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Does the LHN make financial sense for ESPN?
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canewton Offline
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Post: #61
RE: Does the LHN make financial sense for ESPN?
That was a lot of fun for me.

On topic. I'm betting ESPN offers to renew the LHN in some form next go round. ESPN will probably demand 2 games, and a few other conference games. More interesting to see if ESPN will upgrade the other members of the conference to their own network instead of ESPN+.
(This post was last modified: 06-03-2019 08:28 PM by canewton.)
06-03-2019 08:26 PM
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templefootballfan Offline
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Post: #62
RE: Does the LHN make financial sense for ESPN?
5 million subscribers in Tex paying dollar a yr
125 million subscribers nationwide paying 8 cents a yr
Comes out to 15 million a yr
I would think that their covering overhead
06-03-2019 08:42 PM
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RutgersGuy Offline
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Post: #63
RE: Does the LHN make financial sense for ESPN?
(06-03-2019 08:42 PM)templefootballfan Wrote:  5 million subscribers in Tex paying dollar a yr
125 million subscribers nationwide paying 8 cents a yr
Comes out to 15 million a yr
I would think that their covering overhead

I think those are monthly fees not yearly
06-03-2019 08:48 PM
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templefootballfan Offline
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Post: #64
RE: Does the LHN make financial sense for ESPN?
That's my point
5 million at dollar a month is 60 million
125 Million at 6 cents a month is 120 million
Now you add advertising rates
(This post was last modified: 06-04-2019 12:54 AM by templefootballfan.)
06-03-2019 10:31 PM
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Stugray2 Offline
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Post: #65
RE: Does the LHN make financial sense for ESPN?
(06-03-2019 04:30 PM)quo vadis Wrote:  
(06-03-2019 12:56 PM)Stugray2 Wrote:  
(06-02-2019 01:33 PM)Fighting Muskie Wrote:  I'm going to say no. I think when the original LHN deal runs its course they should low ball Texas on the renewal deal and present the counter offer of going to the SEC, where ESPN already has a T3 deal in place, with TTU as a companion, and the LHN will be converted to SECN2.

I just don't think it makes financial sense for the Mouse to pay what they pay the Big 12 for T1 and T2 and then an absorbed amount for Texas T3 and their own dedicated channel that has very little live content. Outside of Texas and Oklahoma, there really isn't much premiere content to attract viewers.

What do the rest of you think will happen when the B12 GOR runs out and the LHN is up for renewal?

The LHN runs through 2030-31 season (June 30th 2031), six years past the B12 GOR expiration on June 30th, 2025 (after the 2024-25 season). There is no "out" for ESPN. So they would have to buyout the remaining contract, which has both a monetary transfer as well as agreement to provide to Texas through the end of the contract the equipment (as technology changes) to run a modern digital network, reportedly that is also quite high. Yes the contract is a disaster for ESPN, but fortunately it's a rounding error for the company annually.

So how much would it cost to buy out? A quick look at the payout tables, which is easy spreadsheet math to calculate, we see this

PHP Code:
Payout +3per year        Year
$10,883,665         2011-12
$11,237,384         2012-13
$11,602,599         2013-14
$11,979,684         2014-15
$12,369,023         2015-16
$12,771,017         2016-17
$13,186,075         2017-18
$13,614,622         2018-19
$14,057,097         2019-20
$14,513,953         2020-21
$14,985,656         2021-22
$15,472,690         2022-23
$15,975,553         2023-24
$16,494,758         2024-25
$17,030,838         2025-26
$17,584,340         2026-27
$18,155,831         2027-28
$18,745,895         2028-29
$19,355,137         2029-30
$19,984,179         2030-31 

To date ESPN has paid out $97,644,068, with the 2018-19 payout being $13,614,622.

The cost of the remaining payment is $202,355,927, which would be a good estimate of your buyout cost today.

I think Texas would agree to a buyout for considerably less, if it's a one-time lump sum payment, which is the only reason for ESPN to do it (the current arrangement already is a spread-out payment scheme).

For one thing, the time value of money would be big. I haven't done an NPV in a while but because $202m today is worth a lot more than $202m paid over the next 12 years..

Second, Texas would then be free to turn around and sell those T3 rights to someone else, and that would be worth something to them as well. Now of course, they wouldn't want to reduce the amount of the ESPN payout be an amount equal to the new rights sales, because as you say they want to profit off of this.

So let's say that Texas thinks that $202m spread out over 12 years is worth a lump sum of $155m today assuming a discount rate of 2% annually.

Then, let's say Texas lines up FOX to pay it $8m a year for those 12 years of content that is moving off the defunct LHN. The PV of that $96m in future payments might be say $70m. FOX covers the same production costs that ESPN was covering, if any.

So $155m - $70m = $85m. But because Texas has no reason to do this without earning a healthy profit, add $20m in ...

Texas might take a lump sum payout of $105m or thereabouts from ESPN right now to close down the LHN and all ESPN future obligations.

I too think Texas will agree to less of a buyout, but NOT today, and not in the next six years.

1. They are locked in the B12 by GOR until June 2025.
2. The other 9 schools are locked in the B12 until June 2025, the little 8 with 3rd tier tied to that date via ESPN as well.
3. They are getting B1G level revenue when you add LHN money to B12 distributions (about $52.5M this year, while Michigan expects $54M)
-- there is no need to do anything now, this is better than SEC money

So that $202M figure is a buyout today figure, and it makes no sense for either side. Texas has in hand as much money as all but a couple B1G programs. They are at no disadvantage and that money is guaranteed. ESPN keeps the B12 intact which meets their need of avoiding too strong a cartel like the NFL, MLB or NBA. So forget that number.

The number that matters is 2025-31, the last six years, after GOR for the B12 and when OU likely leaves. The situation changes. The remaining payments will total $111M. At this point the number is small enough and the risk to both sides low enough that they can move. If they join the SEC or B1G and ESPN refuses to buyout, then they still collect $18.4M a year in 3rd tier money and will not be at any significant disadvantage to their new conference mates.

So focus on that $111M number. That is the starting point for a buyout. I was speculating 40-50% below that, given Texas' leverage, noted above. But ESPN has leverage too. So quite possibly the figure could be even lower than that. I put the high end cost at about $57M, but yes it could be only $30M to close it out. Once Texas moves to another conference, the entire point of the LHN will be over, it wont have kept the B12 together.

As for people who have the idea of expanding the LHN for more Texas D1 sports, forget it. This is Saturn, Oldsmobile or Pontiac for ESPN. An extra brand that duplicates overhead. For ESPN they will look at the cost savings of overhead, and say it's $2.5M per year, and that is $15M buyout, then double that for one time write off and you are at $30M

So think we have a logical bound for the buyout. No less than $30M, no more than $57M. That is in 2025.

I think you focused on $202M because that is the June 2019 price, but there is zero reason for Texas to leave the B12 in 2019 and zero reason to end the money coming in from the LHN in 2019. But the picture is different in 2025 (GOR done, LHN contract winding down, buyout smaller). I am very much convinced both the SEC and B1G see enough value in Texas that they would be willing to wait out 6 years of the LHN to run out (they would not be willing to wait 15 years in say 2016). But talk of a 2019 or 2020 buyout is crazy. Who is offering to pay Texas $20-25M per year for their 3rd tier rights?
06-03-2019 11:26 PM
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templefootballfan Offline
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Post: #66
RE: Does the LHN make financial sense for ESPN?
What if LHN is making 200million yr
That enough to keep Okla in B-12 also
Where Okla going
Okla not worth the same money with Kansas
Instead of Tex
06-04-2019 12:51 AM
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AuzGrams Offline
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Post: #67
RE: Does the LHN make financial sense for ESPN?
LHN has to have 3 Texas games to be relevant.

I'd go (if possible):

- Buy game
- Home game against a Texas Big 12 school
- OOC home game or non top tier Big 12 game
(This post was last modified: 06-04-2019 05:02 AM by AuzGrams.)
06-04-2019 05:00 AM
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Post: #68
RE: Does the LHN make financial sense for ESPN?
(06-03-2019 07:09 PM)10thMountain Wrote:  
(06-03-2019 07:00 PM)P5PACSEC Wrote:  
(06-03-2019 06:04 PM)10thMountain Wrote:  Please with the lies and propaganda

If Bob Bullock has not happened to be Lt. Governor at the time then neither Tech nor Baylor would be in the Big 12

From the UT press book “Bob Bullock: God Bless Texas”

Quote:Bullock, invigorated by the triumph and praise of the previous legislative session, summoned Bill Cunningham of UT and Herb Richardson of A&M to his office early in 1994, when the conference shuffle -- converting the Big 8 to the Big 10 -- was on the verge of being a done deal. Glaring at the two men he said, "You're taking Tech and Baylor or you're not taking anything. I'll cut your money off and you can join privately if you want, but you won't get another nickel of state money."

Even UT president Berdal contradicts Cunningham’s account:

Quote:but former UT president Robert Berdahl claimed that UT was threatened. ”As I recall, it wasn't a very veiled threat to cut budgets if Tech was left behind

So just thank your lucky stars that weasel politicians blackmailed your way into power conference for you

10th stop, your obsession with trashing Texas Tech is getting old. Go root for TCU and be happy.

Texas Tech got in and became a valuable member of the Big 12. You can ***** about life in 94 but it doesn't change the fact we got in.

Oh so quoting historical sources that confirm you are full of it and that Tech only got into a power conference by political blackmail is “talking trash”?

I guess I wouldn’t know since TCU earned its way into the Big 12

That they got in on their own and that politicians made it clear they had to get in are not inconsistent. Cunningham said he was never threatened, but it was understood. If A&M goes to the SEC, there is no doubt Tech would have gotten into the Big 12.
06-04-2019 07:57 AM
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10thMountain Offline
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Post: #69
RE: Does the LHN make financial sense for ESPN?
(06-04-2019 07:57 AM)bullet Wrote:  
(06-03-2019 07:09 PM)10thMountain Wrote:  
(06-03-2019 07:00 PM)P5PACSEC Wrote:  
(06-03-2019 06:04 PM)10thMountain Wrote:  Please with the lies and propaganda

If Bob Bullock has not happened to be Lt. Governor at the time then neither Tech nor Baylor would be in the Big 12

From the UT press book “Bob Bullock: God Bless Texas”

Quote:Bullock, invigorated by the triumph and praise of the previous legislative session, summoned Bill Cunningham of UT and Herb Richardson of A&M to his office early in 1994, when the conference shuffle -- converting the Big 8 to the Big 10 -- was on the verge of being a done deal. Glaring at the two men he said, "You're taking Tech and Baylor or you're not taking anything. I'll cut your money off and you can join privately if you want, but you won't get another nickel of state money."

Even UT president Berdal contradicts Cunningham’s account:

Quote:but former UT president Robert Berdahl claimed that UT was threatened. ”As I recall, it wasn't a very veiled threat to cut budgets if Tech was left behind

So just thank your lucky stars that weasel politicians blackmailed your way into power conference for you

10th stop, your obsession with trashing Texas Tech is getting old. Go root for TCU and be happy.

Texas Tech got in and became a valuable member of the Big 12. You can ***** about life in 94 but it doesn't change the fact we got in.

Oh so quoting historical sources that confirm you are full of it and that Tech only got into a power conference by political blackmail is “talking trash”?

I guess I wouldn’t know since TCU earned its way into the Big 12

That they got in on their own and that politicians made it clear they had to get in are not inconsistent. Cunningham said he was never threatened, but it was understood. If A&M goes to the SEC, there is no doubt Tech would have gotten into the Big 12.

If the B12 had already wanted them in the first place and they were then already in on their own merit then why were A&M and UT threatened (again, a fact backed up by your own former president who confirmed funding was threatened) to tell the B12 that if Baylor and Tech were not included too then they couldn’t join either?

Explain that because it makes no sense for a politician to make rather severe threats and cost himself good will when there is no actual reason to do so unless his schools were NOT chosen for inclusion in the original deal.
(This post was last modified: 06-04-2019 10:14 AM by 10thMountain.)
06-04-2019 10:11 AM
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quo vadis Offline
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Post: #70
RE: Does the LHN make financial sense for ESPN?
(06-03-2019 11:26 PM)Stugray2 Wrote:  
(06-03-2019 04:30 PM)quo vadis Wrote:  
(06-03-2019 12:56 PM)Stugray2 Wrote:  
(06-02-2019 01:33 PM)Fighting Muskie Wrote:  I'm going to say no. I think when the original LHN deal runs its course they should low ball Texas on the renewal deal and present the counter offer of going to the SEC, where ESPN already has a T3 deal in place, with TTU as a companion, and the LHN will be converted to SECN2.

I just don't think it makes financial sense for the Mouse to pay what they pay the Big 12 for T1 and T2 and then an absorbed amount for Texas T3 and their own dedicated channel that has very little live content. Outside of Texas and Oklahoma, there really isn't much premiere content to attract viewers.

What do the rest of you think will happen when the B12 GOR runs out and the LHN is up for renewal?

The LHN runs through 2030-31 season (June 30th 2031), six years past the B12 GOR expiration on June 30th, 2025 (after the 2024-25 season). There is no "out" for ESPN. So they would have to buyout the remaining contract, which has both a monetary transfer as well as agreement to provide to Texas through the end of the contract the equipment (as technology changes) to run a modern digital network, reportedly that is also quite high. Yes the contract is a disaster for ESPN, but fortunately it's a rounding error for the company annually.

So how much would it cost to buy out? A quick look at the payout tables, which is easy spreadsheet math to calculate, we see this

PHP Code:
Payout +3per year        Year
$10,883,665         2011-12
$11,237,384         2012-13
$11,602,599         2013-14
$11,979,684         2014-15
$12,369,023         2015-16
$12,771,017         2016-17
$13,186,075         2017-18
$13,614,622         2018-19
$14,057,097         2019-20
$14,513,953         2020-21
$14,985,656         2021-22
$15,472,690         2022-23
$15,975,553         2023-24
$16,494,758         2024-25
$17,030,838         2025-26
$17,584,340         2026-27
$18,155,831         2027-28
$18,745,895         2028-29
$19,355,137         2029-30
$19,984,179         2030-31 

To date ESPN has paid out $97,644,068, with the 2018-19 payout being $13,614,622.

The cost of the remaining payment is $202,355,927, which would be a good estimate of your buyout cost today.

I think Texas would agree to a buyout for considerably less, if it's a one-time lump sum payment, which is the only reason for ESPN to do it (the current arrangement already is a spread-out payment scheme).

For one thing, the time value of money would be big. I haven't done an NPV in a while but because $202m today is worth a lot more than $202m paid over the next 12 years..

Second, Texas would then be free to turn around and sell those T3 rights to someone else, and that would be worth something to them as well. Now of course, they wouldn't want to reduce the amount of the ESPN payout be an amount equal to the new rights sales, because as you say they want to profit off of this.

So let's say that Texas thinks that $202m spread out over 12 years is worth a lump sum of $155m today assuming a discount rate of 2% annually.

Then, let's say Texas lines up FOX to pay it $8m a year for those 12 years of content that is moving off the defunct LHN. The PV of that $96m in future payments might be say $70m. FOX covers the same production costs that ESPN was covering, if any.

So $155m - $70m = $85m. But because Texas has no reason to do this without earning a healthy profit, add $20m in ...

Texas might take a lump sum payout of $105m or thereabouts from ESPN right now to close down the LHN and all ESPN future obligations.

I too think Texas will agree to less of a buyout, but NOT today, and not in the next six years.

Sorry I wasn't clear - I was just talking in terms of the finances of it.

Motivation-wise, I don't see Texas wanting or a buyout either, they are happy collecting $15m a year or whatever for the LHN. I'm not sure ESPN has any desire to change things either.

Of course, money can change minds, if enough is offered.
06-04-2019 10:52 AM
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SoCalBobcat78 Offline
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Post: #71
RE: Does the LHN make financial sense for ESPN?
(06-02-2019 05:27 PM)10thMountain Wrote:  It was an excuse to pay UT to stay out of the PAC.

It doesn’t matter if it ever turns a profit because that was never the point

It has been a disaster for ESPN. Disney, the parent company of ESPN, is not in the business of losing money. They are not purposely going to lose money to avoid a possible Pac-16 that could possibly effect their revenue. They estimated the production costs at $26 million per year in 2011. They will pay UT $14 million in 2019-2020. For what? UT televised two college football games last season on the LHN and nine men's college basketball games. The rest are the Tier-2 sports.

ESPN estimates that there are 20 million subscribers to the LHN, but that number is in question. I know my family in Houston does not get the LHN. They have Comcast. They go to a sports bar if a game they want to see is on the LHN. The last estimate I saw for the state of Texas was 6.5 million subscribers. Since most of the revenue comes from subscriber fees and advertising revenue, it does not look good for ESPN. But it is working well for Texas, although many UT fans think the LHN is some kind of a jinx.
06-04-2019 11:17 AM
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templefootballfan Offline
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Post: #72
RE: Does the LHN make financial sense for ESPN?
6.5 million subscribers at 62 cents a month is 42 million
I would guess baseball, W basketball, softball & soccer do very well
Doesn't Dave Cambell have Tex sports show on LHN.
For Tex fans that's can't miss
(This post was last modified: 06-04-2019 12:12 PM by templefootballfan.)
06-04-2019 12:04 PM
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Attackcoog Offline
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Post: #73
RE: Does the LHN make financial sense for ESPN?
(06-04-2019 12:04 PM)templefootballfan Wrote:  6.5 million subscribers at 62 cents a month is 42 million
I would guess baseball, W basketball, softball & soccer do very well
Doesn't Dave Cambell have Tex sports show on LHN.
For Tex fans that's can't miss

Like I said---the article says the LHN was supposed to start turning a profit after the Direct Tv deal kicked in (2016). I dont think the silly thing is losing money anymore. Granted---its probably not making very much---bit I suspect its no longer a cash drain.
(This post was last modified: 06-04-2019 12:16 PM by Attackcoog.)
06-04-2019 12:15 PM
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Post: #74
RE: Does the LHN make financial sense for ESPN?
(06-04-2019 11:17 AM)SoCalBobcat78 Wrote:  
(06-02-2019 05:27 PM)10thMountain Wrote:  It was an excuse to pay UT to stay out of the PAC.

It doesn’t matter if it ever turns a profit because that was never the point

It has been a disaster for ESPN. Disney, the parent company of ESPN, is not in the business of losing money. They are not purposely going to lose money to avoid a possible Pac-16 that could possibly effect their revenue. They estimated the production costs at $26 million per year in 2011. They will pay UT $14 million in 2019-2020. For what? UT televised two college football games last season on the LHN and nine men's college basketball games. The rest are the Tier-2 sports.

ESPN estimates that there are 20 million subscribers to the LHN, but that number is in question. I know my family in Houston does not get the LHN. They have Comcast. They go to a sports bar if a game they want to see is on the LHN. The last estimate I saw for the state of Texas was 6.5 million subscribers. Since most of the revenue comes from subscriber fees and advertising revenue, it does not look good for ESPN. But it is working well for Texas, although many UT fans think the LHN is some kind of a jinx.

One of the reasons I switched from Comcast to UVerse.
06-04-2019 03:30 PM
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Post: #75
RE: Does the LHN make financial sense for ESPN?
The original LHN contract provided that it would average $15 million per year throughout its long life, but that it would start lower than that and gradually escalate to $20 million towards the end of the term. The calculated buy-out figures above need to take that into account. From what I've read, it's either breaking even right now or just missing it by a little. The reason is because it is carried nationwide on several national carriers -- for example, on AT&T, if you select the sports package, you get it even if all you want is the BTN or something else. So, I, a TCU fan, get it here in Chicago and watch it for its TCU and Big12 related content (they show The Beat, which is basically a show that interviews beat writers for all the Big 12 schools, fairly regularly). So they are reaping subscriber fees to an extent that is greater than all of the Pac networks (which haven't even worked out a deal with Direct TV as yet). ESPN has used its leverage to get it much more access than the Pac gets because they opted for ownership rights.

To answer the question, yes, it makes financial sense for ESPN. Texas has been down for nearly a decade competitively but they remain a huge cash cow. Right now, they make much more TV money than each SEC school (roughly $52 million per year) and a little more than the Big10 schools make because they get to keep all Tier 3 money. If they were to return to their 2005 level of performance, the upside is high. And they really aren't losing ESPN any money right now. ESPN has tied up the most financially lucrative Big 12 (and possibly national) property long-term; they don't have to pay the other Big 12 schools what they have to pay ACC and lesser SEC schools and they really don't have high production costs because they don't originate all that much programming and all of it is based in Austin and there are few travel costs.
06-04-2019 07:33 PM
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