Why Doesn't ESPN Buy CBS's SEC Package?
Ask anyone involved in televised sports what the best current television deal in sports is and the answer is unanimous -- CBS's first round SEC draft pick each week along with the SEC championship game for just $55 million a year.
It's a complete and total steal -- CBS has the best deal in sports.
Break down the deal and CBS is paying just $3.43 million per SEC game. That compares with ESPN paying over $100 million per game for Monday Night Football. Okay, but that's pro football. Well, ESPN pays the Rose Bowl $80 million a year for just one game.
So CBS gets sixteen total first pick SEC games (there are two doubleheaders each year), including the SEC championship game, for $25 million a year less than ESPN pays for the Rose Bowl by itself.
Wow.
The SEC on CBS's deal is complete and total insanity, a bargain unlike any other, like buying Manhattan for trinkets. And this deal continues for another decade, meaning that today's numbers, which already look like the television deal of the century, will come to look even more cheap as the years continue to tick by.
Which brings me to an interesting question, why doesn't ESPN buy the SEC's rights package from CBS?
This makes complete and total sense for ESPN.
Given the upcoming launch of the SEC Network next year, how much would ESPN love to lock down every single SEC game? How valuable would it be for the distribution of the SEC Network to put the biggest game of the week on the SEC Network once or twice a year?
Can you imagine, for instance, if the SEC Network was carrying this year's Bama at Texas A&M game?
You think any cable company in the country is going to withstand SEC fans not able to see this game? You think the channel might gain national distribution in a heartbeat if the SEC title game, potentially, could air on the SEC Network once every three or four years?
It's a complete and total no-brainer for ESPN, a doubling down bet on the most valuable brand in college athletics.
Will it happen, I have no idea.
But it's definitely an worth exploring.
So let's dive in a bit more to the particulars.
1. What's the first pick each week and the SEC title game worth to ESPN on the open market?
An awful lot.
Let me ask you this, if you were a television executive, would you rather have the Rose Bowl or the SEC title game?
You'd all pick the SEC title game, right?
The Rose Bowl can be a dud, whereas in a new playoff era the winner of the SEC title game is almost always going to be in the four team playoff. So the SEC title game is a default playoff game itself.
If the Rose Bowl standing alone is worth $80 million on the open market then at an absolute minimum the SEC title game has to be worth $80 million by itself. (I'd argue the number is closer to $100 or $110 million on the open market. This would mean that the SEC title game by itself is worth twice as much as CBS is paying for its entire SEC package).
Then what's it worth for the other first round scheduling picks in the SEC schedule?
At an absolute minimum, probably twice what CBS is paying right now. So add another $100 million to the tally.
That means the SEC's CBS package is probably worth somewhere around $200 million a year on the open market, or nearly four times what CBS is paying right now.
So what would happen if ESPN went to CBS and offered $150 million a year for this rights package?
CBS could pocket nearly a billion dollars without even airing the SEC over the next decade.
Meanwhile, ESPN would still have significant upside on the deal and would now have complete and total control over all SEC rights.
As noted above, can you imagine the power these additional games would give ESPN in the upcoming distribution battles with the cable companies?
2. What does CBS make now off the SEC deal?
We don't have the financials on this, but it's probably a lot less than $100 million a year profit ESPN might offer.
So if ESPN made the offer CBS would be turning down money it can never make off this deal itself. Why can't CBS make more money? Because CBS has to monetize this property off advertising dollars, not off subscriber revenues.
Which brings us to number three.
3. ESPN will eventually buy this rights package in a decade.
Sure, CBS, NBC, and Fox will all be competing, but ESPN will not be beaten on this deal.
So if you're CBS you've just got a decade left in your relationship with the SEC.
That relationship, by the way, has been soured a great deal in the past year over CBS's recalcitrance when it came to negotiating an increase in the deal of the century over the addition of Texas A&M and Missouri.
Put simply, the SEC and CBS are not signing another deal.
So while CBS might have a steal now, it's a steal that diminishes in value with each passing year.
4. Are rights deals assignable in this context?
It's an interesting question in theory if a league didn't want to be in a partnership with the new buyer, but in a situation such as this one, I believe that's a semantics battle. Why? Because the SEC would be happy for ESPN to be the buyer here. Perhaps you'd have to structure the deal such that the rights first returned to the SEC which then sold them to ESPN, but that's all contractual details. The end result would be one that both the SEC and ESPN were happy to see this deal happen.
Given the rise in sports media costs, here's an interesting question -- what if ESPN explored buying CBS Sports one day? (Not the network, just the CBS Sports rights, employees, and content. What's CBS's NFL package worth to ESPN? The Masters? The NCAA tourney games it retains? This would be a fascinating move in sports media. I'm not sure it would pass antitrust muster, but if CBS just got out of the sports business before its sports arm loses all its rights, it's an interesting question. (By the way, the same would hold true for Fox and NBC trying to buy CBS Sports for the rights it retains. What if CBS put its sports arm up for sale and you had three different cable companies who saw those CBS assets as tremendous subscriber dollar returns? That's when the existing contracts and their assignabililty would turn into a really monumental contractual battle. Imagine how viable of ESPN competitors NBC and Fox would be with the CBS assets suddenly deployed with their new sports cable networks).
5. Would CBS sell to ESPN?
Or would CBS simply refuse to sell out of bitterness that ESPN is slowly taking away all its television rights.
A couple of weeks ago CBS lost the U.S. Open to ESPN. A couple of years ago CBS had to partner with Turner to keep any of the NCAA Tournament games. (The Final Four and the title game will be played on cable in the coming years). CBS still has the SEC and the NFL, but the SEC is going to disappear in a decade. And who knows what will happen with the NFL down the road. (The NFL seems inclined to ensure that it can bleed all the major networks equally for television rights deals so that deal might be safe.)
With every year CBS Sports's stature continues to decline in the industry.
In fact, if you had to rank the major sports media networks right now in terms of strength you'd probably rank them thusly:
1. ESPN
2. Fox
3. NBC
4. Turner Sports
5. CBS
And there's an increasing gap developing between the top four and CBS.
Would an extra billion dollars in money for the SEC rights make a difference for CBS Sports? Or could ESPN, NBC or Fox made an audacious play to buy CBS Sports outright?
Who knows?
But since CBS execs were smart enough to lock in the sports deal of the century with the SEC, would they be equally smart enough to sell out of the market before that value evaporates forever?
With a deal that locks in the best games in the SEC for just $3.43 million per contest, it's certainly a question worth pondering.