Pac-12 media strategy: An equity sale…
Pac-12 media strategy: An equity sale wouldn't erase the revenue gap within the Power Five
What does $400+ million get you? Closer to the SEC and Big Ten, but not all the way there
The fifth installment of an occasional series on conference media strategy. Previously, the Hotline examined the potential benefits to retaining 100 percent ownership in the Pac-12 Networks, the strategy behind a possible equity sale, changes to the media landscape that could increase the value of Pac-12 content and the financial/exposure issues facing the networks … When […]
By Jon Wilner |
The fifth installment of an occasional series on conference media strategy. Previously, the Hotline examined the potential benefits to retaining 100 percent ownership in the Pac-12 Networks, the strategy behind a possible equity sale, changes to the media landscape that could increase the value of Pac-12 content and the financial/exposure issues facing the networks ...
When a butterfly flaps its wings in the Amazon, the Hotline listens — especially when the butterfly is CBS Sports president Sean McManus and the Amazon is his network's partnership with the SEC.
Last week, McManus revealed on an earnings call that CBS planned to "reach a long-term extension well before" the 2023 expiration of its contract for the SEC game of the week, the most valuable property in all of college sports, save for the College Football Playoff.
McManus' comment sent the Hotline into a hypothetical world of very real dollars.
How might the Power Five conference distributions currently in place look if we included the two looming disruptors, a new SEC/CBS deal and the ACC linear network, then added the windfall from an equity sale by the Pac-12?
Would an infusion of hundreds of millions of dollars offset the revenue gap between the Pac-12 and the other Power Fives?
Let's start the exercise with a roundup of conference distributions for the 2018 fiscal year.
Big Ten: $51 million per school (actual)
SEC: $43.7 million per school (actual)
Big 12: $38 million per school (actual)
Pac-12: $32.5 million per school (projected)
ACC: $28 million per school (projected)
(Note: Big 12 figure includes an average of $1.5 million for each school from Tier 3/local broadcast rights, which have not been sold to a media partner. Texas and Oklahoma collect millions more from their deals than the other members.)
Next, let's consider the ACC's linear network, which launches in the fall.
Revenue projections from the conference, as laid out by former Florida State athletic director Stan Wilcox, show each school receiving a whopping $8 million-to-$10 million initially, with that figure rising to $10 million-to-$15 million once the network is mature.
The Hotline is skeptical of those figures, based on conversations with media industry sources. We'll calculate 50 cents actual for every dollar projected, then target that figure at the middle of the range laid out by Wilcox.
So half of $12.5 million — the middle of the range of payouts for a mature network — brings us to about $6.25 million per school.
Now, let's add the SEC's extension with CBS.
The current, grossly-undervalued contract ($55 million per year) runs through 2023. McManus expects a new deal "well before" that point. That sounds like the next year or two.
Steve Dittmore, a professor of sports management for Arkansas, recently made the case for AthleticDirectorU that the CBS deal could be worth $300 million annually to the SEC.
That might sound exorbitant for one game per week, but it's the No. 1 regular-season property in college sports and crushes the competition in the ratings game.
Let's be conservative and project $250 million, then slice the pie 14 ways.
Still, that's $17.8 million per school per year.
Now, let's add the linear network revenue to the ACC distribution figure cited above and do the same for the SEC with the windfall from a revised CBS deal.
And to be clear: We are simply applying those revenue streams to the FY18 projections/actuals on a fixed basis. I'm not adding annual 3 or 4 percent increases, which are standard escalators in media deals.
Because the escalators apply to all deals, excluding them from our calculations should not significantly change the difference in payouts from one conference to another.
With the SEC/CBS and the ACC linear pieces added, we arrive at these estimates:
SEC: $61.5 million per school
Big Ten: $51 million per school
Big 12: $38 million per school
ACC: $34.5 million per school
Pac-12: 32.5 million per school
Finally, let's address the Pac-12's equity sale.
For those unfamiliar, the conference is mulling a plan to create a holding company for its media rights, then sell a 10 percent stake in that company in exchange for up-front cash.
Based on documents published by the Oregonian, the conference established a low-end valuation of $5 billion for its media rights.
Maybe the market agrees with that valuation. We'll assume the Pac-12 doesn't get exactly what it wants but comes reasonably close — let's set the valuation at $4.25 billion.
That would make the 10 percent stake worth $425 million.
When split 12 ways, that's $35.4 million per school.
From Tucson to Pullman, Berkeley to Boulder, there would be cheering in the streets … or at least the corner offices.
Except, context is required.
The Pac-12's current media rights deals (Fox, ESPN and Pac-12 Networks agreements) expire in the spring of 2024; there are five years remaining.
Divide the $35.4 million-per-school windfall by five, and the equity sale essentially would become a $7.1 million per-school bump for each of the next five years.
Add $7.1 million to the Pac-12's current projected payout for FY18, and you get $39.5 million per school.
Slot that into the projections for the Power Five when accounting for changes to the SEC and ACC distributions, and we're left with this estimate for the final four or five years of the Pac-12's current media rights cycle:
Pac-12: $39.5 million per school
All that money dropped in the Pac-12's lap … and the dynamic might not change all that much.
The conference would remain well short of the SEC and Big Ten in annual distributions, in line with the Big 12 and ahead of the ACC.
Key point, which often gets overlooked:
When you account for the differences in fan affinity and TV homes, the Pac-12 should trail the SEC and Big Ten and be comparable to the ACC and Big 12.
Except in this situation, the conference would be in that position after selling 10 percent of its media rights.
Does that mean the Pac-12 should abort its pursuit of an equity sale? Nope.
Could the schools use the cash? Of course.
But it's unlikely that a windfall would erase the revenue gap on an annualized basis.
And if that's part of the motivation … if the schools or the conference office is looking to sacrifice a slice of revenue over the long haul in order to save face in the near term … the strategy could prove disappointing.
Just something to consider.
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Jon Wilner
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