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Old 05-09-2013, 01:57 PM   #6767
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SEC NETWORK OPENS NEW ERA IN COLLEGE ATHLETICS

Published on: May 06, 2013 | Written by: Clay Travis
19

On Thursday the SEC and ESPN officially unveiled the newest big moneymaker in college athletics, a 24/7 SEC Network.

The biggest news from the event was that the network will carry 45 football games a year, a daily tripleheader. Of course, OKTC readers have known that was likely for over a year now.

But what other news came out of the event? And what should SEC fans want and need to know about the SEC Network going forward?

Here are 15 thoughts that basically sum up everything you need to know about the SEC Network.

1. Why is this network a gamechanger?

Isn't this just the Big Ten Network redone?

The answer is no.

ESPN and the SEC believe that the SEC's Network is the most valuable regional sports network in the country. Now, they're calling the SEC Network a national network and they want to be in the same 75 million homes as ESPNU, but the real money for this venture will pour in from the roughly 27-30 million cable and satellite subscribers in the 11 state SEC footprint. In these 11 states the SEC and ESPN believe that the SEC teams are the single most popular teams in Kentucky, Tennessee, Arkansas, Louisiana, Mississippi, Alabama, Georgia, Florida, and South Carolina.

That is, there is no more popular team -- and conference -- across the sweep of these states.

The state of Texas is football crazy and the amount of attention that the SEC brand has already received in the Lone Star State is staggering to executives.

Missouri's Tigers have a fervent fan base that is enthralled with the SEC, enough to ensure that the SEC Network is in all homes in the region.

Is there a single large state where the Big Ten team is the top draw in the state? I don't think so. Clearly, Nebraska and Iowa are the top teams in their states, but those states are the two smallest in the Big Ten footprint. (Ohio and Indiana are probably the top arguments for big states, but Indiana football is worthless. So Ohio State is really the only argument. Are the Buckeyes the most valuable team in the state of Ohio? Maybe.)

This matters because regional sports networks are presently receiving up to $3.50 per monthly subscriber in many regions of the country. Frequently those regional sports networks are not featuring the most popular teams in the region. The SEC Network will be playing the most popular teams in the vast majority of its 11 state footprint.

Ultimately, this network will be worth billions of dollars.

What we don't know right now, and ESPN and the SEC are still holding it as a closely guarded secret, is what subscriber fees the network is targeting for launch. In essence, what did AT&T UVerse, the first cable operator to agree to carry the network, actually pay ESPN for the carriage fees?

The guess here is that the SEC Network will initially start off in the range of a $1 a month in the 11 state footprint.

At $1 a month the SEC Network would be worth in the neighborhood of $360 million a year.

At $2 a month the SEC Network's worth $720 million a year.

At $3 a month the SEC Network's worth over a billion a year.

That's just in the 11 state SEC footprint. (The state of North Carolina will also be a "shadow" footprint. Why? The network is located in Charlotte and based on television ratings there is a substantial SEC fan base in Charlotte. Expect North Carolina to be an interesting cost battleground, somewhere below the 11 state cost, but somewhere well above what, say, the network will cost in California).

Assume that eventually the SEC Network will be in 75 million homes like ESPNU. That additional revenue from outside the SEC footprint will be substantial. So will the advertising revenue, which we'll discuss in greater detail below.

2. What will the programming be like?

This is the biggest question, will the SEC Network be primarily an advertisement/propaganda piece for the SEC or will it be focused on entertainment and ratings?

That's a big decision that the conference will have to make in conjunction with ESPN.

I know that many at ESPN and the SEC consider the Big Ten Network to be terribly boring. The idea is to be much more entertaining than the Big Ten's Network. But how much more entertaining? And how much freedom will the talent on the network have? If I was in charge of the network, I'd obviously push the envelope more towards entertainment than a conference advertisement, but will that argument win the day?

Essentially, how much do ratings matter?

The 45 football games and men's basketball games are by far the most important asset, but being entertaining is probably the second most important aspect of the station.

Will people watch for anything other than the games? Will there be any must-see programming? That depends on the content decisions.

3. Who owns the SEC Network and how will the money be distributed?

ESPN owns 100% of the network, but the SEC owns 100% of the content. Today the Sports Business Journal reported that all profits will be split 50/50.

I believe the SEC's deal with ESPN is structured to give the conference a guaranteed payment up until the point where the SEC Network begins to throw off substantial sums of money. Given that the SEC typically announces TV money each year at the spring meetings in Destin, it seems unlikely that the true value of this deal will be known for some time. That's because the SEC Network won't launch until August of 2014. Some SEC Network money will exist in 2014, but only a partial year's revenue.

That revenue won't be announced until May of 2015. But it won't be until May of 2016 that the true value of the SEC Network will start to reveal itself.

So stay tuned.

4. What about CBS's role in the SEC's television package?

CBS will have the first pick rights to each week's games for the next decade and CBS will also continue to have the SEC Championship game until 2023-24.

Right now CBS has the best damn deal in all of televised sports.

Assuming that eventually CBS will pay around $70 million a year -- up from $55 million pre-expansion -- CBS is paying just $5 million per each of the 14 games it carries.

This is highway robbery.

The SEC title game alone is probably worth $80 million or more by itself in an open market auction. (Put it this way, would you rather have the Sugar Bowl, Rose Bowl, or the SEC title game? ESPN is now paying the Rose Bowl $80 million a year).

So ESPN pays the Rose Bowl more for a single game than CBS pays for 14 SEC games, including the SEC title game.

In ten years the SEC will take the first round weekly pick and the SEC title game back to market and make hundreds of millions more. In the meantime, CBS has the best deal in all of televised sports.

By far.

5. Who decides the content?

There's a content board with four members from the SEC and four members from ESPN.

Commissioner Slive told me there was a substantial negotiating issue over who breaks the tie votes. (My guess is it's the SEC, but that's just a guess). The four members at ESPN and the four members from the SEC have not yet been decided, but Slive told me that he would certainly be one of the SEC's members. Assume that ESPN's Justin Connolly will be one member as well. The other members remain to be determined.

The content board will be the individuals who actually make decisions about what programming the network carries. That is, it's these individuals who will ultimately decide whether the network tends more towards a glossy advertisement or actual entertainement.

6. What issues with distribution might arise?

Ah, now this will be interesting.

We're 16 months from launch and the SEC already has a website up for fans to demand their cable or satellite companies carry the network.

The big question is this: will any cable or satellite companies fight ESPN and the SEC on carrying the network as part of the basic tier in the SEC's 11 state footprint?

ESPN is an expert in the dark arts of distribution. If a cable company balks at carrying the network in the SEC footprint, guess which teams will appear on the SEC Network more frequently? You guessed it, the teams in that cable company's viewing area. Hell hath no fury like an SEC fan not able to see his favorite team play.

Put simply, would I want to be a cable company refusing to carry the SEC Network inside the SEC?

Hell.

No.

Ask Auburn's trees how rational SEC fans are when it comes to their favorite teams.

But this could be a battle.

Especially with fractious companies like Time Warner, which has a substantial footprint in the state of Florida. Time Warner has been willing to fight the NFL Network and MSG and other sports ventures over payments. Could Time Warner be willing to fight the SEC as well?

We'll see.

Fortunately though the SEC's 11 state footprint is mostly Comcast and Cox Cable. With AT&T Uverse already signed up, if the SEC can announce a deal with either DirecTV or Dish Network, the conference would have everyone in the 11 state footprint covered.

Stay tuned for carriage battles.

But I think ESPN and the SEC will win this war.

7. This is not the Longhorn Network.

The much ballyhooed Longhorn Network has turned into an ESPN albatross.

The reason?

LHN has just two football games a year.

The SEC Network will have 45.

No one really wants the Longhorn Network. Hell, even Texas fans don't care that much about having access to it.

Plus, even with Texas's substantial fan base, it's hard to get lots of anger stirred up.

The SEC has 14 rabid fan bases that will demand to see these games. So eliminate all thoughts of the difficulty ESPN has had getting the LHN distributed.

These are not the same issues at all.

8. How good will the games be on the SEC Network?

They'll be good.

In fact, I think three or four times in 2014 the SEC will put the second best game on the SEC Network in primetime.

Why?

For the same reason ESPN put Duke and North Carolina basketball on ESPN2 back in the day, to make the station a must-have product.

When you look at weekly SEC schedules, there is a tremendous strength some weeks, the second and third games are nearly as good as the CBS telecast. ESPN will have the rights to all SEC football games with the exception of that first round pick for CBS. ESPN and the SEC will also be aware of the criticism that is sure to be levied, that the SEC Network's games won't be as attractive as the ones on CBS, ESPN, and ESPN2.

Look for that argument to give up the ghost early.

There will be really big games played on the SEC Network in its first year to make the channel a must-have for college football fans.

9. There will be no more pay-per-view football games in the SEC.

This is a big deal that I think should have been emphasized more at the official announcement on Thursday.

When I talked to Commissioner Slive after the event, he said I was the only person who asked him about this.

Thank my dad.

And countless other dads across the SEC who pitched complete fits over being forced to pay $40 or $50 on pay-per-view for the worst football game of the year. Up until now every SEC school retained one football game to put on pay-per-view themselves. These broadcasts were beyond awful. Now those games will probably all air on the SEC Network.

But the major point here is that SEC fans will now get all of these games for less than they were paying for a single pay-per-view game featuring their favorite team.

As a consumer that's a hell of a deal, one that probably should be trumpeted more than it has been so far.

The SEC Network will actually save fans money.

10. ESPN will handle all ad sales.

I have no clue what ad sales will be worth on this network, but it should be a pretty substantial amount when you consider the total amount of ad inventory that ESPN will have on a 24/7 network. According to Forbes ESPN recently did $3.3 billion in ad sales. That compares with around $6 billion in overall subscription revenue. So let's say that's a fair approximation of ad sales across the company's networks, that 33% of overall revenue is ad sales.

Then we'd just need to figure out the revenue that the SEC Network will produce to come up with a rough ad sales estimate.

Let's start with our conservative figure and say that once the network gets rolling, say in 2015, it will produce around $360 million in total nation-wide subscription fees.

That would mean the advertising revenue would kick in an additional $120 million.

That number would presumably grow as the subscription revenue grew.

So don't overlook the ad sales component to the new network.

11. How will the station handle bad news and how will ESPN handle its conflicts and the perception of SEC-bias?

This is the most difficult angle for ESPN to manage.

Bad news about the SEC will harm its bottom line. Clearly there won't be an Outside the Lines: SEC Network Edition, where ESPN attempts to prove wrongdoing and uncover scandal in the conference, but how will bad news be managed. Will there be much journalistic independence at ESPN.

What's more, if the SEC had its own version of Penn State, how would the network cover it?

And how does ESPN balance its reporting independence while it has hundreds of millions of yearly reasons to not hurt the SEC brand?

Plus, ESPN now runs the playoff. Just wait for the hue and cry to start up when multiple SEC teams are part of the debate for who advances to the playoff. Fans of rival conferences will swear that ESPN's in the tank for the SEC since the SEC's success runs directly to the ESPN bottom line.

This will be the biggest challenge for ESPN, managing this conflict, which will become a unique conflict for the network.

Never before has ESPN actually partnered directly with a league.

That presents a mount of business opportunities -- as you can see from the revenue figures -- but it also presents a bunch of challenges as well.

12. The station will be located in Charlotte.

Yes, that's outside of the SEC's present footprint.

Note, I said present footprint.

I still believe that eventually there will be SEC teams in the states of North Carolina and Virginia.

The SEC Network will help to make that a reality.

It's a question of when, not if.

13. Can you put big out-of-conference games on the SEC Network?

This is a fascinating question from a national distribution platform angle.

Can you put, say, Florida State at Florida or Clemson at South Carolina or Oklahoma at Tennessee on the SEC Network?

The home team's television package typically governs these games. That is, the road team appears on the home team's network.

Let's say that Florida State and Florida is a top ten match-up. But it is the same weekend as Alabama and Auburn, so CBS picks Alabama and Auburn.

Could you put big-time programs from out-of-conference on the SEC Network?

I think so.

Which means that the SEC is incentivized to play big national home-and-home games. Or to create their own neutral site games and have the SEC Network put those games on. It's something to think about going forward if the SEC Network truly wants to broaden its footprint.

The SEC teams are incentivized to play big national games.

14. Why does the deal last until 2034?

Because who knows what the television market will look like in 2034.

The SEC retains 100% of the content, ESPN is basically licensing that content to make a network which it owns 100%. So what happens in 2034? ESPN owns the SEC Network, but without the SEC content the station would have to be rebranded. Basically, the network would become valueless without the content.

So ownership of the station isn't really that important except for tax reasons.

So both sides will be incentivized to hammer out a new deal in twenty years, once the clear value of the network has become apparent.

It also protects both sides in the event the changing media landscape alters the payouts. Inevitably someone posts in the comments that the cable model is dead and as a result the SEC Network is dying. But they're wrong. In a DVR era sports are the single most valuable programming on American television.

Why?

Because we watch it live.

Worst case scenario, if cable completely collapsed and became a la carte, the SEC and ESPN could take all these games direct to SEC fans and sell it that way.

How many fans would be willing to pay $100 a year for access to 99 SEC football games and all the other sports programming? That's a dollar a football game.

Is there any SEC fan who wouldn't pay this?

So stop with your polly annaish the cable world is collapsing trope. Games matter now and games will always matter. When content matters this much, the monetization takes care of itself.

15. So how much money will SEC teams make from the SEC Network?

The easy answer is, that depends.

There are a variety of factors at play here.

Pre-expansion ESPN was paying the SEC $150 million or so a year. That worked out to about $12.5 million per team. (CBS paid about $4.5 million a team pre-expansion).

Now the SEC has added two more teams, 14 more games to the television package -- the previous pay-per-view games that each team controlled -- and rolled all its rights to ESPN.

The SEC will play 113 football games in its regular season in 2014.

That's 56 conference games, 56 out of conference games, and the SEC title game. (Interestingly, playing nine conference games actually decreases the SEC's football game inventory by seven games).

The easiest way to think about the SEC's TV rights package is that CBS owns 14 games and ESPN owns the rights to distribute the other 99 games.

45 of these games will be on the SEC Network, the other 54 will appear on ESPN's network of channels, and 14 will be on CBS.

As part of this new deal, I think ESPN has guaranteed the SEC a substantial payment as a floor before the revenue share kicks in on the network. What would that guarantee be? I'm certain it's more than what any other conference is presently receiving for its television rights. My guess is that the guarantee is around $350 million.

So bottom line, I believe that each SEC team is now guaranteed around $25 million a year from ESPN.

I believe that the 50/50 split would kick in once we get above that guarantee on the SEC Network in the years to come.

If you hit $3 a month on the subscriber fee in the SEC footprint over the next decade, then we're talking about a billion dollars plus another $333 million in ad sales. That's $1.333 billion a year in revenue. Take off the $350 million guarantee and the SEC and ESPN would be splitting right at 1 billion.

That's $500 million for each.

So we're talking about $850 million being split among 14 teams in the SEC, that's nearly $61 million a year per team just from ESPN.

As I said earlier, the CBS package will hit the market in 2023/24 and be worth another $250 million a year at least. That would be another ten million for each team.

That's $70 million or more in television money per team in a decade or so.

Bottom line?

The SEC is poised to make it rain in college athletics.
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