ESPN and Fox Angry With Big 12 Expansion
This morning ESPN and Fox staged an extraordinary intervention in Big 12 expansion, going public with their displeasure over the potential addition of teams in the conference. It was a calculated Monday morning public attack on the Big 12's plans to expand, the likes of which we have never before seen.
According to the blockbuster Sports Business Journal article:
"Absent a conference channel, the only other way for the Big 12 to significantly grow revenue in the near term is to add schools and activate that pro rata clause in its media contracts.
That kind of cash grab, sources say, is rubbing ESPN and Fox the wrong way because any new schools would not carry the profile of most power five schools, which is what the networks are paying for.
Network executives spoke on the condition of anonymity because they are in the midst of negotiating with the conference."
And further:
"Network officials, however, are not happy with any plan that depends on steep rights-fee increases, even if such increases are spelled out in the media contracts.
There's also some history here. Executives at ESPN and Fox remember 2010 when they helped hold the conference together against the Pac-12's raid by keeping rights fees at the 12-team level, even though the Big 12 was reduced to 10 teams...
In this latest round of expansion, network executives say the Big 12 is putting the conference's financial gain ahead of its quality. ESPN and Fox concede that the conference's expansion plans would increase game inventory, but the quality of teams coming from outside of the power five would not enhance the Big 12 to warrant the aggressive rights-fee increases."
Don't underestimate what happened here, ESPN and Fox both chose the Sports Business Journal, a widely respected high end publication for industry sources, to fire a shot across the Big 12's bow on Monday morning, a time perfectly designed to attract wide media attention. This wasn't just private disagreement, this was a public threat of war designed to send a clear message to the Big 12: expand at your own risk.
Outkick had already told you the Big 12's decision to expand was a naked cash grab designed to extort potential new members and take advantage of an existing clause in the TV contracts that guaranteed equal payment in the event of expansion. This represented a new, more desperate, move in college realignment. Whereas the SEC, Big Ten, ACC and Pac 12 all expanded to further conference network ambitions and strengthen the overall conference -- that is, every team, new members and old members alike, would make more money through expansion -- the Big 12's expansion rationale is simple -- sell Big 12 membership to desperate schools and have the ten existing schools pocket the added TV money owed under the contract.
That's a desperate strategy because a newly formatted Big 12 with 12, 14 or even more members isn't worth any more money to the TV partners. Fox and ESPN's ratings won't increase, there's no TV network lurking here to unlock new value, this is just an attempt to pocket more money between now and 2024-25, when the Big 12's existing TV contract ends.
This is an extraordinary dispute because up until now we've never had a public fight between TV networks and a conference. Sure, there have been private disagreements -- the SEC remains furious with CBS over the network's refusal to increase its payments over the addition of Missouri and Texas A&M, an embittered posture that likely means the SEC won't reup with CBS when its contract expires with the company -- but those disagreements never went public before a new deal was reached.
Here, Fox and ESPN, the two most powerful networks in college sports, are expressing their joint dismay, in public, with the Big 12's plans for expansion.
This just never happens.
Why are Fox and ESPN so upset?
Because let's say the Big 12 adds four teams: Houston, Cincinnati, Memphis and BYU. Each of these teams is worth either $20 million more a year right now and up to $25 million more a year at the end of the contract. Let's round that up and say if all four of these schools come that eventually ends up costing Fox and ESPN an extra $100 million more a year.
What would these four schools, Houston, Cincinnati, Memphis, and BYU -- sell their TV rights for on the open market right now if they were a standalone conference? Maybe $5 million total? At the absolute peak, they'd be worth $10 million a year, and that's honestly way too much given present market conditions. (Ask Conference USA if you doubt me.) So this means the Big 12 is forcing Fox and ESPN to pay $90 million more a year than than these four schools would sell for on the open market. (That's why I said the Big 12 wasn't just exploiting the TV sports rights fee bubble, they were lighting it on fire.)
Over the life of the Big 12's television deal that's up to $800 million in total additional payments that Fox and ESPN would owe the Big 12. And, remarkably, that's $700 million over the market rate those four schools would command, all based on an expansion clause in the Big 12's contract.
Given the current strain that networks are under, that's an untenable rights fee increase.
So what happens now that this disagreement has gone public?
Here are five potential outcomes:
1. Fox and ESPN let the Big 12 know that they won't bid in 2024-25 for the conference's TV rights if the conference expands.
Sure, that's several years away and both Fox and ESPN could be bluffing, but look at what happened to Conference USA's TV rights this past year. Conference USA went from a deal paying it $15.4 million a season to one paying it just $2.8 million. That's because the sports right bubble has popped when it comes to new deals.
Maybe by 2024-25 the bubble will have reinflated, at least somewhat, and NBC or CBS would step in and pony up for the Big 12 rights. But are either of those networks willing to pay for a 12 or 14 team Big 12 that would need to make either $300 or $350 million a year just for the money to stay even?
That's pretty steep.
Especially since the Big 12 would be seeking in the neighborhood of $500 million a year.
Now, the Big 12 can gamble that by 2023 -- when negotiations would take place -- Netflix, Apple, Facebook, or Amazon might be in the sports rights business, but so far none of these companies has shown the slightest interest in competing for sports rights. The Big 12 can also gamble that it can go over-the-top direct to consumers by the time this deal is up, but no one has done it successfully yet. Certainly not in a way that would replicate what TV networks pay now.
And if the big tech companies don't get involved and over the top is risky, that might mean there's not much TV money out there to be had if ESPN and Fox sit out of the market.
You know what that means, right?
Texas, Oklahoma, Kansas and whomever else can go somewhere else, will go somewhere else.
That would leave Baylor, Iowa State, TCU, West Virginia and the added members of the Big 12 conference negotiating a tiny TV deal that's more in line with what the AAC and Conference USA receive.
The Big 12 might die as a conference.
Put simply, the Big 12 has a lot more to lose here than Fox or ESPN does.
If Fox and ESPN both say they won't bid -- and stick to it -- it probably means the death of the Big 12 conference.
So if you expand now, enjoy the money, because you risk the conference ceasing to exist in eight years.
2. Fox and ESPN enter into a new, long term rights deal that extends the existing Big 12 TV contract for another decade or so, locking in reduced expansion payouts for new members now, but eventually raising the money in the extended years of the deal.
This probably makes the most sense to both sides.
But here's the big question: will Texas and Oklahoma and Kansas commit themselves to an additional decade in the Big 12? Or do those schools want to wait a few more years and let their expansion value increase?
Essentially, can the Big 12 even get its membership to agree to a TV network extension right now?
By 2020 the Pac 12, Big Ten, and, probably, the ACC will want Texas even more than they want Texas now. Do you think the Big Ten might like to go back to the TV market with Texas, Oklahoma and Kansas added to its league? How about the Pac 12, finally expanding to add Texas and Oklahoma? Hell, might the SEC even be interested? Certainly the ACC would.
If I'm a top team in the Big 12, might I be interested in checking out the market instead of committing to the Big 12 until 2034?
My point here is pretty simple -- Texas, Oklahoma and Kansas become more valuable as conference free agency beckons.
Are these schools all willing to reup with the Big 12 for another decade? It's possible the Big 12 can't even guarantee Fox and ESPN the entire league going forward for a TV extension.
3. The Big 12 reverses course and decides not to expand.
This would make the conference look pathetic, weak, and poorly managed but, you know, that's pretty accurate.
Fox and ESPN could help paper over this embarrassment by, potentially, agreeing to a five year extension of the existing deal with the ten team conference.
This would allow the Big 12 to trumpet the strength of its existing conference and try and play this as a decision that makes it the strongest 10 team conference in the land.
But, again, do Texas, Oklahoma, and Kansas even want a five year extension of the existing Big 12 contracts?
4. The Big 12 agrees to expand and only take two teams, setting up two divisions of six teams each.
Fox and ESPN agree to pay a reduced amount for each of these two new teams, building to a full share by the time the TV contract ends.
This compromise would preserve the existing TV deal, but limit the amount of money that Fox and ESPN are forced to pay out.
The problem is it still leaves a 12 team Big 12 hitting the open market where there might not be much TV money to be found.
A 12 team Big 12 in 2024-25 is probably not going to be worth much more, if at all, than a 10 team Big 12. That means less money for everyone.
5. The Big 12 expands and has to sue Fox and ESPN to receive more money.
This would be extraordinary to see happen.
We don't know exactly what the existing TV contract says, but contract disputes aren't as easy to resolve as many fans believe. How clear is the language in the expansion clause? Must it be read in conjunction with conflicting language elsewhere? How long would this issue take to resolve? How would new expansion teams be paid while the dispute lingers?
Buckle your seat belts, kids, because with this morning's news, Big 12 expansion got even more wild.