New TV deals are the new hotness in college sports these days. The Pac-1012 announced its new media rights deal today that will pay it's teams about $20 million per year. That comes on the heels of the Big XII selling it's secondary rights to Fox Sports for $1.2 billion dollars (or about $90 million per year -- split unevenly, of course), and the ACC sold it's TV rights package to ESPN for $1.86 billion over 12 years last summer.
The Big East's current contract won't end for another two years, but with the market for TV rights heating up, the discussions with current-partner ESPN have already begun. It is not clear which party initiated the early discussions, but both would have reason to be interested in doing so.
ESPN nearly lost the ACC last summer when aggressive bidding by Fox Sports drove the price up from an initial projection of around $120 million per year to over $150 million. By negotiating early, they keep other bidders out of the process and can prevent any major surprises.
The Big East, on the other hand, is currently sitting on the poorest of the major conference TV deals, and last summer's discussions of conference realignment have members wondering about greener pastures elsewhere (and how to gain access to them). Conference officials know that the sooner they can improve the television situation, the more stable membership will be -- especially with new mouths (TCU) to feed, starting in Fall 2012.
With early numbers for the Big East in comparable position to the ACC's initial projections, Commissioner Marinato may reach for the stars in this negotiation.
The complication in the negotiations is that, unlike the other major conferences, whose members all participate in the football league, the Big East's rights must be divided into the 16 team basketball conference and the (now) 9 football-playing members. Selling both products as a bundle would likely get the greatest value for conference, but getting all 16 full members on the same page in that regard may be more difficult.
The other complication is the fluid state of conference membership. The schools voted to add a 9th and 10th football member back in November 2010, but so far the identity of the 10th member has yet to be determined. It is unlikely that ESPN would be greatly impacted in the amount offered based on any of the commonly mentioned candidates being added (though some consideration would likely be given) -- and that includes Villanova (I'll come back around to this).
So what does it all mean?
Where is the value in sports programming?
Sports television rights have grown in value tremendously in recent years. Even a bankrupt pro baseball franchise managed to bleed $1.6 billion from Fox Sports Net.
Where did the value come from? Sports programming, unlike sitcoms, are predictable. Fans in Atlanta, Georgia will tune into SEC football on Saturdays. Fans in Pennsylvania will tune into the Big Ten. Save maybe Slamball, sports don't "jump the shark," and haven't done so yet in the approximately 140 years that organized professional and college sports have existed in the United States.
For the networks, sports are a low risk investment -- people will watch -- and the cost of producing a game for television is lower than most other programming. Pre-game and post-game shows can be one or two camera affairs that also cost little to produce, but fill an extra hour or two of airtime.
Even more so than that, however, is the fact that the number of outlets has dramatically increased. ESPN used to be a single channel, but now the network spans across a myriad of numbers of the television dial -- ESPN, ESPN2, ESPN Classic, ESPNU, ESPN News, and lets not forget "the ocho," ESPN3.com. Fox, CBS and NBC/Comcast also have sports networks these days, add in the Big-4 networks and regional channels like the YES Network, Comcast SportsNet, NESN, and MASN, and there is far more airtime to fill than ever before.
Over 90% of American households have access to either Cable or Satellite television. While the old-line broadcast networks may still garner the largest market-shares, the market that specialty sports channels can reach is nearly as large. Those networks need new, fresh, and live sports content to draw viewers in and lure dollars out of cable providers' and advertiser's bank accounts.
Live sports provide a consistent and relatively risk-free source of content to fill all of that empty space. With the Pac-12's new deal, ESPN and Fox Sports can plug up holes in their broadcast schedules over a decade into the future. Certainty has value. Inventory is such a valued commodity these days, that the University of Texas was given a deal worth $15million per year to partner with ESPN on a cable network that will air one football game, eight men's basketball games, at least 191 live non-revenue sports (Hook 'em Field Hockey, anyone?) and some cheapl-to-produce pre- and post-game shows and coaches shows.
Ratings have always been important, of course, and when dealing with cable providers in negotiating subscriber fees. ESPN has lately been among the most-expensive basic cable channels, receiving over $4 per cable household, whether they watch the worldwide leader or not. They got there by drawing large audiences and signing up high-interest sporting events that cable providers can't turn away.
ESPN and other cable networks also sell advertising, just like the broadcast channels. That revenue will vary depending upon the ratings of the events and shows that are aired (and the sales team's ability to talk advertisers into buying). A 30-second ad during the Super Bowl, we are often told, costs around $3 million dollars.
So, the value in sports broadcasts lies in the combination of inventory (how many games you have to sell) and ratings. More games means more value (filled airtime) to the networks and higher ratings means greater revenue per broadcast.
What doesn't factor in is on field performance, BCS ratings or National Polls. Notre Dame is as valuable to television today as they were when they were competing for National Titles on the gridiron. Their audience is not highly-dependent upon BCS bowl wins to keep tuning in -- they tune in because they like to watch Notre Dame football.
Product on the field and polls may ultimately influence ratings in some regard -- certainly Boise State gets a ratings boost when they are in the top-10 programs nationally. Any school would, but when conference TV deals are negotiated 12 and 13 years into the future, the current success of programs cannot weigh so heavily.
In fact, the TV markets the conference has a presence in may be more important than anything else. Networks are willing to promote their content.
While researching this story, I was unable to find average TV audiences for the Big East and other BCS leagues in the two major sports. According to Villanova's upgrade-survey YouTube video, however, the Big East reportedly averages around 2 million viewers per football game, which is just slightly above the average rating for ESPN. Basketball ratings, however, are very strong, and no conference can match the inventory of a soon-to-be 17-team league (not to mention that basketball season is longer with more games).
Who is motivated?
Well, everyone. As mentioned above, the conference is motivated to get a big enough deal to stabilize membership and keep the ship afloat at least a while longer. While motivated to get a deal done, a deal that is far below the earnings of "peer" conferences would not go very far to resolve the conference's issues. Without securing something close to an ACC-level pay-out for football members (with a significant revenue increase for basketball-only members as well), Big East negotiators would be foolish not to wait and take the negotiations to an open market.
ESPN's motivation is to keep Fox Sports, Comcast/NBC and others out of the picture, but they can't treat this negotiation as if there were no other bidders. There is no doubt that the Big East would receive bids from those other parties should they go to an open market, and numbers discussed will be based on projections of what that open market could bring. Consider the other networks "ghost bidders" in that process.
The Big East will use other recent conference TV deals as a guide to project the market value of their own product, and will look to receive something close to that.
These cable networks want to lock up as much live sports content as possible for as far into the future as they can. There are too many outlets hungry for safe, consistently-performing programming for them to simply walk away from a conference that has generated more hype and interest in college basketball than any other of late and one that still holds a BCS AQ in football.
How high can it get?
Realistically, the ACC's contract would presumably be a projected ceiling for the Big East (and with 16 teams, the per-school pay-out may be lower) from ESPN. The early reports put an estimate of somewhere around $130 million per year on the table to get things started.
The Pac-12 deal does have an interesting effect for the Big East. ESPN just added a large number of Pac-12 games, a number of which are now guaranteed a prime-time audience on the east-coast. An important factor since more than half of America's population still lives east of the Mississippi. Guaranteed national prime-time slots are part of the negotiations now, but the Big East need not worry that there is no room at the inn. ESPN has at least four networks that regularly air college sports and seven days a week to do so -- that's 28 prime time slots every week (Pac-12 football is guaranteed 10 for an entire season) -- add in the other major networks and the number of slots per week is between 60 and 70.
The Pac-12 will no longer have games on CBS once their new deal begins. The network that recently spent a fortune to retain just part of the NCAA tournament TV rights and has been stockpiling college hoops writers, is suddenly facing a low inventory of live, regular season college basketball.
The last thing CBS can afford to lose is the largest of the major conference inventories, and with a new emphasis on growing their "CBS Sports" network (formerly CBS College Sports), the guys over at Black Rock may be interested in getting more involved with the Big East.
Lets also not forget that much of the Pac-12 inventory will be aired on it's own cable network.
Speaking of cable networks, things could even get a little crazy if the Notre Dame wanted to jump on board with at least part of it's football programming.
Comcast now owns the NBCUniversal properties that have held the rights to Notre Dame football for years now. Comcast also partnered with the Mountain West Conference on their (less than impressive) cable network. Comcast could jump into the fray with an offer to create a Big East cable network that would also air, at least some, Notre Dame football content. Of course, that may be a longshot.
What about expansion?
As I mentioned above TV contract value is based primarily on ratings and inventory. Upon expansion to 10 football-playing members, the inventory that the Big East would have to offer will be the same regardless.
Where that addition could make a difference is in TV ratings.
UCF, ECU and Houston are established football program that draw strong crowds to see good teams. The question for ESPN, however, isn't how many fans are in the stadium, but rather, how many are on their coach at home?
Ratings data was not readily available to study the matter in-depth, but even a small boost over the past year or two won't necessarily have a tremendous effect on a 13-year deal -- only long-term sustained results would. In lieu of such results, the networks might be happy with a strong local TV market where they can promote the conference games.
Of the most-talked-about potential expansion cities, Philadelphia is by-far the larges market, followed by Houston, then Orlando and finally Greenville, North Carolina. None of the proposed additions have much to say in terms of reach beyond their local market -- none are flagship state schools, and none have truly-national followings like Notre Dame, USC, Texas or Nebraska.
In terms of ratings, Villanova has the most potential to grow with the largest TV market, but that means doing battle with Penn State for supremacy in Philadelphia -- no small task. UCF and Houston also have strong markets, but both also have multiple in-state superstars to contend with.
If TV networks don't view any of those options as a ratings "slam-dunk" (and that is likely to be the case), then the added value of a 10th member is ultimately limited. The conference should look at each option's potential over the next decade to project what they might offer to subsequent contract negotiations.
Conclusions
The Big East conference is no-doubt due for a dramatic increase in television revenue. The current deal was negotiated in the wake of the ACC raid that saw some of the conference's most marketable football properties leave and the conference was in a weak position to bargain from. Rather than uncertainty, however, the Big East can now bargain from a much stronger position.
The dollar amount per-school for the Big East may end up lower than the other BCS AQ conferences, but the increase in revenue should increase at-least at the same rate, and since that last deal was undervalued (and the ratings brought in by TCU football could be among the league's best), it is not unthinkable that those rights fees will increase at a slightly-higher rate.
Delusional football fans might argue that the Big East can't even approach the ACC's numbers, but ACC football is closer to the Big East than the Big Ten these days, and Big East basketball has shown to have more depth than the current state of the ACC. It may be impossible to compare the two directly without access to archived Nielsen-ratings data, of course, but make no mistake, the ACC is "less-than-premium football."
Where the ACC has an advantage is their championship game. One extra game that should draw a large audience is an attractive event for a television network, but how much is it worth? TV ratings for the ACC's title game have actually declined since it was first played in 2005.
Many observers underrate the value of television inventory, but the TV networks haven't done so. Ratings, no doubt, are the main reason for the difference between the $155 million per year payday that the ACC signed off on last summer and the $250 million per year pay day that the Pac-12 just signed ($95 million). The Pac-12 offers substantially the same inventory or length of contract. Any additional value is explained by cable subscriber fees (they plan to start a conference-specific network like the Big Ten) and value-added by the greater television ratings that the Pac-12 can provide.
Yes, these contracts are driven by football, but few conferences offer the basketball brand or audience that the Big East and ACC have developed. Is Big East basketball worth as much as Pac-12, SEC or Big Ten football? Probably not -- the ratings are good, but just not going to be the same on an average-game basis -- but it is certainly a valuable commodity. Big East football really isn't as bad as people claim either, and the ratings on any given Big East football match-up are preferable to a lot of other options out there.
Assuming the Big East signs a 12-year contract (as seems to be the norm), expect the total value to be well-over $1 billion dollars.