The Big Ten appears to be stepping up the timetable for expansion dramatically, where what once looked like a 12-18 month process might now result in announcements prior to the end of June. So, this is a perfect time for a guest post from Slant reader Patrick, who is a long-time veteran of the television industry. (This means that he can actually drop some knowledge, as opposed to being a speculative Unfrozen Caveman Lawyer like myself.) If you’ve been following the comments on last week’s post, Patrick has been providing incredibly insightful analysis based on industry information and has pinpointed some critical items in the Big Ten Network revenue model that definitely has changed some of my prior thoughts on expansion. In fact, I’ll go so far as to say that he has provided the most informative viewpoint that I’ve come across since the Big Ten announced that it was exploring expansion back in December and it has changed a number of my views on the candidates. So, everyone should give Patrick some major kudos for investing his time on this critical issue. Here’s what he has to say (and my take on it thereafter):
With all the talk of Big Ten expansion lately I could help but wonder why the richest conference with the highest pay outs would want to expand. Wouldn’t that break up the pie into smaller pieces? Wouldn’t that cut the take from the current conference members? In short, NO, a resounding NO! The Big Ten schools together made roughly $214,000,000 as of the last report. $100,000,000 from ABC / ESPN, $2,000,000 from CBS, and the schools collected $112,000,000 from the newly formed Big Ten Network. That is $19,454,545 per school. The regular network haul of $102,000,000 per year isn’t going to change. Any new members would need to make up that difference, plus carry their own weight of $38,146,166 in new revenues to the Big 10 Network. The conference only controls 51% of the Big 10 Network, FOX News Corp owns the other 49% and takes 49% of the overall profits. So each possible addition would need to earn the conference $19,454,545 per year AND earn FOX News Corp $18,691,621 AND make up the difference in the take from ABC / ESPN / CBS to break even for the current members. Since the conference reported a $112,000,000 payout, the actual profit margin of the Big Ten Network is around $219,607,840. In addition, there are a number of news stories indicating that the universities take this year was just shy of $22,000,000. I haven’t seen anything official on that but if it is true than the BTN made around $272,000,000 in the most recent year. Almost a $50,000,000 climb year to year for a brand new network. So why would anyone mess with that? How could any university earn that much for the BTN?
By the Big Ten’s own admission they are clearing about $0.36 per subscriber per month for the states inside it’s footprint. They also tell us that there are 26,000,000 subscribers and it is AVAILABLE to 75,000,000 people. The BTN wants to increase the available number but even more important is to increase the subscriber numbers, and there is an opportunity to do that within the current footprint. Regardless, at $0.36 per month for 26,000,000 households over 12 months I only came up with $112,320,000 for a cable carry rate. Well short of the $272,000,000 that the network likely made last year. The other $160,000,000 is advertising revenue! Live sporting events get big advertising dollars and the BTN is loaded with them. As Frank pointed out, if the conference were to expand, many more games would be on the BTN. Football, basketball, and maybe down the road a Big Ten hockey conference. Throw in a few conference championship games in different sports and expansion makes money just by added Live programming and increased quality of programming. A few creative tweeks in the scheduling and you could have every Big Ten game make it to air somewhere, which is good for everybody. For the Big Ten to get to 12 schools the addition would need to equal $38,200,000 to break even, for 3 schools they need to reach $114,500,000 combined, and for 5 schools a whopping $190,800,000. If I were to just pull the #2 – #6 schools from my estimate they would bring in roughly $266,000,000. In that scenario, FOX News Corp profit (by adding 5 schools) goes from $107 million up to $201 million. It would not surprise me to see FOX News Corp gently nudging this process along. If advertising is earning the BTN in the ballpark of what I am thinking, then FOX has realized they opened a gold mine and want to see how deep it goes.
But what about the schools being batted around? I did my level best to average numbers, to play it conservatively, to be fair across the board with finding any schools potential. Notre Dame and Pittsburgh are a little tough to gauge because they don’t add any new television markets. But I found that by extrapolating what is already happening with the conference and the Big Ten Network, combining that with my television experiences, and taking into account some of the posters comments and thoughts I came away with what I feel is a pretty fair assessment of the potential of the candidates. As many of you have noted, game attendance and athletic revenue are important. I used attendance to gauge the level of support and fan interest to help me put a dollar value on ratings potential. If the fans won’t even fill their own stadium, how valuable is the team overall? Any team that joins the Big Ten will share in the Big Ten pie, so I subtracted off the current tv pay out for those teams to gauge strength in their home markets. Then extrapolated to find a decent estimation of a new tv markets potential for advertising revenue. I also averaged in the carry rates for the home market or markets with the number of cable subscribers. I did add a category to try to account for additional Live programming on the BTN and gave each school a flat $10,000,000 for the additional sports coverage, that is probably too low but I am leaning to the conservative side. The following is a summary of the totals of my findings.
||TOTAL ADDED REVENUE ESTIMATE
|Rutgers WITH NYC
|Syracuse WITH NYC
For a full chart with my calculations, please see this Word document:
Big Ten Candidates TV Analysis
This table could be read many different ways, I have no clue what the Big Ten will do. I could make a strong argument for Nebraska, Missouri, Rutgers, Maryland, Pittsburgh, and Kansas. If Syracuse can deliver NYC then they might be in but the amount of research they do will hurt their cause. Texas is an absolute no brainer, they lead in almost every category. I don’t think Iowa State is viable, but I was VERY conservative with these numbers. It would be hard to ignore Notre Dame and Nebraska being the #2 and #4 most valuable college sports franchises. Interesting that Kansas is right there behind Nebraska and ND in athletic revenue. If anyone wants to pass along better or more current numbers, I would appreciate it. In addition, with the talk and discussions that were flying around Sunday about the AAU meetings and the accelerated time table, I firmly believe that my estimates are probably too low. The fact that they want to move this quickly with an expansion means that the potential revenue is HUGE and the decision isn’t even a tough or close one. Also in some of the statements coming from the Big Ten brass and Notre Dame, I highly doubt Notre Dame is going to be included in the expansion. I now think that the expansion will happen, and I think that they will go all the way to 16 teams. I believe they will get AAU member schools, and the Big Ten presidents seem to be very interested in graduate research.
I for one can’t wait, Bucky Badger playing against Nebraska would be an awesome sight!
Based on Patrick’s analysis, there are a few important things that I take away from this:
(1) The 60/40 Rule – This might be the most important piece of information regarding Big Ten expansion that I’ve seen to date: the Big Ten Network makes 60% of its revenue from advertising and 40% 0f its revenue from carriage fees. I’ll be honest with you – I thought that it would’ve been the other way around and it has definitely altered the lens through which we need to look at expansion candidates. What this basically means that if push comes to shove, the Big Ten should pick a school that has a great fan base (which translates in viewers for ad revenue) as opposed to market size (which contributes to carriage fees). This actually brings some common sense back to the discussion, where somehow the world has been convinced over the past few months that Rutgers must be the most valuable school on Earth due to the location of its campus. We’ve been very focused on footprint sizes and research funding in our discussions lately, but at the end of the day, ad revenue is the #1 source of dollars for the Big Ten Network and that’s based on finding schools that Joe Blow in Anytown, USA will want to watch. Here’s a chart of some of the expansion candidates with their football TV ratings from last year. (Note how well Nebraska and Pitt performed compared to everyone else.) Now, that doesn’t mean that expanding the footprint is irrelevant (as the New York City market is still an important target for the Big Ten), but it definitely lets people “think like sports fans” a little bit here.
(2) Pitt MIGHT make money for the Big Ten – Most of the readers out there know that I personally love Pitt as an academic institution and athletic program, but just couldn’t find any way how the school could add to the Big Ten’s coffers financially. Well, if Pitt’s ratings for football and basketball are good enough (and judging by the chart I linked to above, they probably are), then the school can end up being financially viable. Patrick has stated that his figures for Pitt and Notre Dame are very conservative, so if Pitt continues to draw high football ratings, it changes the equation significantly. Now, Pitt can’t really be put into the same category as Notre Dame or Nebraska where the national draw clearly overrides a lack of new BTN households, yet it does have the advantage of being one of the few expansion candidates that has strong programs in both football and basketball. Speaking of Nebraska…
(3) If the Big Ten wants to make a ton of TV money, it will invite Nebraska – I’ve been increasingly become more and more supportive of Nebraska joining the Big Ten lately and Patrick’s analysis completely sealed it. Nebraska’s small market be damned – the Husker fan base is as rabid as any other in the country and they will tune in anytime, anywhere. (If you were wondering, the photo at the top of this post is evidence of how Nebraska fans completely took over South Bend a few years ago when they played Notre Dame.) In fact, Patrick’s figures mean that we should remove Nebraska from the realm of “Well, they might be coming instead of Missouri” or “They’re a good back-up if Notre Dame doesn’t want to join” and put the Cornhuskers into the “lock” category instead. I will now officially be shocked if Big Ten expansion occurs without Nebraska involved.
(4) 16 Schools = Huge Inventory – The 60/40 rule that favors advertising revenue also gives a whole lot more credence to making a 16-school conference financially viable. I recalled this piece from Don Ohlmeyer on that examined how ESPN chose to schedule programs:
The message that I got from this was that LIVE EVENTS = RATINGS. A live hot rod competition after a college football game actually holds more viewers than a studio show that talks about said game, even though they have nothing to do with each other at face value.
The Big Ten expanding up to 12 schools really doesn’t increase the inventory of conference football games (which are the higher value games) very much at all. Assuming that the Big Ten continues with an 8-game conference schedule, it would have 48 conference games as opposed to 44 conference games in a season. At 14 schools, it would go up to 56 conference games. At 16 schools, though, the Big Ten would almost certainly go to a 9-game conference schedule, which would catapult the inventory up to 72 conference games.
What does 72 conference games allow you to do? Well, let’s assume that the Big Ten provides 4 games to ABC/ESPN every week (2 games on ESPN and ESPN2 at 11 am CT, 1 game on ABC at 2:30 pm CT, and 1 prime time game), which is a package that would likely see a substantial increase in rights fees when it’s now presumably including Notre Dame and/or Nebraska on top of the current Big Ten members plus a conference championship game. This leaves 2 conference games for the BTN for every single week of the season (except for maybe Labor Day weekend, which is reserved for MACrifice games). With non-conference games mixed in, the BTN could have football triple-headers virtually every week. Going up to 16 schools increases the amount of live football on the BTN in a dramatic fashion and if twice as much live football compounds the amount of ad revenue earned, then I’m starting to see how going up to 16 schools makes more financial sense under the BTN model than 12 or 14 schools.
Then, we get to basketball, where a 16-school conference can get at least one basketball game onto the BTN onto every day of the week except for Friday, whereas now the BTN usually only has games on Wednesday, Saturday and Sunday. That’s a dramatic jump in the number of high quality basketball games on more nights of the week. This also still leaves enough for the Big Ten to add 1 or 2 more basketball games on ESPN per week for widespread exposure (and likely garner a rights increase there, too, if schools like Syracuse or Pitt added to the mix). Of course, Friday night can be reserved for the new Big Ten Hockey Conference game(s) of the week if Notre Dame joins. There’s even some side benefits in the spring with baseball (as Nebraska and Notre Dame lift up the quality of that league substantially) and lacrosse (where a new Big Ten league could be formed with Syracuse as the national headliner if that school is invited). Other sports such as women’s basketball and volleyball can end up with new national (and TV-friendly) brand names, too.
So, maybe that’s why the chatter about a 16-school conference has taken center stage: if you have that many more high value football and basketball games plus a ton of other sports of interest where you’ve got live programming every night of the week that’s comparable to the college games on the ESPN networks, that can increase ad revenue dramatically (and in turn, carry rates could increase as the BTN becomes more “essential” to viewers’ lives).
(5) My Latest Prediction That Will Change in a Week – Looking at Pat’s figures, it’s clear to me that the Big Ten pretty much has to at least try for the New York market unless Texas and Texas A&M come walking through that door. The question will be whether the Big Ten believes that it’s worth it to take both Rutgers and Syracuse. I get the feeling that the Big Ten’s university presidents have a fondness for Rutgers as fellow public flagship (and I’ve stated before that they make sense in a multi-school expansion), even though my personal choice would be Syracuse if we had to take one or the other. The academically-minded people in the Big Ten love Pitt and I think that if there’s any financial case for the conference to to be able to take them, they’ll likely do it. Missouri, although it doesn’t have gangbuster financial numbers, would probably be seen as a “safe” option because it can at least be counted on with reasonable certainty to deliver any households in its home state that don’t already carry the Big Ten Network on basic cable at the Tier 1 rate.
The one item that I disagree with Patrick on is Notre Dame – if his figures are close to correct, then I have a hard time believe that the Irish will turn down such a huge windfall for playing a lot of the same teams that it already plays annually in football (especially if its home for basketball and Olympic sports is destroyed). I feel pretty good that Notre Dame, Nebraska, Missouri and Rutgers would all be involved in a 16-school Big Ten. This essentially leaves Pitt and Syracuse for the last spot (unless the Big Ten wants to cut further into the Big XII by taking a school like Kansas). If the Big Ten wants the better institutional fit, it will choose Pitt. If the Big Ten really thinks that locking down New York is possible for college sports, then it will choose Syracuse. With such a large-scale expansion, the Big Ten may put more emphasis on institutional fit to ensure maximum cohesion (especially since renegade Notre Dame is very likely to be involved), which would give the edge to Pitt (as much as it pains me as an avowed Syracuse supporter). I know that this an about-face from what I’ve been saying for quite awhile.
So, here’s my current bet on who will join a 16-school Big Ten: Notre Dame, Nebraska, Missouri, Pitt and Rutgers. If Notre Dame continues to balk, I believe that we’ll see Nebraska, Missouri and Rutgers added for a 14-school conference. This will probably change by the end of the week (and I wouldn’t be surprised in the slightest if Pitt is replaced by Syracuse in the 16-school scenario), but that’s my line of thinking right now.
(Follow Frank the Tank’s Slant on Twitter @frankthetank111)
(Image from Ning)