the high and low figures that have been reported out there – let’s say about $10 million per all-sports school per year and $4 million per non-football school per year.

Jim Delany, David Stern and the Crypt Master Bud Selig are all watching this closely.  The Big East’s new TV contract will have a large impact on how much of a payday their own leagues will be receiving over the next few years.

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(Image from SBNation)