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Volume 21 No. 1
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Network for SEC back in play

Conference re-examines ESPN contract after realignment, new deals

Three years ago, ESPN agreed to pay the Southeastern Conference what was thought to be a premium rights fee, in part, to prevent the league from starting its own network.

Now, with the conference adding new schools, the concept of a conference channel is back on the table. Several industry sources say the SEC and ESPN are expected to explore such a channel over the next year or two as they modify their media rights deal to account for the addition of Texas A&M and, potentially, Missouri.

The SEC’s deal with ESPN came in 2008, before schools began to switch conferences — and before the Pac-12’s $250M-a-year deal came about.
Conference expansion enables either side, the conference or the network, to negotiate changes to their media contract.
Neither the SEC nor ESPN would comment. But sources said the launch of any channel still is years away because the SEC has deals in place to distribute games to Fox Sports Net, Comcast SportsNet and over-the-air channels via the syndicated package. The conference needs those games to start a channel.

The SEC’s newfound interest in its own network marks a stunning turnaround from the summer of 2008, when the SEC and ESPN agreed to $2.25 billion over 15 years, or $150 million a year. Back then, the future of the Big Ten Network, which launched in 2007, wasn’t as bright, as it struggled for distribution. Plus, no one anticipated the Pac-12’s blockbuster $250 million-a-year deal.

The SEC looked into starting its own network, as well. But its ESPN agreement, combined with an earlier CBS deal, both signed in 2008, had the conference poised to collect an average of $205 million a year over the 15 years.

The numbers were mind-boggling at the time, high enough for the SEC to put its channel plans on the shelf. In fact, its agreement with ESPN included a vow by the conference not to start its own network.

But industry insiders say that conference expansion will put those issues, as well as an increased rights fee, back on the table for negotiation.

Since the SEC signed its deals with ESPN and CBS, its total revenue has been trumped by the Pac-12’s deal with ESPN and Fox. Sources say the SEC also has a growing realization that the Big Ten will have an increasing revenue advantage in coming years as the Big Ten Network matures.

All of those factors threaten the SEC’s position as a revenue leader among the conferences and have led to renewed discussions about a channel.

Big Ten schools will receive close to $21 million each in revenue from the conference, based on what schools in the league have budgeted this year. That revenue comes from all of the Big Ten’s deals with CBS, ESPN and the conference network, as well as other revenue from bowls and the NCAA.

The SEC distributed $18.3 million in revenue to each school this past year, not including revenue from third-tier rights. That third-tier revenue varies from school to school, but it can be anywhere from $1 million to $4 million. That puts the SEC roughly around the same per-school number as the Big Ten now.

But as the Big Ten Network matures, that gap is expected to widen, and by the end of the SEC’s current 15-year contracts with ESPN and CBS, it could face a significant deficit in revenue against the Big Ten and potentially the Pac-12. Subscription fees for the Big Ten Network, which is now fully distributed in the conference footprint, could grow by 4 to 5 percent a year, according to industry standards.

Even if it’s not on the immediate horizon, an SEC-branded network would become a programming powerhouse for a conference that fills stadiums for spring football scrimmages. College insiders believe that such a channel would put the SEC on better footing to increase revenue in coming years.

The conference, however, has obstacles that must be cleared, which is why the launch of a network could take years to iron out. If it wants to launch a channel, the SEC would need to regain all of the game inventory not taken by CBS or ESPN. Sources believe it would take about three years to reclaim those games from FSN, Comcast and syndication.
The SEC’s schools also would have to turn their third-tier TV rights over to the conference. Those third-tier rights include any games — in any sport — that are not picked up by one of the network partners. Schools monetize those games by televising them on pay-per-view or streaming them on their athletic website.

Currently those rights are held by companies such as IMG College and Learfield, but that wouldn’t prohibit the conference from starting a network. For example, the Pac-12, which is in the process of starting its own channel, has to pay multimedia rights holders for those third-tier rights, and those negotiations have been ongoing since the summer.

Conference- and university-branded channels have taken many different shapes. The Big Ten went into partnership with Fox Sports to launch Big Ten Network in 2007. Fox owns 51 percent and the Big Ten Conference owns 49 percent, with Fox operating the channel.

The Pac-12’s channel will be wholly owned and operated by the conference. Pac-12 Enterprises has been created to oversee the channel, its distribution, ad sales, sponsorship sales and digital.

Meanwhile, ESPN teamed with the University of Texas to create the Longhorn Network. ESPN fully owns the channel and pays the school a rights fee of $300 million over 20 years.