Toward the ESPN Conference

[Featured guest post. TN loves to feature well-written Fanposts.]

The Memo

The Big 12 had just survived a near-death experience, thanks in no small part to the largesse of its network partners ESPN and Fox. TCU and West Virginia would join next year to ensure conference membership stood at ten teams. Three months earlier the league had said good-bye to its longtime commissioner Dan Beebe and was now operating under interim commissioner Chuck Neinas. The Big 12 was in the process of negotiating new media contracts and was considering expansion. The most commonly mentioned candidates for expansion were Louisville, BYU, Notre Dame and Cincinnati. The first rumors of ACC teams considering a conference switch would not be sparked until four months in the future, when reports of TV revenue payouts for both leagues would hit the press.

Chuck Neinas was talking to the Big 12's network partners. Not to put too fine a point on it: he was trying to find out what new schools they would pay for. In January he reported to the league's expansion committee about the progress of these discussions.

The Oklahoman obtained a copy of the memo this week through an Open Records request. Ryan Sharp reports that the recipients of the memo were Oklahoma State president Burns Hargis, Oklahoma athletic director Joe Castiglione, Texas athletic director DeLoss Dodds and Kansas State president Kirk Shulz. In the memo Neinas reports discussions with ESPN president John Skipper, Fox Sports president Randy Freer, and ESPN's head of college athletics operations Burke Magnus.

Neinas told the expansion committee that all three media executives preferred a ten-team league but could support expansion to 11 or 12. He mentioned a meeting of Big 12 athletic directors the previous month in which strong support had emerged for Louisville as the league's 11th member should the league expand, but in which support for adding teams was mixed. He told the committee that network execs told him Notre Dame was the only available program that would "enhance the Big 12 value for television." Partial membership for Notre Dame could do this if the school agreed to play a specific number of games against Big 12 opponents at certain venues.

The Mapmakers

The memo contains little news about likely expansion candidates. No ACC teams were in the discussion in January, while the notion that adding Notre Dame would bump up revenues for any league is no revelation. More newsworthy is the fact that, beyond such a move, media execs saw little the Big 12 to do to increase its TV payout. Most newsworthy may be the simple fact that media execs had so much direct say in the discussion.

Clay Travis of Outkick the Coverage certainly thinks so. He calls the memo the "smoking gun" that exposes the power being wielded by networks, primarily ESPN, in driving conference realignment. He takes note of the reported comments of Boston College athletic director Gene DeFelippo (October 2011) in which De Filippo said ESPN "told us what do" as the ACC expanded to include Pittsburgh and Syracuse. ESPN responded quickly that its role is strictly that of a consultant in such discussions. DeFilippo's comments were soon retracted. But that consultant role is enough, says Travis, and the Neinas memo shows why.

The ESPN executives... know their influence because they have the money. If ESPN is the one who will be paying increased television amounts for expansion candidates, are the conferences really going to expand without the nod of approval from their television partners? And if those conversations are taking place before leagues have chosen to expand and before they've actually secured new schools for expansion, this means that ESPN's opinion, official or not, is the de facto thumbs up or thumbs down for expansion.

In the Big 12 ESPN and Fox wield mutual power. Their assessments of "value", says Travis, can't help but be shaped by their own corporate agendas. They don't really tell conferences what a team is worth as a media asset; they just tell conferences what results they will pay for. That's a different thing, says Travis, and it reveals a conflict of interest. Notre Dame currently has a contract with Comcast/NBC. Travis observes:

Notre Dame joining the Big 12 in any capacity strengthens the position of ESPN and Fox while weakening the position of Comcast/NBC. We already know that ESPN and Fox joined forces to stop Comcast/NBC from obtaining the Pac 12 television rights. Now the networks are also advising the Big 12 that Notre Dame is the preferred expansion candidate. So isn't that a double conflict [of interest]? ESPN and Fox aren't just advising the Big 12 on whether or not it should expand to help their rights package, the networks are advising the Big 12 to expand in a way that hurts their primary rival too. It's a great business move. But it's also conflicted as hell.

The real show we have been watching, this suggests, is not really conference realignment but network contract realignment. Networks pay more at the negotiating table for assets that are moved from a rival's portfolio to their own. In the absence of a deal with the Big East, ESPN will pay for movement of two Big East teams to the ACC. In the absence of a deal with Notre Dame, ESPN and Fox will pay for movement of the Irish to the Big 12.

What if the movement is simply within a network's folder? Though the new member may improve the conference's inventory, it's less likely the network will pay.

Florida State would be the next best possible addition to the Big 12, right? Even your grandmother could see this. Only how could ESPN fairly advise the Big 12 on the value of the addition of Florida State, Clemson, or Miami without breaching its new television deal with the ACC?

Put simply, it can't.

As a contracting party ESPN has a fiduciary duty to the ACC and a fiduciary duty to the Big 12. If the Big 12 expands and weakens the ACC, ESPN is taking from one television partner and rewarding another. What's more, ESPN's television dollars provide the inducement that causes a team to leave. It is the breaching party. So ESPN would be providing the inducement to one contract partner to break an existing contract and form a new one. And it would be contracting with both parties at the same time.

That's the clearest and most untenable of conflicts.

The college sports landscape is a network map. Bob Bowlsby, in taking the job of Big 12 commissioner in May, said as much. "It’s not a geographic footprint anymore. We’re talking about an electronic footprint."

The Prospects

When teams like Florida State, Georgia Tech and Clemson discuss conference moves, they are discussing movement within a landscape that has been shaped less by conference commissioners than by network execs. If ACC teams are currently underpaid (and they are), it is ESPN who is doing the underpaying. If the Big 12 is paid more (and it is), it is ESPN and Fox who pay it more. If that creates instability, it is the networks who create the instability. They know the stresses they create.

The discrepancies may yet fuel a migration of one to three ACC teams to the Big 12 this summer. Even with all other factors equal, the Big 12 should see a revenue edge over the ACC due to the terms of its media deal and its new bowl agreement with the SEC.

Some factors weigh against the moves happening, though. The memo illustrates a few. Among them:

- ESPN's contract with ACC limits the amount of financial bump the Big 12 can expect in adding ACC teams. The network already has those assets in its portfolio and creates liability issues if it makes offers to the Big 12 that induce ACC member schools to breach contract.

- Current network agreements pay the ten Big 12 teams as if they still played a conference championship game every year. Essentially, the networks agreed to overpay the Big 12 for the purpose of holding the league together. This could limit the financial bump the Big 12 can expect from its media partners if it adds the game.

- ACC teams cost $20M each in exit fees to add. Someone pays.

- Networks pay more money for addition of schools not currently under their umbrella. ESPN arguably has the ACC's teams right where it wants them.

- The risk of litigation from the ACC is the huge elephant in the room that no one mentions, but everyone knows it's there. The ACC has a lucrative TV footprint and could make a case for huge losses in potential revenue.

- All of the Big 5 leagues should see a jump in revenues thanks to the new playoffs. A rising tide that lifts all boats could make revenue discrepancies from one Big 5 league to another proportionally smaller, and thus less destabilizing.

While the Big 12 will enjoy an edge over the ACC in media revenues, the Neinas memo suggests that the revenues in play fall short of a Big 12 "license to hunt" that was widely reported on blogs and Internet chatter. Some ACC schools may still migrate, but we are seeing a number of pressures that work to keep those schools in place as well.

It will be interesting to see how things work out.

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