Some interesting numbers he throws around...Neil always writes well researched articles.

http://forums.scout.com/mb.aspx?s=185&f=2826&t=5913504Trying to Breakdown the Nums

Good Article.

Niel,
If you read this, is it possible the extra money you cannot account for is the Big Ten rose Bowl contract, which is with ABC/ESPN, and I beleive is seperate from their regular season contract?

Good post by Neil. Might explain why ND is not jumping so quickly. But even $14.5M dwarfs everybody but the SEC, and the structure of the BTN allows for accelerated growth, given the right markets and teams.

I'd say outside ND (which likely isn't budging anyway), it really does not change much as to what might happen with expansion, assuming the investment firm's B10 study was reported accurately. Just my first impression. I could be persuaded otherwise, perhaps. with more info.

(05-03-2010 10:18 AM)TripleA Wrote:  Good post by Neil. Might explain why ND is not jumping so quickly. But even $14.5M dwarfs everybody but the SEC, and the structure of the BTN allows for accelerated growth, given the right markets and teams.

It's also worth noting that teams added to th eBig Ten will not share the same equity position as the original 11 ever, and their proportionate share of the rights fees will be gradually given equal share

(05-03-2010 11:39 AM)adcorbett Wrote:  

(05-03-2010 10:18 AM)TripleA Wrote:  Good post by Neil. Might explain why ND is not jumping so quickly. But even $14.5M dwarfs everybody but the SEC, and the structure of the BTN allows for accelerated growth, given the right markets and teams.

It's also worth noting that teams added to th eBig Ten will not share the same equity position as the original 11 ever, and their proportionate share of the rights fees will be gradually given equal share

True. Good point. Makes the assumption that anybody outside ND or Texas would leap in a second not exactly true. However, in the long term, it is still the best option out there for almost everybody.

(05-03-2010 11:42 AM)TripleA Wrote:  True. Good point. Makes the assumption that anybody outside ND or Texas would leap in a second not exactly true. However, in the long term, it is still the best option out there for almost everybody.

In a fend for yourself situation, you are absolutely right. Although I think if the the remaining Big East schools actually banded together, they could make a good chunk of change, and actually be a part of a conference that wants you, and is not using you for your market. Unfortunately, there is no honor among thieves.

It's funny how no in the Big East office has noticed that the Big Ten is shouting as loud as they can for the whole country to hear them, that they very much want half of your members (and a partial member), and that your conference is obviously being severely underpaid. Likewise, they are publicly talking about their plans to monopolize the market that your conference is built around, and ho wmuch of a windfall it will be Meanwhile, you have conference members ready to jump ship because they are not getting enough money.

I mean, do they need a slide rule to figure this **** out?

(05-03-2010 11:39 AM)adcorbett Wrote:  

(05-03-2010 10:18 AM)TripleA Wrote:  Good post by Neil. Might explain why ND is not jumping so quickly. But even $14.5M dwarfs everybody but the SEC, and the structure of the BTN allows for accelerated growth, given the right markets and teams.

It's also worth noting that teams added to th eBig Ten will not share the same equity position as the original 11 ever, and their proportionate share of the rights fees will be gradually given equal share

I tend to doubt that even though it is possible the new members would concede buying equal equity.

First its contrary to the nature of the league and second if these schools actually bring the sort of value that makes them worth adding, they will gain equity rapidly. Right now each Big 10 school owns about 4.7% of the network (Fox owns 49%) and if all were to gain equal equity each school in a 16 team circuit would own about 3.2%. There will have to be a buy-in phase where the current 11 owners are compensated for giving up 32% of their ownership stake.

It's also in the Big 10's future interest to have the new members buy full equity. Remember B10 Net involves sharing of profit and sharing of rights fees. It is quite unwise to be in a position where 16 are sharing the rights fee component equally but the profit component unequally. In that situation Fox and the current 11 members have good reason to supress the rights fees so that more is available to them in profit, screwing the expansion 5 who would be pushing for greater rights fees to lower the profit. Such an arrangement invites rather acrimonious litigation with the expansion 5 suing and alleging that Fox and the 11 have conspired to artificially deflate the rights fees to enrich themselves.

(05-03-2010 11:53 AM)arkstfan Wrote:  It's also in the Big 10's future interest to have the new members buy full equity. Remember B10 Net involves sharing of profit and sharing of rights fees. It is quite unwise to be in a position where 16 are sharing the rights fee component equally but the profit component unequally.

That is not really true. The original 11 members took a big risk in setting up the Big Ten Network. A big risk. It;s similar to a start up company, where you have 11 investors who each contribute a million dollars. If the company proves to be a success, and you later take on five more investors at $1 million a pop, they will not get equal shares. Like any company, the initial shareholders who take the risk, want a bigger return on their invesment than subsequent investors. It was stated once or twice before that this would be the case, but I cannot remember where I saw it. The schools that took on that risk, will not be be giving up equal equity to new members who are assuming very little risk at this point, nor would new schools be given an immediate equal share of the rights fees.

In time, the new members should equally share in the rights fees, as they help them grow accordingly, as that part is only fair. But that ownership equity will not be shared 16 equal ways (or whatever number is added). Notre Dame may be an exception since they have bargaining power.

Also, this is the Big Ten we are talking about. The same conference that negotiates the Rose Bowl deal ahead of the BCS deal (to ensure they get favorable terms over the other four BCS conferences), seals playing against the Pac 10 in said Rose Bowl, but does not equally share the money with the Pac 10. Seriously, you cannot make this stuff up.

(05-03-2010 11:51 AM)adcorbett Wrote:  

(05-03-2010 11:42 AM)TripleA Wrote:  True. Good point. Makes the assumption that anybody outside ND or Texas would leap in a second not exactly true. However, in the long term, it is still the best option out there for almost everybody.

In a fend for yourself situation, you are absolutely right. Although I think if the the remaining Big East schools actually banded together, they could make a good chunk of change, and actually be a part of a conference that wants you, and is not using you for your market. Unfortunately, there is no honor among thieves.

It's funny how no in the Big East office has noticed that the Big Ten is shouting as loud as they can for the whole country to hear them, that they very much want half of your members (and a partial member), and that your conference is obviously being severely underpaid. Likewise, they are publicly talking about their plans to monopolize the market that your conference is built around, and ho wmuch of a windfall it will be Meanwhile, you have conference members ready to jump ship because they are not getting enough money.

I mean, do they need a slide rule to figure this **** out?

I've been thinking this the whole time. So they're saying half of the Big East football conference is capable of making Big Ten TV money, but only if they join the Big Ten? I know all about synergy, but there is no way in hell you triple your TV value by switching conferences.

I guess you could triple your REVENUE if the new conference is dumb enough to pay it. But there is no way Syracuse, Pit and Rutgers triple their intrinsic value to the television market just by changing opponents in 8 of 12 games.

Nice analysis Neil. That was good analysis. BE is way underpaid in its current contract if B11 is getting that kind of money.

(05-03-2010 12:06 PM)adcorbett Wrote:  

(05-03-2010 11:53 AM)arkstfan Wrote:  It's also in the Big 10's future interest to have the new members buy full equity. Remember B10 Net involves sharing of profit and sharing of rights fees. It is quite unwise to be in a position where 16 are sharing the rights fee component equally but the profit component unequally.

That is not really true. The original 11 members took a big risk in setting up the Big Ten Network. A big risk. It;s similar to a start up company, where you have 11 investors who each contribute a million dollars. If the company proves to be a success, and you later take on five more investors at $1 million a pop, they will not get equal shares. Like any company, the initial shareholders who take the risk, want a bigger return on their invesment than subsequent investors. It was stated once or twice before that this would be the case, but I cannot remember where I saw it. The schools that took on that risk, will not be be giving up equal equity to new members who are assuming very little risk at this point, nor would new schools be given an immediate equal share of the rights fees.

In time, the new members should equally share in the rights fees, as they help them grow accordingly, as that part is only fair. But that ownership equity will not be shared 16 equal ways (or whatever number is added). Notre Dame may be an exception since they have bargaining power.

Also, this is the Big Ten we are talking about. The same conference that negotiates the Rose Bowl deal ahead of the BCS deal (to ensure they get favorable terms over the other four BCS conferences), seals playing against the Pac 10 in said Rose Bowl, but does not equally share the money with the Pac 10. Seriously, you cannot make this stuff up.

That doesn't solve the fiduciary issue that could leave the Big 10 ripe to be torn apart.

As I said, if the newcomers don't gain full equity down the road it is not in the interest of the 11 (nor Fox) to pay a fair rights fee and even if they believe it is fair, odds are pretty good that the new members won't agree if there is a wide disparity in revenue. The 11 have a fiduciary duty as part of the Big 10 to negotiate the best possible rights fee for the full 16 members of the conference but the highest reasonable fee is not in their best financial interest because they (like Fox) want to maximize profit in order to maximize their income.

If they end up self-dealing (or are perceived to be self-dealing) the five would likely sue the 11 for breaching their duty to the conference.

In the world of business the early investors want a big return and that's why they are early investors and they normally get that return by selling all or part of their investment to subsequent investors.

The current Big 10 schools would be rather foolish to not sell down their investment to the new members so that all have an equal stake. Getting fair market for the 32% stake each is giving up beats some day down the road having the newbies lured away but a predatory league that could potentially offer a similar or greater return (ie. Nebraska and Mizzou join a joint effort merging Pac-10 and Big XII schools) on a balanced distribution thereby harming the investment of the 11 or being sued by the five for artificially deflating the rights fee.

Just isn't worth it. They've already got a financial analysis firm on contract that can appraise the value.

I never said they could not buy that equity. I said, or if not clearly I am saying now, that they will not be vested the equity that is there, like other members. But think about it, if you have a network generating risidual income in the neighborhood of $100 million plus per year, how much do you think they would make them pay to buy in now? I don't think any of the schools could afford it.

(05-03-2010 03:54 PM)adcorbett Wrote:  I never said they could not buy that equity. I said, or if nto clearly am saying now, that they will not be vested the equity that is there like other members. But think abotu it, if you have a network generatig risidual income in the neighborhood of $100 million plus per year, how much do you think they woudl make them pay to buy in now? I don't think any of the schools could afford it.

Your wording was imprecise to cause the confusion of your meaning.

Absolutely agree that they will never be given full equity, it will have to be purchased at a reasonable market value. I would imagine the Big 10 schools would finance the deal.

If the network is producing profit of $100 million right now the probable very low end of the asking price for about 31% stake would be $124 million or nearly $25 million per school and might be as high as $50 million per school. Assuming the league let them finance it over 10 years the annual payment on a $50 million buy-in would be about $5.9 million per year over 10 years at the prime rate and about $6.5 million per year at prime plus 2.

I would expect that the league would self-finance the deal preferring to earn the interest income over the life of the transaction over the schools (or their booster clubs more likely) financing through a third-party.

Part 2 of Omnicarrier's BTN Breakdown

SUfootballfan_said_it_all.
Take_Syc&RU_to_close_the_door_on_ACC