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College Hotline - Pac-12 commissioner Larry Scott addresses the revenue gap with Big Ten, SEC

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    The performance of the Pac-12 Networks is intrinsic to the TV revenue gap that exists between the Pac-12 and its peer conferences.

    But for the purposes of relaying commissioner Larry Scott’s comments to fans via the Hotline, the topics have been separated – simple and focused seemed like the best approach in this space, even if that meant some overlap.

    Scott’s thoughts on the Pac12Nets, in case you missed them, can be found here.

    (Before we get started, a disclaimer: As with all previous and forthcoming installments in this series, the goal is not to defend or lambaste the conference.

    (First and foremost, the Hotline always strives to inform the public discussion. In regard to many Pac-12 issues, there are gaps in the narrative. This series is an attempt to fill in some of those gaps — not all, but some — based on my 45-minute conversation with Scott on a variety of topics.

    (Hopefully, readers will come away with a bit more insight into the league’s inner-workings. If that changes your opinion on certain issues, fine. If it doesn’t, that’s fine, too.

    First, let’s address the exact nature of the revenue gap. Since the discussion, there have been two relevant developments:

    1) The Big 12 announced its latest distribution: $30.4 million per school, which was higher than anticipated. (No specifics were given, but my understanding is the increase can be traced to the terms of the Tier 1 contract.)




    2) The second piece of the Big Ten’s new deal came into focus with the SportsBusiness Daily reporting that ESPN would purchase the B1G’s remaining rights for $190 million annually. Add $240 million from Fox, another $10 million from CBS, and the conference’s TV revenue is astronomical.

    The double-whammy of news from the Big 12 and Big Ten will place the Pac-12 in worse shape a few years from now (relative to its peers) than it has been at any point since the start of its $3 billion Tier 1 deal with ESPN and Fox.

    Here are expected distributions per-school for TV rights in 2017-18, when the Big Ten deal kicks in.

    Note I: Figures do not include revenue from College Football Playoff, March Madness, etc. This is only TV rights.

    Note II: Figures are estimated, largely because of uncertainty regarding the exact income amounts from conference TV networks.

    Big Ten: $41 million per school
    (Includes Tier 1 deal, annual Big Ten Network distributions and BTN profit sharing)

    SEC: $34 million per school
    (Includes Tier 1 and SEC Network revenue)

    Big 12: $23 million
    (Includes Tier 1 deal and rights fee for football championship game but not Tier 3 rights, which are owned by the schools and vary greatly)

    Pac-12: $22.5 million
    (Includes Tier 1 deal and $2.5 million per school in Pac-12 Networks distributions)

    So ….

    That’s a monumental gap, especially with regard to the Big Ten. And as we’ve noted before, the Big Ten is viewed as the true peer conference by Pac-12 presidents and chancellors — partly because of the academic reputation of its schools, partly because of the long on-field relationship via the Rose Bowl.

    (Yes, yes, yes: DirecTV would add a few millions dollars annually to the coffers of each Pac-12 school, but it wouldn’t come close to eliminating the gaps with the SEC and B1G.)

    *** Although we didn’t talk specific numbers and didn’t have the new Big 12 and Big Ten data, Scott acknowledged the existence of a gap and said (DTV aside) that there is “no silver bullet” for the Pac-12 on the revenue front.

    I asked if conference leadership was comfortable with the prospect of a multi-million-dollar per-school disparity until the conclusion of the Pac-12’s current Tier 1 deal in 2023-24.

    “The CEOs are very supportive of the direction of the conference,” he said. “No one is satisfied with DirecTV, but that doesn’t mean we don’t have the right strategy.”

    *** Scott noted that conference distributions, of which TV rights are by far the largest piece, are just one income stream for athletic departments.

    “When the issue of a revenue gap is discussed, we look at the bigger picture,” he said.

    The reliance upon conference distributions varies by school. For Oregon, the conference paychecks are 20 or 25 percent of the total revenue haul. For Washington State, the percentage is closer to 50.

    *** Scott also noted that the conference is in better shape, on a relative basis, than it was before the ESPN/Fox deal.

    “We’ve made enormous progress,” he said.

    The progress isn’t what it was a few years ago — and won;t be in two years what it is now — because of the contract cycles.

    The Pac-12 was first to the market with its TV rights … grabbed its $3 billion from ESPN and Fox … celebrated the lofty perch for a few years … and then began to lose ground as the SEC (with its network) and the Big Ten (with new Tier 1 deals) caught up and began waving bye-bye.

    The Pac-12 hasn’t fallen back to where it was at the turn of the decade. Before rights for live sports soared and the new Tier 1 contract cycle began, the schools received only 35-to-40 percent as much TV revenue as their B1G counterparts.

    (That’s an average, because back then, the conference didn’t share TV revenue equally.

    (Pause for teeth gnashing in Los Angeles.)

    How does the situation stand now? When the Big Ten’s new deal kicks in, the Pac-12 schools will received approximately 55 percent as much TV revenue as their peers.

    Again, the cyclical nature of the deals must be considered — for the six-year span from the start of the Pac-12’s new deal through the end of the B1G’s current deal, the gap was much smaller.

    But at the same time, the disparities estimated in the figures above … $12 million per school with the SEC, $17 million per school with the B1G … are likely to exist for six-to-eight more years.

    *** In general, and not surprisingly, Scott’s view of the revenue gap is no different than his view of the state of the Pac-12 Networks:

    He takes the long view.

    “The most important thing,” he said at the outset of the conversation about the revenue gap, “is to optimize the long-term value of our rights.”

    Agree or disagree, the situation is what it is. Scott’s approach isn’t likely to change, nor is the gap itself.

    xxxxxxxxxxxx

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