Sports Business Journal – April 6, 2015 – By Michael Smith & John Ourand –
The Pac-12 is exploring a new conference-controlled model for multimedia rights that would eliminate the need for schools to do deals with third parties such as IMG College or Learfield Sports.
Under the model being studied, Pac-12 schools would take back their multimedia rights as their contracts expire and coordinate with the conference on how to manage and sell those rights. The conference wants to do this because it believes schools could remove the third parties and keep more of the gross revenue from sales, rather than sharing it with rights holders.
If the Pac-12 moves forward with the plan, it could have sweeping ramifications for the schools, the conference and the rights holders, whose ability to exploit those rights is core to their business.
Industry experts, though, question whether a conference-run model could sell as effectively as the Learfields and IMGs of the college world.
Pac-12 Commissioner Larry Scott had been floating the idea with athletic directors and presidents for about six months, but the proposal entered a more formal stage on March 14 at the conference’s basketball tournament in Las Vegas. During a Pac-12 board meeting, presidents voted to initiate a six-month moratorium on any new multimedia rights deals or extensions through mid-September.
That gives the conference office time to study the feasibility of an in-house model for managing and selling multimedia rights across all 12 campuses. The conference will look at traditional multimedia rights in athletics, as well as campuswide marketing assets.
Scott will oversee the Pac-12 multimedia rights study. The conference has hired Chris Bevilacqua and JMI Sports’ Tom Stultz as consultants. Bevilacqua consulted with the league on its TV contract with ESPN and Fox, and the formation of the conference channels.
Stultz formerly managed multimedia rights for Host Communications and IMG College before joining JMI in 2012. He led JMI’s bid to win Kentucky’s multimedia rights last year, and he has consulted with Arizona State on a plan to market campuswide sponsorship rights.
By the end of the six months, the conference intends to provide its schools a specific financial model and a long-term forecast on revenue.
Ultimately, sources say, Scott would like to have school and conference rights rolled into one package for the next round of media contract talks with ESPN and Fox, whose 12-year, $3 billion deal with the conference runs through 2023-24.
“We’re always looking for ways to improve the situations of our schools, including new ideas for increasing revenue,” Scott said. “We’ll explore any and all ways to look at the multimedia rights space.”
Cutting out the third parties in favor of a conference-run model fits with Scott’s approach. When the league launched the 3-year-old Pac-12 Networks, Scott opted to have the conference own and operate the channels rather than partner with a media giant like ESPN or Fox, even though to date that model has not proved to be as lucrative as other conferences.
Fox owns 51 percent of the Big Ten Network. ESPN owns all of the SEC Network. Both channels are pumping out much more revenue than the Pac-12 Networks.
While the SEC Network will generate more than $5 million in new revenue for each school in the channel’s first year, and the Big Ten Network is paying out close to $7 million per school annually, the Pac-12 Networks is paying out just under $1 million annually per school. And, industry experts say, the prospects of falling further behind the SEC and Big Ten financially have the Pac-12 intent on finding new sources of revenue.
Skeptics of Scott’s plan wonder if the schools will turn over their multimedia rights to the conference when the conference-owned channels haven’t performed that well financially and the rights holders are more experienced at monetizing the schools’ rights.
Scott has maintained that the conference is more focused on control of its own property over the long haul versus short-term revenue boosts.
“We’ve been big believers in our members ultimately controlling as much of their rights as possible that will benefit them for the long term,” Scott said. “We’ve seen a significant uplift by continuing to bring more rights to the center and, in the long term, our schools want to control their rights and intellectual property as much as possible.”
Scott didn’t want to get into specifics, but it’s clear that the Pac-12’s new multimedia rights model is being considered seriously.
“This is something that would be very disruptive to the model as we know it, but all industries go through periods of change,” said Stultz, who had initial conversations with Scott about a new model last fall. “I’m not sure this is something that could work in every conference, but the Pac-12 is uniquely positioned to do this because it already owns its own media company. There are things they can do that not everybody else can do.”
Outsourcing is such a popular model that only two of the 65 schools in the major conferences manage their own rights — Arizona State and Michigan State. None of the five power conferences have attempted to aggregate their schools’ rights like this before.
Multimedia rights at each school typically include corporate sponsorships, in-venue signage, game-day hospitality, digital rights, publishing and coaches’ endorsements, but don’t usually include shoe/apparel deals, isotonic beverage or pouring rights.
The Pac-12’s model also would include a significant amount of inventory across all 12 campuses for signage and sponsorship. The league already has aggregated rights in the wireless telecommunications and satellite TV categories and sold those deals to AT&T and Dish Network.
How rights holders like IMG College and Learfield will react to the study remains to be seen. They weren’t offering to comment last week. Certainly, the schools would be willing to listen if the rights holders are willing to flatten their margins by increasing their guarantees to the schools. But that can’t happen until after the six-month moratorium.
One other thing is certain: The other four major conferences will be watching the Pac-12’s next move. It’s too early to consider this a lethal blow for the industry leaders, IMG College and Learfield, especially since the Pac-12 is merely studying the concept.
Both companies have deep relationships in the college space, some of which go back 30 years or more. Convincing some athletic directors to break those ties is part of the challenge with implementing an untested model, especially when IMG and Learfield have such lengthy track records. But ultimately it will be Pac-12 presidents who will make the call to move forward or stick with the status quo six months from now.
While IMG College and Learfield have aggressively sought to diversify their businesses, multimedia rights remain their primary source of revenue.
Documents from 2013 related to WME’s acquisition of IMG showed that close to 90 percent of IMG College’s $487 million in revenue came from multimedia rights, while 65 percent of its net income was generated by multimedia. Licensing, ticketing and other business lines represent the rest.