With the PAC 10’s confirmation earlier this week that it is exploring expansion possibilities, conference expansion rumors have been buzzing. Nearly every scenario eventually drags the Mountain West into it, either directly or indirectly, so it makes sense to take a closer look at what will drive the PAC-10 and whether expansion would involve members of the MWC.
As discussed previously (see www.byucougs.com/2009/10/updated-comparison-of-conference-tv.html) conference revenue, and specifically TV revenue, is the primary driver. With the SEC and Big Ten throwing down the gauntlet, other conferences are forced to scramble to keep up or risk getting left looking from the outside in.
The PAC-10 is likely dealing with a number of motivations right now—primarily a new (and more lucrative) television contract, but also increased relevancy on the national stage, an increased ability to gain a second BCS bid, and access to additional rich recruiting fields.
Increased relevancy and opportunity at a second BCS bid would both be helped by going to 12 schools. In two divisions, the schools would no longer have to play all 9 other schools, thus eliminating a number of guaranteed losses and improving the odds that more than one school is highly ranked. When all schools play each other, the conference guarantees at least six losses in conference to its top four teams, while the SEC and Big 12 routinely have two highly ranked, and even undefeated teams at the end of the season squaring off against each other. Easy to do when the teams in the conference don’t all play each other, and even better when the media gives a pass on the issue.
So, even without considering TV revenue, the conference would have to at least look at what it would take (and what it would cost) to get to 12, which is the minimum required in order to host a conference championship game.
But there is the revenue issue. It is unlikely that the conference will expand unless it at least maintains the current levels of revenue for each school. So that means that any new additions will have to add at least the current average revenue per team to the conference coffers. So here is a look at how much additional revenue a new conference member would have to generate:
Relevant Annual Conference Revenue
Current TV Contract $53.2M
BCS Payouts (3 yr ave) $18.2M
Other Bowl Games (excess of $750K) $5.1M
NCAA Basketball Credits Payout $13.4M
FB Conference Championship Game $0M
Average per Team $9.0M
Each new team added to the conference would have to at least contribute $9.0M to the conference coffers. There will be no expansion unless it gets the conference to 12 teams, so at a minimum there needs to be $18M of new revenue collectively created by the new teams. Here’s where it might come from:
Potential for Increased Revenue after Expansion
Improved footprint of TV contract ?
1. Better shot at second BCS bid $1.5M
2. Additional non-BCS bowl revenue $0.5M
3. Additional NCAA bball bids $0.6M
4. Create a FB Championship game $8-10M
Remaining Gap ($18M min) $5.7-7.7M
1. Should the conference get a second BCS bid once every three years, they would net an additional $4.5M for an average of $1.5M per year
2. If the conference were able to add one additional bowl game with a payout of at least $1.25M, after assumed expenses of $750K, the conference would have an additional $500K to split each year
3. The Pac-10 currently has 65 credits accumulated over the rolling 6 year period. In order to maintain status quo the conference would have to earn an additional 2 credits per year (one for each game appearance in the tourney). This is unlikely, however, if the conference were able to get one additional credit every other year (more than they already would anyway), they would accumulate three additional credits over the six year span meaning that pay out at roughly $200K each, for $600K total.
4. A football championship game would generate revenue from ticket sales and TV rights. The SEC game earns that league roughly $12-14M per year. The Big 12 is just below that. The ACC hasn’t done as well. But, with USC playing in most years, a Pac-10 championship game would likely come in just below the current Big 12 and make $8-10M (70K seats at $50 each = $3.5M + $4.5-6.5M for TV rights and sponsorships).
So the million dollar question...
Are there two teams out there that could collectively add roughly $6-8M to the soon to be negotiated Pac-10 TV contract? The new TV deal will almost certainly be more than the current deal regardless of expansion, so any new teams need to be incremental to the already expected increases (which would increase the amount needed to break even, so we will compare with the current deal).
To consider this, we will assume that TV contract values are based on the number of households, and that all households are created equal (although viewer intensity is obviously higher in some markets).
Current Pac-10 Market Households
2. Los Angeles 5.6M 4.9%
6. Bay Area 2.5M 2.2%
12. Phoenix 1.9M 1.6%
13. Seattle 1.8M 1.6%
22. Portland 1.2M 1.0%
66. Tuscon 0.5M 0.4%
119. Eugene 0.2M 0.2%
Total 13.8M 12.0%
So with 13.8M households, and 12.0% of the US, the Pac-10 has a current contract of $53M per year. So for two teams to add an additional $6-8M to that total, together they would need to add roughly 10-15% more households to the footprint (about 1.5-2M), or 750K-1.0M each, just to break even. In order to increase the payout to the conference, it would have to be more.
These are the schools in markets west of the Mississippi that could meet that requirement:
School (Market Rank, City, Households)
Texas (5. Dallas, 2.5M; 37. San Antonio, 0.8M; 48. Austin, 0.7M)
Oklahoma (5. Dallas, 2.5M (some portion); 45. Oklahoma City, 0.7M)
Texas A&M (portions of Dallas and Houston)
TCU (5. Dallas, 2.5M)
SMU (5. Dallas, 2.5M)
Houston (10. Houston, 2.1M)
Missouri (21. St Louis, 1.2M; 32. Kansas City 0.9)
Colorado (16. Denver, 1.5M)
San Diego State (28. San Diego, 1.1M)
BYU (31. Salt Lake, 0.9M; US West/LDS, 1.0M)
Utah (31. Salt Lake, 0.9M)
Las Vegas (42, 720K), Albuquerque (44, 694K), Fresno (55, 579K), Honolulu (71, 433K), Omaha/Lincoln (76, 410K), Waco (89, 340K), Colorado Springs (92, 335K), El Paso (98, 311), Reno (108, 270K), Boise (112, 263K), Topeka (136, 180K), and Lubbock (143, 158K) are all markets too small to increase the value of the TV contract sufficiently.
The San Diego market is likely already covered by the inclusion of USC and UCLA. TCU and SMU are small private schools that have become victims of markets with too much noise for the size of their alumni base, and are not the primary driver of sports in those markets. Houston, although a large school with 37K students, suffers to a lesser degree from the same plight as the Metroplex schools—too much noise from pro sports and living in the shadow of Texas/Texas A&M. Missouri is focused on the Big Ten right now, and seems an unlikely candidate.
From this perspective BYU and Utah could not both be added, since together they do not bring any additional households. It would be one or the other or neither.
The only remaining options are Texas, Oklahoma, Texas A&M, Colorado, and BYU or Utah. The Dallas market is sufficiently large, that despite the overlap, any combination of the above would also work, except for BYU and Utah. Any discussion mentioning other schools is unrealistic, purely from a TV perspective before even getting to any other factors.
Would any of the Big 12 teams leave? Perhaps, if the money was right. The Big 12 includes a rather limited footprint, and a number of very small markets (see above). Outside of Texas, Missouri, and Denver, there isn’t much, and without the state of Texas in particular, the conference would fall apart financially. With that in mind, the upside of the Big 12, unless membership changes are made, is very limited. But still, for a team to leave behind its rivalries and tradition, it would have to make significantly more revenue than it does now—for our purposes, we will say 35% more. Colorado has fewer rivalries and traditions in the Big 12 than the Texas schools, and thus likely has a lower bar, maybe 25%. Here is an estimate of what these schools will receive this year from Big 12 revenue sources (using last year’s allocation % against this year’s projected $136.2M):
Current Big 12 Revenue (Departure Hurdle Value)
Texas $13.6M (would need $18.4M)
Oklahoma $13.0M (would need $17.6M)
Texas A&M $11.0M (would need 14.9M)
Colorado $10.7M (would need $13.4M)
The Pac-10 currently only brings in $90M or about $9.0M per team. Non-TV expansion benefits would add about $12M or $1.0M per team. A new TV contract without the additional schools could possibly bump up another $2M or so per school before the expansion consideration (assume $75M per year for 10 teams). That would put total revenue at $122, or $10M for each school before considering TV market increases. Enough for BYU or Utah. Not yet tempting for Colorado, and with a ways to go for the Texas schools. So it all comes down to the potential to increase TV value.
Increased TV Value
Texas adds about 4.0M households (29% increase of $21.8M)
Oklahoma adds 3.2M (23% increase of $17.4M alone, or 5% for $3.8M with Texas)
Texas A&M maybe 2.5M (18% increase of $13.6M, alone and 3% or $2.2M with Texas)
Colorado 1.5M (11% increase of $8.2M)
BYU would add 1.9M (14% for $10.4M)
Utah would add 0.9M (7% or $4.9M alone, $0 with BYU)
So which combinations work?
Utah and Colorado: 2.4M new HH (18%), $13.1M new TV dollars, $135M total and $11.3M/team
-This works for Utah, but Colorado would be unlikely (unless there were intangible reasons).
BYU and Colorado: 3.4M new HH (25%), $18.6M new TV dollars, $140.6M total and $11.7M/team
-Again, this works for BYU, but would be unlikely for Colorado.
Colorado and Texas: 5.5M new HH (40%), $30M new TV dollars, $152M total and $12.7M/team
-Likely works for Colorado (as Big 12 w/o Texas is much less), won’t work for Texas
Texas and Oklahoma: 4.7M new HH (34%), $25.6M new TV dollars, $147.6M total and $12.3M/team
-Would be unlikely to work for Texas or Oklahoma (unless there was a massive uneven revenue split)
Colorado and Texas A&M: 4.0M new HH (29%), $21.8M new TV dollars, $143.8M total and $12.0M/tm
-Could work for both Colorado and Texas A&M (more than they get now) but unlikely to be worth the effort unless there was unequal sharing in their favor or significant intangible reasons to do it, since it does not meet the hurdle.
BYU and Texas A&M: 4.4M new HH (32%), $24M new TV dollars, $146M total and $12.2M/team
-Works for BYU, is more than TAMU gets now, but as in the scenario above, unless A&M is unhappy in the current situation, this will likely not meet the hurdle rate for them.
BYU and Utah: 1.9M new HH (14%), $10.4M new TV dollars, $132.4M total and $11.0M/team
-Both BYU and Utah would do this. And, which surprisingly, at the end of the day, might be what it comes down to… which teams would be both qualified and willing. It would not be much of a revenue bump for the conference, but it would be revenue neutral and achieve the relevance and BCS goals.
• BYU, Utah, Texas, Oklahoma, Texas A&M, and Colorado are the only options for Pac-10 expansion that will maintain revenue neutrality or better
• Without making some kind of revenue concessions to the Texas schools, it is unlikely that any of them would come, but given the Texas recruiting grounds, the Pac-10 just might do it.
• Colorado is borderline, but is unlikely to move unless they are currently unhappy or the future alternative in the Big 12 (no Texas) was diminished
• BYU and Utah together (or BYU and a smaller market UNLV or TCU) would work and still maintain revenue neutrality.
• Utah combined with anyone above but BYU (and perhaps UNLV or TCU, not listed) does not increase the pie enough to entice the other partner to join them in the Pac-10
• Unless the Big 12 looks like it is going to fall apart, or the Pac 10 is able to get significantly more than $75M/year for its current lineup (it would have to be at least $100M/year for just the current 10 schools), then it is unlikely that any schools from the Big 12 would leave for the Pac 10
• No WAC teams are in large enough markets to be invited unless BYU is invited (which would be enough by itself and would need another school to get to 12)
• No Conference USA team is likely to be invited as Houston and SMU are the only "western" schools in large enough markets, but are not the primary draws in those markets. If invited, they would have to be paired with either BYU or Utah, since they do not increase the TV value sufficienlty to get any Big 12 team to join them.
Pretty awesome analysisReplyDelete
Thanks for the great analysis - definitely gives a clearer picture with all this talk of expansion.ReplyDelete
invited schools dont need to bring 9 million/year b/c you didnt factor a championship game, which would net 9-12 million a year. therefore 8 million should be the figure new teams need to "bring" in.ReplyDelete
Thanks for your comment. I primarily used the $18M to determine how large of a TV footprint increase would be needed (10-15%).ReplyDelete
I later assumed that the Pac-10 will get a revenue bump in the new TV contract without expansion of about $2M per team (10x$2M=$20M). I also factored in a championship game, additional BCS money, NCAA bids, etc to be about $12M per year. So with the current $90M, plus $20M, plus $12M, the conference would be looking at $122 (or $10M per team plus new TV revenue, for 12 teams, versus $110M and $11M/team for 10 teams) before considering the added value from expanding the TV footprint.
Incredible analysis, but you did not factor in one very key element into your TV equations. The fact that Denver, SLC, DFW (for example) are each "splintered" TV markets. CU only delivers about 30% of the College Fball viewers in the Denver market to watch all of the B12 lineup of games broadcast into Denver. CSU & AFA get about the same 30% for all MWC games broadcast into Denver.ReplyDelete
I imagine that UU & BYU together, delivers 80-100% of the CFB viewers to all MWC games broadcast into SLC. But adding UU alone will not deliver more than 50% of the SLC viewing market to the entire P10 TV lineup each week. What would you guess that % to be (30% to 50%)?
However, by adding both UU & BYU (or CU & CSU) into the P10, the SLC or Denver markets suddenly almost DOUBLEs the TV sets tuned in for the entire P10 lineup of games! Why?
Because of the desire & ability to watch ones dearest nearby Rivals' games on the same Network, and the added interest it generates toward the entire Conference slate of games that BOTH teams play in.
What this does is SERIOUSLY skews your analysis to cause the P10 to favor their old-tried-proven expansion model... take both Flagships within any given state, dominate all media discussion, and gather twice the viewers for all P10 products into that State-wide market (as well as the Metro areas).
Remember, its not just about having TV coverage over a Market... its about how many people actually watch the entire TV slate of P10 games offered in that market (not just how many watch the UU, or CU games being played that day).
THis is very tough stuff for us (as well as Networks) to model. But they get paid to do it!!
Good work Dave. This should put to rest a lot of the speculation on Cougarboard, if people will actually read it.ReplyDelete
You annalysis is great but the wild card here is creation of a Pac-10 Network covering all 11 western states with the inclusion of Utah and CU.ReplyDelete
You analysis is based upon a direct relationship to the current TV revenue stream based upon hard numbers. A Pac-10 network is a whole new ballgame ... and could conceivably generate $3-5 million per school per year ...
And that is not chunck change ...
One additional comment (not that it changes your conclusions) - you failed to mention Rice as an additional CUSA option from metro Houston (and we were conference mates just a few short years ago!).ReplyDelete
For purposes of this analysis, Rice/Houston is to metro Houston what TCU/SMU is to the DFW metroplex.
This is pretty great. If Missouri was not focused on the Big 10, they would also be involved as well correctly?ReplyDelete
And I know Nebraska does not have a large media market, but their football program has a national following does it not? I think they could be a option. Either way, great post.
I think you fail to realize that there is no way the PAC would add BYU due to Sunday games. The PAC will not budge on this. That right there throws BYU out of the pile eligible teams. Unless someone has a vision and decides that it is ok to play on Sunday, BYU can just plan on staying put.ReplyDelete
I would like to see Colorado and Texas join a Pac-12. I think it would be the best conference.ReplyDelete
I think your TV numbers are off for BYU. Your 1.9M # combining SLC and LDS/West would include 80-90% overlap, would it not? I would put it closer to 1.2M.ReplyDelete
Thanks for all of the great comments. It is great to have such engaged and passionate readers.ReplyDelete
As has been pointed out I recognize that there are a number of other factors that are relevant in expansion decisions (cultural fit, academic fit, recruiting base, scheduling, prestige, etc). This analysis does not try to cover the nuances of all of those, but to try to establish some sort of baseline minimum, before any of that can be considered (athough this may not be the order of consideration in reality).
The television sets is a difficult thing to nail down, as you point out Ramdom. Initially, I began trying to assess that (the Bay Area for example is not going to be as passionate about Cal or Stanford as Seattle may be about UW, or SLC may be about BYU, or Austin may be about Dallas), but decided to leave it at households since that seemed to be a bit more objective.
It would also have been great to look one level deeper at subsciption revenue (households) vs advertising revenue (eyeballs), but I don't have enough information to make accurate assessments there. For example, Utah in the Salt Lake market would be less than half of the eyeballs, but if a station were offered with Utah sports, it would likely be carried by the basic level of cable. I think that holds true for most of the teams in the analysis, and that is kind of how I thought about it (not perfect, but a good start).
Should Missouri move to the Big Ten (or any other conference realignment moves), there would be a whole new element of expanion that would likely impact the MWC in just about any scenario. If Missouri weren't so focused on the Big Ten, I believe they would have to be in the discussion with the Pac 10 as well.
Nebraska is a tricky one. They are appealing for a number of reasons, and could satisfy the Pac-10 schools (as revenue neutral) if they were to be invited along with a large market school (Colorado, Texas, or Oklahoma, for example), however, due to their small market, it would be unlikley that they would be able to generate enough additional revenue that they could help convince another Big 12 school to jump to the Pac 10 (any that did would likely make less, not more money).
I think a dedicate conference TV network is a likely outcome, especially if it is in partnership with the Big 12 or ACC. The Big Ten is projecting about $175M per year with 25% of the US households in thier footprint. The Pac-10 has about half of that (and much less viewer penetration within those markets). My gut is that a dedicated Pac-10 station would generate less than $100M per year(this would be another great analysis, by the way), and possibly 75-100% more if you partner with another conference. However, by partnering, you get an additional 12 mouths to feed, and no one school is really any better off unless there is synergy (shout out to Covey!) in the partnership, which there may be due to increased appeal and cable/sattelite subscription fees.
Your numbers are off regarding San Diego. The numbers you show represent the city of San Diego, and not all the other surrounding communities to the north and south, which are all in San Diego County. Include all communities in San Diego county and the number jumps from 1.2 million viewers to over 3 million.ReplyDelete
The BYU households estimate, is, as you point out an estimate. It may very well be 1.2M (Salt Lake 0.9M, 0.3 for the rest) as you suggest. I used an addional 1.0 to include other TV markets that would pick up BYU in its basic package (much of Nevada, southeatern Idaho, possibly Boise), Cedar City/St. George, the rest of Utah, northern Arizona, Western Wyoming, possibly parts of Orange County, etc), as well as households nationwide that would pick it up. There are more LDS outside of Utah than inside. But still the additional 1.0M could be high or low.ReplyDelete
Don't forget the SEC! Don't think for a moment that they wouldn't make a play to grab Texas, Oklahoma, and maybe a couple others. With their TV contract, they have the money to do it. In that case, the remaining members of the Big XII would be clamoring to join the Big Ten or the Pac. Without Texas the Big XII isn't really viable as a top tier conference.ReplyDelete
And don't think that the Big XII commissioner isn't going to try a counter-move. The Big XII could make an offer to USC, and maybe a couple other Pac schools, with the sweetener being that they wouldn't have to share as much revenue with the rest of their conference. The only thing that saves the Pac-10 will be the Rose Bowl. That's a big reason why the Pac-10 needs to act fast to preempt such a raid. If there is a playoff or the BCS changes significantly the Rose Bowl might no longer be such an asset.
San Diego is a great market. In fact, in this analysis, I noted that the MWC actually has some pretty good TV potential with its markets, as 7 of the 9 teams are in top 50 markets (#5 Dallas, #15 Denver/Fort Collins, #28 San Diego, #31 Salt Lake, #42 Las Vegas, #44 Albuquerque). The only ones ouside of this are Colorado Springs (92) and Wyoming (unranked).ReplyDelete
These stats are for the DMA (Designated Market Area) and includes households in the defined metro TV market, rather than population or viewers. The San Diego market includes the surrounding suburbs in the county. My source is here:
The reverse raid by the SEC and Big 12! I think you are absolutely right. If things begin to go that direction, the SEC would love to gobble up Texas and Oklahoma, and/or the Big 12 would love to take USC and UCLA. The trend is toward more geography rather than less, so it could happen this post-BCS world.ReplyDelete
It may come down to which conference is most proactive, puts together a strategy, and acts first.
Sunday play is not an issue, Pac 10 rarely has any Sunday games to begin with and if you play BYU you don't play on Sunday. The other 11 teams can play on Sunday, not a big deal at all and anyone one who thinks otherwise is a retarded person.ReplyDelete
very informative post. as we know, it is ALWAYS about the money, why would adding additional schools to the conference be any different?? especially when you look outside of just football, you need to see academics and all the other sports that will be introduced, this would further limit a lot of the smaller schools.ReplyDelete
Football is not the only sport - there are plenty of other sports that play on Sunday; therefore it is not a safe assumption that no BYU sports on Sunday would not be a big deal.ReplyDelete
hope that helps.
Thats great Analysis! Sounds like something put together by a guy with an Econ degree from the Y, Bain Experience and a Stanford MBA.ReplyDelete
This is an excellent FB financial analysis, but its too FB-centric. This decision is made by the school Presidents and ADs. One of the AD's biggest worries is reigning in costs for non-revenue sports. The biggest variable cost for non-rev sports is travel.ReplyDelete
By adding teams the Pac-10 can REDUCE travel by creating two or even 4 divisions and creating more Pac-10 playoffs in all sports (which brings in more revenue than simple home-away games and again reduces travel). Adding $2M in revenue isn't worth it if you spend it all on travel.
Given those restrictions, it makes no sense for the Pac-10 to expand beyond the Mountain Time Zone. That adds support for BYU. Schools like Texas, Oklahoma, Nebraska are too far away for the Pac-10 to support as a conference. To me the ideal expansion is BSU-BYU-Utah-Colo, creating two 7-team divisions, with the California and Northwest schools minus WSU.
Colorado's incentive would be in the creation of a Pac-10 TV and increased visibility on the West Coast. 25% of the team is from California, another 10% from Arizona, Nevada and Hawaii. Less than 10% come from other Big-12 markets. The University President wants to recruit students from the Western US. And TV markets view Denver in the Rocky Mountain market, not the Central Time Zone market. Colorado's growth would improve by looking West instead of East.
Other anonymous guy, Sunday play is not an issue. They almost never play conference bball games on Sunday and no fball games on Sunday, nothing else matters. You clearly showed that you are a retarded person.ReplyDelete
Great analysis. I think you may have underestimated the strength of Texas. They are the #1 revenue program in the nation with a nationwide following and dominate across Texas including Houston and all the way out to El Paso. They would have a huge impact on the PAC-10's ability to negotiate a TV contract or creation of their own network and may be justified in receiving an uneven revenue distribution in the PAC-10.ReplyDelete
Likewise, if Texas goes to the Big Ten the Big 12 will start to look like the Big East (in football) and the threshold needed for Colorado to leave will drop.
Bottom line, Texas is the big player at the table and will like set the dominoes in motion.
interesting analysis. But your numbers are dead wrong. CU does not make 10.7M, they make 8M, to name one. With all those numbers being a few million off that can change the whole face of your analysis.ReplyDelete
oh and P.S you forget that its not only basketball and football that matter. Take a quick look at the baseball schedules for the pac-10. There are games every week on Sunday. BYU's unwillingness to play on Sunday ABSOLUTELY IS a factor.ReplyDelete