You do realize that the Big 10 deal isn't finished right? And you realize that Fox needs to sell FS1 nationwide?
FS1 is going to replicate a broken model. That's how bad it is.
You may be completely correct that Fox has vastly overpaid for BIG content. That Fox is not adapting to a changing market and sure, the deal may still fall through.
Fox may be making a business mistake but that does not mean that mistake may not also hurt ESPN. ESPN has become synonymous with college football. On most Saturdays college football fans nationwide automatically flip over to the various ESPN channels to watch the pre game shows and see what games are on. IMO ESPN has become a default cog in college football viewship. The Fox/BIG contract could change ESPN's central role in college football.
The recent BIG contract illustrates ESPN's self perceived importance in college football. ESPN did not believe they needed to be the highest bidder because "ESPN is college football." The Fox/BIG contract challenges that assumption. Maybe Fox loses its shirt on this deal. Maybe nationwide interest in BIG football and BIG recruiting drops without ESPN exposure. Or maybe somewhere in the future the Fox/BIG contract shows ESPN was never the true power and the real market driver was the schools and games themselves.
I think it is safe to say if the Fox/BIG deal goes through it will change how fans from Nebraska to NJ watch their college football. Fox will now be the default setting for much of the Midwest. If Fox can insure the FS channels are demanded on every cable box in BIG territory is that enough to pay for the deal? The Fox/BIG contract may not make people in California demand FS1 be added to their cable package but in Michigan and Ohio and Illinois it just became essential.
If I was ESPN I would be very nervous. IMO There is a reason ESPN suddenly seems to be more amenable to some form of an ACCN....It is possible both Fox and ESPN lose on the BIG deal.