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Macro Analysis Media Impact of Conference Realignment

I am a University of Louisville fan. Obviously my view is biased (and perhaps too hopeful from a UofL perspective). I'm just taking a stab at what lies ahead for NCAA conference realignment. I am not an expert, merely an observer trying to be as informed as possible, attempting to use some combination of logic, reason, and deduction.

The collegiate landscape is shifting on a tectonic level. Its readily apparent to even the less atunnued observed that college athletics has nothing to do with "higher education." Rather, big-time college athletics are big business dressed up in a 501(c)(3)s tax-exempt coat of armor. I'll leave discussions as to the propriety of continuing the farce of that 501(c)(3) status in a time when higher education costs are quickly spiraling into the stratosphere for a different time. However, in order to properly assess the current "re-alignment" issues surrounding conferences requires more than a passing understanding of television (and as I will argue below) and other media rights.

How do conference monetize their product?

Currently there are two main methods that conferences uses to monetize their respective games. Of course, most of the the revenue is football driven. Still there are some basketball monies, though not enough to move the needle at the macro level. The traditional model is a simple grant of conference rights to a Television partner, being either a full grant (Tier I, II, and II) or hybrid grant (Tier I & II, witch individual schools retaining Tier III). The second, "cable channel" model, utilized by the PAC 12, B1G, and soon to be SEC, some combination of Tier I & II rights are sold to TV while Tier III (or in the case of PAC, Tier II) are packed together and sold as a cable channel, controlled in part by the conference.

This new cable channel model and the associated carriage fees, whereby value is determined by sheer population size in a state, as opposed to number of fans actually watching games is a solid business model so long as the current cable business model remains the dominant home entertainment distribution method.

However, consider what happens when the current cable model is replaced technologically by the holy grail of consumer entertainment - the a la carte method. Every individual television subscriber would prefer to be able to individually select what channels he/she subscribes receives. Technology is vastly approaching the bandwidths required for such a model. I think its short-sighted to believe the television markets will continue with carriage based cable fees, when CLEARLY the technological advances in data delivery indicate that cable television is not a sustainable model moving forward. I don't have access to the numbers, but it seems readily apparent to me that eventually, the consumer will determine his/her own entertainment package. Will channels become "apps"? While the a la cart television stream has been the holy grail for some time; given the increases in data bandwidth, its not a question of if, but when.

Obviously the a la cart model is about more than sports. Still sports are king in tv because 1) virtually only program anyone watches live; and 2) hits the all-important 18-30 male demographic. But I can easily imagine a world where the business model of cable companies (like the music industry, the movie rental industry, the newspaper industry, the publishing industry - catching a theme here?) become obsolete.

If the a la cart model becomes the norm the carriage based model currently implemented by the B1G and PAC 12 and soon to be SEC, becomes obsolete in terms of revenue stream. Those conferences / teams with a higher percentage of "fan" per capita in the population will be more valued than the current population of the geographic footprint carriage fee model. In that model the "actual" number of fans willing to subscribe becomes far more important than TV market analysis.

Then the questions becomes, what does it all mean in terms of current conference affiliation.

I whole-heartedly believe that all of this will shake out ok for UofL in the end. But I fear there will be 5-10 rocky/uncertain years ahead. I see two very plausible scenarios. Its obvious to me that both the ACC and Big XII are the two "shakiest" conferences. The ACC is shaky **now** due to relative revenue imbalance and failure to consistently field quality football product combined with an "easy" out of league buyout. The Big XII is more stable currently only due to the Grant of Rights (GOR) of that all of its members assigned to the conference for 13 years (I think it was 13, but have heard 10) and the higher bowl payouts provided by solid football product. I see two plausible scenarios:

The ACC is broken up, with Big XII, B1G, and SEC taking various parts of the puzzle before the 2014 season.

This would be a tectonic shift towards the 4x16 mega conference model. SEC & B1G split the Virginia & NC markets. Clemson, FSU, GT move to the Big XII (maybe with UofL), or some semblance there. I think there are too many moving parts to accurately predict how this shakes out. First the public NC institutions share one Board of Trustees, I don't see that Board permitting UNC to go to the SEC without NC State having a solid home or vice versa. What happens to ND - do they finally just up and join the B1G or Big XII. What happens to Syracuse and the perceived and likely best hope for the NY tv market.

I don't think this bodes particularly well for UofL. If the ACC truly breaks apart, the "most attractive" schools in the ACC are:

  1. ND (assuming you can get them to commit to full membership);
  2. UNC large fanbase, national brand, and growing population center;
  3. FSU good/great football, solid fanbase, national brand, slightly less growing TV market.
  4. Clemson/GT, less of a national brand, but growing population center (including southern Va here for Clemson) and very solid fanbases;
  5. VT/Va/NCState(all mashed up together) solely for geographic location and DC marketshares, but neither is a national brand and in the case of UVA downright bad football.

Those schools are your B1G and SEC targets. FSU and Clemson may loose out due to presence of USC2 and UF already in the conference. UNC/NCState may have to be a package deal; same with UVA/VT.

I would place UofL in with the Dukes (terrible football but no better brand in basketball - does that hold with Coach K leaves?), BCs (competitive in nothing, Boston market but who actually watches them, solid academic reputation), Miami (zero local fanbase, and how long will the national brand hold with what must be 10-15 years of less than stellar football product when the pending sanctions are weathered.), UConn (TV market, great basketball, seemingly zero interest in football). Syracuse, Pitt (both have been discussed ad nausem). If the ACC folds, just pencil Wake Forest in non-desirable left to pick up the pieces. Thats a lot of moving parts and I don't have the wherewithal to figure where UofL fits into such a scenario.

The ACC enters into a similar grant of rights deal that the Big XII currently has in place as a stop gap measure to prevent wholesale raiding.

Then the showdown between the ACC & Big XII issue becomes moot until the expiration of the GOR deals between the ACC / Big XII. In the Big XII favor you have the power of football dollars in TX & OK (really no one else in the Big XII moves the money needle anymore than UofL) and on the ACC side you have the ESPN platform. If the ACC can withstand the Big XII GOR time period (13 years, I believe), it may prove to be more "stable conference" - using the same demographic models everyone is talking about in terms of population centers and TV markets. In the Big XII, there really is TX, OK and a whole bunch of nothing. Those other markets won't grow over the next decade at the same rate that NC, Fla, Virgina will. To be sure, if ACC weathers the current storm, I like its conference chances much better than the Big XII due primarily to the potential that TX/OK could bolt for the PAC and the conference falls apart.

Entertainment Distribution Model impact upon conference affiliation in the future.

Sliding back to the impact of entertainment distribution methods. When the a la cart method becomes the de facto method the "ranking" preferable conference schools moves away from general population demographics and more towards true "fan" numbers. If/when that happens everything changes. However, the conferences current raking in large sums of cash will be better situated to deploy an a la carte solution. Perhaps basketball takes on a slightly greater significance in the a la carte model due to the amount of pure content basketball games produce. Suddenly schools like Kansas, Kentucky, Duke, Indiana, Syracuse and UofL (all **huge** basketball schools without the needle moving football programs or television markets), get significantly more revenue due to those fans watching 20 or so basketball games while the Auburns, Alabamas, and Nebraskas of the world are paying for 7-8 football games.

At the end of the day, my belief that UofL will be ok is due primarily to the fact that UofL is and has always been a self-made athletic program. It has never relied upon conference dollars for competitiveness. UofL merely seeks access to the system. With that access and some semblance of financial proximity, UofL athletics will rise and fall on the merit of the product on the field. I will continue to root on my Cards.

At some juncture the money matters less than the actual product as the dollars will be so big that the rule of diminishing returns apply. Maybe the Fed steps in and says this non-profit charade is over. Perhaps the football playoff system is grown to a level that access is no longer an issue. All of these factors are fluid. Change is inevitable, the most successful will be able to constantly adapt to an ever-changing landscape.

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