They had taken their fight for liberation all the way to the Supreme Court and won. So why, less than five months after the nation's highest court had ruled in NCAA vs. the University of Oklahoma Board of Regents that the NCAA's restrictive football television package violated federal antitrust laws, did almost everyone in the college football business feel they had lost? Consider the following paragraph from an Oct. 15, 1984 Sports Illustrated story on a dip in college football ratings despite a spike in college football telecasts.
"The glut is pernicious, not propitious. Unless the CFA and Big Ten and Pac-10 kiss and make up and legally curtail the number of games on TV -- a dubious prospect, considering the Supreme Court ruling and the bitterness between them -- the colleges will be left with a depressed marketplace," wrote William Taaffe in a piece that bore the headline Too Much Of A Good Thing. "There will be no money to prop up non-revenue sports such as swimming and wrestling. The big network paydays will be over, assuming the networks remain in college football at all. As Nebraska athletic director Bob Devaney says, 'I don't see any great resurgence in the next year or so. I'm not predicting colleges will go broke -- but it isn't going to be the bonanza it was.'"
Whoops.
Twenty-eight years later, viewers and television networks have proven every prediction in that passage laughably wrong. While the stripping of rights from the NCAA caused an immediate drop in prices, that dip didn't last. Rights fees rose, and television revenue has turned college football into a multibillion-dollar business. More college football on television didn't create fan apathy as the sport's leaders feared in the mid-'80s. Quite the contrary. While fans continue to flock to games in person, even more plop down on their sofas for Saturday football orgies that begin at noon on the East Coast and last into the wee hours of Sunday morning. (This, after watching mid-week MACtion and games on Thursday and Friday nights.) In the splintered cable universe, college football has proven a reliable ratings-grabber and brand-builder.
That success has driven rights fees to heights the Bob Devaneys of 1984 never dreamed possible. College football television revenue pays for the scholarships of athletes in non-revenue sports and builds bigger and fancier stadiums. It also has inspired a rash of conference-hopping that began a few years after the Supreme Court ruling and hasn't stopped. (It has not, however, changed the fact that the student-athlete labor force is allowed by the NCAA to receive only tuition, books, room and board.) Television has changed college football -- and all of college athletics, for that matter -- for better and for worse, and despite a host of new distribution methods already in use and on the horizon, television's influence doesn't appear in danger of eroding anytime soon.
STAFF: College football TV roundtable for 2012
In 1984, The Associated Press estimated that all the college football rights agreements in the newly deregulated landscape would generate $43.6 million. That was down from the $69.7 million paid for the entire NCAA package for the 1983 season. To put that in perspective, ESPN will pay a reported $80 million to broadcast the Rose Bowl on Jan. 1, 2015. Adjusted for inflation, those 1984 deals would be worth $90.3 million. So 30 years after the Supreme Court ruling, one game will be worth almost as much as an entire season of college football was immediately after the decision. According to some experts, college football remains a relative bargain compared to the NFL, meaning the earnings ceiling remains even higher.
So what happened? The answer is complicated. Technology changed. Viewing habits changed. The model for financial success in television changed. Media companies broke apart and then reconsolidated. Ditto for college conferences. This confluence of events resulted in unprecedented financial growth.
"It's not just limited to college sports," said Chris Bevilacqua, an early true believer in the value of college sports who co-founded CSTV, later helped design the Pac-12's landmark media rights deal as a consultant and recently helped negotiate the Rose Bowl's upcoming 12-year deal with ESPN. "It's sports in general. College sports, because it's such a fragmented offering, was so undervalued compared to other live sports."
College administrators didn't simply wake up a few years ago and realize the tremendous sums to be made from football on television. First, the market had to adjust. Neal Pilson, the former CBS Sports chief who now runs a consulting firm, notes that immediately after the ruling in 1984, his network was one of three potential major buyers in the market for college football. ESPN was still in its infant stage and couldn't offer big money. Besides, the prevailing attitude held that if you couldn't get your games on a broadcast network, you were nobody.
"The leverage changed," Pilson said of the court ruling. "Up to that point, the NCAA was the only seller of college football. There was one seller, and two or three buyers. When that ruling came down, there were multiple sellers. The rights fees dropped 50 percent."
The sellers weren't as fragmented as they are now. The College Football Association was a group of 63 schools that negotiated television rights as a bloc. Its leader, Chuck Neinas, spearheaded the effort to rip the football television rights away from the NCAA and give them to the schools. "That was going to get done, whether we did it or not," said Neinas, who recently returned to his consulting business after a stint as the interim commissioner of the Big 12. "The NCAA control features stymied the development of college football. Opening it up to television obviously has promoted the sport. I think everyone has basically benefitted from it. Now, I never anticipated the television revenues that are there now."
It took the breakup of the CFA for schools to truly realize the power they had. The deal Notre Dame signed with NBC in 1990 -- the network began broadcasting Fighting Irish home games in 1991, and still does -- was the first major blow to the CFA's power, and it touched off a wave of realignment. Knowing the CFA wouldn't last much longer, independents and schools in weakened conferences quickly moved to shore up their affiliations. Penn State joined the Big Ten. Arkansas and South Carolina joined the SEC. Florida State joined the ACC. Miami joined the Big East.
Two deals signed by Pilson's CBS unit eventually crushed the CFA and ushered in the modern era of college football on television. In December 1993, the NFL awarded the rights for NFC games to upstart Fox, stripping CBS of one of its most reliable sports properties. CBS moved quickly to secure other rights. In February 1994, CBS announced deals with the SEC and Big East to broadcast football games, effectively destroying the CFA. The same free market CFA members had sought to exploit when fighting the NCAA had ultimately broken up the alliance because of one fundamental principle: Some conferences were more valuable TV properties than others. When the CFA broke up, it was every conference (and independent) for itself.
The SEC on CBS deal, which took effect during the 1996 season and initially paid the conference a reported $17 million per year for five years, became the envy of college sports for the next 10 years. Pilson explained that after losing the NFL, his team sought brands that delivered steady audiences with little change year-over-year. Alabama, Auburn and Georgia were -- and still are -- those kind of brands. Though Pilson was forced out shortly after CBS and the SEC agreed to the deal, his successors placed a bet that viewers nationwide would want to watch the SEC schools despite conventional wisdom that suggested no one in California would want to watch Alabama play Auburn. For the first five years of the deal, the biggest SEC games went out to a nationwide audience. In 1998, CBS signed a deal that guaranteed all SEC games broadcast on CBS would go to every affiliate beginning in 2001. While ABC continued to split national telecasts between two or three games, the SEC enjoyed a nationwide broadcast all its own. "It seemed like a risk at the time," Pilson said. "But it was really a safe bet. ... We probably didn't anticipate the strength of the SEC nationwide." In 2011, the SEC on CBS package turned in the highest ratings of any college football package in America for the third consecutive year, averaging a 4.2 share and nine million viewers.
While CBS harnessed the strength of the SEC beginning in the late '90s, ESPN continued to use almost every conference to help turn itself into the most powerful -- and bankable -- brand in sports. ESPN executives realized long before anyone else the spell college football (and basketball) cast on viewers, and as the profit model in television shifted, that realization gave ESPN the upper hand against its broadcast rivals. In its infancy, ESPN needed content, and after the Supreme Court decision, college football was among the cheapest major properties available. So the network began scooping up rights and broadcasting games on a single feed to a national audience. While the ratings wouldn't challenge anything on a broadcast network for years, they proved the profitability of college football.
Burke Magnus, ESPN's vice president for college sports programming, said ESPN's early leaders tapped into something their fellow network executives needed years to find. "I think we understood how deep the well was before anybody else," said Magnus, who was an unpaid intern at CBS Sports when the landmark SEC and Big East deals were signed in 1994. "No. 2, I think we figured out that despite it really being an affiliation of regional entities, it stitched together into a national proposition."
While the broadcast networks continue to make most of their money from advertising, ESPN and other cable networks have two major revenue sources: subscriber fees and, to a lesser extent, advertising. Each cable or satellite provider charges subscribers a fee for each channel, but those fees aren't broken down on the bill. So while the smaller audiences for college football on ESPN didn't command the same ad rates, they did allow ESPN to gradually raise the fee it charges carriers for its signal. The fierce loyalty of college football fans was especially effective in helping ESPN hit the mother lode of subscriber fees. As the extended recent spat between Dish Network and AMC has shown, viewers aren't calling in droves to cancel their service if they miss scripted shows -- even shows as excellent as Mad Men and Breaking Bad. But if viewers think they might miss their favorite college football team's game, they'll threaten to cancel their cable service and install a satellite dish or cancel their dish service and hook up their cable. The same applies for fans of the professional leagues, and ESPN executives realized that by stockpiling rights for games viewers felt they couldn't live without, they could strong-arm carriers into paying inflated subscriber fees which would then be passed along to customers.
MANDEL: The new voice of college football
Pilson, whose job as a consultant requires him to negotiate with ESPN and other networks, knows exactly how much value that strategy created. "They are now getting over $5 a sub, every month, times 100 million," Pilson said. In other words, just from ESPN -- not the company's other channels, which command much smaller but not-insignificant subscriber fees -- the network rakes in about $500 million per month ($6 billion per year) before the first ad is sold. Meanwhile, industry sources estimate the next-highest subscriber fee for a channel is in the $1.40 range. With a big assist from college football, ESPN has more than lapped the field in the cable industry. "History would show that we've built businesses off these rights. New businesses," Magnus said. "That's part of the justification for some of these deals where you scratch your head and say, 'Boy that's a lot of money.' But it allows us to build new businesses. Whether it's ESPN to ESPN2, ESPN2 to ESPNU, ESPNU to ESPN3 and now WatchESPN and our mobile products. College content has been, in many ways, the spinal cord of each of those."
ESPN's influence also has changed the culture of the sport. Even today, college coaches use televised games as a major part of their recruiting pitches. But while a coach in 2012 argues about the prestige of the network carrying the games, coaches in the '80s and '90s bragged if their team's games were televised at all. In the stone age of the NCAA television deal, the narrator of Clemson's 1981 recruiting video boasted about a recent three-year span: "During these years," the narrator boomed, "Clemson's exposure reached an all-time high as it appeared on television 12 times -- one of the highest exposure rates in the country." Now, Clemson fans would riot if they could only watch their team play on TV four times per season.
"We've sort of reset expectations from a fan perspective," Magnus said. "Well, I don't think we can take all the credit. But now, the expectations are such that it's almost a birthright. Now, you'll see your team wherever you may live. Now it's not just the big games. It's all the games."
Because rights to games provide the bulk of ESPN's leverage with cable and satellite carriers, it has a tremendous incentive to ensure it doesn't lose those rights to another network. But since the SEC on CBS deal proved how valuable college football can be to a network, ESPN has faced fierce competition for rights in recent years. When Fox outbid ESPN for BCS games from 2007-10, ESPN executives learned they would have to pay more. Meanwhile, consultants such as Bevilacqua, Pilson, Chuck Gerber and Dean Jordan (the latter two are advising various BCS conferences on the rights deal for the recently created playoff) advised their clients that ESPN and the broadcast networks could afford the higher fees by better educating their clients about what their rights were worth. That, along with a paradigm shift created by the Big Ten, has caused the market to reset itself twice in the past six years and sparked a wave of realignment even more disruptive than the early-'90s shakeup.
On a Mount Rushmore of executives who helped television change college football, Neinas certainly deserves a spot. But so does Big Ten commissioner Jim Delany. Outraged in 2004 by what he considered a lowball offer from ESPN for his league's rights, Delany promised to create a Big Ten-only channel that would show games and allow the league's schools to keep a larger percentage of the revenue by cutting out the network middleman. (For all the gory details, take a moment and read Teddy Greenstein's excellent 2011 story about the negotiations and savor Delany's re-gifting ruthlessness.) Delany wound up selling the Big Ten's best football games to ESPN/ABC, but he made good on his promise by partnering with Fox to form the Big Ten Network.
At first, the Big Ten struggled to convince cable companies to grant the network the desired level of carriage. After Appalachian State beat Michigan in the first game the network broadcast on Sept. 1, 2007 and as the network proved its broadcasting chops, cable companies slowly began coming around. Now, industry sources estimate the BTN gets more than $1 per subscriber every month within the Big Ten's geographic footprint. The revenue is split between the Big Ten and Fox, which owns 51 percent of the network. By 2009, the network was profitable and generating an additional $7 million per school per year. That per-school revenue number has increased despite the addition of Nebraska -- the lucky school that won the right to join the Big Ten after the success of the network convinced Delany and the league's presidents that the conference should expand.
With the Big Ten raking in cash from its own network, the nation's other financially dominant conference needed to keep pace. The SEC explored the idea of a conference network, but it was a risky proposition given its smaller population base. Instead, in 2008, the SEC continued its relationship with CBS and sold the rest of its football and basketball games to ESPN. The result? A pair of 15-year deals worth a reported $2.85 billion that would begin with the 2009 football season. The contracts, signed amid one of the nation's worst financial crises, proved how valuable college football was to the networks. It seemed the SEC had dominated as thoroughly in the meeting room as it did on the football field. But a year later, another league would hire a commissioner who would -- with the help of television executives -- shake up college athletics again.
When Larry Scott came to the Pac-10 from the Women's Tennis Association in 2009, he didn't worry about slaughtering sacred cows. He explored every avenue to increase his league's profile and revenue. He had his work cut out for him. Scott replaced Tom Hansen, whose attitudes toward television seem to have been formed when he ran the NCAA's football television package. The Pac-10, despite dominating some of the nation's largest media markets, lagged far behind in television revenue. "We were fifth," Scott said. "And we were a distant fifth."
Before Scott took his league's rights to market in 2011, he tried to reshape the league itself. After studying various models and discussing them with his presidents and with people in television, Scott decided a 16-school league would provide the most desirable media rights deal. In June 2010, the Pac-10 was only days away from adding Texas, Texas A&M, Texas Tech, Oklahoma, Oklahoma State and Colorado when Texas backed away from the table after a change of heart about relinquishing all media rights to the league. Scott believed his plan would only work if all the schools turned over their rights and agreed to share media revenue equally. Television also drove the Longhorns' decision to walk away from the deal, because the Big 12 would allow Texas to partner with ESPN to form The Longhorn Network. Meanwhile, then-commissioner Dan Beebe convinced ESPN and Fox to pay the same amount for a 10-school league as they had for a 12-school league. Only Colorado went to the Pac-10, and everyone else stayed in the Big 12. The Pac-10 quickly scooped up Utah to give itself a 12th member, which allowed the league to stage a championship game and make more television money.
With the league's membership set and the conference rebranded as the Pac-12, Scott and Bevilacqua set about selling it to television executives. They also had to sell their vision for a new kind of rights deal to their presidents. One of the PowerPoint slides Bevilacqua showed the presidents was a flow chart illustrating how money moves in a standard media rights deal. The entity providing the product -- either a sports league or an entertainment production company -- sells its product to a network. The network then sells at a higher price to a cable/satellite company, which then sells that product at an even higher price to viewers. Bevilacqua then showed the presidents a slide that illustrated how much ESPN stood to make off its new deal with the SEC. While $2 billion over 15 years sounded like an awful lot of money, Bevilacqua showed how the network could use SEC rights to drive ESPNU and ESPN3 toward full distribution. In the parlance of ESPN's Magnus, the SEC rights would be the spinal cord providing the nerve impulses to help grow those businesses -- and make ESPN a tidy profit relative to its initial investment.
Scott and Bevilacqua convinced presidents to hedge their bet on a network plan by selling some of the league's games the traditional way. The difference? They would ask for a significantly higher price per game. In 2010, ESPN paid $1.1 billion per year for 18 NFL Monday Night Football games. That number will rise to $1.9 billion in 2013. At the same time, ESPN paid less than $1 billion for rights to about 400 college football games and about 1,500 college basketball games. (Part of this disparity stems from the fact that the NFL charges ESPN a steep premium to use a wide array of highlights from other games that ESPN then turns into shoulder programming that creates additional value, but even after taking that into account, the cost-per-viewer gulf remains huge.) At the same time, other major bidders had entered the market. Comcast and NBC had recently merged, and that company sought content for NBC, Versus (later rebranded NBC Sports Network) and all of Comcast's regional sports networks. Meanwhile, Turner Sports had recently made a huge investment to broadcast the NCAA men's basketball tournament and was exploring other college content. Unlike when the SEC made its deal, the Pac-12 had more hungry customers. Scott knew he was asking for a lot, but all they could say was no.
"After a couple of them got up off the floor when told what our expectations were -- on top of the fact that we planned to withhold certain rights to launch our own network -- ultimately we structured a great deal with ESPN and Fox," Scott said. That deal would pay the league just less than $3 billion over 12 years beginning with the 2012 football season. Even the average fan could see Pac-12 deal outpaced every other league's deal, but the reason it sent shockwaves through the college athletics business was the amount of inventory the league sold to reach that amount. ESPN and Fox bought 44 football games and 68 men's basketball games a year. By contrast, ESPN and CBS will televise or sublicense 99 SEC football games in the 2012 season.
Bevilacqua and Scott then studied the various network models. The Big Ten Network had changed the game, and they looked into a similar arrangement. "We had four or five conversations with entities that would be equity partners like the Big Ten Network model," Scott said. "They wanted at least a 50 percent share, and in return they would provide financial backing and distribution and marketing muscle." At the same time, a more radical idea emerged. Why not produce the product, sell it directly to the cable and satellite companies and keep all the money? This was Delany's Big Ten Network plan taken one step further. Instead of sharing network profits with an equity partner as the Big Ten does with Fox, the Pac-12 would keep all the money generated by its network. "We thought that long-term that we should be in the business ourselves," Scott said. "For the schools, we would be masters of our own destiny."
The downside to such a plan is risk. In a more traditional deal, ESPN or CBS or Fox takes all the risk, while the league can safely budget a set dollar figure every fiscal year. That figure may not rise beyond the agreed-upon amount, but it won't fall, either. There is no such guarantee when a league goes into the media business by itself, and that is precisely what Pac-12 leaders were discussing. "What you're really talking about," Bevilacqua said, "is building your own media company."
That media company, The Pac-12 Networks, will launch Aug. 15. It has a built-in inventory of 35 football games and 120 men's basketball games as well as hundreds of contests in the non-marquee sports. For this, the league will keep 100 percent of the profits and take 100 percent of the risk. Scott has hedged that risk as well. Before the Pac-12 even announced the networks, it inked a deal with a consortium of cable companies that account for almost half of the cable or satellite subscribers in America. In return, the league promised those cable companies to split the networks into seven localized feeds to appeal to fans in specific markets. "The whole idea is super-serving your fan base," Scott said. "Fans in LA want more USC and UCLA than fans in Oregon, who want more Oregon and Oregon State." The league remains in negotiations with DirecTV to reach that company's 19.9 million subscribers, but it will launch with adequate carriage even if that deal doesn't get done immediately. (To make it happen faster, the league has cribbed one of the classic network carriage campaigns and adapted it for the Twitter age; now, various Pac-12 luminaries close their tweets with the #IWantPac12Networks hashtag.)
The Pac-12's deal set the realignment machine in motion again. The ACC took Pittsburgh and Syracuse from the Big East and has since reworked its ESPN deal to reflect its larger membership. The Big East later embarked on a quest to collect schools from every corner of the country, and that league hopes its patchwork of schools will draw a decent media rights deal when it begins negotiations this fall.
Meanwhile, those in the SEC don't like being second -- or third -- place in anything, and commissioner Mike Slive was not about to settle for a deal that didn't pay the SEC like the nation's best college football conference. But he had a problem. He had already sold his football and basketball inventory to ESPN and CBS. There was nothing left to sell -- unless the league suddenly created additional inventory by adding additional schools. But who? In the summer of 2011, television issues continued to make the members of one league unhappy and willing to explore other opportunities.
The Longhorn Network, the reason Texas backed away from the Pac-10, stood poised to destroy the Big 12. Texas A&M officials, who had flirted with the SEC in 2010, bristled at the notion of a 24/7 propaganda tool for a conference rival -- especially after Longhorn Network executive Dave Brown went on a radio show and essentially said the network would televise the high school games of Texas recruiting targets. Oklahoma and Oklahoma State put out feelers to the Pac-12. Missouri, which had been rebuffed in its attempt to join the Big Ten, continued to look elsewhere.
The Oklahoma schools didn't want to go to the SEC, but a healthy portion of Texas A&M's power base had been ready to go there in 2010. By 2011, few wanted to remain in the Big 12. By joining the SEC, the Aggies could rebrand themselves. By taking Texas A&M, the SEC could add the Lone Star State's massive population (25.7 million) to its geographic footprint. By adding millions more cable and satellite subscribers, the SEC could justify launching its own network. Later, when it came time to add a 14th school, SEC leaders took Missouri. Clemson or Florida State might have made more geographic sense, but they wouldn't have opened any new television markets for the league. Missouri did. The SEC couldn't tear up its contracts with ESPN and CBS, but adding so much earning power did give the league leverage to renegotiate.
Last month, Slive essentially confirmed at SEC Media Days that the league is working on a network. "We now call it Project SEC," Slive said. "Our objective long-term is to work with our television partner to provide fans with greater access to favored teams, more opportunities to watch rivals, and more insight into who we are: a conference of 14 great universities." Because ESPN already owns the bulk of the SEC's rights, the SEC Network would have to be a partnership with ESPN. When it begins will depend on how the league and network want to handle existing over-the-air syndication deals for football games, for which two years remain. ESPN could buy out the final year and launch the SEC Network in 2013, or it could allow them to expire and launch in 2014. How much money will Project SEC make for the league?
"We were pleased to set the market back then," Slive told SI.com's Stewart Mandel during a podcast last month. "We have aspirations of resetting the market. ... You can't see me smiling, but we have every expectation to reset the market."
While ESPN keeps coming up in regard to realignment, Magnus bristles at the notion that ESPN was the man behind the curtain moving schools from conference to conference. "The misunderstanding that is out there is that we were the architects behind this or that or that we cared to influence it," Magnus said. "I can say this with very, very personal knowledge and experience. If I could change the clock back to November of 2008 with a snap of my fingers, I would do that in a second. We were better off as a company." Magnus is correct. Before the most recent wave of realignment began, ESPN paid far less for college rights and made a higher profit margin off those rights. Few companies would pull strings to significantly increase their overhead. "Change happens," Magnus said. "If you fight change, you're going to lose."
So what comes next? In this most recent round of deals, network executives wisely bought rights to a wide variety of distribution methods. They know fans now expect the ability to watch games on televisions, gaming systems, smart phones and tablets, and they have locked up rights that allow them to offer games everywhere. ESPN has been at the forefront of the TV Everywhere movement, beginning with ESPN3.com and continuing with the WatchESPN app for smartphones and tablets. Turner and CBS, meanwhile, made the NCAA basketball tournament completely portable this year. As the hit-or-miss streaming on NBC's website has shown during the Olympics, the rest of the industry is chasing college sports up the curve. "It's the most important thing," ESPN's Magnus said. "The reason we're able to do deals of that length with college conferences is that they're willing to sell us the rights to exploit the content across all technologies whether we know of them now or whether they come halfway through the term."
Money and technology remain the wild cards. The NFL rakes in such huge sums because it is a single seller. It is the only entity selling elite professional football. There are five sellers (ACC, Big Ten, Big 12, Pac-12, SEC) of elite college football. That holds prices down somewhat. Will those leagues someday merge and sell their media rights as a single entity for an even more astronomical sum? They did it as the BCS for postseason games, and they'll do it again with the playoff. If they ever chose to pool regular-season rights, they'd be the CFA all over again. The Pac-12's Scott sees significant barriers to that, but with college sports still undervalued relative to their earning potential, anything is possible. "It would be no small undertaking," Scott said. "But I've said for some time that I do see -- over time -- you'll see further consolidation of conferences or more consolidation for how rights are sold. As there is more sophistication in the college space, you realize that value for schools is left on the table because of fragmentation. I think markets tend to correct."
Of course, one or two key technological advances could blow up the existing market and create an entirely new one. That's why networks and leagues have signed such long-term deals recently. They want to protect the universe they've created in case outside factors shift the paradigm again. "The only thing that is holding the [television distribution] industry -- in my opinion -- is live sports," Bevilacqua said. "Once that HD stream becomes so good that it comes into your 60-inch, Internet-enabled Apple television, then you're in a whole new world."
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