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The Economics of Conference Expansion; Why Georgetown is Irrelevant

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Well, it appears that Conference Armageddon 2011 has been avoided.  But I spent far too long typing out this analysis to merely drop it.  Anyway, some things to keep in mind for the next time the conference realignment carousel gets going.  In other words, next spring.

The goal of any conference expansion, of course, is to maximize new revenue coming into the conference and increase the per capita take; but the means by which the different conferences can do that affects their relative expansion plans. Right now, there are two different conference revenue models (well, technically three with Texas being an unique case).  The first is the traditional media-rights contracts that schools in the SEC and ACC have with ESPN, CBS (in the case of the SEC) where the conferences are content-providers for pre-existing network broadcaster. The second is the B1G/Pac-12 model where the conference owns their own network (the Pac-12 Network is in the works but not yet up and running), in other words is both content provider and broadcaster.  Texas and the Long Horn Network is a hybrid of the two as UT does not actually have an equity stake in the LHN, rather it is a joint venture between UT and ESPN, this explains why it was able to get up and running so quickly relative to the Big Ten Network ("BTN").

For the B1G and Pac-12, revenues are earned through subscription fees paid by cable subscribers to the cable companies to get the network. But the fees the BTN earns aren’t the same across the board; the BTN earns more per subscriber in areas where the BTN is on the basic cable package than where it is on an expanded "sports tier" package (10-15 cents per subscriber versus about 4 cents per, respectively).  The way to maximize revenue is to increase the "footprint" of the conference so that the conference network is carried on the basic tier of more local cable companies, particularly in large media markets so that every cable subscriber in, for example, Chicago is contributing to the BTN’s coffers, regardless of whether they are a B1G fan at all.  Under this model, NYC is the holy grail as the subscription fees would be astronomical if the BTN could get on the basic cable package.  Thus, the B1G’s (and Pac-12’s) expansion plans are centered around adding  schools that either expand the footprint to include new media markets – Mizzou with St. Louis; Maryland and the DC area; and Syracuse/Rutgers and NYC are examples – or have such a national cachet (Nebraska, Notre Dame, Oklahoma) that enough subscribers in media markets all over the country demand the conference network be included on their basic cable package.

Both the SEC and ACC have, to date, rejected ideas of starting their own networks and instead decided to pursue the more traditional revenue model, i.e. getting the most out of ESPN/CBS/Fox that they can for the right of those networks to broadcast conference games.  Since those networks are already on the basic cable package, their concern isn’t subscription fees (they’re getting them already).  Instead, the conference revenues are tied to the number of eyeballs, and thus advertising rates, they bring to tube.  The SEC and ACC don’t have to concern themselves with footprint expansion as much as they do with enhancing the perceived strength/prestige/dominance of the conference; they want to be the "must watch" conference because of its presumed on-field superiority.  Thus, these conferences will be more concerned with adding the "elite" names of college football, even if they are already in SEC territory, which is why FSU and Clemson get mentioned as possible targets of SEC expansion. Of course, adding new markets never hurts as the A&M issue shows, but that has as much to do with the SEC schools desiring to have better access to the high school talent pool of Texas and the fact that A&M is more of a prestige "get" than, for example, Houston would be.  Higher prestige means more viewers which leads to higher advertising rates to ESPN which leads to more $$$ for the conference selling its broadcast rights.

Then there’s Texas.  The LHN is a great deal for UT, as they are guaranteed payments from ESPN for the next twenty years.  It is horrible for ESPN, however, as there is no real market for the network outside of Texas and it, like the BTN and future Pac-12 network, needs to be on the basic cable package to make money for ESPN.  If teams like A&M and Oklahoma bolt for other networks, all of a sudden the LHN has little appeal to the nation in general as there won't be any marquee games to air on it so no one will feel compelled to subscribe to it.

This analysis, by necessity, ignores factors such as academics and cultural fits in expansion.  And these concerns aren’t irrelevant, though the weight given to them differs from conference to conference.

All of which is to say that Georgetown is utterly fucked if/when the Big East expands or is picked clean.  HOYA SAXA!

Stay Casual, my friends.

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