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Analysis of American TV Contract
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CougarRed Offline
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Post: #1
Analysis of American TV Contract
Over 2015 and 2016, the American has delivered an average of 29 million viewers for its ABC/ESPN/ESPN2/ESPNU inventory.

This does not include Navy's home conference games, or home games every other year for Navy against ND and Air Force. Those games join the inventory in 2018.

Add those in, and the American inventory will be worth approximately 33 million viewers per year.

The Big 12 delivered 44 football million viewers for ESPN in 2016. The Pac 12 delivered 39 million football viewers for ESPN in 2016.

ESPN pays the Pac 12 an average of $125M per year over the life of the contract for football and basketball, but that number was lower in the earlier years and will be higher in the later years. This includes 22 football games and 46 basketball games.

ESPN pays the Big 12 an average of $100M per year over the life of the contract for football and basketball, but that number was lower in earlier years and will be higher in later years. It includes 23 football games a year and 100 basketball games.

Assuming:

1. The same football:basketball value ratio for the Pac 12, Big 12 and American, and

2. That the American basketball viewer value (with Wichita added) compared to the Pac 12/Big 12 is proportional to its football viewer value compared to those leagues,

then the American contract should be worth at least 75% of what ESPN pays to the Big 12 (33M/44M * $100M), or about $75M per year on average.

This works out to about $6M per school.

I can't see that number falling below $5M per school or climbing above $8M per school (which is where a comparison to the Pac 12 numbers puts it).

The American ESPN contract expires in June 2020, and will likely be renegotiated by the summer of 2019.
10-12-2017 10:33 AM
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Attackcoog Offline
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RE: Analysis of American TV Contract
If you look at the US ratings for MLS soccer and Premier League Soccer, the AAC ratings slot in as being superior to MLS soccer and are similar (or better) to Premier League Soccer. The MLS deal is 75 million a year (split between 3 networks) and the Premier Leagues deal is for 166 million a year. These comparable contracts would also tend to be supportive of at least 75 million in value for the new AAC TV contract--possibly more. My guess is---much like MLS Soccer--the AAC will have to split the contract in order to generate maximum value.

Thus, the AAC doesnt need to get all 75 million from ESPN. Lets say ESPN just doesnt want to pay that much for the AAC inventory. It possible that the AAC could get 50-60 million from ESPN for the games that ESPN airs on its ABC/ESPN family of networks. Then, the AAC packages up the rest and sells it to CBS-Sports or NBC for 15-20 million (or both). CBS Sports currently pays 12 million for a 20+ game package with the Mountain West that doesnt include Boise home games. It should be noted that the MW games, as a group, have lower ratings than the AAC games. NBC pays 166 million a year for Premier Soccer---so 15-20 million for a 20 game AAC package wouldnt be a huge leap in my opinion (especially considering they have no FBS college football at all beyond Notre Dame). The combination of the spit contract would still end up in that 70-80 million range (possibly more), but ESPN wouldnt be on the hook for 75 million. They would just pay for what they have actually been using to fill their broadcast line up.
(This post was last modified: 10-12-2017 11:02 AM by Attackcoog.)
10-12-2017 10:47 AM
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orangefan Offline
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Post: #3
RE: Analysis of American TV Contract
You can't just look at gross numbers. The key is "VORP" - value over replacement programming (copied from the baseball stat value over replacement player"). The P12 and B12 football numbers are for 22 and 23 games respectively. How many AAC games contributed to its total? Assume that ESPN's option is showing a MAC or CUSA game, or another edition of SportsCenter. How many more viewers does the AAC game generate than this essentially free alternative? I have no idea what the answers are to these questions, and it may very well be that the AAC is tremendously undervalued. However, this is the kind of analysis that you'd have to perform to determine the answer.
(This post was last modified: 10-12-2017 10:56 AM by orangefan.)
10-12-2017 10:56 AM
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Attackcoog Offline
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RE: Analysis of American TV Contract
(10-12-2017 10:56 AM)orangefan Wrote:  You can't just look at gross numbers. The key is "VORP" - value over replacement programming (copied from the baseball stat value over replacement player"). The P12 and B12 football numbers are for 22 and 23 games respectively. How many AAC games contributed to its total? Assume that ESPN's option is showing a MAC or CUSA game, or another edition of SportsCenter. How many more viewers does the AAC game generate than this essentially free alternative? I have no idea what the answers are to these questions, and it may very well be that the AAC is tremendously undervalued. However, this is the kind of analysis that you'd have to perform to determine the answer.

The thing is---I think that logic already was utilized---but not where you're thinking. I believe ESPN used that thinking in bidding on the front half of the Big10 package. I think they figured by keeping half the package, they still got the #1 pick from the Big10 half the time and the #2 Big10 game the rest of the time. Thus, they really didnt need to replace the top Big10 games, what they would really be replacing is the Purdue vs Indiana type game. The top games from the AAC could be reasonable substitutes there.

So, I think ESPN will ante up on the AAC inventory---because the top CUSA/MAC games wont be viable replacements for Indiana vs Purdue type game. Thus, even if the AAC costs 75 million for the 25 or so games ESPN needs, so what? For just $75 million---they are essentially replacing the Big10 slots that it would have cost $250 million to fill with actual Big10 games. The net result is a savings of 175 million and the diference in ratings should be minimal.
(This post was last modified: 10-12-2017 11:13 AM by Attackcoog.)
10-12-2017 11:08 AM
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Frank the Tank Offline
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RE: Analysis of American TV Contract
(10-12-2017 10:56 AM)orangefan Wrote:  You can't just look at gross numbers. The key is "VORP" - value over replacement programming (copied from the baseball stat value over replacement player"). The P12 and B12 football numbers are for 22 and 23 games respectively. How many AAC games contributed to its total? Assume that ESPN's option is showing a MAC or CUSA game, or another edition of SportsCenter. How many more viewers does the AAC game generate than this essentially free alternative? I have no idea what the answers are to these questions, and it may very well be that the AAC is tremendously undervalued. However, this is the kind of analysis that you'd have to perform to determine the answer.

This is true. Also, the most important thing with TV contract amounts that people MUST remember is that they actually are NOT valued in a proportional manner with respect to ratings.

For example, a football game with a 3.0 rating is NOT worth only 2 times more than another football game with a 1.5 rating. Instead, that 3.0 rating is actually worth 4 or 5 times as much as a game with a 1.5 rating. Why? Because of the VORP concept that you noted, the fact that there's scarcity of time (e.g. there are only a finite number of time slots available each Saturday, so the premium is much greater in order to maximize the value of each such time slot), and the fact that advertisers pay exponentially more for larger audiences because they're also scarce (e.g. there are lots and lots of programs across many different cable channels that can deliver a 1.5 ratings on a Saturday afternoon, but there are very few programs that can deliver a 3.0 rating).

Ultimately, we're not comparing widgets at a store where there are an infinite number of consumers that can buy such widgets at any time in many different ways. Instead, the market for college football is almost entirely based on the 3 to 4 timeslots that are available on ESPN and other sports networks for 13 Saturdays during the fall *specifically*. (Weeknight games are more about the leverage ESPN has over you to move games off of Saturday as opposed to how they value you financially.) ESPN isn't saying, "Well, we're fine with paying a G5 league 50%-75% of the rights fees of a P5 league in exchange for 50%-75% of the viewership in a timeslot." Instead, they look at the opportunity cost of giving up such a valuable timeslot to a lower rated program and apply a further discount (along with looking at the VORP and other factors).

The upshot is that getting 75% of the viewers doesn't (and will never) equate to 75% of the rights fees in the marketplace. Instead, it's more like 25%-30% of the rights fees when you take into account the advertiser premiums and opportunity cost noted above... and that's basically right in line with what the AAC is receiving today.

Plus, just look at ESPN's actions this year. Has the coverage of the G5 leagues on ESPN really changed at all after losing half of the Big Ten games? Honestly, what I mostly see is that Big Ten games that used to be on ESPNU are all gone, while the coverage on the mothership ABC/ESPN platforms (which are where the money is really made for conferences) haven't changed at all.
10-12-2017 11:40 AM
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CougarRed Offline
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Post: #6
RE: Analysis of American TV Contract
2017 Nonconference records

Big 12 = 14-10
American = 16-13

=====

MWC = 11-23
MAC = 11-26
CUSA = 12-28
SB = 6-26

Anyone who thinks any old G4 league can replace the American is a fool.
10-12-2017 11:43 AM
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orangefan Offline
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RE: Analysis of American TV Contract
(10-12-2017 11:08 AM)Attackcoog Wrote:  
(10-12-2017 10:56 AM)orangefan Wrote:  You can't just look at gross numbers. The key is "VORP" - value over replacement programming (copied from the baseball stat value over replacement player"). The P12 and B12 football numbers are for 22 and 23 games respectively. How many AAC games contributed to its total? Assume that ESPN's option is showing a MAC or CUSA game, or another edition of SportsCenter. How many more viewers does the AAC game generate than this essentially free alternative? I have no idea what the answers are to these questions, and it may very well be that the AAC is tremendously undervalued. However, this is the kind of analysis that you'd have to perform to determine the answer.

The thing is---I think that logic already was utilized---but not where you're thinking. I believe ESPN used that thinking in bidding on the front half of the Big10 package. I think they figured by keeping half the package, they still got the #1 pick from the Big10 half the time and the #2 Big10 game the rest of the time. Thus, they really didnt need to replace the top Big10 games, what they would really be replacing is the Purdue vs Indiana type game. The top games from the AAC could be reasonable substitutes there.

So, I think ESPN will ante up on the AAC inventory---because the top CUSA/MAC games wont be viable replacements for Indiana vs Purdue type game. Thus, even if the AAC costs 75 million for the 25 or so games ESPN needs, so what? For just $75 million---they are essentially replacing the Big10 slots that it would have cost $250 million to fill with actual Big10 games. The net result is a savings of 175 million and the diference in ratings should be minimal.

I think you're right if you're suggesting that only the ratings of the top 20-25 AAC football games, and probably a similar number of basketball games, really matter. The rest is fill. The AAC package has provided some very good football matchups that have drawn decent ratings. Bringing in Wichita St. should create more quality hoops matchups as well. It will be interesting to see how ESPN values it and whether it brings any competing bidders that are serious.
10-12-2017 11:45 AM
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Attackcoog Offline
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Post: #8
RE: Analysis of American TV Contract
(10-12-2017 11:40 AM)Frank the Tank Wrote:  
(10-12-2017 10:56 AM)orangefan Wrote:  You can't just look at gross numbers. The key is "VORP" - value over replacement programming (copied from the baseball stat value over replacement player"). The P12 and B12 football numbers are for 22 and 23 games respectively. How many AAC games contributed to its total? Assume that ESPN's option is showing a MAC or CUSA game, or another edition of SportsCenter. How many more viewers does the AAC game generate than this essentially free alternative? I have no idea what the answers are to these questions, and it may very well be that the AAC is tremendously undervalued. However, this is the kind of analysis that you'd have to perform to determine the answer.

This is true. Also, the most important thing with TV contract amounts that people MUST remember is that they actually are NOT valued in a proportional manner with respect to ratings.

For example, a football game with a 3.0 rating is NOT worth only 2 times more than another football game with a 1.5 rating. Instead, that 3.0 rating is actually worth 4 or 5 times as much as a game with a 1.5 rating. Why? Because of the VORP concept that you noted, the fact that there's scarcity of time (e.g. there are only a finite number of time slots available each Saturday, so the premium is much greater in order to maximize the value of each such time slot), and the fact that advertisers pay exponentially more for larger audiences because they're also scarce (e.g. there are lots and lots of programs across many different cable channels that can deliver a 1.5 ratings on a Saturday afternoon, but there are very few programs that can deliver a 3.0 rating).

Ultimately, we're not comparing widgets at a store where there are an infinite number of consumers that can buy such widgets at any time in many different ways. Instead, the market for college football is almost entirely based on the 3 to 4 timeslots that are available on ESPN and other sports networks for 13 Saturdays during the fall *specifically*. (Weeknight games are more about the leverage ESPN has over you to move games off of Saturday as opposed to how they value you financially.) ESPN isn't saying, "Well, we're fine with paying a G5 league 50%-75% of the rights fees of a P5 league in exchange for 50%-75% of the viewership in a timeslot." Instead, they look at the opportunity cost of giving up such a valuable timeslot to a lower rated program and apply a further discount (along with looking at the VORP and other factors).

The upshot is that getting 75% of the viewers doesn't (and will never) equate to 75% of the rights fees in the marketplace. Instead, it's more like 25%-30% of the rights fees when you take into account the advertiser premiums and opportunity cost noted above... and that's basically right in line with what the AAC is receiving today.

Plus, just look at ESPN's actions this year. Has the coverage of the G5 leagues on ESPN really changed at all after losing half of the Big Ten games? Honestly, what I mostly see is that Big Ten games that used to be on ESPNU are all gone, while the coverage on the mothership ABC/ESPN platforms (which are where the money is really made for conferences) haven't changed at all.

I agree. I just think what happened is VORP was applied to the Big10 vs the AAC----not the AAC vs CUSA/MAC, etc. In other words, if you use VORP to save a few million when looking at AAC vs CUSA/MW/SB/MAC---it makes much more sense to see where AAC games could be substituted for Big10 games. The savings there is several orders of magnitude larger.
10-12-2017 11:46 AM
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TrojanCampaign Offline
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Post: #9
RE: Analysis of American TV Contract
(10-12-2017 11:08 AM)Attackcoog Wrote:  
(10-12-2017 10:56 AM)orangefan Wrote:  You can't just look at gross numbers. The key is "VORP" - value over replacement programming (copied from the baseball stat value over replacement player"). The P12 and B12 football numbers are for 22 and 23 games respectively. How many AAC games contributed to its total? Assume that ESPN's option is showing a MAC or CUSA game, or another edition of SportsCenter. How many more viewers does the AAC game generate than this essentially free alternative? I have no idea what the answers are to these questions, and it may very well be that the AAC is tremendously undervalued. However, this is the kind of analysis that you'd have to perform to determine the answer.

The thing is---I think that logic already was utilized---but not where you're thinking. I believe ESPN used that thinking in bidding on the front half of the Big10 package. I think they figured by keeping half the package, they still got the #1 pick from the Big10 half the time and the #2 Big10 game the rest of the time. Thus, they really didnt need to replace the top Big10 games, what they would really be replacing is the Purdue vs Indiana type game. The top games from the AAC could be reasonable substitutes there.

So, I think ESPN will ante up on the AAC inventory---because the top CUSA/MAC games wont be viable replacements for Indiana vs Purdue type game. Thus, even if the AAC costs 75 million for the 25 or so games ESPN needs, so what? For just $75 million---they are essentially replacing the Big10 slots that it would have cost $250 million to fill with actual Big10 games. The net result is a savings of 175 million and the diference in ratings should be minimal.

I don't. I think they will keep the AAC at a value price but pay enough to prop it above what ESPN does not own like CUSA. 5 million per team is what I think will happen.
10-12-2017 11:48 AM
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Frank the Tank Offline
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RE: Analysis of American TV Contract
(10-12-2017 11:43 AM)CougarRed Wrote:  2017 Nonconference records

Big 12 = 14-10
American = 16-13

=====

MWC = 11-23
MAC = 11-26
CUSA = 12-28
SB = 6-26

Anyone who thinks any old G4 league can replace the American is a fool.

The non-conference records are largely irrelevant. TV execs have shown that they largely don't care when it comes to valuing the G5 leagues.

Now, if you want to argue that the AAC generally has a more attractive non-conference *schedule* with more games featured against P5 teams under AAC control (e.g. the Notre Dame games at Navy), then that's much more relevant for TV contract purposes. This is a stronger argument for the AAC to at least get a premium compared to the other G5 leagues on that basis (although my guess is that it's going to be less of premium than what the typical AAC fan believes the league deserves).
10-12-2017 11:49 AM
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