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New SEC Network To Be Co-Owned? Not So Fast

Pay-MeThere’s an assumption, an expectation, that many folks seem to be jumping to with regards to the soon-to-be-announced SEC Network.  That belief is that the Southeastern Conference and ESPN will split ownership of the new channel.  And, yes, we’ve made that very same assumption.

Well, as Mama always said, “Never assume…”

As we’ve covered on this site before, there are at least three different ownership models open to the SEC when it comes to its new network.

 

1.  The SEC could follow the path taken by the Big Ten.  Jim Delany’s league owned 51% of its network with the other 49% owned by FOX Entertainment Group, when the network was launched.  (That ownership split flipped in favor of FOX — 51% to the Big Ten’s 49% — some time since 2010.)  By far the most successful of all the conference- or school-specific sports networks, many have jumped to the conclusion that the Southeastern Conference will just copy this set-up.  Again, we were one of those jumpers earlier this week.

2.  The SEC could opt to do what the Pac-12 has done and launch a network all on its own.  The SEC could own it while paying ESPN to run it.  The Pac-12 has a deal in place with Comcast Media Center to help with the production of its national channel and its six regional networks.

3.  Finally, the SEC could follow in the University of Texas’ footsteps and simply take home a fat check from ESPN every year.  The network would own the channel in that scenario, not the conference.  In Texas’ case, the school is set to receive $300 million from ESPN over a 20-year period.

 

You can likely scratch Option #2 from the list as the SEC certainly won’t want to incur all the start-up costs involved in a network launch.  Long-term, ownership might be a gold mine, but out of the gates it could be a nightmare scenario.

Option #1 — the one most have simply taken for granted will the path most likely to be taken — has its drawbacks, too.  As a co-owner of the network, the SEC’s cash intake would be tied to what the channel is bringing in… and up front, that might not be a whole lot.  Carriage battles with cable and satellite providers could be quite messy.  They have been for everyone else who’s launched a network (the Big Ten, the Pac-12, Texas, the NFL, etc).  Those fights delay a network’s growth and earnings.

Which brings us to Option #3, the Longhorn Network model.  It’s a plan that’s obviously already being used by ESPN, the company that the SEC will work with on its network.  It’s a plan that would guarantee the SEC is making X amount of dollars right from the outset, regardless of whatever struggles ESPN might have in carriage negotiations.

Yesterday a friendly tipster pointed out an additional tidbit to us — the Southeastern Conference owns nothingHere’s a breakdown of SEC revenues and expenses as of 2011.  Page down and you’ll find a spreadsheet showing exactly what the league owned through 2007.  If you look under land, building, equipment, other assets… you’ll find zeroes.

Since 1948 the SEC has had its offices in Birmingham.  The city has provided office space to the league in exchange for a $1 per year lease.  When the league moved the SEC Championship Game from Birmingham to Atlanta in 1994 there was some talk of the lease going up, but the city backed down when the SEC let it be known it was willing to pull up stakes and move.  There has been talk of moving the league’s headquarters from time to time since, but the SEC is still currently residing in 30,000-feet worth of leased property.

Add it all up and it seems likely that the SEC will simply allow ESPN to own the network in exchange for a hefty annual check.  Such a set-up would appear to be much more of a win-win for the conference.  The SEC would be guaranteed money up front, regardless of the struggles ESPN might face in launching the channel, getting it carried, and selling advertising for it.  On the back end, built-in escalators in the contract could guarantee that Mike Slive’s league will get even richer if the network outperforms its cash projections.

A look at Texas’ Longhorn Network contract with ESPN shows that once the network recoups its initial investments — $295 million for LHN — the university will receive 70% of all the channel’s profits.  And from the outset, Texas was set to receive a check each year worth $10,980,000 from ESPN regardless of the network’s success.

Another interesting clause in that pact gives Texas the right to force ESPN to fire members of the network’s on-air talent team.  According to the contract:

 

“In the event that UT reasonably determines that any on-air talent does not reflect the quality and reputation desired by UT for the Network based on inappropriate statements made or actions taken by such talent and so notifies ESPN, ESPN will cause such talent to be promptly replaced (and will in any event no longer allow them on air following such notice).”

 

Now that’s power.  And money.  With zero responsibility.

If the SEC does follow the Longhorn Network plan and eschews ownership in the SEC Network, the league can be as involved or uninvolved as it likes.  It won’t have to worry (as much) about protracted carriage battles with cable and satellite providers.  It will be protected against a downturn in the economy or unexpected hiccups in network sales.  And — as we told you yesterday — the league is already planning to allow ESPN to bundle its rights packages and sell advertising across multiple platforms, which should also result in more cash for less work.

Slive and company won’t have to do any more legwork than they please.  ESPN will have to do the heavy lifting.  And even if the revenue doesn’t flow as quickly and easily as projected, ESPN will still have to pay the SEC.

A scene from the movie “Goodfellas,” comes to mind, but as this is a family site, we better just link you to it rather than quote from it.  (NSFW, folks.)

So how sure have we become that the SEC’s deal with ESPN will look more like Option #3 than the 51/49 plan of Option #1?  Well, let’s keep with the theme and say we’re 51/49 on this one.

In other words, signs seem to point to Option #3, but we’re still looking forward to hearing the actual details of the SEC/ESPN agreement from Slive’s own mouth.

 


6 comments
WindyCityDawg
WindyCityDawg

The Big Ten part is actually incorrect. The conference is the minority partner not Fox

BAMANOLE26
BAMANOLE26

I think Slive is smart enough to take option 3 in the short term and option 1 in the long term. By sticking with the Longhorn network model for a contracted period of say, 10 years, the SEC incurs no start up costs and allows the network to grow and gain popularity while being safe from any risk and still getting a paycheck every year. After the initial contract expires going with a purely owned (PAC12) or a split (B10) model would be incredibly easy and make even more money. By going with the Longhorn option in the beginning it makes sure the SEC gets paid no matter what and also gives them more leverage when the initial contract expires.

Statesman
Statesman

In America Owning is always better than renting.  ESPN pulled a Don King on Mike Slive.  He showed Slive the money and Slive's greed kept him from getting the best deal

If Slive falls for the paycheck and not ownership then he is not as smart as I thought.   Short-term thinkers take a check(see Texas).  People with vision own(see Big10 & PAC 12) .   Yes the Big10 struggled early, but now they have a cash cow, as will the PAC12.    

seeeek
seeeek

@MrSEC i would hope the SEC network woudnt follow the longhorn network. NO ONE watches the long horn network.

John at MrSEC
John at MrSEC moderator

@WindyCityDawg 

You are correct.  When the network launched the Big Ten owned 51% and FOX 49%.  But according to the only two articles I could find on the subject, FOX took over 51% of the network at some point after January of 2010... leaving the Big Ten with 49%.

A link to one of the stories has been added to the story above.

Thanks for reading the site,

John

AllTideUp
AllTideUp

@BAMANOLE26 

That may be the best way to do it.  I would agree that taking Option #3 up front may not be the worst move in the long run.  It is a quicker check, but presumably there is also a deadline on the contract.  I imagine the negotiations called for deadlines and options for the SEC to take their content elsewhere at some point in the future under certain circumstances.  With that in mind, the SEC's 3rd Tier rights could become a free agent again after a certain period of time.  If ESPN loses status one day then FOX or another company may step up to the plate and pay for the content, which is fully owned by the SEC.  Or, in a worse case scenario, if the winds of change affect the current model based on cable/satellite subscriptions in the future then the SEC should be able to get out of this deal with ESPN and not have to take a financial loss through owning what will be an undesirable property.  Slive is a lawyer by trade so I can easily see him thinking this way.

All in all, the SEC still owns what matters and that is the content.

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