SEC Network In Partnership With ESPN Is Likely
Yesterday's column laid out why Texas A&M and, potentially, Missouri make so much sense for the SEC. Because the league is going to start its own network. That's why new markets make so much sense. New markets make very little sense when you're talking about a nationally distributed game. All that leads to is more people watching your games. That's great, but it doesn't immediately redound to the SEC's immense benefit via subscriber fees like a network does. But if you add 31 million additional people in Texas and Missouri to your conference footprint you can start to see the plan forming -- an SEC Network is coming. And it's most likely to be in partnership with ESPN. This column is going to tell you why that's true.
But first a statement from ESPN on yesterday's column about the coming SEC Network and who the league might partner with: "The (SEC) agreement can not be reopened and there are no outs."
(But OKTC has been told that there is a contractual provision that can increase or decrease payout if the formation of the league changes).
But statements like these show you why ESPN is going to be the SEC's network partner. ESPN wants and needs to remain connected to the SEC.
The agreement ESPN referenced is the much-talked about fifteen year deal with CBS and ESPN that runs through 2023-24. We're a little over three years into that deal and already it's outdated. How so? Well, listen to most media and they'll tell you it's outdated because subsequent to this deal the Pac 12 got an insanely lucrative deal. They'll say that the SEC's motivation behind adding Texas A&M and a 14th team is to reopen that deal with ESPN to get more television dollars based on those additions.
I think that's incorrect, I believe that when the SEC and ESPN sit down to assess what a 14 team SEC is worth to ESPN, an SEC Network majority owned by the SEC and minority owned by ESPN will be born.
Here's why an SEC Network is going to happen:
1. It's an incredibly smart business move for ESPN.
The SEC has 12 years left on its current contract with ESPN and ESPN got an insanely good deal on the SEC agreement.
How do we know this?
The rapid escalation in sports right fees in just the three years since this deal was signed. The SEC got a world of attention for its $3 billion contract. But do you know what ESPN just agreed to pay per year for Monday Night Football and additional studio programming around the NFL? $1.9 billion a year. Do you know what ESPN pays total to the SEC for fifteen years of games? $2.25 billion. So for just one NFL game a week each year, ESPN paid nearly more than it did for the entirety of the SEC deal for football, basketball, and whatever other sports it wants.
Add in this Monday night deal with the Pac 12's windfall. A windfall, by the way, that required ESPN to partner with Fox to keep Comcast from getting the Pac 12.
Plain and simple, ESPN does not want the SEC to hit the open market in 12 years. When the SEC comes to ESPN and says, how much more will you pay us a year now? Those talks are rapidly going to advance to the idea of an SEC Network.
2. ESPN can't afford a repeat of the Big Ten Network.
College sports are hugely important to ESPN's programming because they provide thousands of hours a year of content. Already the Big Ten has threatened ESPN with walking away and monetizing its brand without the inclusion of ESPN. Yesterday's column hashed out exactly how much money the Big Ten Network is worth. It's an absolute blockbuster.
The SEC and the Big Ten, while big rivals, use each other as a sounding board. The Big Ten waited for nearly twenty years to follow the SEC's lead and expand to two divisions and add a conference championship game. The Big Ten ultimately did so because it saw what a tremendous success the SEC's title game was and because it saw that the slingshot effect of winning a title game actually made it more likely for SEC schools to win titles. The SEC didn't start its own network three years ago because there were still worries about how risky the Big Ten Network model really was. Those risks persuaded the SEC that partnering with the ESPN made more sense.
But in the three years since that decision was made the Big Ten Network has proven to be a complete success that has outpaced the most optimistic expectations. Now the SEC needs to get in the network business.
The Big Ten Network is 51% owned by the Big Ten and 49% owned by Fox.
ESPN does not want the SEC to hit the open market in 12 years, form a network with a competitor, and pull tons of programming off ESPN. Indeed, as I wrote a couple of months ago, the leagues forming their own networks and rights packages is the single worst thing that can happen to ESPN. So what does that mean? ESPN is incentivized to enter into a long-term partnership with the SEC that guarantees the two brands will always be interlocked.
When the SEC and ESPN return to the negotiation table to discuss the SEC's additions, ESPN will have an exclusive negotiation window and I expect ESPN to push for a network partnership.
3. There are, however, obstacles to an SEC Network.
First, CBS retains the option to select a game of the week. That is, CBS has the tier one SEC rights for it's 3:30 eastern national broadcast for the next 12 years. So the SEC's contract with Texas A&M and a 14th team will also involve a restructuring with CBS. But those rights are comparatively small, CBS pays $55 million a year to the SEC for this deal, roughly 1/3rd of ESPN's yearly committment to the league. So the SEC's game of the week in football is locked in to CBS for the next 12 years, but that doesn't take away too much programming.
ESPN has the second tier rights and then, as we wrote about on OKTC yesterday, each SEC school retains its local, or third tier, multimedia rights. (This is why one game each year, always the worst on the schedule, is on pay-per-view each year. That's the football game the schools still retain the rights to broadcast and monetize as best they can). In order for a network to really make sense, those local multimedia rights would need to be rolled up into the SEC Network. Since every school has its own local rights deal that provides a bit of complexity. Namely, each of those local multimedia rights packages would need to be rolled into the SEC Network as they expire.
Incidentally, the SEC is tremendously protective of these local rights deals. When asked to provide details on the 12 schools local multimedia packages -- specifically their length and dollar amounts -- the league declined saying it had never publicly released those figures.
ESPN also sub-licenses content to Comcast, Fox, and other sports entities. Those sub-licensing agreements would all be rolled up into an SEC Network, but there could be some complexity there as well. Not enough complexity, however, to forestall ESPN's partnership in a network.
4. The addition of new teams doesn't give the SEC an ability to get out of the CBS/ESPN deals.
As you saw in the opening paragraph ESPN released this statement to OKTC today: "The agreement can not be reopened and there are no outs."
Make no mistake that there will be an increase in rights fees for the addition of Texas A&M and, most likely, the Missouri Tigers. We know this because Mike Slive acknowledged the existence of addition or subtraction clauses two years ago and because the SEC schools wouldn't have added any other schools without assurances that they weren't going to be receiving more money from the SEC. So the primary question that will come from a modification of the television contracts is this: how extensive will the existing contract be revised?
The simplest modification of the existing contracts would just add more money to the annual payout. That's the focus of most media. But how does that truly advance the aims of both the SEC and ESPN? If the Big Ten Network is an unmitigated success, why wait 12 years to replicate that financial success?
Now, the SEC could decide that being a free agent in 12 years makes more sense than extending and expanding its relationship with ESPN. But if you know you have the pre-eminent sports network in the country as a partner, and you know that both of you are going to be working to monetize your asset as best you can, does it really make sense to hold out for an open market in 12 years when you could have been rolling in the cash for the remaining 12 years -- and more -- of the existing deal?
The only question for the SEC is whether it agrees to an extension and creation of the network with ESPN or holds out to wait for complete free agency in 12 years.
An SEC Network is coming.
If you're interested in FSU, Clemson, Oklahoma, Oklahoma State, Texas Tech, Texas, Georgia Tech, North Carolina, Duke, N.C. State, Maryland, Virginia, Virginia Tech, et al. basically we've talked about how conference realignment impacts all these schools in the below articles. Just scroll through and you'll be entertained and informed. I promise.
Read all of OKTC's conference realignment stories here.