SBJ/April 25-May 1, 2016 /Media

In potential Fox-Big Ten rights deal, the big story may be ESPN

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It is notable that Fox Sports and the Big Ten Conference are close to a media rights deal covering half of the available package because it is the only major sports rights property on the market for the next several years. News of the pending deal last week sparked a number of questions from media and college executives who were surprised by the timing and wanted to learn more details about it.

Given Fox’s existing business relationship with the network — it owns 51 percent of Big Ten Network — the news that Fox would pick up some of the conference’s rights is not so surprising. It was the other aspects of the deal that became the industry’s hottest topic last week.

Big Ten Commissioner Jim Delany, doing an interview on ESPN in November, has sought $500M a year for the new media rights deal.
Photo by: GETTY IMAGES
These were the questions we heard most often, followed by our take.

What happened to ESPN?

ESPN’s lowball bid is the most shocking part of these negotiations and could be the first sign that the network’s cost-cutting measures are starting to affect its rights deals. This isn’t like NASCAR or the Olympics — two properties that ESPN didn’t seek — which kept it from being aggressive in the bidding process. ESPN likes Big Ten programming for its reach and demographics, and its executives have not been shy about saying that they want to keep it. Though it hasn’t happened a lot, ESPN has been outbid before, like on the NCAA tournament, which went to CBS and Turner, and World Cup, which went to Fox.

But we can’t think of another time that ESPN did not place a competitive bid for a property it really wanted. Sources said ESPN’s offer was well below Fox’s. This is the network that has set the parameters for sports rights negotiations since the late 1990s, and it should send shock waves to sports leagues that ESPN is more cost-conscious with its rights fees. The question is how long this belt-tightening will last given that most major sports rights aren’t up for several years. Word is that ESPN already has set up meetings to bid on what remains of the Big Ten’s rights. But if ESPN’s bid wasn’t competitive for the first package, we’re skeptical that it will be competitive on the second one.

Who’s around to bid on the second package?

ESPN’s noncompetitive bid was an attempt by the network to “skim the cream” from the top of the package and try to create a smaller package with the best games, one source said. ESPN will continue to negotiate with the conference for the second package. The big question is: What other networks are serious about doing a deal?

NBC Sports Group has been at the Big Ten table, and it has open broadcast windows that the Big Ten likes. But a Big Ten deal does not fit with NBC’s programming strategy. With the Olympics, NHL, EPL, Notre Dame and second half of the NASCAR season, NBC diligently has followed a strategy of cutting programming deals where it can carry a sport exclusively. Even “Sunday Night Football” fills an exclusive window for NBC. With the Big Ten, however, it would be sharing rights with Fox and the Big Ten Network, and its windows almost certainly would compete with other college sports programming.

CBS and Turner make an intriguing combination. The two have partnered on the NCAA tournament, and could team up again on the Big Ten. CBS would like to keep its basketball schedule and could add a Saturday Big Ten football game on either side of its weekly SEC game to create a compelling doubleheader. Turner could use a Thursday night Big Ten game early in the fall to lead into its “NBA on TNT” Thursday night games. Turner also could use Big Ten basketball games as a lead-up to its NCAA tournament coverage.

Then there’s Fox, which also will be interested in testing the waters on the second package, but only at the right price.

Why did the Big Ten do such a short deal?

When conference media deals expire:

Conference Year
Big Ten 2022-23
Pac-12 2023-24
Big 12 2024-25
ACC 2026-27
SEC 2033-34

Media negotiations typically come down to timing and leverage, and the Big Ten’s six-year deal with Fox is no different. The length of the deal means that the Big Ten will see a sizable increase now, while leaving it in position to take another bite from the apple when this deal expires in 2022-23. The Big Ten, by bucking the trend of doing long-term deals that go out anywhere from 12 to 20 years, will be able to go back to the table before any of its conference brethren. In the most recent cycle of contract renewals, the Big Ten went last, which originally was thought to be an advantage. The other leagues theoretically would complete their deals, and the Big Ten would come in and obliterate them all. Sources tell us that the first half of the Big Ten package will fetch around $250 million annually from Fox. The second half of the negotiations will determine if this theory was right or wrong.

Isn’t the sports rights bubble supposed to be bursting?

The sports rights market certainly is not as frothy as it was a couple of years ago when ESPN and Turner committed $24 billion over nine years for the NBA’s rights. But the Big Ten already has more than doubled the average annual payout it was getting, even if it is completely unable to sell that second package. ESPN is at the end of its 10-year, $1 billion deal, and CBS is at the end of its six-year, $72 million basketball-only deal. Fox could pay as much as $250 million a year, sources said. It’s impossible to know exactly how much Fox will pay for its half of the package because the conference could wind up switching some rights around. For example, it could try to entice bidders by putting its football championship game in the second package — a move that would lower Fox’s payout. If there’s a sports rights bubble that’s going to burst, it’s not going to happen until the 2020s when many of the big sports rights deals expire.

How much will the schools get?

Recent reports indicate that Big Ten schools are projecting $44.5 million in annual revenue by the first year of the new TV contract (2017-18) for 12 of its 14 schools. Maryland and Rutgers aren’t fully vested until they’ve been in the conference six years. The majority of that revenue will come from the league’s media contracts. The Big Ten Network pays $8 million per school annually. If the new deal eventually reaches $500 million per year, as Commissioner Jim Delany has sought, that would average $35.7 million per school once all of the schools are able to take a full share. Combined with the BTN revenue, the Big Ten’s annual revenue would reach a whopping $44 million per school.

Should ESPN’s commitment to college sports be questioned?

No. ESPN still is the most important network to college sports given the network’s ownership of ESPNU and SEC Network. ESPN carries the College Football Playoff and 95 percent of bowl games. It owns college bowl games, kickoff classic games and preseason basketball tournaments, not to mention its longtime deals with just about every conference out there. But … this deal solidifies Fox’s position in the college sports world and certainly narrows the gap between the two. In addition to its 51 percent stake in BTN, Fox has deals with the Big 12 and Pac-12 conferences, and its college multimedia rights business has taken off.

Will coaches freak out if their games aren’t on ESPN?

Yes, and so will administrators throughout the conference. Years ago, when the ACC flirted with leaving ESPN for Fox, some of the conference’s powerful basketball coaches were not shy about voicing their displeasure, believing that the lack of ESPN coverage would hurt their recruiting efforts. It’s too early to know how Big Ten coaches and athletic directors will react. But consider this: When school administrators asked at the recent league meetings if it’s possible for ESPN to get shut out, they were told, “Anything is possible.” One senior official at a Big Ten school said his peers “were scared to death” at the prospect of not having games on ESPN, which could eat into their recruiting.

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