College Football 2017: State of the Game, Part II
It was recently reported that the Big Ten is projecting to distribute $51.1 million to its full-member schools in the 2017-18 academic year (Noobs Maryland and Rutgers are still three years from receiving full shares). By far the biggest chunk of that money comes from TV revenues, thanks to recently renegotiated deals with ESPN ($190 million/yr) and FOX ($240 million/yr). CBS will kick in an additional $10 million/yr for basketball. That number pales in comparison to the Big Ten’s own $34.8 million payout from the 2016-17 year to full members (and Nebraska was still a partial member this past year).
(You can discuss this on the BSL Board here.)
If you are a Big Ten Athletic Director, these numbers likely make you salivate. But before you start requesting bids to have an indoor waterfall put in your football training facility, you might want to look at what is arguably the biggest story in the television industry today and think long and hard about committing too many future dollars. People are dropping cable TV subscriptions in rapidly growing numbers. And as you no doubt know, the biggest player in televised college sports is a cable network. ESPN has made a lot of news lately for declining subscription numbers, with about 12 million subscribers lost since 2013. When you figure each of those subscribers would currently pay $7.21/mo to get ESPN, that amounts to over $1 billion per year less then they would have received with the same subscriber numbers as before. Add in sister networks like ESPN2, ESPNU, SEC Network, etc and the loss is probably closer to $1.3 billion annually.
Meanwhile, ESPN has committed nearly $20 billion in future money to its college sports properties, which include the College Football Playoff, conference deals and other bowl games. And then there’s the billions in future money committed to the NFL, NBA, MLB, etc. Sure, they shaved $100 million in salaries recently by firing many on-air and content employees. But then they also sunk $175 million a few years ago into a new facility for SportsCenter, a show that draws a fraction of the viewers it did in its heyday. But those numbers are a drop in the bucket compared to the potentially lost revenues from declining subscribers and money owed for broadcast rights.
Is the cord-cutting phenomenon just a temporary thing, and cable TV subscriber numbers will level out and remain steady, or even grow again? Can the nascent over-the-top streaming industry eventually make up the difference? I don’t know the answer, but you don’t have to be an economist to see that if the current trend holds, it is unsustainable for ESPN and other cable networks with future encumbrances in sports broadcasting. Which brings me back to the athletic programs counting on all this money coming for the next 5, 10, and in the case of the ACC and SEC 20 years ahead. If ESPN is forced into bankruptcy in a few years, what then? Might be a lot of half-built indoor waterfalls on campuses throughout the country.
My hunch is I don’t believe we will see an apocalyptic end-game where the networks have to bail out of existing deals or face bankruptcy, which would lead to many bloated athletic departments forced to make enormous cost cuts of their own. I do think this has to spur a lot of thinking about modifying existing business models for an uncertain future, both for the networks and schools. The days where traditional linear cable networks specific for conferences might be numbered, since with every cord-cutter they lose revenue, just like ESPN. It will be vital for them to get their content on to the OTT players like Hulu, YouTube, SlingTV, etc. But because of all the varied choices available to viewers now, they don’t have to pay for the SEC or Big Ten Networks if they don’t want them. That’s where I think business models will have to change. These channels are going to have to emphasize quality of content, not quantity. Football games like Rutgers vs Purdue and Kentucky vs Vanderbilt are fine when every cable subscriber is subsidizing your channel whether they watch or not. But not many people are going to pay an extra $5/mo if that is all you are giving them. They will go with the provider that has a slimmer offering.
So where does this lead for college football? My guess is it will be a win for viewers who are only interested in the appealing matchups. To that end, I think we could see more attractive non-conference games, especially the “one-off” neutral site games. Most conferences are already requiring their members to schedule at least one Power Five OOC game per season, and the Big Ten has moved away from FCS games.
As for future conference expansion, alluded to in Part I, I believe conventional wisdom will change too. Gone will be the days when the primary objective of expansion was to add a school that “expanded your footprint” and brought in all new in-market subscribers to your cable channel, even if the value-add in terms of on-field athletics was lacking (Hello, Rutgers!). I think we will see more expansion that adds football-only members who can help a conference’s overall profile. If you are Houston, Boise St or BYU, this is potentially great news. One of the biggest arguments against a Power Five conference adding schools like that is small market size and/or overwhelming travel costs for non-revenue sports. For football-only, those issues are nearly moot, so long as they can be a perennial Top 25 team that draws viewers.
I’m confident we still have a few years of the status quo left, maybe with some minor shifting here and there with regard to how broadcast rights-holders distribute their content. But it should be fascinating to see where the convergence of technology and changing viewer habits lead college football, and really all televised sports.
Next: Part III