Game Theory of Realignment

[pj]

Realignment to date has been entirely about capturing TV revenue, and TV partners have therefore had tremendous influence -- almost a controlling interest -- on realignment. There have been only two networks, ESPN and Fox, active in college athletics, and the paucity of TV competitors increases their bargaining power relative to the number of universities and conferences.

The basic alignment of conferences with TV partners is:
- B1G and Pac with Fox
- SEC and ACC with ESPN
- B12 is split between Fox and ESPN

TV partners will not permit affiliated conferences to make any realignment moves that cost them assets. Thus, B1G and Pac can raid the other 3, but not each other, since that transfers assets from ESPN to Fox. SEC and ACC can raid the other 3, but not each other, since that transfers assets from Fox to ESPN. B12 can't raid any major conference because one or the other TV partner would lose an asset (100% to 50%) and veto the move. The B12 can't even take BYU (ESPN property) unless it agrees to transfer greater ownership of the B12 media to ESPN, as in the "B12 network" idea recently floated.

This situation hinders the SEC which can't feasibly raid the B1G or Pac and isn't allowed to raid the ACC (giving it its coveted entry to NC and Va). So the SEC can only raid the B12 which it has done repeatedly.

B1G expansion is now semi-blocked by the GoR in ACC and B12 and high payouts to the SECN. ESPN orchestrated this, increasing payouts to the ACC and B12 in exchange for the GoR to prevent further B1G expansion. Fox went along in the B12 to prevent further SEC expansion.

However, everything gets unstable as the TV contracts come toward their deadlines, as we saw with the old Big East. Once the old Big East declined ESPN's renewal offer, it became essentially an unowned property and a ripe target for realignment poaching.

We'll see the same thing as B12 and ACC contracts approach expiration.

What will the conferences do as that happens? One question is: Is the B12 happy at the split contract? It gives them no strategic maneuvering room since every TV network involved in college sports has a veto power over any moves. They did get an above-market payout in exchange for the deal, but probably not more than $5 mn per year per school. That above-market payout may vanish in the next contract; ESPN and Fox will probably maneuver for 100% control of the conference media. I see the B12 putting itself up for auction between the two networks, possibly forming a B12N, with a high risk of defections to SEC, B1G, or Pac if the deal is not good enough.

The ACC will probably have a hard time leaving ESPN world. Fox probably does not have the resources to outbid ESPN for this; for ESPN they are an essential basketball complement to the football heavy SEC, giving ESPN year-round quality sports. Look for an early renewal/extension of the ACC's deal with ESPN to prevent ACC schools from having a chance to depart for the B1G. The ACC and ESPN will both want this.

In the B12, Texas is in a unique situation; with LHN they are almost a 100% ESPN partner, while the other B12 teams are 50-50 Fox and ESPN. Look for Texas to become tighter-knit with ESPN in the next deal, becoming independent with Notre Dame type scheduling deals with both the ACC and ESPN. If they keep Oklahoma and Texas schools on their schedule, plus do 4 games a year with the SEC and 4 games a year with the ACC, they will have one of the premier schedules in college football. This would give them an SEC- or B1G-level payout while giving them unparalleled power over their own situation. They would not a conference for non-football sports, and only non-football sports would be available for the LHN; the ACC could offer this, brokered by ESPN. With Texas included along with Notre Dame, there would be enough sports and market reach to launch an ACCN.

That would leave the other B12 schools looking for a home. Oklahoma and probably Kansas could choose their destinations. What would Oklahoma favor, B1G or SEC? That might determine UConn's fate since if the B1G wants to stop at 16 it would have to choose 2 of 3 from UConn, Kansas, Oklahoma. I think the revenue maximizing move would be UConn and Oklahoma, but Kansas is sure to have a lot of loyalty from presidents due to its storied history, its AAU status, and its contiguity to Oklahoma (avoiding a sense of Oklahoma on an island). If the B1G would favor Kansas over UConn, Oklahoma's choice of conference might determine UConn's fate.

I am not sure the Pac could make a competitive bid for the top B12 schools, given travel difficulties and lower payouts and less exposure from the time zone difference, and so would have to choose from the B12 leftovers or stay at 12. They probably stay at 12.

Then a "best of the rest" national conference would probably form from the B12 leftovers, AAC, MWC, and BYU (if ESPN chose not to help them build a Texas-type independent deal with scheduling assistance in ESPN-world).

From the B1G perspective, I think they are now reconciled to being a "northern" conference and would ideally like a Virginia school, UConn, Kansas, and Oklahoma out of the next realignment, settling at 18 schools. Going farther south would please Fox by ruining ESPN's plan to maintain a credible ACC, but I don't think the southern schools want that. It is not even clear if the B1G can pry a Virginia school away from ESPN, given the legal hurdles that ESPN and the ACC have or will erect to any departures. The B1G would be happy with a quality 16-school lineup if a Virginia school is unavailable.

If we are going to have a huge lawsuit over realignment, it will occur in a B1G-ACC dispute, as ESPN and the ACC try to make it legally impossibly to leave and a Virginia school may feel that it is being enslaved to the ACC and consider challenging league-imposed barriers in pursuit of an extra $20 mn per year.

I'm inclined to think that Flugaur is right that realignment will start to heat up again around 2019 as we get in shouting distance of the TV contract expirations.

 

[clmssun]

1) Like the Big XII, the Pac is split between ESPN and Fox for Tiers 1 & 2. I am not sure how the Pac-12 Networks are owned and operated (but I don't think ESPN has any part of it).
2) Yes, the B1G is coming into major television contract negotiation for 2016 and beyond, but right now Fox has only 51% of BTN while ESPN/ABC has everything else non-BTN.

 

[dayooper]

1) Like the Big XII, the Pac is split between ESPN and Fox for Tiers 1 & 2. I am not sure how the Pac-12 Networks are owned and operated (but I don't think ESPN has any part of it).

The Pac12 Network is wholly owned by The Pac12. Neither ESPN nor Fox owns any of it. ESPN and Fox split the network games. That's the biggest problem with The Pac12 Network, they have no one to go to bat for them.

2) Yes, the B1G is coming into major television contract negotiation for 2016 and beyond, but right now Fox has only 51% of BTN while ESPN/ABC has everything else non-BTN.

This is the biggest issue preventing realignment right now: how will The Big10's media contract be split up. They are going to get paid, but who? How much will ESPN pay to keep Fox out of the college football business? If it's true that Fox wants a piece of the college football world, they will pay (they did with The NFL many years ago). Is ESPN willing to keep them at bay with a split contract? Once that is settled, we will know how a potential ACCN will be (if at all) and how much more ESPN is willing to give The ACC schools. One the Big10 contract is settled, I think the pieces will fall into place.

I think that there will always be an ACC and I think the majority of the schools will stay, if not all of them. The Big12 is (and always was) on borrowed time. Texas can go anywhere with their tier 1 and majority of their tier 2 content. Their LHN content is very valuable, but not nearly as much as their prime football games. Being able to broadcast 10 - 11 UT football games would be a huge boon for Fox. Whose to say that Texas can't go with a Fox conference with their tier 1 content and still keep the LHN until the contract runs out? It's the football that they want.

 

[CL82]

 

[Nostical]

Thanks PJ. If that was your research effort I applaud you in getting it all on the table. It's confusing enough as it is, but trying to predict network moves, determining legal implications, and predicting who covets whom can literally make your head spin. I've decided to adopt the Al Davis mantra--just win! Our window for Diaco to build the program to P-5 acceptability is about three years. Go Huskies.

 

[XOVERX]

Very interesting OP.

If the B1G were willing to go beyond 16, they ought to consider going with ESPN in 2017 so long as ESPN is not too far below a Fox bid.

If the OP's theory is correct, then ESPN could package a restless Oklahoma and Kansas off to the B1G. Then here comes Texas and its LHN -- ESPN properties, who would be left without a home.

While ESPN would also own the SEC, none of Kansas, Oklahoma, or Texas are particularly keen on the SEC, best I can tell, much preferring the academic prestige of the B1G.

Thus is the door opened to UConn.

The B1G would be at 18, having added a key school in the NE Corridor, UConn. BiG tentacles would be firmly planted in Texas, adding its huge metro areas and lush recruiting ground, while completely shutting out the SEC in the West with the major B12 schools (although there would be some B12 schools left over that the SEC might consider -- at ESPN's behest, of course).

Unless the B1G is happy playing second fiddle football to the SEC going into the long-term future -- and it may be perfectly happy, IDK -- but if it isn't happy, all signs point to a westward expansion to me, plus UConn. It's all there for the taking.

IMO, the B1G really needs to expand its recruiting grounds if it wants to hang more consistently in football, and that means Texas. A 2017 deal with ESPN could easily set up the B1G for big things out west. And northeast.

 

[chitown76]

Very interesting OP.

If the B1G were willing to go beyond 16, they ought to consider going with ESPN in 2017 so long as ESPN is not too far below a Fox bid.

If the OP's theory is correct, then ESPN could package a restless Oklahoma and Kansas off to the B1G. Then here comes Texas and its LHN -- ESPN properties, who would be left without a home.

While ESPN would also own the SEC, none of Kansas, Oklahoma, or Texas are particularly keen on the SEC, best I can tell, much preferring the academic prestige of the B1G.

Thus is the door opened to UConn.

The B1G would be at 18, having added a key school in the NE Corridor, UConn. BiG tentacles would be firmly planted in Texas, adding its huge metro areas and lush recruiting ground, while completely shutting out the SEC in the West with the major B12 schools (although there would be some B12 schools left over that the SEC might consider -- at ESPN's behest, of course).

Unless the B1G is happy playing second fiddle football to the SEC going into the long-term future -- and it may be perfectly happy, IDK -- but if it isn't happy, all signs point to a westward expansion to me, plus UConn. It's all there for the taking.

IMO, the B1G really needs to expand its recruiting grounds if it wants to hang more consistently in football, and that means Texas. A 2017 deal with ESPN could easily set up the B1G for big things out west. And northeast.

this +1000

 

[Lynwood Rowe]

...OK and UT in B1G. That just might be a square peg / round hole type situation. Culturally that's kind of hard to get your mind around....I mean, there are a bunch of Texans in Texas, right? Then again, Jersey is working out okay. It's a brave new world, isn't it?

 

[Pudge]

I typed this yesterday & I think it bears more thought:

We have just witnessed enormous upheaval in how we get programming over the last 5 years; these coming 5 years should be just as vibrant in change. You have CONTRACTS with Fox and ESPN for the P5 conferences tying games. Conferences!!! I just think that pure greed enters into this within 5-8 years and you are going to see Texas or Florida or USC separating and pushing for a new deal that disproportionately distributes cash and discretely pays the Brand more than a Texas Tech or a Vanderbilt or a Wazzou.

Conferences are anachronistic. The Playoff talk is that they are going to get more important; I think there is a way that they might get less powerful.

As for UConn, Nostical is keenly on topic: nothing is imminent. Diaco needs to rebound this fanbase & Program ... and go beyond where Edsall was. It is cultural. It's not just scheme and offense and gameday decisions; it is about having a full Program. And, I still think that UConn at its peak is beyond BC or SU or even Rutgers on a eyeball-want-to-watch basis. If Conferences and their Networks (B1G or SEC are really a core component going forward - begs the question of carriage rates & continuing cable - UConn also has better broad sports programming than any other in the Northeast (if Diaco builds)).

 

[frankthetank]

I typed this yesterday & I think it bears more thought:

We have just witnessed enormous upheaval in how we get programming over the last 5 years; these coming 5 years should be just as vibrant in change. You have CONTRACTS with Fox and ESPN for the P5 conferences tying games. Conferences!!! I just think that pure greed enters into this within 5-8 years and you are going to see Texas or Florida or USC separating and pushing for a new deal that disproportionately distributes cash and discretely pays the Brand more than a Texas Tech or a Vanderbilt or a Wazzou.

Conferences are anachronistic. The Playoff talk is that they are going to get more important; I think there is a way that they might get less powerful.

As for UConn, Nostical is keenly on topic: nothing is imminent. Diaco needs to rebound this fanbase & Program ... and go beyond where Edsall was. It is cultural. It's not just scheme and offense and gameday decisions; it is about having a full Program. And, I still think that UConn at its peak is beyond BC or SU or even Rutgers on a eyeball-want-to-watch basis. If Conferences and their Networks (B1G or SEC are really a core component going forward - begs the question of carriage rates & continuing cable - UConn also has better broad sports programming than any other in the Northeast (if Diaco builds)).

There's an imbalance in the Big 12, for sure. The value of Texas overwhelms everyone else both nationally and in the sheer size of the state that it can deliver all on its own. It's not a surprise that they have the leverage to continue to force down a third tier rights structure on the rest of the Big 12 that largely benefits UT.

However, the other power conferences are much more balanced. For instance, Ohio State and Michigan are the biggest brand names in the Big Ten, but they can't just be dependent on their home states long-term in the way Texas can. They need the access to Chicago and NYC (and even solid-growing Midwestern states like Indiana and Minnesota) that the "lesser schools" in the Big Ten provide to them. Florida is arguably the one other school that can go it alone, but with the SEC bringing in Texas A&M (along with already having fast growing territory in Georgia and Tennessee), there's a lot more money to be made by being part of that collective than as an individual school. Just as importantly, it also provides downside protection in the shallow periods (like Florida football is going through now) even if it limits the upside potential in very successful periods.

As a result, there is ZERO trend to go to individual school-based models anywhere other than the entrenched Big 12. Note that both the SEC schools just willingly gave up individual third tier rights to create the SEC Network (even though schools like Florida and Alabama were making a killing off of those rights) and Pac-12 actually had unequal TV revenue distribution until a couple of years ago. Both conferences saw that equal revenue sharing was MUCH more powerful long-term (similar to the NFL revenue sharing structure). Once again, too many people that want/desire/hope for a reversion to less powerful conferences focus too much on the upside for the Ohio States and Floridas or the world, but forget that those schools care even more about ensuring that they never have a revenue downside just because they have a few underperforming seasons.

Pretty much every business decision in college sports over the past few years - conference realignment, TV contracts, NCAA restructuring, playoff revenue sharing, bowl revenue - has been much more about GUARANTEED money that schools can count on for the next 10, 15 or even 20 years. Believe it or not, the Ohio States of the world do NOT want to go it alone (whether it's for demographic or revenue reasons). Fans focus on the on-the-field results in the playoff, but schools want to ensure that revenue is completely detached from them. These schools want/need/MUST HAVE the same money whether they go 12-0 or 0-12.

 

[Pudge]

There's an imbalance in the Big 12, for sure. The value of Texas overwhelms everyone else both nationally and in the sheer size of the state that it can deliver all on its own. It's not a surprise that they have the leverage to continue to force down a third tier rights structure on the rest of the Big 12 that largely benefits UT.

However, the other power conferences are much more balanced. For instance, Ohio State and Michigan are the biggest brand names in the Big Ten, but they can't just be dependent on their home states long-term in the way Texas can. They need the access to Chicago and NYC (and even solid-growing Midwestern states like Indiana and Minnesota) that the "lesser schools" in the Big Ten provide to them. Florida is arguably the one other school that can go it alone, but with the SEC bringing in Texas A&M (along with already having fast growing territory in Georgia and Tennessee), there's a lot more money to be made by being part of that collective than as an individual school. Just as importantly, it also provides downside protection in the shallow periods (like Florida football is going through now) even if it limits the upside potential in very successful periods.

As a result, there is ZERO trend to go to individual school-based models anywhere other than the entrenched Big 12. Note that both the SEC schools just willingly gave up individual third tier rights to create the SEC Network (even though schools like Florida and Alabama were making a killing off of those rights) and Pac-12 actually had unequal TV revenue distribution until a couple of years ago. Both conferences saw that equal revenue sharing was MUCH more powerful long-term (similar to the NFL revenue sharing structure). Once again, too many people that want/desire/hope for a reversion to less powerful conferences focus too much on the upside for the Ohio States and Floridas or the world, but forget that those schools care even more about ensuring that they never have a revenue downside just because they have a few underperforming seasons.

Pretty much every business decision in college sports over the past few years - conference realignment, TV contracts, NCAA restructuring, playoff revenue sharing, bowl revenue - has been much more about GUARANTEED money that schools can count on for the next 10, 15 or even 20 years. Believe it or not, the Ohio States of the world do NOT want to go it alone (whether it's for demographic or revenue reasons). Fans focus on the on-the-field results in the playoff, but schools want to ensure that revenue is completely detached from them. These schools want/need/MUST HAVE the same money whether they go 12-0 or 0-12.

Makes sense.

It also points out that they don't want to be in the PRODUCTION business. They are willing to (first) let ESPN package the product - with sponsorship, advertisers, distribution (both cable & whatever), talent, actual production - and just collect the rights check. We have seen, there is no loyalty (or not much) between these college presidents. Collegiality maybe. But, I suspect that the trends of the recent years (to my eye, mostly a steady SEC push to the top) may provide niche plays at several levels. I still think that there are tricky legal issues that arise as the ripple of big change will leave varying sports and Universities in their wake. Just can't see Title IX going easily if there is a massive dislocation of women's athletics if the many non-P5 fall out.