Pan's Plan: A Conference Network (and the Longhorn Network)

Alright, it's been a couple of weeks since we last went through the first part of my plan, which was to get back to twelve schools, but actually, it's was more like eleven schools plus Brigham Dame*.  I've changed my tune in the last few days because I believe if we put the second part of my proposal into action, we need full participation from all members.  This is for two reasons.  One, it increases a sense of unity and stability.  Two, it simplifies the model to the point where we can actually enact what I will propose below in terms of a conference network and how it all works in conjunction with university owned Tier 3 networks.

* Brigham Dame was BYU Football/ND Basketball and Non-Revenue sports

Now, I'm not going to get into whether or not I believe Missouri stays or goes.  That's their decision, and regardless of what I think about it, it's not going to change anything.  Besides, if Missouri becomes the fourteenth member of the SEC, I believe we invite West Virginia.  If Missouri stays, then I believe West Virginia probably becomes the fourteenth member of the SEC.  I don't think we'll find a scenario where they both exist in our conference, but I most definitely see a scenario (at least that fits what I'm about to describe) where one or the other does.

Also, I'm not going to go back and rehash my thoughts on which schools we should or should not invite.  That's not up to me, and for the purposes of this exercise, the ‘who' doesn't necessarily matter outside of the eight schools that are committed to this conference.  Would I prefer TCU over Cincinnati?  No, but in the grand scheme of things, it's like arguing over whether or not you want ketchup or mustard on your hot dog.

Click the jump for more.

First of all, before I get too deeply into this, I'm going to give you a primer on how the tiering process works in college athletics.  This is by no means a detailed explanation, so if I'm missing some details, please feel free to say so in the comments below.  However, for this exercise, I believe this will be sufficient.

The first thing to understand is that there are three tiers when it comes to college television rights. 

  • Tier 1 games are nationally televised where the network that pays for said rights gets the first pick when it comes to games. There are normally less games in this tier, but because the network gets to pick the most desirable game(s) of the week, the thought is that the price they pay is worth it. Conference championships fall into this category. For example, in the Big 12, games on the ESPN family of networks are Tier 1 games.
  • Tier 2 games are ones that are selected after the first tier provider makes their selections. These rights are currently held by Fox and are shown on FSN or FX. Typically, there are more of these games every year, but the price per game is lower because they are not the ‘premier' matchups.
  • Tier 3 games are ones that ultimately fall through the cracks of Tier 1 and Tier 2. The rights to these games, in the Big 12, belong to the individual schools (the same goes with the SEC). For example, Texas' game with Rice on the Longhorn Network was a Tier 3 game. Kansas State's game against Eastern Kentucky on K-StateHD.tv was a Tier 3 game. Normally, these are the least desirable games that the Tier 1 and 2 rights holders pass on. In today's day and age, these are generally non-conference games as most conference games find their way onto one of the Tier 1 and Tier 2 platforms. The exception, obviously, is the current Big 12 format.

Every conference differs in terms of how they handle these rights.  This excellent article from businessofcollegesports.com lays out all existing major conference deals.  Without rehashing everything they've already articulately laid out, each tier has a dollar value and a duration in years, which ultimately leads to an average annual payout for the conference.  For example, the Big 12 currently has a Tier 1 rights deal with ESPN that's valued at $480 million over eight years.  That amounts to $60 million annually, and as we know, that number is divided amongst the members based on appearances.   The future Tier 2 rights deal, starting next year with Fox, is valued at $1.17 billion dollars over thirteen years, which amounts to $90 million a year.  Adding the Tier 1 and Tier 2 revenue creates a total payout of $150 million, annually, that will be split amongst the Big 12 schools (should the equal revenue sharing be enacted).  Obviously, the number of teams affects the payout...

$150,000,000 / 10 = $15,000,000

$150,000,000 / 12 = $12,500,000

That means when you're looking at adding members, and we're talking about straight dollars and cents, you need to ensure that member adds at least as much as their payout would be to the conference.   So, any member we look to add, based on current contracts, would need to bring $15,000,000 worth of value to the conference or their addition is seen as a net loss.

Now, looking at the current, post-realignment landscape, there aren't a lot of schools that would bring the kind of value the Big 12 needs to cross this tipping point.  However, the general sentiment is that the Big 12 can't sit at nine (or even ten) teams because it's a sign of weakness in the current landscape.  Also, there is no guarantee that our existing media partners would be willing to go forward with our existing contracts due to the decrease in the number of teams and the assumption that we are a wounded and unstable conference.  Therefore, if we want a ‘stable' Big 12, we're probably looking at taking on some ‘net losses'.  However, there is one mechanism out there where the addition of a ‘net loss' can become a very large ‘net gain' because of one magical word: inventory.

When the Big Ten formed their own network a few years back, consisting primarily of Tier 2 and Tier 3 rights, fans and administrators alike wondered if it would be solvent and profitable.  Fast forward a few years later, and it has been a roaring success.  It has agreements with over 300 cable providers and exists in nineteen of the nation's twenty largest markets.  Based on what we know, the network is paying out $2.8 billion, total, over a 25 year period.  That amounts to $112 million annually split amongst the ten members.  Add that to the $1 billion first tier rights agreement with ESPN, and the Big Ten has the second largest annual payout ($212 million) when compared to...

The Pac-12 Conference, who has their own regional networks set to launch in 2012.  The combination of first and second tier rights for members of that conference ($3 billion / 12 years) will generate over $20,000,000 in revenue every year, which is over $2 million more annually than the Big Ten.

What about the almighty SEC in this mess?  The SEC is in third place in this cash grab.  The SEC, who signed a blockbuster $2.25 billion, 15 year deal with ESPN for their Tier 2 rights in 2008, generates over $150 million annually in their regionally based "SEC Network".  Even though there isn't an SEC Network on your channel guide, it does exist.  So, don't let certain southerners tell you that the SEC is looking to create a "network".  They have one.  And ESPN paid a crap ton of money for it, so setting up a subscriber fee network may be a little more difficult than is currently being promoted.

So, why am I illustrating what other conferences have for their Tier 2 rights?  Didn't the Big 12 just sign a big deal for Tier 2 rights that will make us all rich?

Well, kind of.  Compared to what we were making, yes, it gives us a much greater cut of cash.  However, a lot of fans and media members are saying that our cash cow is coming based on the renegotiation of Tier 1 rights in 2015.  However, when you look at the existing contracts for other conferences, those conferences WITH networks make much more in Tier 2 than they do in Tier 1.  Let me illustrate:

Big 10:

Tier 1 - $1 billion / 10 years = $100 million annually

Tier 2 - $2.8 billion / 25 years = $112 million annually

SEC:

Tier 1 - $825 million/15 years = $55 million annually

Tier 2 - $2.25 billion/15 years = $150 million annually

Pac 12:

Tier 1 & Tier 2 - Owned by ESPN and Fox.  A conference network will be created, and total payout will be $250 million annually to divide amongst the schools.

Big 12:

Tier 1 - $480 million / 8 years = $60 million annually

Tier 2 - $1.17 billion /13 years = $90 million annually

Now, what is everyone noticing here?  The money is in Tier 2.  And our conference saving deal pales in comparison to the conferences that are currently pillaging us.  Most importantly, what do these conferences have in common?  They have some form of conference network.

I know, I know...you're saying, "Pan, how can we have a conference network if schools like Texas have The Longhorn Network?"  Well, I'll get to that.  One of the magic words I said before was "inventory".  However, it's important to note how the other conferences handle this, and how it can be an advantage to the Big 12.

From everything that I can glean, there is no Tier 3 in the Big Ten.  They grant all rights to the conference for use with the Big Ten Network.  The same goes for the Pac-12 (starting next year).  The SEC, from what I understand, will let you keep your Tier 3 rights.  However, for the vast majority of schools, Tier 3 rights amount to, well, nothing.  And regardless of what people like Clay Travis say, schools like Mississippi State aren't capable of generating $12 million annually from a Bulldog Network.  If Texas, the flagship school of a state with 25 million people, can get $15 million from ESPN, and schools like Oklahoma and Texas A&M can't get traction to start their own networks, schools like Vanderbilt and Kentucky won't even get a sniff.  Even K-State, with their lowly K-StateHD.tv website, has a more advanced Tier 3 distribution than the majority of BCS schools at this point.   Therefore, Tier 3 can be worked around fairly easily.

That said, what is the plan?  Well, basically, it's the formation of a Big 12 Network, similar to the Big Ten Network, which will broadcast 39 nationally televised games every season.  Like the Big Ten Network, it will be primarily owned and operated by Fox, who currently owns our Tier 2 rights for the next 13 years (and who has experience in setting these networks up and running them).  Also, an additional 13 Tier 2 games will be available for distribution on other Fox platforms (FX).  That means a grand total of 52 Big 12 football games will be played, annually, on FX and the Big 12 Network.

That's the big idea.  Now onto the details!

Item 1 - The conference will move back to twelve teams with two divisions.  There will be a championship game.  This means in a normal 13 week schedule starting Labor Day weekend.  Eeach team will have one bye during the season, and that will be available in two windows (Weeks 2-4, Week 13).

To ensure that our carriers in Tier 1 and Tier 2 have enough content (six total games per week) a minimum number must be played each week.  To help ensure this and promote flexibility, the conference schedule will be set in an eight week block from Week 5 to Week 12.  All non-conference games will be played in the first four weeks of the season and/or Thanksgiving weekend (to give teams flexibility to play cross-conference rivals or other teams during this weekend).   All teams will be required to play in Week 1, which will give schools with their own networks or distribution avenues (i.e. BYU, Texas, KSU) an opportunity to cash in on those.

In terms of breaking down the total numbers, with 12 teams and a 12 game schedule (8 conference games), plus a conference championship game, you're looking at 97 total football games played by your member schools every year.  However, if a Big 12 team were to play a non-conference opponent on the road, it is my understanding that they would play on the home team's television package.  Therefore, not all 97 games will exist on our platforms.  Generally speaking, I'll assume that somewhere between 25-33% of all non-conference games will be on the road, so it will take the total number somewhere down into the low-to-mid 80s.   After that number is finalized, the number played on each tier is determined in the contract negotiations.  Therefore, as an example, if you had 20 games annually in your Tier 1 package, you'd subtract the total number of games on your package, and you'd get the number of games available on Tier 2 and Tier 3 platforms.  All of these numbers will be displayed in each item of my plan.

Item 2 - Tier 1 rights will stay in the hands of ESPN until 2015.  At that time, we will negotiate to have 26 Tier 1 games be made available for ESPN on an annual basis, and this includes the conference championship game.  Every week, ESPN will be able to select two games from our pool to show on ESPN, ESPN 2, ESPN U, ABC, etc. plus the conference championship game.

If you look at the math closely, you will realize that I'm short one game.  Two games per week multiplied by thirteen weeks equals twenty six games.  Add the conference championship game, and you get twenty seven.  However...in my plan I'm willing to concede ONE conference game per year to Texas for use with The Longhorn Network.   But there's a catch.  Because ESPN owns the first tier rights for the conference, and they also own the rights for the LHN, the Big 12 Conference will be paid for twenty seven games on Tier 1, and the school that's on the LHN will be given fair compensation from ESPN and the University of Texas for that game.  In the event that the school's general broadcasting range does not carry the LHN, Texas and ESPN must agree to simulcast that game on a local ESPN/ABC affiliate.  For example, here in KC, that would replace the normal game seen at, say, 7 PM on KMBC (Channel 9), or KTKA (Channel 49) in Topeka and Lawrence.  Provided that the game being replaced is not another Big 12 game, of course.

Also, during the course of contract negotiations, ESPN will be reminded, frequently, that we are being VERY generous and gracious in supporting their controversial endeavor with Texas, and in doing so, we should receive very favorable compensation for that flexibility. 

In other words, if ESPN wants to pay Texas for the LHN, they're paying all of us a sizeable fee make it work.

Total games on Tier 1: 26 (Includes Conference Championship game)

Item 3 - As mentioned before, the largest component of my plan is to have a Big 12 Network that consists of 39 games per year.  Ultimately, every Saturday during the college football season, the Big 12 Network will show games, back-to-back-to-back from 11 AM CDT - 11 PM CDT.  The first game will kick off, similar to the current FSN setup, shortly after 11 AM.  The second game will kick off at 3 PM.  The third game will kick off at 7 PM.   In between each game, if there's filler, it will be filled with highlights, analysis, previews, etc. similar to what you see today on comparable networks.

However, because the Saturday night game on FX is so cool, and having it on that platform seems like an event, the Saturday night FX game will begin every Saturday night at 6 PM CDT.  This would, ideally, be the best non-tier 1 game every week.  Therefore, you're reducing the amount of overlap with the traditional 2:30 PM CDT game, and you're also reducing the amount of overlap with the 7:00 PM Big 12 Network game.

Essentially, I envision the Big 12 Network as a hub for every Big 12 fan's college football Saturday experience.  Starting from a pre-game show in the morning to a wrap up show at night, at least three Big 12 games will be on every single week for fans to jump into and out of while they're watching other games or waiting for other games to start or end.  Because not all cable providers will carry the Big 12 Network, at least three games per week will be shown on the ESPN and FX networks, which are carried by basically everyone, so at least 50% of the televised games every week will be on universal carriers.  Obviously, due to the success of the Big Ten Network, getting our network on cable companies in this region probably wouldn't take very long, so I presume it will be a fairly seamless transition.

Unlike the Big Ten and SEC Networks, we will not have to split out or games on ‘regional' hubs of our network.  Because we're spreading the times out every Saturday, each game will be nationally televised.  Yes, we are asking our members to sacrifice a little scheduling flexibility, but they should hopefully be compensated for it with the profitability of the network and the exposure.

Total number of games on Tier 2 - 52 (39 on Big 12 Network, 13 on FX)

Item 4 - Whatever's leftover from this will end up on Tier 3, and ultimately, that will be next to nothing.  In a scenario I put together on a spreadsheet, I took 31% of the non-conference games and flipped them to road games, and I got 82 games available on our platform.  When you subtract the 26 games from the Tier 1 contract and 52 games from the Tier 2 contract, all that's left are four total games.  Four.  And two of them would be on the Longhorn Network, meaning that in that particular scenario, only two games in the Big 12's television package, all season long, would not be nationally televised.

I will repeat this one more time.  Under my plan, in a scenario where 12 teams play at least 15 non-conference road games every year, two games eligible in our package would not be televised nationally.  All season.  If there are even two more away games in the non-conference, that number goes down to zero.

Yeah, I liked the sound of that too.

Total number of games on Tier 3 - 2 - ?? (Depends on the number of non-conference road games.)

So, there you have it.  My plan.  Two games per week on the ESPN/ABC family of networks, our own network, and a somewhat harmonious existence with the Longhorn Network.  Are the Tier 2 rights in my plan worth more than $90 million annually?  It's hard to say.  When you start moving into subscriber fee territory, estimated dollars get much trickier.  However, one thing that the Big 12 will have over the Big Ten (or the SEC for that matter) is a lot of great basketball content in the winter months to put on our network to give it some additional value.  This is especially true if we are able to add Louisville and BYU to the conference.  Based on what the Pac-12 got, I'd feel comfortable in assuming we'll make more than our current agreement, but I'll let everyone else weigh in.  Fire away in the comments.

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