Big 12 Auctions Off League Membership For Big Money

We all should have seen the most naked money grab in the history of college athletics coming. 

The Big 12 has ten members and each of them makes around $25 million a year in TV money from ESPN and Fox. The league recently voted to add a title game, which will add a couple of million dollars to each school's coffers. And expectations were the league would stop there since adding additional members to the league, either two, four or more, doesn't add substantial money for the ten existing members.

That was certainly my expectation because so far the general rule of conference expansion has always been this -- no conference expands unless it means more money for everyone. That's been the story in the SEC, the Big Ten, the Pac 12, and the ACC so far. Every round of expansion has led to more money for everyone, the new schools and the old schools. 

That changed yesterday when the Big 12 voted to expand.

My first thought was this was an idiotic move because it would lead to less money for the existing ten schools. That's because while the ESPN and Fox TV deals allow each new member to receive an equal share of TV revenue, the Big 12 title game would now be split more ways. So everyone would have less money to share. 

But that's when the greedy brilliance of the Big 12's move hit me. 

They're not going to give the new members a full share of the TV revenue. 

Instead, and it's downright diabolical, the Big 12 can allow all of the schools that want to get into the Big 5 conference club to line up and tell them how little money they need to receive in order to join the Big 12. That is, if a school is, for instance, only willing to take $5 million a year for the next ten years, it could allow $200 million it would be entitled to receive to return to the existing ten Big 12 conference schools to split among themselves.

Yep, you're about to witness the most greedy move in the history of college athletics. 

See, the Big 12 can't do a television network unless Texas gives up the Longhorn Network -- fat chance -- but what they can do is take money from the new schools they add. If four new schools all agreed to take $5 million a year in TV money, that's more than they earn now in smaller conferences, in theory the ten existing Big 12 schools could redistribute $800 million to each other over the next decade, or $8 million additional dollars per school. That's about what the ACC Network schools stand to make off their own network. 

It's a reverse auction, with each school bidding against all the other schools; it's conference expansion limbo, how low will you go? How small of a sum of money are you willing to accept to enter the velvet ropes of the Big 12 club?

BYU, Cincinnati, Memphis, South Florida, Houston, Central Florida, UConn, Colorado State and all the other schools flashing leg at the Big 12 are all so desperate to join a big five conference that they'll take substantially less than $25 million a year to get into the big five conferences. 

The result is yet another sign of the television rights bubble nearing explosion. 

How else to explain how four schools -- let's say Cincinnati, Memphis, BYU, and Central Florida, my prediction for whom the Big 12 eventually takes -- whose television rights would sell for around $5 million a year combined on the open market, will be worth $100 million a year to the Big 12. 

I mean, think about this for a minute, we're talking about ESPN and Fox paying $950 million more than the market would dictate because the Big 12 is auctioning off membership spots. It's downright unbelievable.  A couple of weeks ago I told you why the NBA's latest contracts provided great evidence of the current sports rights bubble exploding, but the latest move by the Big 12 is even more mind blowing.

The Big 12 just doused the sports rights bubble in gasoline and lit it on fire as it floats across the sky.

And here's the crazy thing, what's to stop the Big 12 from expanding and adding ten new schools? Then they could double their existing TV contract overnight. That would mean the Big 12 would make more money than any conference in America. It wouldn't be supported by any tangible economic reality, but it's possible.

Hell, the Big 12 could even set up an entirely new division with ten new teams in it and play round robin there -- with none of their existing Big 12 schools playing each other in the regular season -- and not even play the ten new teams until the title game.

That's $250 million more into the Big 12 pockets.

See, the TV networks agreed to the additional money for additional conference teams because they assumed that no conference would decide to add teams that weakened the overall brand. And they were right in every other instance of conference expansion. The SEC, ACC, Big Ten, and Pac 12's brands all got stronger with every round of expansion. (Yes, even when the Big Ten added Maryland and Rutgers). The TV partners never thought a situation like this would arise. 

But once you've made the decision to dilute your brand, why stop at two or four additions? Why not go ahead and let everyone into the Big 12 club? Sure, it will all come crashing down in ten years when the new rights deal has to be negotiated, but so what? In the meantime you can make it rain in the college club.

See, the SEC, the Big Ten, the Pac 12, and now the ACC can't expand willy nilly because they are all doing networks. And in order for a network to make financial sense you have to ensure that every school you add brings additional value that's supported by the existing market. That is, the SEC can't add Clemson, for instance, and make more money for everyone else. If the SEC added Clemson, everyone would make less money. The same is true of the Big Ten adding, for instance, Iowa State. You can't add teams in existing states or markets if you have a conference network, it makes zero financial sense.  

But the Big 12?

The Big 12 is pocketing the money that comes with each new addition without regard for the existing market conditions. So what if the new schools you add devalue the overall Big 12 brand, it's about the money you make right now. And, crazily, all these schools are so desperate to join the Big Five club that they'll take less than their fair share now and, potentially, forever. 

The ten existing Big 12 schools can't keep up with the SEC, Big Ten, ACC, or Pac 12 by making everyone equal so they'll do the opposite -- create extreme inequality. 

So Big 12 candidates, start your bidding! And every time someone else bids for conference membership, you better go lower. How low can it go for the Big 12? Who knows? With every school outside of the Big Five this deseperate to get inside the club, there really is no limit to how little some of these schools might be willing to take. 

Sure, it's patently unfair and that degree of conference inequality is guaranteed to eventually blow up -- it's the equivalent of a couple deciding to have a new kid instead of getting divorced -- but for the next decade the money is great.

The problem is it sets up perpetual second class citizenship and it isn't supported by existing market economics. If you sell something for a billion dollars and it's actually worth $50 million, eventually the market extracts its price. The TV deal reckoning is coming. But that's in the future, and the Big 12 isn't worried about the future, they're taking out a fifth mortgage on their home. It's free money! 

In the meantime though, while the rest of the fat cats in the Big 12 are living in fancy cruise ship staterooms with opulent balconies making it rain, the new schools are in steerage.

Sure it's all floating above water for now.  

The problem is, everyone on the Big 12 is still on the Titanic.

And an iceberg's on the horizon.