The Pac-12 is ready to announce a massive new television deal with Fox and ESPN worth $250 million annually. (No one has been covering this story better than Jon Wilner of the San Jose Mercury News.) I certainly have to give props to Pac-12 Commissioner Larry Scott here. Up to this point, I’ve thought that he was smart and aggressive but more full of bluster with big ideas without necessarily the ability to implement them. The amount of the Pac-12 deal, shows that the conference made a smart move in hiring from outside of the college administrator ranks.
Ultimately, the reasoning for a TV rights fee is akin to examining the price of a stock. A portion of the price is going to be related to the market overall, another portion is connected to the industry sector, and there’s a final part that is based on the fundamentals of the individual company itself. It wasn’t a surprise that the Pac-12 was able to raise its TV rights fees significantly, as the demand for sports programming in general has been skyrocketing over the past few months. That’s a market-based factor that all sports entities negotiating new TV deals are benefiting from right now, which I examined in-depth in my last post. What I didn’t expect was that the Pac-12 would vault itself to a position alongside the Big Ten and SEC in terms of TV revenue so quickly. The Big Ten has the benefit of having the Big Ten Network that can take advantage of the market trends until its ABC/ESPN ends in 2016, but the SEC is locked into its CBS and ESPN deals until well into the next decade. That doesn’t mean that the Pac-12 is inherently as valuable as either the Big Ten or SEC. Indeed, the Big Ten and Pac-12 negotiated for the rights to their respective new conference championship games with Fox at virtually the same time. Head-to-head, the Big Ten game garnered over $23 million per year, while the Pac-12 game received $14.5 million per year, so that gives you an idea of what the conferences are worth relative to each other when you take timing out of it. My impression that the SEC championship game would be worth even more. Still, it’s significant that the Pac-12 seems to have been able to pull away from the ACC and non-Texas/Oklahoma portion of the Big 12.
So, what are the fundamentals specific to the Pac-12 that led to this deal (as opposed to just the overall rising tide of sports fees)? One important point that I’ve mentioned before but probably underestimated in the scheme of things is that the Pac-12 is the only conference with a BCS monopoly in its own footprint. In fact, with the additions of Colorado and Utah, it’s the only BCS conference located in the entire Pacific and Rocky Mountain Time Zones. That’s a pretty massive swath of area to effectively have all to yourself. In contrast, all of the other BCS conferences compete with at least 2 other BCS conferences in their footprints. For the the Big East in particular, it has to compete with all of the other BCS conferences in its footprint except for the Pac-12.
Another item to note is that Fox needed to retain the Pac-12 very badly for its owned-and-operated West Coast regional sports networks, especially FS West in the Los Angeles market. FS West is suffering from the blow of losing its most valuable property of the Lakers next year, who are pouring salt in the wound by creating two competing networks (one English and the other Spanish) with Time Warner Cable. Losing Pac-12 sports on top of that would have left FSN West to rely on the Clippers… and I don’t care how badass Blake Griffin might be (and he’s about as badass as one can be badass), but if I’m Rupert Murdoch, I’ll be damned if I run any organization that has to rely on the Clippers. With ownership of FS Arizona and a minority interest Comcast SportsNet Bay Area, Fox had some heavy incentives to protect or expand its Pac-12 programming.
(Note that Fox’s owned-and-operated regional sports networks are heavily concentrated in California, Arizona, Texas, the Great Plains Midwest and the Southeast. Looking at that lineup, it should come as no surprise why Fox paid up heavily for the Pac-12 and Big 12 TV rights and sent in a large bid for the ACC. The Northeast markets, on the other hand, are largely the domain of Comcast RSNs with Fox largely being shut out. This is instructive as to who might be (and not be) looking at the Big East’s TV rights down the road.)
ESPN expanding its relationship with the Pac-12 is a little more difficult to read. Variety has indicated that the Pac-12 has agreed to provide 4 Thursday night and 4 Friday night football games per year to ESPN, so there seems to be a push from the Worldwide Leader to get more higher quality weeknight college football contests. The Pac-12 also allows for late night games on Saturdays to compensate for the moves of Hawaii and Fresno State from the WAC to the MWC (which doesn’t show any games on ESPN). Finally, there could be a return of a 11 pm Central Time Big Monday basketball time slot allocated to the Pac-12, which ESPN used to have for Big West or West Coast Conference games. Overall, ESPN’s modus operandi may very well have been to ensure that neither Comcast nor Turner Sports would end up with the Pac-12, who could have been used as a cornerstone to really have beefed themselves up as legitimate college sports broadcast competitors.
It’s also a bit of a surprise that a Pac-12 network would be wholly-owned. This is a good thing if the network can receive basic carriage, but could be a roadblock if there are any carriage disputes. The Big Ten Network, which is 49% owned by Fox, was able to leverage its basic carriage with DirecTV (which was owned by Fox at the time of the launch of the BTN) to apply pressure on cable operators, while the MLB Network garnered one of the largest basic cable launches of any channel in history by offering minority stakes to several cable companies in exchange for carriage. Those cable companies also provided capital start-up costs. On the other end of the spectrum, the NFL Network (wholly-owned by the NFL) is still battling cable operators 8 years after it went on the air. There seems to be a presumption that the Pac-12 wanted to have 100% ownership of a network, but I’m not so sure that’s the case with the amount of ramp-up costs involved and how critical basic cable carriage is for success.
Regardless, even if a conference network never even gets off the ground, I’m pretty sure the Pac-12 schools are acting like this right now.
(Image from Lehigh Valley Live)