The Economy, Streaming, and Needs of Conferences and Schools Have Changed Realignment
I. The Current Conditions
Five years ago I told a group of my SEC friends on another site that the market model would be a passing phase on the way to the end goal of the networks. One reason that ESPN's overhead is too high is because they purposefully overpaid for the realignment that has already occurred. Their goal was to divide the interest of the largest states into multiple conferences. That's why they were behind a failed deal that would have taken N.C. State and Virginia Tech to the SEC, why they were for taking a large single market in Missouri away from potential rival FOX, and why they were for fragmenting the Texas market by backing A&M to the SEC, and why they were dead set against the SEC gaining a majority hold in Florida by taking F.S.U.. It's also why the sewed up the best product of the Old Big East in an effort to thwart the unleveraged expansion of the BTN into the Northeast. And why the later spent foolishly to tether Bevo away from the PAC.
To gain this control they were willing to pay multiple conferences for the total households subscribing to ESPN's bundle within the same duplicated states. But, this was just a temporary move on their part, and one that now will come to an end.
Five years ago I said that a saturation model would replace the footprint model which was but a carrot to move the product around that they wanted moved. By saturation I meant that in the state of Florida if the Gators drew 45% of the viewers, the Seminoles 40% of the viewers and the Canes the other 15% (numbers just for example) that they would only pay the SEC for 45% of the state of Florida and the ACC 60%.
Well the saturation model has now been replaced by market forces with a more far reaching method of fragmenting costs, streaming. The possibility of one day paying the conferences only for the actual number of viewers is changing the whole landscape of realignment.
The new winners of realignment will be those conferences with the most brand on brand competition whether that is football, basketball, or any other sport. The size of a markets won't matter when conferences are rewarded for actual viewers. The need to take a Virginia and North Carolina school is now only as important as the number of dedicated viewers they bring. In that regard the size of market is a plus, but it is no longer the slam dunk reason for the addition.
II. Economic Factors
While it is no longer 2008 the result of QE may very well be the same protracted stagnation that Japan has suffered for over 2 decades. Couple that with the dying out of the last two vested generations of the middle class in American history (WWII & Boomers) and the anticipation of well heeled donors in large numbers has passed and along with it the first decline in attendance at college football in decades is underway. In part this is happening because the rise in donations to buy tickets and the ticket prices themselves are causing more young fans to opt out and go the route of cable which to a much more tech savvy generation means those with the skill sets to appreciate and utilize cheaper delivery modes.
This has the networks, the conferences, the schools, and the consumers pausing to reevaluate their present positions. The SEC would have to add oodles of basketball schools to gain a larger toehold there, so they won't. Instead they will simply spend more football wealth on basketball and pursue growth by that method. The quickest way now for the SEC to add value is by seeking solid football brands to add to its already staunch inventory.
Conversely the Big 10 can't add enough football brands effectively to boost its content. It can however dominate college basketball and use the wealth of its region and alumni to build better football programs among its member schools. This doesn't mean that the Big 10 will not add football brands, but it does mean they can maximize their position by strengthening what it is that they already do wonderfully.
The net result of both will be better basketball and better football and probably a future alliance taking advantage of their inherent and historical rivalry.
The PAC will expand markets into areas where a higher percentage of viewers are engaged. The Big 12 has been a conference in need of scope and the PAC has been a conference in need of carriage and dedicated viewers. The PAC has scope and scholarship. The Big 12 has the second highest % of viewers based on market size in the nation just ahead of the Big 10 and just behind the SEC.
III. ESPN's Cuts
$250 million by 2017 is a tall order but not an insurmountable one. It won't take long for strategies to be reassessed and replaced before things start in earnest again to consolidate product into areas where it will be the most valuable, and to do so in ways that cut costs without punishing the schools.
Almost every conference leadership and office expenses eats one full member's share of the profits. Eliminating two conferences is the equivalent of eliminating two schools from the pie. Consolidating into three somewhat more compact regional conferences cuts down on the legal work for ESPN and could eliminate 5 more schools from the pie while delivering better product placement, guaranteeing the participation of all three regions through the semifinals in football, and permitting a wild card selection which could again provide a way to balance audience participation for the networks when needed.
For the schools regionalism cuts down on the travel for minor sports, particularly if divisional play is emphasized and the divisions are regionally grouped. It also guarantees that the alumni of the schools involved have a better chance to drive a reasonable distance to the away games. So it also serves to enhance ticket sales and attendance, not to mention the stands are a lot fuller when the fans care about playing the opponent.
IV. Future Realignment
I wouldn't be surprised if a push for consolidation occurs when everyone is up to speed with the new environment for broadcasting athletics and have some reasonable idea of what kind of transition period will transpire before streaming is a fuller reality. Since a school joins a conference with the intentions to stay and that kind of change is costly and cumbersome I don't see any further expansion based purely upon market models occurring.
Product placement and the most reasonable approach to shoring up weaknesses will be the new plan for expansion.
Based upon that I wouldn't be surprised to see no new networks formed. Those that are in operation will be utilized. The LHN could be converted into a second PAC site.
Perhaps we will see something like Iowa State, Kansas, Kansas State, Oklahoma, Oklahoma State, Texas and one of T.C.U. or Baylor to the PAC 12 to form 4 divisions of 5 schools:
Iowa State, Kansas, Kansas State, Oklahoma, Oklahoma State
Colorado, Baylor/TCU, Texas, Texas Tech, Utah
Arizona, Arizona State, California, Cal Los Angeles, Southern Cal
Oregon, Oregon State, Stanford, Washington, Washington State
And a Big 10 that takes 6 of the best basketball, academic, and lacrosse schools of the ACC, while the SEC takes 6 of its football first schools.
Why? Such a move enhances ESPN's value in the basketball first schools by placing their content with that of the Big 10. ESPN keeps the T1 deal for Big 10 football and T1 for Big 10 basketball will have so much content it won't matter who has T2. ESPN cuts around 60% of the payout to those 6 schools but enhances their advertising appeal for the rights they retain.
ESPN enhances tremendously the content value for SEC football for the total expense of 6 schools. They now have so much SEC content they can sublease part of it to FOX to alleviate overhead and gain FOX's cooperation in the new approach for both networks. They will need it if they are to gain a % each of the PACN in exchange for improving PAC distribution and payout. Morphing the LHN helps here and the expenses are still split 50/50 for the product they were essentially sharing 50/50.
In the process ESPN no longer has to pay half of 26 million each for two Big 12 properties, or all of 21.5 million for 3 ACC properties. In total they should approach $130 million plus in reductions in overhead while maximizing their content values in hoops and football without having to give up access to anyone. Cutting a channel out like ESPN classic and more talking heads would clear the rest of the requirements.
Then they could spend their time planning with FOX for the transition to streaming while realizing that they still have the best basketball and football product to be offered but now those titles belong to the Big 10 and SEC.
While this might not be what happens, it certainly is a possibility that has to be considered.
(This post was last modified: 01-28-2016 10:06 PM by JRsec.)
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