How to Look at Conferences' Projected TV Revenue

Note: this post and the report it links to predate the revelation that the SEC plans to start its own network. Keep that in mind while reading it. -Y2

The USA Today got a company called Navigate Research, which has worked on valuations for college sports rights in the past, to go on record with predictions for how the landscape of TV rights will look soon. Here's a small excerpt:

The estimate, premised on the SEC continuing without a conference-owned network and again having 15-year deals, would give the SEC more guaranteed TV revenue than any college athletics conference: nearly $25 million a school per year over the full contract term ($5.2 billion total).

However, the Pac-12's full ownership of national and regional networks that have lined up substantial distribution before their scheduled launch in August, indicates that the conference is on track to generate at least $30 million a school per year over the 12-year term of agreements with ESPN and Fox that begin later this year ($4.3 billion total)...

"People expect the SEC to be on top," says Navigate president A.J. Maestas. "The Pac-12 is the real story here."

Before diving into this, it's important to remember that we're talking about average TV revenue here. All contracts (not counting those with in-house networks) start small and escalate over time. For instance the SEC's current contract guarantees an average of over $17 million per school per year, but as I pointed out last week, each member school received roughly $13.2 million from TV for the 2010-11 athletic year.

The important thing to remember when analyzing, and not hyping, these numbers is that not every conference is selling the same thing. The only apples-to-apples comparison that can be done between conferences is for Tier 1 and Tier 2 rights. Everything else changes from conference to conference.

Navigate Research projects the SEC to receive about $25 million per school per year from the top two tiers. The Pac-12 is set to get $20.8 million for them (which is higher than Navigate's projection from before the deal was signed), the Big 12 will get $20 million for them, and the ACC will get a little less than $17 million (its deal is for all three TV tiers, but Tier 3 rights aren't that valuable). The Big Ten hasn't negotiated its top tier deals recently, so it doesn't have a comparable figure. My guess is that it'll land above the Pac-12 and near the SEC when the league next negotiates its deals.

The "real story" as I see it is that the SEC is clearly the most valuable conference. Its projected margin over the second place (for now) Pac-12 is as almost great as the Pac-12's margin over the ACC.

The extra $9 million per school per year of revenue projected for the Pac-12 will come from the Pac-12 Networks. Some of the networks' broadcasts will be Tier 3 programming, which is anything that ESPN and Fox don't want for their various channels. That Tier 3 inventory is something that individual SEC (and Big 12) schools currently sell on their own for whatever market value is. The Pac-12 Networks will also broadcast coach shows, which again, SEC schools sell on their own right now.

A lot of what the networks will show will be old sporting events from the past, and viewership trends being what they are, it will largely be old football and men's basketball games. That back catalog is something the SEC schools don't sell, or at least not in bulk. You can either rent or buy some old games online, but that's nothing compared to running a television network. The Pac-12 Networks will also have studio analysis shows, something the SEC doesn't sell at all.

So in short, SEC schools already get the equivalent of some of the Pac-12 Networks' projected $9 million per year by selling their Tier 3 rights and coach shows themselves. The rest is the Pac-12 making money by selling things that the SEC doesn't. That's hardly a story at all.

The Big Ten Network probably forms the basis of the projected revenues of the Pac-12 Networks. The past two payouts from the BTN are $7.9 million per school from last year and an expected $7.2 million per school for this year. The Pac-12 might get a bit more than that thanks to its additional regional outfits, so $9 million per school per year is not outlandish. It pay out that much to the schools soon, though, because as the USAT article points out, startup costs will soak up most (if not all) of the networks' revenues in the short term. The Pac-12 will have to pay for all of those costs itself because it didn't split ownership with an existing TV producer like the Big Ten did with Fox.

If the SEC doesn't start up its own network(s), it will eventually end up bringing in less money from TV per year overall than the Big Ten and Pac-12 do. It won't be because the conference is less valuable, but simply because it doesn't sell as much stuff. That one firm can end up with more revenue than another firm simply by having larger sales volumes is not a particularly insightful revelation, but apparently that's enough to qualify as someone's special "real story".