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.