The other side of the cord-cutting mountain

Sure, it’s been interesting to focus on ESPN’s trials and tribulations as its subscriber base shrinks, but let’s not lose sight of what Mickey spends a boatload of that money on.

At some point that could force the market to correct itself and the money that grew and grew for each media rights deal could finally come back down to earth. That would have far-reaching implications across sports including potentially in college football. Television money, particularly from ESPN, has dramatically changed the college football landscape over the last decade. It was the engine behind conference realignment, exploding coaching salaries and ostentatious facilities upgrades. It is the defining reason the gulf between the Power 5 and Group of Five keeps growing wider.

The major question is what happens when ESPN and other TV networks decide they don’t want to keep upping the ante each time a rights deal comes up for renewal?

Just look to Conference USA for how that could play out.

No conference has been impacted worse by the ramifications of television money than Conference USA over the last 15 years. In 2005, Louisville, Marquette, Cincinnati and Texas Christian were all members of the conference only to leave for greener pastures in the Big East. That process happened again and again as bigger conferences looked to bolster their attractiveness for TV money by plundering CUSA. UAB and Southern Miss are the last of the founding members still in a conference that now features schools like Texas at El Paso and Texas at San Antonio.

When CUSA’s TV rights deal expired in 2016, the market had dried up. It wasn’t as attractive as it had once been despite adding several schools in large TV markets and television networks weren’t as needy for inventory. Only a few years after aggressively trying to add live sports TV rights for its fledgling FS1, FOX didn’t even bother trying to re-up with Conference USA. While other conferences saw their rights deals skyrocket in previous years, CUSA received millions less. Its schools went from making $1.1 million annually from TV money to a meager $200,000.

Now, admittedly, it’s a long way from Conference USA to the Southeastern Conference, which has the benefit of monetizing the largest impassioned college football fan base in the country, but who knows where things wind up in a few years?  Judging from this comment, certainly not the conference commissioner.

“Even in the midst of cord-cutting, we’ve seen progression in revenue,” said SEC commissioner Greg Sankey. “I think there’s actually more good news there than there is anything that’s problematic for us.”

Remain calm, all is well.

Here’s the thing — guess which conference’s revenue stream is most closely tied to ESPN’s financial well being?  Ding, ding, ding, we have a winner!

If not the Big Ten, the SEC could be in the most stable position. It is already generating huge money from TV — the league listed $420 million in revenue from TV, radio rights in its 2016 filings — and can always bank on a large, passionate fanbase wanting its product. The downside for the SEC is that it doesn’t own a stake in its network — ESPN maintains 100 percent ownership — and instead agreed to split revenue at a rate believed to be less than 50-50 for the conference and its members. The SEC is the Power 5 conference most tied to ESPN given it leveraged ESPN’s distribution model for massive early success rather than maintain ownership but that is still far more beneficial than detrimental at this point. The SEC Network is the strongest of the three conference networks — its average subscriber cost is more than three times the Pac-12’s — and as long as it keeps showing football games, that doesn’t figure to change.

Now, maybe that works out fine over the long run.  As long as we remain crazy about our football, somebody will pay the conference for access to that… but maybe not as much as now.  If the numbers decline, having that middle man starts looking expensive.

Remember what led to the current arrangement — Mike Slive’s initial inept conference television deal that he had to break by expanding the SEC to fourteen members.  It’s not like the SEC’s broadcast contracting has been shrewdly managed; as I’ve analogized before, it’s more like Jed Clampett accidentally stumbling his way into millions.  So to think that Sankey and his bosses are already on this proactively would be totally against type.

Of course, this may wind up being the reserve fund excuse Greg McGarity’s been waiting his whole career to use.  That’s certainly a comfort.

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20 Comments

Filed under ESPN Is The Devil, SEC Football

20 responses to “The other side of the cord-cutting mountain

  1. The other Doug

    I see a future where TV revenue declines. When that happens the conferences will either cut schools, stop dividing the money equally, or start looking at other revenue streams like naming the stadium.

    Don’t worry though. It’s all for the amateur student athlete.

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    • Got Cowdog

      I pay for it. I can afford it. I am not against anyone making money for providing a service. I am not tech savvy, I do not want to jump through the hoops of trying to find a provider for a particular game, so it’s a luxury.
      I do/ do not agree with player compensation. The crusader in me says “Hey, you’re screwing over the kids! You’re making a killing on TV money that wasn’t there when you made the rules they are compensated by!”
      The entrepreneur in me says “The players know the deal going in, there is potentially a huge payoff on the other side of it with the degree, even if they don’t make it to the next level.”
      I can say that of those I know that played college ball, not one ever complained about the opportunity. YMMV.

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      • DawgPhan

        I love that you think it is the “entrepreneur” in you that thinks a price fixing cartel is the best solution.

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      • Macallanlover

        I am in the same boat as you regarding the cord cutting issue, I would like to pay according to my usage/needs but the alternatives I read yesterday are all over the board and confusing to us non-techies. Like what I heard in the comments yesterday, just have to figure how to consolidate that with how my current system works and what I need from the changes. I feel something less complicated will emerge and that is when I will join in. Even my IT-type son in law isn’t sure how to work it all in to what I have currently, even though he and my daughter cut the cord over a year ago using much of what I saw others here doing.

        In the meantime, I will waste about $75 a month. It might be a year or two away as it seems to be gathering steam, but I can afford to wait.

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  2. The WatchESPN platform is actually one of the better streaming platforms out there. They already have the infrastructure, they just need to find the pricing equilibrium to get cordcutters. There are live-streaming options already available as low as $25 per month for a bundle of channels with ESPN/ESPN2 and $5 more per to include SECN. If you want all the sports-affiliated networks, it still costs $50 per month. The streaming bundle is the new cable bundle for now. At some point, ESPN will need to offer a standalone subscription. Maybe $99 per year or $9.99 per month. The estimates of needing $30+ per month are unrealistic. They’ll need to slim down, cut how much they pay certain leagues (since they waaaay overbid for things like the NBA), and eliminate much of the unwatched fluff/debate nonsense that is easy to produce for rigid, middle-of-the-day time slots. Live for sports and on-demand for everything else is the only way forward.

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  3. Sherlock

    Remember what led to the current arrangement — Mike Slive’s initial inept conference television deal that he had to break by expanding the SEC to fourteen members.

    IIRC, Slive’s deal with CBS and ESPN was by far the richest deal ever at that point. It was just that ESPN lost their mind when they negotiated deals with the B1G and Pac12 a couple of years later. Not to say that Slive did a great job, but I don’t remember anyone claiming he blew it except for in hindsight.

    It’s not like the SEC’s broadcast contracting has been shrewdly managed; as I’ve analogized before, it’s more like Jed Clampett accidentally stumbling his way into millions.

    That sounds about right.

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    • Mmmm… maybe we’re just arguing semantics, but here’s where I was coming from with that first comment.

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      • Sherlock

        Yeah, that was all hindsight. The contract was bad only in that it was not nearly as good as what the Big Integer got a couple of years later with adding the B1G Channel. The problem, again in hindsight, was that the contract was too long. If it had been a 5 year contract, they could have waited out the next three years and renegotiated. 13 years on a 15 year contract is a hell of a long time to wait to renegotiate ergo Conference Expansion.

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  4. Russ

    It will be compelling viewing when the money starts to decline, watching all these schools scramble to keep the tap open. The end result will be ugly but the journey will be interesting.

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    • paul

      Dang. They might actually have to start considering the fan experience on game day. I wonder if there are any old codgers around like us who still remember what that was like?

      Like

  5. DawgPhan

    I suspect that they will just find some other way to bundle all this together to get more people paying for it.

    Like include it with amazon prime and charge $125/year for amazon prime. Then all the households that get TP and diapers shipped to them every month can also foot a chunk of the bill for sports.

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  6. 79DawgatWork

    Again, what good does a huge reserve fund do us in such an environment? If TV money goes to zero, our “competitors” will either have to raise ticket prices or cut expenses; our precious reserve fund may delay those effects for us for 2 or 3 years, but big whoop. No Auburn or Florida fan is going to become a Georgia fan because our tickets still cost $50 apiece and they have raised theirs to $100. And as I said, eventually the reserve fund will be consumed and we will be in the same boat as the others (i.e., raising prices or cutting costs).
    This is not a fully free-market, capitalistic environment – Georgia cannot play football by itself, and we need strong competitors to put on a good show and keep people interested. A huge reserve fund, when all our competitors are broke, does us little good…

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  7. Otto

    Conf USA proves that there needs to be a thinning of the herd and teams need to drop to the FCS level. The NCAA is to blame allowing programs to jump up.

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    • The Dawg abides

      Agree. Hopefully we’ve seen the last of wide open expansion among power five. The Big 12 better grab the best two available schools and batten it down and hope they don’t get poached into oblivion. Then the group of five needs to form their own playoff.

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  8. Bigshot

    Ain’t it gonna be something if McGarity was right about the reserve fund?

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    • southernlawyer11

      Define “right.” That we may have the best fallout shelter during a nuclear apocalypse ? Absolutely right. That a major priority TODAY should be prepping to survive slightly longer than our dead neighbors in a post-apocalyptic world ? Absolutely wrong.

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  9. Dylan Dreyer's Booty

    Sounds like to me that we peons who watch cable sports are collectively making major contributions to the reserve fund. Hear us roar. Eh, I guess they do, and that’s part of the reason the stadium/tailgate experience – outside of the luxury boxes, of course – is so much like one of those dancing men you see outside of car dealers. Sometimes up, sometimes down. You can buy those things for less than $100.00. Get a red one, paint a G on it: instant tailgate performance art! 😉

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  10. southernlawyer11

    My thoughts, assuming the middle man (distributor, ESPN), as it stands today, is unrecognizable in 20 years:
    1. Demand to see SEC football games on television shouldn’t shrink considering our institutions are creating a new class of alumni and enrollees every year.
    2. We could see tension within Power 5 conferences that were once thought to be stable. It’s kind of hard to conceptualize, but there could become a day where the method of distribution makes it very easy to quantify how much money each institution puts on the books. We could see strained relationships when schools like Georgia, Florida and Alabama begin to wonder why they have to split a pot of money they fill up with Mississippi State, Vanderbilt and Arkansas.
    3. Television access may eventually have some type of Hartman Fund’esque component. Maybe not individually for a school, but collectively. Schools realize that watching on TV is becoming not just a convenient and cheap fall back, but even a preferred method. This is similar to PPV for the cupcake games before ESPN / SEC Network put everybody on TV all the time. What would you pay per year to have access to every SEC game ? It’s tough because they don’t want to stop the spread of the brand outside of the region……..but here in the South, I would not even bat an eye if they asked me to spend $500 per year to have every game on TV for all 14 SEC teams.
    4. In sum, what we are seeing is the collapse of one of the few things that works really really well in a model of pure socialism. I get all these great football games in crystal clear HD for what I consider a great bargain. My wife gets really dumb shows that would never have the capital to be made but-for the socialistic TV bundle. It’s truly a shame–everybody is going to be paying 1/3 of what they do now but will only have 1/10th of the options.

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