ESPN and Fox May Not Be Jazzed by Big 12 Expansion

According to the Sports Business Journal, neither ESPN nor Fox are pleased with the current conversation regarding Big 12 expansion. As we noted here, the expansion is not about making the conference better, it's about making the conference bigger and thereby its current members more rich. Well it seems ESPN and Fox aren't thrilled with the old "UConn and BYU to Big 12" pitch either.

The Big 12 expects to make near a billion dollars in expansion revenue, assuming everything goes according to plan. How they do that is by triggering a pro rata clause in the Big 12's TV deal. Pro rata means that every shareholder or member gets an equal share of a certain revenue stream. Of course in this instance, the league's television providers would be required to pay the new members of the league an equal share to what the current members are making. Now in order to make money for the current members, at least in this contract cycle, the Conference is basically bidding out membership, the assumption being, according to which pledge will take less of the pro rata share and kick the rest back to the league. 

Current members make roughly $23 million per year in media monies. If say the University of Houston were willing to kick back half that for the prestige of making the big time then Houston makes money, the league makes money and every one is presumably happy. Well everyone except the media distributors who would shell out an additional almost $50 million a year to pay for just two additional expansion shares. Let alone if the league expands by four. According to Sports Biz, "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."

See, bigger isn't exactly better. In this case, ESPN and Fox are forking over prime dollars for middle of the mall content. Now the trick is the pro rata clause was bargained for between the providers and the league so ESPN and Fox may not have much to say here without the Big 12 taking them to court or vice versa. Still the two media giants could hold this against the Big 12 next negotiation cycle, 2024-25. One of the great weapons in the fight against cord cutters is the loss of live sporting events, so how that negotiation ploy goes is anyone's guess. Regardless it's doubtful that the Big 12 is able to capitalize on the next round of media rights payouts as the media bubble moves closer to bursting. 

All this means that one of two things will happen, the Big 12 will survive or it will die. Yep. Serious breaking news right?

The path to survival involves a couple possible outcomes, 1) the league blinks and doesn't expand. Yet. 2) ESPN and Fox blink, pay the additional billion in revenue and everyone moves along. In each of those two scenarios there's a clear winner and clear loser. That's not how these negotiations usually pan out. We love it when these things fall into the Michael Scott inspired outcome, Win, Win, Win. Maybe the conference expands, capped at two members, and the networks say great, we'll pay a reduced, perhaps backloaded rights deal beyond 2025.

The path to death is a bit more complicated, but a lot more fun. See the Big 12 has an anchor around it's neck, the Longhorn Network. ESPN, Fox, and the other nine members want a network. Texas prefers to continue to roll around in the millions of annual tv dollars that are theirs, ALL THEIRS. Texas can't really jump ship, short of going Independent, without forfeiting at least a significant percentage of the LHN revenue. Say, ESPN and Fox take a hardline stance and the Big 12, the other nine members that is,  continue to fall almost $10 million behind SEC and Big 10 revenue, Oklahoma and Oklahoma State could bail for the greener SEC or Big 12 numbers. David Boren, OU's president, has been the wild card of all this expansion talk, speaking out of turn on occasion more than anyone else. Oklahoma would be the type of school that most conferences would jump real high to gain, and they don't have a network to deal with.

The rest of the league would crumble, crumble. Texas would find a soft landing spot but the other members would scramble to the nearest shore. 

The posturing now takes another turn, the Big 12 has spoken, ESPN and Fox responded, I'm sure the phone lines between Bristol and Irving are heating up. 

 

Posted on August 1, 2016 and filed under Southwest Round-Up.