SEC Network Poised For Blockbuster Launch

PublishedJuly 9, 2014 5:50 PM EDT|UpdatedJuly 9, 2014 5:50 PM EDT

Several years ago the SEC made the decision not to launch its own network because league officials were concerned that a protracted hold-out from cable and satellite companies would anger SEC fans. That's why the league decided to partner with ESPN and not follow the Big Ten's lead and create its own network. All of that changed when Texas A&M decided to jump on board with the SEC. Missouri soon followed. By adding just two teams the SEC added 50% more cable and satellite subscribers to its regional footprint, making it clear that the league's new television strategy would include a network.

The battle was launched and a series of major questions loomed: would the SEC Network be able to achieve substantial distribution before the games began in the fall? After avoiding the launch of a network a few years before due to the angst it might provoke, how would SEC fans respond to having their games threatened, how would the cable and satellite companies respond? In essence, just how brutal would the conflict between the cable and satellite companies, the SEC, and ESPN all be? It turns out, not that brutal at all. Today the SEC announced that Cox Communications agreed to carry the SEC Network at launch. Combining Cox with AT&T Uverse, Dish Network, and Google Fiber puts the SEC Network in right at 27 million homes. With Comcast putting the final touches on its deal with the SEC Network, that puts the SEC in roughly 50 million homes, or about half of the total cable and satellite homes in the country.

Now with just over a month to go before the SEC Network officially launches, it's clear that there's no doubt -- the SEC Network's launch is a success. That's without DirecTV, Time Warner, Charter, or other smaller providers signed up yet. (DirecTV has 22 million subscribers, Time Warner has 11.7 million, and Charter has around 5 million. Given that DirecTV is set to be acquired by AT&T and that Time Warner is set to be acquired by Comcast, it seems likely both will eventually come around and add the SEC Network as well. Although it might take until after the acquisitions are complete.). Even without all these companies signed up, the SEC Network is poised to become a five-star recruit to the conference's competitive assets.

So what does the math look like now? We can get a pretty good idea. The SEC Network was seeking $1.30 a month per subscriber in the 11 state SEC footprint which has right at 28 million cable and satellite subscribers. Let's give the SEC Network half of those markets, or 14 million subscribers so far, and let's say that ESPN only netted $1.10 per subscriber there, nearly twenty cents less than it was asking. That's $184.8 million a year in subscriber fees in the SEC footprint. Let's assume that the other 36 million subscribers nationwide will be paying .25 a month, or $3 a year. (You pay a much higher cost for the SEC Network in the 11 state SEC footprint because the demand is higher there). That's $108 million in additional revenue. So subscriber fees right now are looking at just shy of $300 million, or $292.8 million total. Toss in a quarter more revenue for advertising sales -- that's $73.2 million. This means that right now at launch we're talking about the SEC Network doing $366 million in revenue.

Let's say that half of that amount goes to ESPN and for the costs of the network launch and general business expenses. (We don't know how the revenue share agreement is set up between the SEC and ESPN, but amazingly, the conference TV revenue is not taxed. So yeah, that's a massive benefit to the bottom line). That leaves the SEC with $183 million to distribute to member institutions, which works out to $13 million per school just for SEC Network rights. That's on top of the $20 million that the SEC is already distributing for its television deals with ESPN and CBS. (These dollar figures will continue to increase as well, just not as rapidly as the SEC Network revenue.)

At the SEC Network launch event last year ESPN and the conference set a goal of being in 75 million homes, roughly the same distribution reach as ESPNU. (ESPN is in about one hundred million homes). Add those 25 million additional homes, which it seems likely that the SEC will reach in the relatively near future, and we're talking about $19.5 million in average SEC Network revenue per SEC school. In essence, the SEC is going to double its television payout to schools by starting the SEC Network, turning what had been a yearly distribution of $20 million a year for television rights, into a nearly $40 million a year windfall.

And that's all before the rates begin to rise. (Many popular regional sports networks cost $3 or $4 a year. The SEC Network's ratings will dwarf stations that cost three or four times what it does).

In launching the SEC Network, the league took a healthy risk that has already paid off handsomely. It's not quite a home run yet, but the SEC Network's launch is already a standing double off the wall, with the potential to turn into a triple or a home run over the next month. Most still haven't realized the full potential of the SEC Network. Next week at SEC Media Days -- here's an early bet that Comcast is announced then -- the rest of the nation is going to begin to realize what a big deal this is. The SEC just broke into the open field with the SEC Network, and I'm not sure any other conference is going to ever catch up.