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June 10, 2011

Waiting to Get Paid

Filed under: Big East,Conference,Media,Money — Chas @ 12:50 pm

No this isn’t about Terrelle Pryor, Ohio State, Bill Stewart and/or West Virginia. Though, I understand the confusion.

It’s another look at Big East expansion and the next media contract. I’m going to keep this one relatively brief.

Villanova is still out there. Trying to get things lined up so it can be included in football in the Big East. They got some good news this week in that the soccer team that owns PPL Park is undertaking an expansion plan without Villanova being in the picture. Albeit, the pace may be an issue.

Union officials are developing long-term plans to expand the arena, contemplating a three-phase process, the first to increase seating from 18,500 to 20,000.

If all goes well, that construction could start in 2014, according to team chief executive officer Nick Sakiewicz.

The second phase, dependent on numerous factors, including the economy, would bring seating to 27,000, and the third to about 30,000.

That would represent an overall 62 percent increase in capacity. New decks would rise over the sideline stands and above the east sections collectively known as the River End.

In its second Major League Soccer season, the Union are drawing sellout or near-sellout crowds to the Chester City waterfront, where PPL Park stands just south of the Commodore Barry Bridge. Last week, the team sold the remainder of the 13,000 season tickets allocated for this season and started a waiting list.

That list, and the deposits noted on it, would be part of a package of financial information the team would present to lenders to finance construction of a bigger stadium. The first phase would be built during the next three to five years, the future phases added according to demand.

Now this won’t satisfy all the Big East members, but it might help sway some votes. An actual timeline, is vital to Villanova’s bid. One of the big issues that held things up, was the nebulousness of any talk of expanding the stadium. Now, there is at least something they can show. The other aspect, that might help is the fact that the expansion is not tied to Villanova kicking in money or complete exclusivity at the stadium. If Villanova can show that they will be able to play at least some of their games at the Linc after 2017 when Temple’s contract is up.

Again, this doesn’t mean Villanova is getting in. It just makes it a little more likely.

Sean at TNIAM had a very smart post a couple weeks ago about how the Big East by rejecting ESPN’s initial offer really does believe it can beat the ACC deal.

But ESPN offered something else, that only ESPN can offer.  They offered to push up the deal 2 years.  The existing ESPN Big East deal is $35MM/year, so this is a $95 million a year improvement, RIGHT NOW, guaranteed, for TWO YEARS.  That is $190 million of found money for the Big East, that no other network can match.

If you apply a NPV formula to it, solving for PMT, you have…

NPV = $180 (actually could be a little better than this because ESPN can start before any other network so there are 2 years of time value of money, but maybe a little less because these deals are all back-ended)
Periods = 8 (ESPN 10 year deal starting next year = to 8 year deal for Comcast starting in 2013)

Discount Rate = 20% (given how back ended most of these media deals are, this is a modest discount rate)

PMT = $49.5 million a year

Per team = $49.52/26 = $1.9/year/sport, or $3.8 per all sports program.

That is the incremental number Comcast would have to match, on top of the $150, for the Big East just to break even on the deal that ESPN offered.  You can argue some of the assumptions (NPV is probably less than $180, discount rate should be higher), but I am in the ballpark.

Effective value of ESPN offer to Big East = $11.5 (face amount) + $3.8 (value of accelerating contract’s start) = $15.3 million per all sports program.

And the Big East got up and walked out of the room.

Sean believes that the Big East is expecting a big bid from NBC/Comcast, especially with their relationship with ND. If so, then expansion to 12 in football is a very real possibility as NBC/Comcast will be in most need of inventory for college football.

Here’s the story you will want to read. Sports Business Journal has some behind the scenes details of the voting on the ESPN offer and about the rights fees issues.

First the vote on ESPN’s offer.

In early April when leaders of the Big East were discussing broad outlines of a seven-year extension of the conference’s media deal with ESPN, there was sharp, internal disagreement. Most saw the number — an average of $130 million a year — as a healthy increase that would boost their coffers. A vocal minority, however, saw a TV marketplace ripe for a larger increase.

Presidents from Georgetown, Notre Dame, Rutgers and Seton Hall voted against the deal, sources said. Others, including Pittsburgh and West Virginia, also were vocal skeptics of the deal, preferring to wait and see what the open market would bring once ESPN’s deals ended, following the 2013-14 football season. Still, the presidents voted 12-4 to accept its broad outlines.

Four weeks later, just a week after a record-breaking deal for the Pac-10’s media rights was announced, theBig East’s presidents met again. Not surprisingly, they needed only 15 minutes to reach a unanimous decision to reject ESPN’s offer.

So Pitt didn’t like it, but still voted for it. Stunning that two basketball schools and ND were completely opposed to the deal. An odd thank you to them. The fact is, though, the Big East got lucky that the deal did not come together at a faster rate.

Each new deal makes all other ones seem more outdated. The Big East presidents realized that the Pac-10’s deal turned an offer that would have nearly quadrupled the Big East’s media fees into one that was well below market value.

Interesting sidenote in the story is that the ACC is a little ticked off at their deal after everything that has followed.

There’s a broad discussion of all sports media rights fees rising. Whether there is a bubble that might burst. But the general feeling seems to be that it is unlikely — even in 2 more years time when the Big East can negotiate.

Cable TV channels view sports programming as the easiest way to increase ratings and the license fees that distributors pay. Today, several cable networks actively are trying to add sports to their schedules, which, sports media executives say, is the main reason why media rights fees are rising so quickly.

Comcast wants more sports on Versus. Fox is putting more sports on FX. Turner is trying to build up truTV’s sports assets. And, of course, ESPN needs reams of sports content for its multiple TV channels, broadband platforms and mobile applications.

For the past year, the glut of TV channels vying for sports rights has ensured multiple bidders during each negotiation.

“You have the dynamic of a number of companies trying to build their cable assets, who are competing against each other for a limited number of content deals,” CBS’s McManus said. “Obviously the dynamic of Comcast now owning NBC and trying to maximize the value of both their cable assets and their network sports division has presented a competition for ESPN that they haven’t seen in a while.”

The threat of Comcast and its deep pockets helped push the Pac-10’s media rights fee far higher than anyone would have expected. Traditional rivals ESPN and Fox decided to join forces to outbid NBC and keep the Comcast-owned network out of the college sports market.

The reason is that live sports have become more and more valuable in the new media age.

In the face of media fragmentation and declining prime-time network ratings, live sports ratings continue to grow virtually across the board.

Most sports media executives point to the NFL as evidence of this trend. Last year, “Sunday Night Football” was the highest-rated series on broadcast television through the end of the regular season, and “Monday Night Football” was the highest-rated series on cable television.

But the trend is even more pronounced in other sports perceived to be on a downswing, like NASCAR and horse racing. Up until this season, NASCAR has seen its TV ratings drop four years in a row. That’s a ratings disaster, right? But when TV ratings bottomed out last year, the NASCAR Sprint Cup Series still averaged almost 6 million viewers over 34 races (not including two Monday rain-delayed broadcasts) across ABC, ESPN, Fox and Turner.

Horse racing gives another example. Take last month’s unremarkable Preakness Stakes on NBC, which drew nearly 9 million viewers to NBC for the race portion of the event.

“Go try and find entertainment programming or other things that do those kinds of numbers on a regular basis,” Fox Sports’ Freer said. “You really have some predictability with sports.”

Live events have become programming gold for TV networks. Last year, 99 of the 100 highest-rated TV telecasts in the 18- to 49-year-old demographic were live, including sports and event shows such as “American Idol” and the Oscars, according to ESPN research.

“We know that sports is appointment viewing,” said David Levy, president of sales, distribution and sports for Turner Broadcasting System. “We know that five, 10 years from now, this might be the only and final appointment-viewing product in the market, other than news. Nobody’s watching the Super Bowl on Monday morning.”

Sports is one of the few things that has resisted the pull of the DVR — and to some extent Twitter. And thus, advertising on sports is more valuable as there isn’t fast-forwarding through the commercials.

I do just about all of my TV watching on the DVR. Stuff that airs while the kids are still awake or when I’m out or when the wife is out. We DVR and watch later when we feel like it. The only exception is sports. I want to watch it live. I need to see it when it happens. I have done the DVR for it when absolutely necessary, but it isn’t the same. When I’m watching sports now, I want to have a Twitter feed going to see what others are saying and to toss in my own thoughts. Maybe take in (or run)  a liveblog. To watch a sporting event on a delay means having to cut myself from the computer and my cell. No looking at texts from friends. No communication with anyone. And it still doesn’t feel the same, as Chuck Klosterman just wrote on the subject.

The Big East isn’t taking a big risk in waiting. The worst case scenario at this point is just getting ACC money at this point.





FWIW, I’ve always considered sports as reality shows for men and reality shows as sports for women … who often aspire to be a part of these shows just like we (men) often aspire to be athletes when we were younger.

Not sure a 20% discount factor is valid and many NPV projections have failed due to invalid discount rates. Further, ESPN must know something to be willing to push up the deal by 2 years. If live events are so popular, then moe and more competitors may be popping up to challenge ESPN in these TV deals … not only other networks but cable companies, etc.

On the other hand, with this economy, it may not be wise to bite the hand that feeds you.

Comment by wbb 06.10.11 @ 1:15 pm

Bill Stewart apparently set to resign effective today. Only wvu could make the Pitt coaching debacle look like a warm up act.

Comment by Coach Ditka 06.10.11 @ 6:11 pm

I DVR the majority of my sports events, with the exception of Pitt games.

but other than that, I’m not wasting my time sitting through commercials, timeouts, jibberjabber and such if I don’t have to.

I can watch a full college hoops game in 45 mins on DVR, and a full NHL game in 1:05. That takes less than half the time of watching live

Comment by Jamie H 06.10.11 @ 6:12 pm

Not to get off topic, but this is the funniest thing I’ve read since learning that WVU would allow alcohol sales in Mountaineer Field (link to blackshoediaries.com). In short, a 2009 NIT Championship and appearing in the 2011 Big Ten Championship means PSU basketball = Pitt basketball.

And with that, it’s time to crack open the first cold beer of the weekend! Hail to Pitt!

Comment by Lee in Altoona 06.10.11 @ 6:17 pm

Excellent summary Chas.
What I take from this is that in order to maximize our value to the networks we need to do two things. 1. Keep nova out of football and 2. add 3 teams with large markets by the end of the year. I vote for UCF and Houston as well as anyone else from a large market as third (perhaps even Temple). On another matter how can we get the WVU athletic department to transfer to the ACC commissioners office? What great PR people they are.

Comment by Ohiosteeler 06.10.11 @ 11:03 pm

Hey, Lee in Altoona. I think your reading comprehension skills need some work.

“Penn State, while still not remotely as healthy a program as Pitt, is no longer abysmal at basketball. It’s broken into the promised land of “mediocre” and possibly even “respectable” with an NIT Championship in 2009 and Big Ten Tournament championship game and NCAA Tournament appearances in 2011.”

Where, exactly, do you see anyone equating the programs?

Comment by Adam 06.10.11 @ 11:23 pm

Some stats on candidate winning percentages by CALMTEER on ESPN blog may be of interest to those who wish to evaluate future Big East members.
CALMTEER writes:
In the last 5 years, the total win percentage of teams stacks up like so:
TCU(#3), NAVY(#22), UH (#35), UCF(#43), ECU(#48), ARMY(#101)
-in the what have you done for me lately category Navy is in the top 25 of the whole nation while UH clearly beats out UCF and ECU. Also interesting that UCF beat ECU by a small amount.
-
In the last 10 years total win percentage is:
TCU(#5), NAVY(#51), UCF(#64), UH(#69), ECU(#71), ARMY(#116)
-
And ALL TIME winning percentage is:
ARMY(#37), NAVY(#53), TCU(#58), UH(#62), ECU(#68), UCF(#70)
-
Thanks CALMTEER for the information. It shows how wise the TCU add was and how UCF, UH may also help the BE

Comment by RED REED 06.13.11 @ 4:38 pm

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