As the debate rages on the potential for college football to have an eight team playoff, most of the discussion has focused on which teams should be included, where those games should be played, and what the time frame for those games might look like.
All of those conversations are worthy of having — in fact, I love them as much as you do — but the most important question hasn’t been discussed much, if at all.
Does expanding the college football playoff to eight games make financial sense. In particular, what’s an eight team playoff worth, who would pay for it, and how much demand would there be in the market for it?
First, as a preliminary, ESPN bought 12 years of college football playoff rights for $7.3 billion in 2012, that’s an average of $608 million per year, or roughly $200 million per college football playoff game. (ESPN also receives the weekly college football playoff selection specials and assorted other shoulder programming related to the college football playoff, but, really, this is about the playoff games themselves.)
We are approaching the halfway point of that initial deal — this is year five — and Outkick has previously written that the advertising deals were signed for six years.
Meaning, you guessed it, after next season would be an opportune time to potentially expand the playoff. Or at least discuss expanding the playoff.
While the political wrangling over the playoff expansion — for instance which eight teams should get in and how would you select them? — would be fun, the most interesting part of the playoff, to me, would be the financial side of the equation.
And the first question you’d have to ask and answer is this: what’s an eight team playoff worth? Namely would expanding the playoff make financial sense.
So let’s start there with the biggest and most important question.
1. What’s an eight team college football playoff worth?
First, there isn’t anyone presently engaged to sell the playoff because this was a 12 year deal. So the first thing the college football playoff crew would have to decide, before anything else, is who would sell this eight team playoff? Right now there is no one.
That’s important because you need talented executives to project out the value of an eight team playoff before you can decide whether it makes financial sense.
But let’s consider what we do know: if ESPN is presently paying $200 million per playoff game on a deal signed five years ago if I’m selling the college football playoff games I’m arguing each game is worth at least that much in an expanded playoff.
That would get you right at $1.2 billion, or a six hundred million dollar increase, for the playoff expanding from three games to seven games.
Why would I argue that? Because if I take less than $1.2 million I’m expanding to make less per playoff game. If I’m going to expand the playoff, I don’t want to undercut the market I’ve already set. Plus, I’m actually undercutting the rate per game a bit because I’m selling four games for $600 million as opposed to three games for $600 million.
Now, that’s what I’m arguing if I represent the college football playoff. Would that be the number I expect to get? Probably not. But I’d start with the premise of doubling the size of the playoff should lead to a doubling of our revenue for the playoff, otherwise, why do it?
Now there would definitely be push back on this number from ESPN — you can certainly argue the interest is lessened for quarterfinal college football games and cite the NFL playoffs as an example — ratings grow as the playoffs near completion — but this is a primetime property that has delivered massive audiences on cable so far for ESPN. In fact, the college football playoff games are, by far, the most watched programs in the history of cable.
They have been wildly successful.
Under the existing contract with ESPN, which, to be clear, I haven’t seen, I would wager every dollar I have that there is a clause dealing with playoff expansion which provides ESPN an exclusive window to negotiate in the event the playoff expands.
Would ESPN want to keep the playoff exclusively on their cable network? Definitely.
Would they have the money to pay, let’s say a billion and change a year to carry the playoff exclusively on ESPN? That brings us to question two.
2. Does ESPN have the money to spend on an eight team playoff by itself?
Remember that when ESPN paid over $600 million a year for the college football playoff the decline in cable and satellite subscribers had not yet begun in earnest. (ESPN agreed to pay $608 million a year in 2012, just as the cable and satellite subscriber numbers peaked and before the cordcutting decline began. That bid from ESPN reportedly blew everyone else out of the water and occurred under a different economic paradigm.)
The cable market has changed substantially since 2012.
Would ESPN have bid what they did in 2012 if they’d known that their subscriber numbers were going to decline from 100 million to 85 million by 2018?
Would ESPN be nervous about bidding a billion dollars a year given the current cordcutting uncertainty? Perhaps.
You also have to consider that the college football playoff wouldn’t be being sold by itself, it’s one of many rights fees and assets that are coming to the market in the years ahead.
ESPN’s also got Monday Night Football, for which the network pays nearly $2 billion a year, ending in 2021. So ESPN would be simultaneously negotiating a potential extension with the NFL — which is likely to cost them, at minimum, several hundred million more a year — with an expanded college football playoff which is also likely to cost them hundreds of millions more a year.
Is this feasible?
Is it financially smart for Disney?
I’m not sure.
Which brings me to a fascinating question — would ESPN be willing to put one of the quarterfinal games on ESPN+ and require everyone who wanted to watch the game to sign up for ESPN+? That would be a ballsy move because there would be howls of indignation rising up from everyone across the country, but it’s really the same gameplan ESPN ran to ensure that ESPN and ESPN2 were widely distributed across the country.
Put your best games on a station that everyone doesn’t have and make fans demand the games be carried. Now this is a bit of a twist — back then ESPN could pit the fans against the cable companies. Now ESPN would be demanding teh fans pay them directly for the games, but in theory this would lead to millions of new ESPN+ subscribers, which could impress Wall Street given the ongoing Disney war with Netflix. Now those same subscribers could also cancel after one month, but ESPN could also mandate, perhaps, a six month subscription as a condition of signing up for the game.
The net result would be millions of new subscribers and tens of millions in direct revenue for the company.
But would the college football playoff committee allow a game to air on ESPN+? And would ESPN be willing to suffer the slings and arrows of social media derision and fan grumbling that would come with requiring people to sign up and pay for a digital membership to ESPN+? Also, and this is a big issue, could the streaming service handle an audience of millions and millions of people?
Look at what just happened to Turner Sports when they streamed the Tiger Woods vs. Phil Mickelson golf match. Can you imagine if the streaming service failed and millions of college football fans couldn’t watch a playoff game? Good luck recovering from that disaster.
Personally, I think it would be worth the complaints and the potential risk, but it’s an interesting proposition to consider.
But either way the simplest way to expand the playoff is for ESPN to decide they want to pay a billion a year, or more, for an expanded playoff.
But let’s say ESPN decided it wasn’t willing to pay a billion dollars for the playoff, what then?
3. Would other networks pay to air playoff games?
There is certainly a football precedent for a playoff being aired on more than one network.
Just look at the NFL.
Right now the NFL playoffs air on ESPN — one wild card game, anyway — NBC, CBS, and Fox. The Super Bowl rotates among NBC, CBS, and Fox every three years.
If ESPN didn’t lock up the quarterfinals and those rights hit the open market, would another network pony up the cash to air all four games?
Assuming these four playoff games aired in mid-December, what kind of interest would there be? That’s the perfect time for advertisers to reach the Christmas shopper and the audiences would be massive. Given that the NFL Thursday night game is ending around that time, you could theoretically set up a college football playoff game to air on Thursday night, a game on Friday night and two games on Saturday.
Boom, that would be a hell of an audience for three straight days.
So if ESPN passed on exclusivity, would Fox, NBC, Turner, or CBS step up to the table and drop $400 million — or more — on these four games?
Or would ESPN overpay to avoid this happening?
It’s just fascinating to think about.
And what if it wasn’t a TV network bidding against ESPN? What if DAZN, the streaming company who I wrote about last week, decided to put all four semifinal games on its streaming network and required fans to sign up to stream the college football playoffs? Would five million households pay for DAZN if that was the only way to see the college football playoffs? If so, and if you required, let’s say, a six month subscription — you wouldn’t want people to only sign up for one month — or simply made December standing alone a $50 a month proposition, you could net $250 million on that alone.
Is five million the right number of people who would sign up? I have no idea. Maybe it would actually be ten million. Maybe it would only be two or three million.
Either way it would be an intriguing gamble and a bold step into the streaming frontier.
It’s also possible that Amazon, Google, Netflix, or Facebook could be interested.
But, again, the money would have to be in the billion dollar range, I think, to make expansion economically feasible.
4. So what are the financial complications to the playoff expanding?
First, the conferences make money on top bowl games. As you expand the playoff the interest in bowl games diminishes. Already, we are seeing that occur.
So ESPN and the conferences have to contemplate how an expanded playoff implicates the tons of bowl games that are already out there. There’s also another important point to consider: most teams would never make the playoff. The bowl games give those teams something to aspire to, if the bowl games are declining in value in a playoff era, would all of them continue? If not, how many teams finish the season with no end goal in mind?
Then, and this is important too, the SEC’s title game looms as a major financial prize on the horizon.
The SEC would like to take its title game, along with the SEC game of the week, to the open market when its deal with CBS expires.
The SEC believes its title game is worth $80-$100 million, potentially, standing alone on the open market. So why would the SEC give up this title game in exchange for its share of the eight team playoff? Particularly when that share could be less than the league makes off its title game alone.
So I think any eight game playoff would have to include the SEC title game — and probably the Big Ten title game too, which is the second most valuable title game.
Does the Pac 12, Big 12 or ACC title game have the same value?
So I could see all three of those leagues deciding they don’t need a playoff game and would rather rest their teams than add an additional game to the schedule.
These complications could be addressed, but the key question is still unanswered — would the eight team playoff be worth a billion dollars a year?
Before college football decides to expand their playoff they need a rigorous analysis done of current market conditions and valuations. So far that hasn’t happened.
Ultimately, this is a business decision and that business decision has to be contemplated as part of the larger college football landscape.
While the idea of expanding the playoff to eight teams may sound great, it’s only going to happen if the money is there to justify the expansion.
And so far there isn’t clear evidence that’s the case.