David Boren Must Be Drooling

[Afroabe224]

I suggest you guys give this Deadspin story a read today:

http://deadspin.com/espns-uncertain-future-is-already-here-1753901086

This is no to say that ESPN wouldn't invest in a Big 12 Network, but it really throws cold water on the idea that it could be as profitable as the SEC Network.

Great article but I'm sure there must be some smart guys in that ESPN room who can figure out how to keep the money coming in. Live sports is just too popular. Personally, I would gladly pay $30-$50/month directly to ESPN for all their content and cut the rest of my cable package (~$150). That would cut out the cable company and give ESPN a 500-700% revenue increase from my pocket. I'm guessing there must be a HUGE sports-only demographic that would be interested in an option like this.

 

[Slasher]

While this is "bad" for ESPN, it's only looking at one side of the story. ESPN is now starting to sell it's service in other avenues, such as sling TV. This gives them streaming subscribers that isn't tied to cable carriage fees. It won't be long before ESPN is offered as a standalone service, at a significantly higher rate than $6.91 per month.

Oh and I've looked into sling TV a bit. The base is $20 a month and it includes ESPN and ESPN2. For $5 extra a month you can add the sports package that includes ESPNU, ESPNNews, SECNetwork, ESPN Goalline, and ESPN Buzzer Beater.

 

[NYUConn]

Oh and I've looked into sling TV a bit. The base is $20 a month and it includes ESPN and ESPN2. For $5 extra a month you can add the sports package that includes ESPNU, ESPNNews, SECNetwork, ESPN Goalline, and ESPN Buzzer Beater.

I 100% agree that eventually ESPN will figure this out and remain just as profitable, if not more so in the future.

That said, they are and will continue to experience some growing pains that would make a Big 12 network less profitable than it would have been 3-5 years ago.

 

[don356]

From Espn's point of perspective, a b12 network reconfigured from their debacle that is the longhorn network may be their only way to cut their losses. They may need it as much as anyone.

 

[mavblues]

I suggest you guys give this Deadspin story a read today:

http://deadspin.com/espns-uncertain-future-is-already-here-1753901086

This is no to say that ESPN wouldn't invest in a Big 12 Network, but it really throws cold water on the idea that it could be as profitable as the SEC Network.

Not sure why you felt the need to post this in two different threads, but whatever.

I take it you're sticking to your prediction of $21MM (stabilized) for a B12N with an expanded footprint?

I guess Fox won't bid, I guess ESPN won't be interested in fixing its LHN problem. I guess people (in the future) won't pay subscription fees for streaming options. I guess people in CT wouldn't pay through the nose to watch the flagship University's games.

If you like live sports, you're going to have to pay for it. If you like live sports, you're a prime candidate for advertisers. Even the most pessimistic of projections show that the B1G can expect a 10% to 15% increase in its rights fees when its contract comes up. That's an INCREASE.

I'm done arguing this point. Stating that an expanded B12N would only throw off $21MM (when SECN did $102MM in its very first year) is just ridiculous.

 

[NYUConn]

Not sure why you felt the need to post this in two different threads, but whatever.

Heaven forbid! Someone call the BY police!

For starters my numbers - like yours - have always been purely speculative and hypothetical. I don't have any inside industry knowledge, nor do I or anyone else really have a an idea what ESPN's decision making at the top look like at the moment.

Whether you want to fight me on $6.8 vs. $5 is really irrelevant since we are both dealing with numbers that are speculative at best and being generated through two different people's math via tax returns.

Also, as I've said all along, this is a one-year figure and I agree with you that it is likely to rise through the years.

My speculation that a Big 12 Network would only be worth 1/3 of an SEC network was based on two things: that the Big 12 properties are simply not as valuable as the SEC properties and that ESPN simply cannot afford to spend on a Big 12 Network the way they did with the SEC because the industry is changing.

To the first point:

Yes, UConn in the Big 12 would attract tens of millions of new potential eyeballs. That's why we're in the discussion. But that said, the rest of the conference is deeply saturated in one state: Texas. The rest of the schools play in markets worst than Hartford/New Haven, so in terms of total eyeballs, the Big 12 doesn't stack up to the SEC.

Additionally, the SEC is a lock for the CFP every year. The Big 12 had to have a handful of things break their way to get in this season. This isn't to say that the Big 12 won't improve, but the SEC is just a better conference and winning breeds popularity and popularity generates money.

The SEC is simply more valuable any way you cut it.

To the second point:

The idea that somehow FOX Sports or another network is going to be able to afford to pay an SEC-level fee for a Big 12 Network is ridiculous when they are so far behind ESPN in annual revenue.

You can't ignore the fact that the business environment that ESPN was working in when they inked the Longhorn Network and SEC Network deal no longer exists. It just doesn't. If you read the article, ESPN lost $750 Million from cord cutters over the last year. They do not have that type of money to throw at a conference network anymore.

Even if they reconfigure the LHN into a straight Big 12 Network, it's nowhere close to the SEC Network. In 2011 ESPN signed a 20 year deal for the LHN worth $300 million to Texas and IMG. To put that in perspective, the SEC's current deal with ESPN is worth $2.25 BILLION. Even with UConn's foothold in the NYC/Hartford/NH DMA, there's no way a new Big 12 Network created from the ashes of LHN can come close to that.

As I said, I totally believe that ESPN will turn these losses around and figure out a way to continue to grow and recoup the money they are losing from cord cutters, but at the moment they haven't.


I'm sorry if I am being a downer, but realistically a Big 12 Network will not approach SEC Network payout #s annually.

That doesn't mean it's not worth pursuing. After all, Oklahoma has stated it's goal the entire time was to bring stability to the conference and a network would most certainly do that.

 

[whaler11]

It's not that ESPN won't pay the Big 12. Cable operators are not going to pay the same fee for the Big 12 network they pay the SEC.

What a Big 12 network can make... has to start by subracting the entire value today of Tier 3 and some piece of the Tier 2 contract.

So it starts tens of millions underwater - double that if it's structured like the SEC network.

 

[NYUConn]

It's not that ESPN won't pay the Big 12. Cable operators are not going to pay the same fee for the Big 12 network they pay the SEC.

What a Big 12 network can make... has to start by subracting the entire value today of Tier 3 and some piece of the Tier 2 contract.

So it starts tens of millions underwater - double that if it's structured like the SEC network.

Exactly. People forget that the Big 12 has already sold off parts of their T2 and their T3 rights to FOX Sports and others. They can't go all in with ESPN on a network the way that the SEC essentially has.

Also, ESPN has an annual revenue stream of $7.2 Billion right now alone (not counting other family of networks). FS1 is at $1.02 Billion.

There isn't anyway they can touch what ESPN is giving the SEC.

 

[mavblues]

Got it - so $21MM.

Except for 2 things: if there's no money, and therefore no network, why are you hanging around on the realignment board? (UCONN would have no chance in your scenario.) Why is Boren pushing for a network if it's only worth $1.33MM per school or whatever ridiculous number you threw out there?

I guess you know more than Boren and the media consultants that are advising him as to the value of each of the candidates.

And please stop putting words in my mouth. I never said B12 was worth the same as SEC. I said if SEC makes that much in its first year (and presumably significantly more thereafter), then I think B12 can make $100MM once the conference has expanded its footprint and the B12N's subscriber numbers have stabilized.

BTW, even giving you the benefit of the doubt, if I take the $102MM from SEC, and use your 1/3 number, then take 13 shares (you forgot that B12 takes a share for its office), that's only $2.6MM per school. Still not worth it from Boren's perspective, and certainly a non-starter from UT's perspective.

Yet we continue to read about B12 expansion and a possible B12 network...

We agree SEC > B12. Assuming B12 expands to UCONN w/ either Cinci or BYU, I happen to think B12 would be worth about 70% of SEC. We can argue that point, but I think it's way higher than 33%.

I also think SEC will hit $150MM relatively quickly (It hit $100MM in year one). $150MM x 70% = 105MM. 60% = $90MM. FYI, I used $100MM.

 

[NYUConn]

Got it - so $21MM.

Except for 2 things: if there's no money, and therefore no network, why are you hanging around on the realignment board? (UCONN would have no chance in your scenario.) Why is Boren pushing for a network if it's only worth $1.33MM per school or whatever ridiculous number you threw out there?

I guess you know more than Boren and the media consultants that are advising him as to the value of each of the candidates.

And please stop putting words in my mouth. I never said B12 was worth the same as SEC. I said if SEC makes that much in its first year (and presumably significantly more thereafter), then I think B12 can make $100MM once the conference has expanded its footprint and the B12N's subscriber numbers have stabilized.

BTW, even giving you the benefit of the doubt, if I take the $102MM from SEC, and use your 1/3 number, then take 13 shares (you forgot that B12 takes a share for its office), that's only $2.6MM per school. Still not worth it from Boren's perspective, and certainly a non-starter from UT's perspective.

Yet we continue to read about B12 expansion and a possible B12 network...

We agree SEC > B12. Assuming B12 expands to UCONN w/ either Cinci or BYU, I happen to think B12 would be worth about 70% of SEC. We can argue that point, but I think it's way higher than 33%.

I also think SEC will hit $150MM relatively quickly (It hit $100MM in year one). $150MM x 70% = 105MM. 60% = $90MM. FYI, I used $100MM.

Literally the last thing I wrote:

That doesn't mean it's not worth pursuing. After all, Oklahoma has stated it's goal the entire time was to bring stability to the conference and a network would most certainly do that.​

A Big 12 Network gives everyone in the conference skin in the game even if it's worth less than a competitors. For that reason alone, Oklahoma is smart to push for it.

Believe me I like your math better than mine, but as @whaler11 pointed out too, the TV deal that the Big 12 has at the moment makes the overall structure of a Big 12 Network much different than that of the SEC Network, which works to the detriment of the league.

A Big 12 Network is a good idea and if it comes to fruition it could do the job of keeping the conference together for a while longer. However, if the SEC were to come calling down the line the gap in payout between the two would be networks would probably be enough to make Boren and co. think hard about where to go.

 

[pj]

In support of the idea that a B12 network may generate only one-third, what the SECN produces, a few back of the envelope calculations:
1. SEC state populations 92 mn, B12 state populations 34 mn. Ratio: 2.7
2. There are high costs to running a network, thus ESPN got half of SECN and Fox half of BTN. If costs scale with number of teams, B12 costs are close to SECN or BTN costs, i.e. close to half BTN or SECN costs. But revenue is likely to scale with the number of cable households, so a B12N might earn only 40% the revenue of an SECN or BTN.
3. Profits = income to schools come from revenue - costs. If costs are 80% of BTN or SECN costs, while revenue is 40%, the profit from a B12N is precisely zero.

In other words, as currently configured, a B12N would basically have similar economics to the Longhorn Network. Are UConn and Cincy enough to make a B12N profitable? I would think so, but nowhere near as profitable as the SECN or BTN.

 

[NYUConn]

In support of the idea that a B12 network may generate only one-third, what the SECN produces, a few back of the envelope calculations:
1. SEC state populations 92 mn, B12 state populations 34 mn. Ratio: 2.7
2. There are high costs to running a network, thus ESPN got half of SECN and Fox half of BTN. If costs scale with number of teams, B12 costs are close to SECN or BTN costs, i.e. close to half BTN or SECN costs. But revenue is likely to scale with the number of cable households, so a B12N might earn only 40% the revenue of an SECN or BTN.
3. Profits = income to schools come from revenue - costs. If costs are 80% of BTN or SECN costs, while revenue is 40%, the profit from a B12N is precisely zero.

In other words, as currently configured, a B12N would basically have similar economics to the Longhorn Network. Are UConn and Cincy enough to make a B12N profitable? I would think so, but nowhere near as profitable as the SECN or BTN.

Yeah, but why deal with hard numbers and data when you can just take some journalists speculation based on a bunch of unknown line items from tax returns?

 

[whaler11]

The network can be profitable.... but the schools are already profiting on that content. Some of them a lot like Kansas.

So even if the Big 12 network could throw off 6-7 million a team (which I doubt) - you have to subtract the money they get for the same games today - some of which they don't share with each other.

They don't give ESPN and Fox half to cover costs. The costs don't change because of how many teams are in the league anyway - other than it might impact how many games you broadcast.

They give them half because they have no way to run a network and they have no way to monetize it.

They need the leverage of ESPN or Fox to maximize the carriage fee.

 

[pj]

Marketing is a cost.