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Is the rapid expansion of college sports TV contracts a bubble that will soon burst?

When the SEC signed their mega 15 year $3 billion dollar TV with CBS and ESPN the entire landscape of college football seemingly changed over night. Ever since then, massive realignment that has seen Nebraska go to the Big 10, Texas A&M and Missouri to the SEC, the Big "East" stretching from Connecticut to California, and a whole host of other changes.

This has all been fueled with TV dollar signs in everyone's eye. $25 million, $35 million, $40 million a year, figures are being tossed around so frequently that it makes your head spin. All of this is done with the presumption that value of rights fees, particularly those for football, are only going to go up and up into infinity. Does this situation sound at all familiar to anyone?

The driving factor behind all of these rights increases has been ESPN. Just by merely having a seat at the negotiating table ESPN bumps up the prices that NBC or FOX are going to have to pay to get major college sports.

On top of what ESPN dishes out to the SEC, they give the NFL $1.8 billion for the rights to Monday Night Football, $800 million to the NBA, approximately $250 million to MLB, $125 million for the BCS, as well as its various deals with other major college conferences.

How is ESPN able to afford dolling out all of this cash every year? Simple, they have easily the highest TV cable carriage fees in existence. Somewhere between $4.50 and $5 (estimates differ) of your cable/satellite bill every month finds its way to Bristol, Connecticut. To give you a comparision, no other cable network has a carriage fee over $2. Not to mention the major networks (CBS, NBC, FOX, ABC) do not have any kind of carriage fee.


Cable and satellite companies have been growing increasingly vocal about their displeasure at the kinds of fees ESPN has been charging, and it may well be coming to a head sooner rather than later. The resounding "Meh" the Longhorn Network met even within Texas may be the opening salvo for cable companies to try and get ESPN to lower their carriage fees. It is easier for a Noles fan to pick up SunSports in Texas than a Longhorns fan in Dallas to get the LHN.

The NFL is by far the most successful sports league in the country and perhaps the world. For years they have tried to blackmail cable providers to add the NFL Network by having the Thursday Night Football package but it has been to no avail.

What is to say in the next few years a DirecTV or Comcast decides that ESPN's next increase in rights fees (which they undoubtedly will do to help offset all the new college football and NFL deals) is too much and they pull ESPN? ESPN is very much dependent on the steady stream of revenue coming in to make sure the bills are paid. Ultimately, ESPN would have to settle for less and it would cause a massive cascade effect.


All of these new deals that ESPN has signed have been with the their current carriage fee (and future increases) in mind. What happens if they are forced to lower them? They will undoubtly have to release some leagues from the agreement and ultimately without a massive warchest, Fox and NBC do not have to constantly outbid them, which causes any new deals to be lower.

The bubble that was caused because of ESPN's massive carriage fees is going to go burst one day and it will cause the same kind of massive landscape change their original SEC deal made.

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