ESPN's Contract Issues with Texas A&M Illustrate Larger ESPN Problem

Published on: August 15, 2011 | Written by: Clay Travis

Yesterday OKTC reported that ESPN's television contracts provided the biggest obstacle to Texas A&M's addition to the SEC. Today OKTC requested a comment from ESPN on this issue and after this story was published ESPN's Josh Krulewitz issued the following statement to OKTC:"ESPN has longstanding partnerships with both the Big 12 and the SEC and we hope that these partnerships continue."

I'll let you digest that mind-blowing statement for a few moments.

In the meantime let's dive into this contractual issue anew because it's important to note a significant detail: ESPN's issues with expanding conferences is going to be the rule rather than the exception. In other words, the contractual difficulties brought about by Texas A&M to the SEC is not unique to A&M. Indeed, as we move towards what will eventually become a four conference 16 team super-conference era, ESPN's conflicts are going to be illuminated even more.

Why?

Because ESPN/ABC presently has contractual relationships with the SEC, the Big East, the Big 12, the Big Ten, the Pac 12, and the ACC. Eventually two of these conferences are not going to exist in their present states. We can pretty much guarantee that the SEC, the Big Ten, and the Pac 12 will be three of these mega-conferences. But which will be the fourth? 

More interestingly, how is ESPN going to reconcile its conflicting contractual positions with all of these conferences as this conference realignment shakes itself out in years going forward?

Put simply, by paying its lawyers an absolute ton of money to keep the network from getting sued for breach of contract.

Let me insert this point now, I don't believe that ESPN is evil. I believe it's a corporation that exists to maximize its profits and competitive position. I know and like many ESPN employees, so it's not fair to paint everyone with a broad brush either. Most of these people are simply hard-working employees of corporations, a lot like just about every single person reading this article today. But what this Texas A&M conflict threatens to blow up is the schism between the news-gathering side of ESPN and the corporate structure that makes all the money.

News coverage provides a negligible profit to ESPN, if any at all. ESPN's business model relies on you and I paying our cable bills every month. It doesn't rely on breaking news at all. If I was running ESPN, I wouldn't give a damn about my news coverage, I'd just want to keep from pissing off my business partners, the ones who actually make me money, the leagues. So would you. But ESPN pretends this conflict doesn't exist in its own coverage.

It takes independent sites like OKTC to point out the hypocrisies of ESPN's position and the blind spots of its "news" coverage. 

If ESPN was being honest right now it would be scrolling this at the bottom of the television screen: "Sources tell ESPN's Joe Schad that ESPN's television contracts are the primary obstacle to Texas A&M joining the SEC." (Okay, that's just a fun Joe Schad "sources" joke, but the point remains the same -- ESPN's contracts are THE story right now.) Instead of covering its business though ESPN is going to run with some fantastical story idea that Clemson and FSU are in line to join the SEC? That story is crap and, most damningly, the network knows that story is crap.

ESPN's conflict is THE story right now. That's it, what everyone following A&M should be reading and commenting upon.  

I'm not saying you can't trust ESPN's coverage, just that it's every bit as biased -- in fact, much more so -- than the websites that it won't cite for breaking news stories.  

This business and editorial dichotomy is an inherent conflict that is exposed, in particular, by college athletics. I'll explain this in greater detail later this week, but in the meantime just know that the difficulties of college athletics television contracts don't correspond as much in professional sports television contracts. Primarily because all of those leagues are monopolies. Put simply, the NFL doesn't have to worry about someone else stealing away the Buffalo Bills. And ESPN doesn't have to worry about being the television inducement that leads to a team changing conferences. Pro sports leagues like the NFL, MLB, the NHL, and the NBA are monopolies without competitors in the same sport. College athletics is different; ESPN is in bed with all the conference competitors.

That's a hell of a mess.

Here are five facts that everyone needs to know about ESPN's inherent conflict in the coming new world order of college athletics:

1. Television money is going to be the primary reason why teams change conferences.

The primary reason the SEC wants into Texas? Television markets. The state of Texas standing alone has more people than Tennessee, Alabama, Louisiana, Kentucky, Alabama, and South Carolina combined. Indeed, as Andy Staples has pointed out, the entire SEC has a population of around 50 million. In one fell swoop, the addition of Texas would bring in 25 million more. Those eyeballs are really, really valuable.

This is why ESPN is so integral in the expansion process, it controls the purse strings. The more attractive the team is, the more valuable that team's addition would be to a conference's television deal. That makes sense, right?

But the opposite is also true, the more attractive a team is the more crippling it is for that team to leave a conference with an existing television deal.

That would be fine if ESPN only had a deal with one side of the equation -- the one making the additions or the one losing the team -- but ESPN has a deal with both sides of the equation. When ESPN is the entity providing the additional money that's leading a team to switch conferences, it's incredibly hard for the network to not breach its contract with the conference that is losing a member.

2. ESPN will pay more for rights fees as conferences grow.

How do we know this? Because major conference commissioners are not fools. Those commissioners know that sooner or later four 16 team mega conferences are coming.  While these commissioners can't speak to the particulars of a contract, all you need to know is this: There's no way in hell the SEC is adding Texas A&M if that means less television money for the rest of the conference members.

Now, and this is where it gets interesting, what if ESPN said no to more money for additional conference members?

The SEC might be able to hit the open market with a voided television deal. Why does that matter? Now you've got Comcast, Fox, and ESPN all bidding for the preeminent rights package in all of college athletics. (I'm going to write more about this later this week. Don't worry). But my guess is ESPN would be terrified of losing the SEC just three years into its deal. So it's going to pay more, much more for an expanded SEC.

3. We've already seen ESPN maintain rights fees in the face of league retraction with Nebraska and Colorado leaving the Big 12.

Big 12 commissioner Dan Beebe was hailed as a genius for getting ESPN to maintain it's $65 million yearly payments even with the loss of two attractive television properties in Nebraska and Colorado. Indeed, it was these television assurances that kept the Big 12 from imploding last year. I'd argue that rather than being a great negotiator, Beebe didn't negotiate anything -- I bet ESPN told him it would keep the rights fees the same. Why?

Because ESPN's lawyers advised ESPN to keep the payments the same since Nebraska was leaping from one conference it had a television deal with, the Big 12, to another conference it had a television deal with, the Big 10.

Yep, ESPN was conflicted then too. Only no one noticed.

I haven't seen anyone write about this factor in ESPN keeping the Big 12 payments the same despite the loss of two members, but I'd guarantee it's the major reason why ESPN didn't negotiate a lower rights fee -- because ESPN was worried about the conflict and a resulting lawsuit.

That's why I'd bet my house that ESPN will commit to spending the same amount of money to a Big 12 minus Texas A&M as it was paying to a Big 12 with A&M. Because if it used A&M leaving for the SEC as a reason to cancel the contract, the Big 12 would sue the hell out of ESPN for breaching the deal in the first place -- inducing A&M to leave by paying the SEC more money for A&M.

4. The SEC would like to expand into ACC markets at some point. The primary obstacle there is also ESPN's television rights deals.

ESPN is the primary network partner of the ACC. Just as ESPN would have to be concerned about inducing A&M to leave, ESPN would be a major player in any team leaving the ACC for the SEC. OKTC has previously reported that the SEC would be most interested in expanding into ACC states where it has no teams, that is Virginia or North Carolina. Again, that addition of new teams would lead to more money for the SEC, but it would also lead ESPN to be stripping away the value of one of its properties, the ACC. 

The inducement for the school to leave the ACC? More money from the SEC. Where does that money come from? All roads lead to ESPN.  

5. ESPN could get hit with paying lots of money for conference deals that aren't valuable.

Now, let's get interesting here, if ESPN keeps having to pay the same amount of money for diminished conference television deals while also paying more for mega conference deals, could the network face a tough business environment in college sports?

Hell, yes.

From a purely business perspective a diminished conference is worth much less than the "whole" conference. But ESPN is so conflicted that it has to keep paying the same rights fees in order to avoid being sued for breaching its contracts.

This is a massive story that OKTC is reporting, one that goes to the very essence of college sports in a televised era. The conflict brought on by Texas A&M to the SEC is just the tip of the contractual iceberg for the worldwide leader in sports. Texas A&M's situation isn't unique, it's just the first one to expose the internal hypocrisies and conflict of ESPN's college sports coverage.

This is a massive story that will be integral to all reporting on conference realignment for the foreseeable future.

I'll look forward to seeing it scrolling as breaking news on the ESPN bottom line.

Ha.

...

Read OKTC's prior coverage of SEC conference expansion here:

SEC expansion candidates and discussion of why league won't expand in existing markets.  

Why ESPN Is Dead Wrong: FSU and Clemson have no shot at the SEC.

How ESPN is Complicating Texas A&M to SEC