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College sports thrive amid downturn
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PirateMarv Offline
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College sports thrive amid downturn
05-05-2014 01:40 PM
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oliveandblue Offline
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RE: College sports thrive amid downturn
I think it's a bubble. It's going to continue to expand until a series of events causes an ugly correction. At that point, it will expand back up again until something new happens to bring it back down. It's the very natural ebb-and-flow of things here in the USA.

I think the first cause of correction will be the contraction of the middle class affecting ticket sales at the FBS level. It's starting to happen now at some of the weaker programs, but it will eventually bleed into the ranks of some of the better schools as well.
05-05-2014 02:02 PM
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miko33 Offline
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RE: College sports thrive amid downturn
I agree that athletics is seeing a boom at the moment, and that everything runs based on a boom/bust cycle. I also believe there will be some structural challenges that will be game changing for college athletics in the future that will be detrimental to most schools. We see the changing trends in lower participation rates for pop warner football, people starting to pass on attending live sporting events and even the explosion of competing activities that did not exist 10 years ago. There is more competition for your time now than ever before, and it appears that more people are choosing to not spend hours upon hours watching sports when they can be doing other things instead. I don't expect to see major changes in the near future, but I predict the next generation of sports fans will not be as rabid nor numerous than we've seen in the past. Also consider that people do not have the tight connection to their alma maters like they used to.
05-05-2014 02:48 PM
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Frank the Tank Offline
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RE: College sports thrive amid downturn
(05-05-2014 02:48 PM)miko33 Wrote:  I agree that athletics is seeing a boom at the moment, and that everything runs based on a boom/bust cycle. I also believe there will be some structural challenges that will be game changing for college athletics in the future that will be detrimental to most schools. We see the changing trends in lower participation rates for pop warner football, people starting to pass on attending live sporting events and even the explosion of competing activities that did not exist 10 years ago. There is more competition for your time now than ever before, and it appears that more people are choosing to not spend hours upon hours watching sports when they can be doing other things instead. I don't expect to see major changes in the near future, but I predict the next generation of sports fans will not be as rabid nor numerous than we've seen in the past. Also consider that people do not have the tight connection to their alma maters like they used to.

Actually, spectator sports haven't ever really been on a boom/bust cycle (at least since the 1980s). Sports revenue and team values (both college and pro) have been going up and up and up through both good economic times and bad for the past three decades with barely a speed bump. I recall a Deadspin article from a few months ago that pulled tons of quotes from industry experts in the late-1980s stating that it was "impossible" for TV sports rights to continue rising at the levels that they were at during that period... yet they've risen unhinged for 30 years straight. Note that these weren't quotes from a bunch of uninformed hacks, but they were taking the simplistic notion that rapidly rising costs must indicate a bubble (which is what I see a lot of people arguing today).

Now, that doesn't automatically mean that these rising revenues can continue to occur for the next 30 years. However, it would be every bit as much of a mistake to just automatically assume that the current high peak is a bubble. Sports have a different psychological hold on fans than normal consumer products. More importantly, the money at the gate for ticket sales is no longer as important as the money from the viewers sitting at home (which is a significantly larger audience). The loss of ticket sales may very well happen (or is already happening in many places). The key to success for sports teams going forward is still being able to maximize revenue from people that aren't actually in your stadium. To the extent that fans aren't as rabid for particular teams, it becomes more important to have a product that has much broader appeal. (Of course, this only exacerbates the focus on elite brand names in pro and college sports, for better or for worse.)
(This post was last modified: 05-05-2014 03:07 PM by Frank the Tank.)
05-05-2014 03:06 PM
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RE: College sports thrive amid downturn
panem et circenses
05-05-2014 03:20 PM
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miko33 Offline
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RE: College sports thrive amid downturn
(05-05-2014 03:20 PM)allerretour Wrote:  panem et circenses

Indeed. It's more fun to root for a sports team than to study the issues and make informed decisions during election days or to become active in something that has meaning.
05-05-2014 03:34 PM
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miko33 Offline
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RE: College sports thrive amid downturn
(05-05-2014 03:06 PM)Frank the Tank Wrote:  
(05-05-2014 02:48 PM)miko33 Wrote:  I agree that athletics is seeing a boom at the moment, and that everything runs based on a boom/bust cycle. I also believe there will be some structural challenges that will be game changing for college athletics in the future that will be detrimental to most schools. We see the changing trends in lower participation rates for pop warner football, people starting to pass on attending live sporting events and even the explosion of competing activities that did not exist 10 years ago. There is more competition for your time now than ever before, and it appears that more people are choosing to not spend hours upon hours watching sports when they can be doing other things instead. I don't expect to see major changes in the near future, but I predict the next generation of sports fans will not be as rabid nor numerous than we've seen in the past. Also consider that people do not have the tight connection to their alma maters like they used to.

Actually, spectator sports haven't ever really been on a boom/bust cycle (at least since the 1980s). Sports revenue and team values (both college and pro) have been going up and up and up through both good economic times and bad for the past three decades with barely a speed bump. I recall a Deadspin article from a few months ago that pulled tons of quotes from industry experts in the late-1980s stating that it was "impossible" for TV sports rights to continue rising at the levels that they were at during that period... yet they've risen unhinged for 30 years straight. Note that these weren't quotes from a bunch of uninformed hacks, but they were taking the simplistic notion that rapidly rising costs must indicate a bubble (which is what I see a lot of people arguing today).

Now, that doesn't automatically mean that these rising revenues can continue to occur for the next 30 years. However, it would be every bit as much of a mistake to just automatically assume that the current high peak is a bubble. Sports have a different psychological hold on fans than normal consumer products. More importantly, the money at the gate for ticket sales is no longer as important as the money from the viewers sitting at home (which is a significantly larger audience). The loss of ticket sales may very well happen (or is already happening in many places). The key to success for sports teams going forward is still being able to maximize revenue from people that aren't actually in your stadium. To the extent that fans aren't as rabid for particular teams, it becomes more important to have a product that has much broader appeal. (Of course, this only exacerbates the focus on elite brand names in pro and college sports, for better or for worse.)

I think sports has been on an extended boom, but the bubble will pop sooner or later. Very bright people have figured out a way to continue to monetize enough facets of the sports industry in order to keep the bubble inflating. The industry matured from live entertainment venues only to network TV and advertising dollars to cable to pay per view to the internet - all along the way the industry execs have fortunately found ways to sell more advertising opportunities plus merchandising. Also, you can't discount how the NFL fortunately had a forward looking vision to introduce parity into the league so that more people became interested in the product.

I do not propose to be an expert on sports economics, but I do know that it is not a staple product like water, utilities, food, etc. If the product is not a staple, then it will run on a cycle - even if that cycle is extremely long.
05-05-2014 03:42 PM
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Frank the Tank Offline
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RE: College sports thrive amid downturn
(05-05-2014 03:42 PM)miko33 Wrote:  I think sports has been on an extended boom, but the bubble will pop sooner or later. Very bright people have figured out a way to continue to monetize enough facets of the sports industry in order to keep the bubble inflating. The industry matured from live entertainment venues only to network TV and advertising dollars to cable to pay per view to the internet - all along the way the industry execs have fortunately found ways to sell more advertising opportunities plus merchandising. Also, you can't discount how the NFL fortunately had a forward looking vision to introduce parity into the league so that more people became interested in the product.

I do not propose to be an expert on sports economics, but I do know that it is not a staple product like water, utilities, food, etc. If the product is not a staple, then it will run on a cycle - even if that cycle is extremely long.

Well, your last statement is interesting. Sports might act more like a utility from an economic perspective than you're giving them credit for (hence, they might act more like "staples" than discretionary goods when looking purely at their valuations and revenue streams). Utilities are generally regional monopolies that receive protections and even subsidies from the government that make them much more immune to the broader economy than other industries. Well, aren't sports teams the same thing? Pro sports teams are granted regional monopolies (with a small handful of historic duopolies a la Yankees/Mets, Cubs/White Sox, etc.) and, in many instances, are the recipients of substantial government support in the form of stadium deals (and more often than not, pro sports teams are the winners in any showdown between them and local governments). Meanwhile, the power conference schools are generally large public institutions that are all members of one of 5 exclusionary clubs (and even the private institutions are tax-exempt entities). All of these teams (college and pro) have protected territories with a whole lot of government support.

So, sports revenue streams don't go up and down like typical widgets in a pure free market. Instead, they look a lot more like utilities that are generally hedged against economic downturns. They only gain legitimate competitors to the extent that they voluntarily allow them into the club (i.e. pro leagues granting new franchises and power conferences inviting new members). Not too many industries have that type of gatekeeping power.
(This post was last modified: 05-05-2014 04:36 PM by Frank the Tank.)
05-05-2014 04:33 PM
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TerryD Offline
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RE: College sports thrive amid downturn
Well, that just goes to show that we are all socialists, right?

Government granted/protected monopolies, government built stadia, etc...

So much for the alleged "free market capitalism" structure.
05-05-2014 05:19 PM
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john01992 Offline
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RE: College sports thrive amid downturn
i dunno ==> on one hand there is no way the exponential growth of college athletics can be sustained at the rate things are going, but at the same time with the rise of the internet cable companies will continue to place more & more value on live sporting events.
05-05-2014 05:26 PM
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Wedge Offline
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RE: College sports thrive amid downturn
Just because the bubble hasn't popped yet doesn't mean it's not a bubble.

IMO it only means that the bubble is longer-lasting than previously thought, but it's still a bubble.
05-05-2014 05:37 PM
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RE: College sports thrive amid downturn
The bubble is already cracking, just has not burst. Tix sales are down at the vast majority of schools, just TV is way up and paying the freight. Question yet to be answered is will TV ratings stay up?? If so $$$ can be good for a long time.
05-05-2014 06:38 PM
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RE: College sports thrive amid downturn
(05-05-2014 03:42 PM)miko33 Wrote:  
(05-05-2014 03:06 PM)Frank the Tank Wrote:  
(05-05-2014 02:48 PM)miko33 Wrote:  I agree that athletics is seeing a boom at the moment, and that everything runs based on a boom/bust cycle. I also believe there will be some structural challenges that will be game changing for college athletics in the future that will be detrimental to most schools. We see the changing trends in lower participation rates for pop warner football, people starting to pass on attending live sporting events and even the explosion of competing activities that did not exist 10 years ago. There is more competition for your time now than ever before, and it appears that more people are choosing to not spend hours upon hours watching sports when they can be doing other things instead. I don't expect to see major changes in the near future, but I predict the next generation of sports fans will not be as rabid nor numerous than we've seen in the past. Also consider that people do not have the tight connection to their alma maters like they used to.

Actually, spectator sports haven't ever really been on a boom/bust cycle (at least since the 1980s). Sports revenue and team values (both college and pro) have been going up and up and up through both good economic times and bad for the past three decades with barely a speed bump. I recall a Deadspin article from a few months ago that pulled tons of quotes from industry experts in the late-1980s stating that it was "impossible" for TV sports rights to continue rising at the levels that they were at during that period... yet they've risen unhinged for 30 years straight. Note that these weren't quotes from a bunch of uninformed hacks, but they were taking the simplistic notion that rapidly rising costs must indicate a bubble (which is what I see a lot of people arguing today).

Now, that doesn't automatically mean that these rising revenues can continue to occur for the next 30 years. However, it would be every bit as much of a mistake to just automatically assume that the current high peak is a bubble. Sports have a different psychological hold on fans than normal consumer products. More importantly, the money at the gate for ticket sales is no longer as important as the money from the viewers sitting at home (which is a significantly larger audience). The loss of ticket sales may very well happen (or is already happening in many places). The key to success for sports teams going forward is still being able to maximize revenue from people that aren't actually in your stadium. To the extent that fans aren't as rabid for particular teams, it becomes more important to have a product that has much broader appeal. (Of course, this only exacerbates the focus on elite brand names in pro and college sports, for better or for worse.)

I think sports has been on an extended boom, but the bubble will pop sooner or later. Very bright people have figured out a way to continue to monetize enough facets of the sports industry in order to keep the bubble inflating. The industry matured from live entertainment venues only to network TV and advertising dollars to cable to pay per view to the internet - all along the way the industry execs have fortunately found ways to sell more advertising opportunities plus merchandising. Also, you can't discount how the NFL fortunately had a forward looking vision to introduce parity into the league so that more people became interested in the product.

I do not propose to be an expert on sports economics, but I do know that it is not a staple product like water, utilities, food, etc. If the product is not a staple, then it will run on a cycle - even if that cycle is extremely long.

Not every boom is a bubble.

Bubbles are the result of an "overheating" - when market values get ahead of the underlying fundamentals. For instance , the housing bubble was created by unrealistic borrowing rules and rates.

Sports have historically been tremendously undervalued due to their inability to monetize fan loyalty to the fullest extent. The recent boom in the cost of live entertainment and similar discretionary spending in all forms - gambling, fine dining, theme parks, concerts, etc., has benefited sports tremendously. The tremendous demographics of many sports - males 18-49 - and it's ability to deliver live audiences that are captive to ads have also provided huge opportunity for monetization.

Bottom line, I don't see sports revenues as a bubble. They may flatten, but won't decline.
(This post was last modified: 05-05-2014 07:18 PM by orangefan.)
05-05-2014 07:17 PM
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bluesox Offline
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RE: College sports thrive amid downturn
05-05-2014 08:45 PM
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miko33 Offline
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RE: College sports thrive amid downturn
(05-05-2014 04:33 PM)Frank the Tank Wrote:  
(05-05-2014 03:42 PM)miko33 Wrote:  I think sports has been on an extended boom, but the bubble will pop sooner or later. Very bright people have figured out a way to continue to monetize enough facets of the sports industry in order to keep the bubble inflating. The industry matured from live entertainment venues only to network TV and advertising dollars to cable to pay per view to the internet - all along the way the industry execs have fortunately found ways to sell more advertising opportunities plus merchandising. Also, you can't discount how the NFL fortunately had a forward looking vision to introduce parity into the league so that more people became interested in the product.

I do not propose to be an expert on sports economics, but I do know that it is not a staple product like water, utilities, food, etc. If the product is not a staple, then it will run on a cycle - even if that cycle is extremely long.

Well, your last statement is interesting. Sports might act more like a utility from an economic perspective than you're giving them credit for (hence, they might act more like "staples" than discretionary goods when looking purely at their valuations and revenue streams). Utilities are generally regional monopolies that receive protections and even subsidies from the government that make them much more immune to the broader economy than other industries. Well, aren't sports teams the same thing? Pro sports teams are granted regional monopolies (with a small handful of historic duopolies a la Yankees/Mets, Cubs/White Sox, etc.) and, in many instances, are the recipients of substantial government support in the form of stadium deals (and more often than not, pro sports teams are the winners in any showdown between them and local governments). Meanwhile, the power conference schools are generally large public institutions that are all members of one of 5 exclusionary clubs (and even the private institutions are tax-exempt entities). All of these teams (college and pro) have protected territories with a whole lot of government support.

So, sports revenue streams don't go up and down like typical widgets in a pure free market. Instead, they look a lot more like utilities that are generally hedged against economic downturns. They only gain legitimate competitors to the extent that they voluntarily allow them into the club (i.e. pro leagues granting new franchises and power conferences inviting new members). Not too many industries have that type of gatekeeping power.

I agree with you that sports teams are like the regional monopolies enjoyed by utilities. However, I would argue that sports still are not staples like water, electricity, fuel, etc. There are substitutes for watching sports on TV. You can watch movies, play video games, go outside, etc. You have no real substitute for electricity. You may purchase a small windmill or solar panels to augment the electricity you take from the grid, but that's about it.

IMHO, I believe the costs for sports are overheating. Like education, costs are outpacing inflation. Granted, it's quite possible that people are monetizing fandom and there is no bubble.
05-05-2014 09:45 PM
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orangefan Offline
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RE: College sports thrive amid downturn
(05-05-2014 08:45 PM)bluesox Wrote:  http://blogs.reuters.com/felix-salmon/20...et-bubble/

Very interesting article on the mechanics of a bubble. Any of you would-be economists that think sports revenues are based on a bubble should read this and ask yourselves how the market for sports is in anyway similar to the art market.

As the article points out, the most dangerous bubbles occur when speculators dominate a market. Who are the speculators in the market for sports? An argument could be made that TV rights bidding wars have the potential to become speculative. However, I see no evidence that ESPN or FOX, the two leaders in the market, have ever overpaid for anything. Rather, they are both very astute bidders who know exactly how they intend to recover their money. They even teamed up in bidding for the Big 12 and Pac 12 rights packages to avoid creating a bidding war. FOX arguably overpaid for the Big East, but they needed winter sports programming and it was the only property available, so the payment was for strategic reasons. Even then, at $40 million/year, the amount they are paying is rounding error to FOX.
(This post was last modified: 05-06-2014 07:55 AM by orangefan.)
05-06-2014 07:55 AM
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RE: College sports thrive amid downturn
All I know is I have lost quite a bit of interest and there could be a lot more like me; don't know. It could just be my age or it could be all the conference realignment that hit the schools I follow hard starting in 2003.
05-06-2014 08:07 AM
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RE: College sports thrive amid downturn
(05-05-2014 03:20 PM)allerretour Wrote:  panem et circenses

04-bow +1
05-06-2014 09:07 AM
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Frank the Tank Offline
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RE: College sports thrive amid downturn
(05-05-2014 09:45 PM)miko33 Wrote:  I agree with you that sports teams are like the regional monopolies enjoyed by utilities. However, I would argue that sports still are not staples like water, electricity, fuel, etc. There are substitutes for watching sports on TV. You can watch movies, play video games, go outside, etc. You have no real substitute for electricity. You may purchase a small windmill or solar panels to augment the electricity you take from the grid, but that's about it.

IMHO, I believe the costs for sports are overheating. Like education, costs are outpacing inflation. Granted, it's quite possible that people are monetizing fandom and there is no bubble.

Sure, in terms of being an absolute necessity (the bottom level of Maslow's hierarchy of needs), sports aren't anywhere near there. However, the substitutes of movies, video games, etc. have all been in existence as competition for sports viewership for a long time. In fact, the whole reason why sports rights fees have continued to rise is because sports consistently to outperform all of those alternatives on a relative basis. Even the most successful movies today are making a fraction of successful movies from 20 years ago on an inflation-adjusted basis, while the top-rated TV shows from today would be canceled if they received the exact same rating in the 1990s. That hasn't been true for sports - attendance and viewership have continued to rise despite the increasing prevalence of alternatives on TV and the Internet. Sports might not be a necessity like water and electricity, but it's certainly a product with more inelastic demand akin to, say, alcohol.

Now, that doesn't mean that there aren't some danger points for sports going forward. I don't think the average sports fan will stop watching sports in favor of movies as an alternative... but a sports fan may very well stop or cut back on watching live sports in favor of just following scores on the ESPN SportsCenter app or Twitter. In essence, it's easier to be a sports fan without actually having to watch live games (and those live games are what make sports uniquely valuable compared to movies and TV shows that can be streamed at any time on Netflix or Hulu). It used to be that being a sports fan meant being a season ticket holder and watching every road game on TV. Now, being a sports fan is increasingly about clicking on who you "like" on Facebook and following scores via mobile apps.

So, the main issue going forward for sports leagues and teams is how to capitalize on that larger number of casual fans as opposed to squeezing the most dollars out of a smaller number of hardcore fans. Some leagues are actually doing a pretty good job about shifting to this new world (the NFL and NBA in particular for the pros and the Big Ten and SEC at the college level), while others are going to need to adjust a lot more. (I can go on and on about what I believe MLB needs to do, but that's an entirely different discussion.)
(This post was last modified: 05-06-2014 09:17 AM by Frank the Tank.)
05-06-2014 09:15 AM
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Post: #20
RE: College sports thrive amid downturn
Some great comments, this is the sort of thread that keeps me coming back.

Frank, I like your qualifier of the 1980's because on the face, I agreed until I thought a little more carefully.

First we had apparent busts in the 1950's and 1970's. One was a pretty good economic time, the other not so much. But as JRSec would likely point out, those two busts were not so much related to the economic cycle but the availability of students which went to the health of the underlying institutions. The 1950's bust was driven by the loss of GI Bill students. The 1970's bust was driven by the boomers moving past college age. In both instances there were schools dropping football or choosing to de-emphasize athletics (Southland Conference lost Trinity and Abiline who went non-scholie) but more significantly colleges began failing. Two public colleges and one private in Arkansas failed and had to be absorbed by the UA system to remain viable.

Between 1986 and 1995, four FBS institutions dropped football: Wichita State 1986, Long Beach 1991, Fullerton 1992, Pacific 1995.

And as for sports media rights, the 1990's were far from a boom period. The SEC and Big East joined the Pac-10 and Big 10 in departing the CFA because the CFA failed to deliver the anticipated increase.

Remember this was a period when ESPN was as yet not a huge player, ESPN2 was in a small number of homes and focused on alternate sports because of a lack of rights in the major sports. The Big 8 took the primary value of the SWC because the rights fee offer from ABC was so disappointing. There were only two significant players at this point CBS with the Big East and SEC and ABC with most everyone else other than Notre Dame. ESPN was nibbling the edges.

The collapse of the CFA created three significant shockwaves as the conferences were struggling. The SWC collapse, the formation of C-USA as the southern indies no longer had TV revenue nor access to TV. the hyper-expansion of the WAC which then led to the MWC split.

All three moves directly related to what could at best be described a flat rights fee market with realignment of the mid-late 90's essentially a zero sum game transferring rights fees that had once been paid the left-over SWC, WAC, and southern indies to the power conferences.

The rapid rise of rights fees subsequent to that period comes down to three economic events. 1. The rise of the DVR creating a premium for live content where commercials are not skipped 2. The rise of the rights fee as a revenue source. 3. Alternates to cable, first in the form of DBS satellite and then the emergence of IPTV most notably ATT and Verizon. ESPN secured content of sufficient value that any of the aggregators (cable, sat, IPTV) had to pay the toll or face the loss of consumers to competitors. Most Americans (unless there is a restrictive covenant or peculiar geographic issue) has access to two to four providers. Two DBS (Dish and Direct), a local wired cable provider and possibly and IPTV provider.

Entertainment programmers have embraced a long tail model. Content first runs on an early window exclusive provider (HBO, AMC, NBC, CBS, Fox, ABC), then shortly after first run moves to a pay per episode provider (Apple, Google Play, Vudu), then to DVD, then finally to Netflix, Amazon all you can eat providers for a set period (for example 24 is no longer available on Netflix but is available on Amazon Prime where it is available all-you-can-eat or pay-per- episode or pay per season).

That model simply doesn't work for sports, the question is how many people are willing to forego immediate access to programming from the entertainment providers to catch it later down the stream at a discount and forego live sports subscriptions.

TV ratings would suggest that no more than 30% or the market considers CFB essential programming and it may be as low as 10%-15%.

If the carriage fee model no longer works (and I think it will for some time) then there is a great probability of future flat or falling rights fees. I think the carriage fee model is viable for a significant amount of time because if 10% of current cable/sat consumers say I can wait to watch Walking Dead or Game of Thrones and I don't care about sports, then AMC and HBO carry less value to cable/sat but ESPN and other sports properties become the glue keeping consumers stuck with cable/sat ESPN is no longer worth $5.50 per household it is worth at $6.05 (10% increase) and probably more like $6.60 because the sports consumer is essential to retain. Lose the sports consumer and cable/sat are in deep trouble.
05-06-2014 09:55 AM
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