Conference Realignment: Why is this happening? (Post 1)

The season of conference realignment is upon us once again, but this time, the Big 12 is the aggressor (as opposed to defending their turf), and the Atlantic Coast Conference (ACC) has become the conference that's in danger of losing valuable members and faces an uncertain future.

Oh, and the Big East is on life support, but it forgot to sign a "Do not resuscitate" form, so it's being left on the ventilator until someone gives it the sweet, merciful death that it truly deserves.

I think the most pertinent question out there is, "Where do we go from here?" But there are a plethora of other questions as well. Is the age of super-conference football upon us? Are we destined for four sixteen-team leagues? What about this playoff thing they're working on? Who will the Big 12 expand with? Will they expand at all? What will happen to the ACC and Big East?

All of those are good questions, but to understand where everything is going, you have to understand how college football got into this mess to begin with.

My intent of this post, which is the first in a series, is to identify the trends in the overall landscape, attempt to support or debunk a few thoughts floating out there, and establish a set of rules that govern conference realignment. The end result of the first two posts will be criteria that identifies where we're going, and it will set up my predictions for the future of the Big 12 and other conferences from around the country.

Hit the jump to find out why we're even talking about realignment to begin with.

Point #1: Rapid escalation of television contract money in college football has fueled this entire process

If we're going to start somewhere, it may as well be here. Prior to 1984, the NCAA controlled and restricted member institutions' access to selling their broadcast rights to television networks in an effort to prevent decreased attendance. However, with the landmark case of National Collegiate Athletic Ass'n v. Board of Regents, the Supreme Court ruled that:

"by curtailing output and blunting the ability of member institutions to respond to consumer preference, the NCAA has restricted rather than enhanced the place of intercollegiate athletics in the Nation's life."

In layman's terms, they said, "People want to watch college football. Stop preventing people from watching college football. And if the schools want to make a little money on it, let them. Who do you think you are? A bunch of Commies?"

Obviously, I don't t want to get into a lot of legal mumbo jumbo and pages of history here, but the end result was that conferences were able to negotiate television contracts on behalf of their member institutions, and they began making more and more money as the years passed and contracts went up for renewal.

For years, the increases were fairly normal. However, after the development and widespread acceptance of DVR, people dramatically changed how they watched TV. Instead of sitting down during prime time to watch their favorite TV show during its scheduled time slot, viewers were now recording the show and watching it later (while fast forwarding through the commercials). Because of this, the price advertisers were willing to pay for live events, specifically sporting events, started to skyrocket at exponential levels. Therefore, the networks wanted more games to broadcast, and when they got more, they realized that they could still make money showing even more on top of that. So, networks like ESPN, Fox, CBS, NBC, etc. started creating or purchasing multiple networks to show live (and replayed) sporting events. This is why there are essentially four ESPN networks (ESPN, ESPN2, ESPNU, and WatchESPN), and Fox utilizes the regional distribution model for their networks. Even CBS and NBC have their own cable networks in addition to the games they already show on the broadcast networks (CBS College Sports and NBC Sports Network).

The net impact of these additional networks and increased television contracts is incredibly significant. The amount of inventory flooding the airwaves, and the subsequent television revenue it's created, has become so disproportionate to the actual attendance revenue that it will start to dwarf attendance revenue at most schools. For example, in an article published by The Post and Courier, which was updated on March 23^rd, 2012, Clemson University posted football attendance revenues of $14.2 million dollars in 2010-2011. The updated ACC deal, which was announced earlier this month, will eventually pay members nearly $17 million per year in TV revenue. We have reached a tipping point where the value of a school's product is (potentially) more valuable on television than it is being played on campus in some very large stadiums.

What does this mean?

Television revenue is now the most powerful force in college athletics, and it's driven by the amount of quality inventory that a conference can provide. A school's potential revenue generation, which fuels their ability to compete, is no longer capped by how many seats they have in their stadium, or how many home games they have per year, but by being a member of a conference with a lucrative television rights deal.

Point #2: The "Tiers" - What they are and why they're critically important

Due to the fact that, regardless of how many cable networks ESPN, Fox, CBS, NBC, etc. try to throw out there, the amount of content (i.e. games) that exists exceeds the current capacity of broadcast and cable networks to show them all. To simplify the process of determining who gets what games to broadcast, a series of "tiers" have been created that help define how this television game inventory gets distributed. I've borrowed these definitions from ESPN.com, and added my own examples:

• First-tier rights are for football and/or basketball games broadcast nationally (Typically broadcast networks like ABC, CBS, NBC, etc. These are known as "Over-the-Air" rights).
• Second-tier rights are for football and/or basketball games not selected by the first-tier rights holder (Typically cable networks like FX, Fox Sports Net, ESPN, Big Ten Network, etc.).
• Third-tier rights are any games not selected by the first- or second-tier rights holders and rights for all sports other than football and basketball. These rights are often sold on a per-school basis (not negotiated by the conference as a whole) and often go to regional networks (Comcast Sports Southeast, Raycom, or SportsNet New York, for example). They can also be reserved for networks like the Big Ten Network and the Texas Longhorn Network.

To put this in Big 12 terms, ABC/ESPN currently owns the Tier 1 rights to the Big 12's football games, and contractually, they get the first pick of eighteen games per year. Fox's Tier 2 contract stipulates that they get all cable rights, which means they can pick as many games as they want to put on their cable networks (FX, FSN, etc.). Any game not selected by ABC/ESPN or Fox technically falls to Tier 3, and that means those games can be broadcasted on the Longhorn Network, K-State HD TV, etc. Now, it's a little more complicated than that (i.e. Fox currently owns all of our cable television rights), but overall, that's the gist of how this works.

Each tier typically has its own contractual agreement with a carrier, and what makes the Big 12 unique, and one of the reasons that they're currently in a favorable position, is that the agreements for Tier 1 and Tier 2 rights are estimated to bring in $20 million per team, per year for the duration of the new TV deal (13 years). This excludes Tier 3 rights, which means that every school has the right to monetize those in addition to what they're getting via the conference TV contract. With their reworked TV deal, the ACC will receive an average payout of $17 million per team (over the life of the contract), but that requires all schools hand over their Tier 1, Tier 2, and Tier 3 rights.

What this means is that all Big 12 teams, regardless of size, quality, or historical and/or national significance, will make more than the ACC teams, and the difference will be, at a minimum, $3 million per year. And that does not include what the Big 12 teams will make for their Tier 3 rights. Texas, for example, makes $15 million a year on Tier 3; therefore, their total TV revenue, for all tiers, will be $35 million dollars, which is more than double of what any ACC team will make during the life of their respective conference television contracts. If KSU makes, say, $2 million (I'm guessing here; I do not have concrete numbers...) from their online subscriptions and selling basketball games to FSN KC, then their TV revenue take is $22 million. That's a $5 million difference, annually, between Kansas State and a school like Florida State, who has won multiple national titles and has a significant national following.

This means that Kansas State, over the course of ten years, could make $50 million MORE than Florida State in TV revenue...just by being a member of the Big 12 Conference. And that's probably a conservative estimate.

The Big 12 isn't the only conference that allows their members to control their Tier 3 rights. The SEC currently allows it, and Florida State's main rival, the University of Florida, currently has a Tier 3 deal with Sun Sports in Florida where they monetize their rights for $10 million per year. This includes more than just TV (i.e. radio, signage, coaches shows, etc.). According to various Internet message boards (I can't verify the actual figure), Florida State makes, roughly, $6.6 million annually from their Tier 3 revenue sans television (which the ACC won't let them monetize after their most recent ESPN deal) in an agreement with IMG. This means that there is a gap between the SEC and the ACC (or the Big 12 for that matter) in terms of televising Tier 3 rights. If the SEC creates their own conference network, that gap could widen significantly. But the point is simple; in the span of one decade, Florida State will potentially make around $34 million less than Florida in Tier 3 TV revenue alone. When you combine that with how much more the SEC may make in terms of Tier 1 and Tier 2 revenue, that puts Florida State, and others like them who share a state with another school in a different high major conference, in a bit of a pickle.

Point #3: Why realignment is about envy as much as it is money

It should be perfectly clear at this point that the gap between conferences in terms of TV revenue is beginning to widen. Per the ESPN article referenced above in regards to the Tier definitions, the Big Ten currently makes $20.7 million per team/year between all of their deals. The Pac-12 currently makes $20.8 million, on average (before their conference network revenue). The new Big 12 deal provides a $20 million payout before Tier 3, and the SEC, who is currently renegotiating their deal with CBS and ESPN, will look to create their own Network, and most likely attempt to hit the $20 million mark as well, if not exceed it.

The significance of the ACC deal, while lucrative in its own way, was that it sent a very clear message throughout the college football world. You are a part of the "$20 Million Club", or you are not. And if you are not one of the forty-eight member schools of that club, you are on the outside looking in.

When Andy Haggard, Chairman of the Florida State Board of Trustees, sent shock waves through the national landscape with his comments to Warchant.com, a lot of attention was paid to his comments regarding moving conferences in general. However, few people pointed out why. Dan Wetzel, the extremely talented and insightful columnist for Yahoo! Sports, mentioned the SEC's current financial strength in relation to ACC schools in his column regarding Haggard's comments, but the most significant comment was the last quote in the article:

"With the SEC making the kind of money it does it's time to act," Haggard said. "You can't sit back and be content in the ACC. This is a different time financially. This isn't 10-15 years ago when money was rolling in."

As I mentioned previously, because Florida has a more lucrative deal with the SEC for Tier 1 and Tier 2 media rights, and they've monetized their Tier 3 rights with Sun Sports, the potential financial ramifications for Florida State over an extended time frame is enormous. We're not talking a few million dollars that can be overcome by boosters, but potentially a $100+ million gap that would put them at a tremendous disadvantage relative to their in-state rival. That kind of money is a game changer, and considering the fact that FSU is currently operating at a financial shortfall, and Florida is rolling in cash, posting a $16.3 million profit in 2011, it's not hard to see why the new ACC TV deal was not a positive development in Tallahassee.

The new round of realignment is going to be about two main components, and money is definitely the first component. The ACC is making a significant amount, and because all of their broadcast rights are being handed over to ESPN, the worldwide leader in sports broadcasting, it's not going to be due to a lack of exposure.

But realignment in the future is not just about making money as it is making as much money as schools that you directly compete with, for athletes AND students, and having access to all of the benefits that being in the "$20 Million Club" entails. Should a school like Florida State, Clemson, or Georgia Tech (schools in the ACC that share a state with an SEC school raking in tremendous amounts of money) choose to go forward with their current conference, they do so with the knowledge that they will be doing so at a decided competitive disadvantage against in-state rivals. And if they voluntarily choose to do that, what does that mean for boosters and donors who enjoy watching their team compete, and win, against said in-state rivals? Will a decrease in athletic success equal a decrease in academic donations? In a time of budget cuts to secondary education all over the country, are many of these schools are willing to take that chance? Do these universities, specifically public ones, want to look like "little brothers" to their more nationally recognized counterparts due to their exposure via athletic competition at the highest levels?

Is this a risk they are willing to take?

Point #4: Access to the four team playoff, driven by money, will create an even bigger divide than financial inequities

Fans have clamored for a playoff since time immemorial (i.e. since before I was born), and now, after the current BCS contract expires, it appears we will have something that looks like one. In all honesty, four teams isn't much of a playoff, but under the technical meaning of the term, it is, and it's going to make a tremendous amount of money for everyone involved.

There have been numerous ideas that have been kicked around, but the two that seem to have gained the most traction are Jim Delany's conference championship model, which prefers conference champions that are ranked within the Top 6 of the BCS standings (with a wild card if we couldn't get four conference champions in the Top 6), and the SEC's preferred model; simply letting the four highest ranked teams duke it out. There are a lot of other subsequent points that need to be debated (on campus games, how the bowls factor in, etc.), but the really meaningful decision is what teams will actually qualify to play in the bowl games.

Regardless of which model is chosen (John Swofford has gone on the record to support the Delany model), the results are pretty staggering in regards to what conferences will generally qualify for the playoff. If you prefer the Delany model, the breakdown of participants by conference looks like this (if you were to look at the last ten seasons):

SEC	10
Big Ten	8
Pac-12	7
Big 12	7
MWC/WAC	4
Big East	3
ACC	1

If you use the SEC preferred model of just taking the top four, in the last ten years, this is the breakdown:

SEC	12
Big 12	9
Pac 12	7
Big Ten	7
Big East	2
MWC/WAC	2
ACC	1

No matter how you shake it, the top four conferences are the SEC, Big 12, Big Ten, and Pac-12. What's unbelievable is that the ACC, regardless of the model, only had one team qualify under either scenario in the last decade (2007 Virginia Tech. Yes, the same one that lost to Kansas in the Orange Bowl). The supposedly inferior Big East, the mid-major Mountain West, and the essentially extinct WAC conference would have sent more members than the ACC would have since the 2001-2002 season.

To solidify the competitive gap in the bowl arrangement, the Big Ten and Pac-12 are committed to making the Rose Bowl work in the new format, and the Big 12 and SEC have created their own bowl, titled, "The Champions Bowl" (which I hope is a working title...). It's not too far-fetched to believe that if historical trends hold firm these two bowls will essentially be the national semi-finals being held on New Year's Day (more often than not).

So, not only are conferences like the Big East and ACC losing significant ground financially, the new playoff model, no matter how it works out, won't likely be very friendly to our friends on the East Coast if historical trends continue.

Money and access to the highest levels of competition are the name of the game, and it would appear, at this point, four conferences have a decided edge on the competition, and other conferences, namely the ACC, are watching the world they knew quickly evaporating in front of their eyes.

Oh, and I almost forgot about Notre Dame. They better hope and pray that Touchdown Jesus approves a non-conference championship model because, otherwise, they may be on the outside looking in.

Unless the Irish agree to join a conference, but that would never happen. Right?

**Edited to resolve some grammatical errors.

**Edited after I was informed that my data points on the number of potential BCS participants didn't add up correctly. Resolved and updated. It did not impact the analysis after recalculation.

**Edited Point #2 after Florida State fans let me know that they make $6.6 million in Tier 3 revenue, and the gap with Florida on Tier 3 TV revenue is actually around $3.4 million per year. It would not be a $100 million gap (after ten years) as previously mentioned. However, if the SEC creates their own network, and they do get compensated for Tier 3 revenue in addition to what they make for Tier 1 and Tier 2, the gap may increase back towards the $100 million figure.