SBJ/20080901/Media

Checking the scoreboard after SEC’s big new TV deals

There are many interesting subplots to the SEC’s recently announced TV deals and the expected $3 billion-plus windfall from those agreements. I’ve decided to focus on four.

ESPN’s $150 million annual payout is not as crazy as it sounds.

There’s usually a stunned silence when most people hear how much ESPN is paying the SEC for its media rights. The numbers sound insane, particularly to traditional broadcasters. CBS, Fox and NBC could never make this deal.

But the numbers actually make sense for ESPN. That’s because, unlike the broadcasters, ESPN doesn’t solely depend on ad sales to make money. With its multiple revenue streams — from cable operator license fees and ad sales — I expect ESPN to profit from the deal almost immediately.

Let’s say the addition of exclusive SEC content helps convince Comcast to launch ESPNU in up to 8 million homes, which is expected to happen. Then let’s say the network cobbles together another 17 million homes from cable operators nationwide — another achievable goal.

At a cost of about 15 cents per subscriber per month (a bargain, compared to the Big Ten Network’s 70 cents), the added 25 million homes would add $45 million a year in revenue to ESPN’s bottom line.

Then there’s over-the-air syndication, which sources believe could bring ESPN another $15 million to $20 million a year. Add to that another $5 million or so for the regional cable deals, which ESPN now controls.

Without factoring in broadband or mobile growth, not to mention ad sales, ESPN could clear close to $70 million a year as a direct result of the deal.

This deal follows the traditional model of charging lower license fees early and higher license fees late to come to the $150 million average over the deal’s 15 years. Using my back-of-the-envelope math, it means that a good ad sales effort in year one should result in an immediate profit.

The ACC, Pac-10 and Big 12 should temper their enthusiasm.

SEC officials have to feel like they’ve won the lottery after essentially tripling the conference’s TV revenue to the tune of $205 million a year.

With SEC and Big Ten colleges each collecting $15 million a year from their newest TV deals, you’d think that the Atlantic Coast, Pac-10 and Big 12 conferences are in a great position to cash in on their rights. They are the next three major conferences due to rework their media deals, with the ACC’s deal next up in 2011.

The SEC’s ESPN deal, combined with the Big
Ten’s, won’t leave much room for other leagues.

But I don’t think any of these conferences is going to come close to matching the money or the scope of the SEC’s deals — at least, not with ESPN. The reason comes down to simple economics and shelf-space.

ESPN is paying $150 million to the SEC to help drive distribution for ESPNU and its broadband and mobile platforms. Can the ACC, Pac-10 and Big 12 drive as much distribution as the SEC? I don’t think so. By 2011, ESPNU already should be well distributed.

That’s not to say these conferences won’t get increases from their media rights. They will. It just won’t be as dramatic a jump as the SEC experienced with its new deals.

There’s also the issue of shelf-space. ESPN is under contract to show up to 25 Big Ten football games each season and a minimum of 20 SEC games on ESPN and ESPN2. That’s 45 or more games during a 13-week college football season, or more than three games per week. That doesn’t leave a lot of prime positions for others.

Remember: One of the main reasons the Mountain West Conference decided to launch its own network, The mtn., is because they were tired of having their teams play Thursday night games on ESPN.

If I were advising the ACC, Pac-10 and Big 12, I’d try to convince them to get their respective deals done early. The second or third conference to finalize a deal will find money and time slots even more limited.

This, of course, could offer an opening for another network, like Fox Sports Net or Versus.

The entire Southeastern Conference should be sending Big Ten Commissioner Jim Delany a Christmas card this year.

Delany should be considered the hero of the SEC. I’m serious. It was Delany’s media strategy of creating a conference channel that set up the environment where the SEC could triple the amount of TV revenue it’s getting from CBS and ESPN.

Delany made his channel decision at a different time. ESPN’s offer to the Big Ten in 2006 was not nearly as big. In fact, ESPN originally wanted to pay the conference less money. Once the boys in Bristol saw Delany successfully launch a channel, though, ESPN wanted to keep the SEC from doing the same — and that meant increasing its payout to $150 million per year.

Having Comcast, Time Warner, Charter and Mediacom agree to take the Big Ten Network over the past couple of weeks must have been incredibly satisfying for Delany, but watching the SEC profit from the Big Ten Network, without having to deal with any of the distribution problems, must have been somewhat bittersweet.

Who lost?

Raycom Sports, which lost nearly half its business, and CBS College Sports, which still doesn’t have any live football or basketball deals for BCS conferences, clearly are the two biggest losers from this deal. But they both will be OK.

Raycom (formerly Lincoln Financial and Jefferson Pilot) was dealt a crushing blow by its partner for the past 24 years, but it’s not a fatal one. Sources say Raycom is a front-runner to keep its ACC business, since ESPN will have too many market overlaps from syndicating Big East and SEC content.

I expect CBS College Sports to continue gaining distribution on cable and satellite systems. I have to believe that CBS’s Leslie Moonves will drive CBS College’s distribution during CBS’s upcoming retransmission negotiations with cable operators.

John Ourand can be reached at jourand@sportsbusinessjournal.com.

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