Texas A&M and Missouri Worth at least $114 million a year to SEC Network

Published on: January 23, 2012 | Written by: Clay Travis

This week Outkick the Coverage will take a look at the Southeastern Conference's future, particularly at a massive decision that is looming for the SEC and its primary network partner ESPN, whether to start a network or not. In 2009 the SEC signed a 15 year rights agreement with ESPN and CBS that extends until 2023-24. That agreement gives CBS the rights to a single first choice game every week while ESPN retains virtually every other right. (Stop the emails, when local Fox affiliates, Comcast, or other networks carry cames, those are sub-rights that ESPN has sold to those networks. The only exception? Each football team retains one game a year, generally the worst, which it can place on pay-per-view). 

A 12 team SEC was paid in the neighborhood of $150 million a year from ESPN and around $55 million a year from CBS. But now the SEC has expanded and added Texas A&M and Missouri as a 13th and 14th member. 

With these additions, these rights fees are up for reassessment. 

Leading many to ask, what's the value of Texas A&M and Missouri's addition to the existing league's television rights package? 

At minimum these rights fees must increase by enough money to ensure that no one in the SEC receives a smaller payout from the conference.

Given existing payouts that means that Texas A&M and Missouri must immediately return in the neighborhood of $40 million in additional rights fees.

But that number represents the floor.

What most have missed throughout expansion is this -- the SEC's addition of Texas A&M and Missouri was not about increasing the rights fees under the existing television contracts, it was about the coming SEC Network. Once the SEC decided to add Texas A&M and Missouri, a network was a foregone conclusion. While neither ESPN nor the SEC will confirm that this network is coming -- indeed, neither party will even discuss this network on the record -- it's the only logical outcome of a partnership that still has 12 years remaining.

That's because the SEC has only three real options as a 14 team conference:

a. negotiate at least a $40 million rights fee increase for Texas A&M and Missouri while maintaining its current television structure

b. start a network in partnership with ESPN

c. wait 12 years until 2023-24 and start its own network then

Option b. is immediately worth billions of additional dollars, the other two aren't.

Which one do you think the SEC and ESPN are going to choose?

That's a rhetorical question.

We'll unpack the why behind the decision throughout this week, but for now let's go ahead and show you the math on why Texas A&M and Missouri were added with the idea of an SEC Network in mind.

Based upon reliable data obtained by OKTC, the state of Texas has 7.5 million cable and satellite households and the state of Missouri has a little over two million cable and satellite households.

Combined that's 9.5 million cable and satellite households in these two states that weren't a part of the SEC footprint before expansion.

A 12 team SEC had 20.8 million cable and satellite subscribers, a 14 team SEC has 30.3 million. By adding just two schools to the conference the SEC increased its overall subscriber base by nearly 50%.

Every one of those 9.5 million cable and satellite households would end up with the SEC Network on its basic tier.

Why?

Because there would be howls of outrage if the SEC Network wasn't included. Lots of SEC fans complained about Missouri's inclusion to the SEC because they argued that people didn't care that much in Missouri about Mizzou football. That's the wrong way to look at this. The better way to look at it is this, do enough people care to demand that the SEC Network be carried by their local cable or satellite service?

The answer is yes. Hell, yes, even.

See, you don't need to have every one of these households be made up of rabid Aggie or Mizzou fans, you just need enough of them to make a fuss guaranteeing the network is carried on the basic tier packages.

What's the value of being carried on the basic tier package in these states?

According to SNL Kagan analyst Adam Swanson, "As long as you keep it below a dollar a month to start most people won't even notice it on their cable bills."

That's because cable and satellite bills aren't itemized. (We all pay, for instance, an average of $4.69 a month for ESPN according to SNL Kagan, that's nearly $60 a year just for ESPN).

Work the math there -- we'll keep it simple and start at a dollar a month -- and you end up with $114 million in value for Texas A&M and Missouri. That's just from subscribers in their own states. (It also doesn't include any advertising revenue or ancillary revenue that would arise for streaming and the like which would be substantial.)  

A dollar a month is very conservative over the long range for a regional sports network.   

How do we know this? Many regional sports networks make a killing. Per SNL Kagan figures Comcast SportsNet Washington brings in nearly $3.36 a month, tops among regional sports networks and New England Sports Network is a close second at $3.35 a month. 

The SEC has the second most fervent fans in the country after the NFL and its product is demanded all year around. Can you imagine how popular old games, call-in shows, and SEC centric programming would be in the South?  

If the SEC was able to get to just $2 a month in subscriber fees over the next decade -- a very realistic goal -- then the additions of Texas A&M and Missouri alone at $228 million a year would be more valuable than the existing television contract with ESPN and CBS. (Admittedly these dollar figures will be shared via a partnership with ESPN. What will that split look like? We'll write about that later this week).

The SEC is already rich, an SEC Network is going to make it filthy rich.

And just as the league's expansion to 12 and its conference title game came to alter the landscape of college athletics forever, so too will the additions of Texas A&M and Missouri.

It's a brave new SEC world.

...

Tomorrow: Is the Big Ten Network a model for the SEC or not?