SBJ/March 3 - 9, 2008/This Weeks News

Big Ten could reap $2.8B from network deal

News Corp. projects that the Big Ten Network could pay $2.8 billion to the Big Ten Conference over the 25-year life of its deal to operate the channel, according to the media company’s most recent 10-Q federal filing, which provided the first glimpse of its agreement with the conference.

The Rupert Murdoch-owned News Corp. has a 20-year contract with the Big Ten, with an option for five more years.

The total payout over the term of the 25-year agreement is based on profit projections by News Corp., and the money distributed to the schools on the front end will be significantly less than the average over the life of the deal.

If News Corp. hits its financial projections, which are based on a guaranteed rights fee, an equity share agreement with the league, the full 25-year life of the deal and hitting all sales thresholds, it would translate into an average of $112 million annually paid to the conference and $10.18 million to each school.

This year, the network is paying the conference $66 million, which equates to $6 million for each school. The rights fee escalates over the course of the deal.

National TV rights for Division I-A conferences
(2005-06 TV revenue, millions)
Network(s) and terms
ACC ($69.05) ABC/ESPN (7 years, $258 million for football); Lincoln Financial/Raycom Sports ($300 million, 10 years for basketball)
Big 12 ($50.0) ABC/ESPN (8 years, $480 million); FSN* (4 years, $78 million)
Big East ($19.2**) ABC/ESPN (6 years, $200 million)
Big Ten (NA) ESPN (10 years, $1.0 billion);
CBS (10 years, $20 million for basketball); Big Ten Network (25 years, $2.8 billion)
Pac-10 ($43.0) ABC/ESPN (5 years, $125 million for football); FSN* (5 years, $97 million for football); ABC/ESPN (6 years, $52.5 million for basketball)
SEC ($57.0) CBS (NA) and ESPN (NA)
* FSN’s football contracts include a multiyear sublicense agreement with other cable networks.
The conferences receive no direct revenue from the sublicensing deals.
** Includes revenue from terrestrial radio rights deals. Does not include revenue from a six-year, $200 million deal that began in August 2007, giving ESPN rights to broadcast basketball and football games across all of its platforms.
Sources: Conference Form 990s filed with the IRS

The contract between the Big Ten and News Corp.’s Fox, which runs through fiscal 2032, including the option, consists of two components: a guaranteed annual rights fee and an equity share distribution. The rights fee begins at $50 million a year and increases each year.

The equity distribution is based on ownership of the network — the Big Ten owns 51 percent and Fox owns 49 percent. Annual profits are distributed based on ownership percentage, so if the network nets $20 million, for example, $10.2 million would go to the conference and $9.8 million would go to Fox.

Big Ten schools also receive TV revenue from the league’s deals with ESPN and CBS. ESPN will pay an average of $100 million per year over 10 years, starting at $83 million in the first year and escalating over the life of the contract.

CBS’s 10-year deal is worth $2 million annually. Each Big Ten school will reap an average of $9.27 million from those two deals, but again, those revenue numbers will be significantly less on the front end of the contract when the guarantees are smaller.

By comparison, CSTV and Comcast are paying the Mountain West Conference $70 million over seven years for the rights to The mtn., that conference’s channel. That fee translates to $1.1 million a year for each school.

Media executives are certain that the Big Ten could have reaped the same financial windfall from selling all of its rights on the open market. But the conference would not have had the same control or the same platform to highlight less popular sports and programs. And it wouldn’t have a stake in a media asset that is certain to become more valuable over time.

Still, sources say ESPN is offering to pay the Southeastern Conference some kind of premium for its rights, trying to pre-empt a possible effort by the conference to launch its own network when its TV rights open at the end of the 2008-09 academic year.

The SEC has already entered exclusive negotiations with CBS and ESPN, the two incumbents, for future rights. If ESPN did offer a premium for the SEC not to create its own channel, it could come in the form of a higher fee, more televised football and basketball games, more televised Olympic sports or some other concession.

A year ago, ESPN agreed to pay the Big East $200 million for the rights to basketball and football games over six years. It is paying the Big 12 Conference $480 million for football and basketball rights for eight years.

The SEC is months away from making such a decision.

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