Why ESPN and Fox don't want to pay for any planned Big 12 expansion
As the Big 12 ponders expansion, ESPN and Fox executives find themselves struggling with a much higher stakes version of the dilemma faced by subscribers to the old Columbia House CD Club. The Big 12 is evaluating expansion candidates, and the networks are examining their options so they don't get stuck with the media rights equivalent of a Chumbawamba CD that costs $16.98. The pushback from the networks adds yet another layer to an already strange realignment process. So let's examine those options, which include a nuclear option of forcing the Big 12 to drag the networks into court.
But first, a history lesson.
For those under 35 who didn't live through the nightmare of buying an entire album for one or two good songs, Columbia House was a service that offered eight CDs for a penny as long as you subscribed, gave your credit card number and consented to being sent more CDs—unless you were really quick at responding to cards received in the mail—at full price for an indefinite amount of time. That's essentially what ESPN and Fox agreed to when they inked their pacts with the Big 12 in September 2012, except they didn't get eight of anything for a penny.
The networks would pay about $200 million a year to televise the first- and second-tier games of the Big 12's teams. And if the Big 12 added schools, the league would receive a pro rata amount (about $20 million a year) for each school it added. So if we're still talking in 1997 CD terms, ESPN and Fox got Notorious B.I.G.'s Life After Death (Oklahoma) and Foo Fighters' The Colour And The Shape (Texas) and a few other decent albums. Now the Big 12 is acting as if the networks forgot to send in the "Don't mail me that CD" card, and the league is expecting to get full price for two or four equivalents of the aforementioned Tubthumper.
For the networks, this will not stand. Their opening salvo came Monday i
n the form of a story by John Ourand and Michael Smith in The Sports Business Journal. Based on conversations with people on various sides of the deal, that stance has not changed. In fact, the longer the Big 12 goes without explaining or clarifying its expansion intentions, the more the networks will dig in. ESPN and Fox are different companies and have different styles of doing business. ESPN, perhaps because it has many avenues with which to negotiate with the Big 12 (the Sugar Bowl contract, deals with leagues the Big 12 might poach from, the corporate partner program) has taken a slightly softer tone. Fox, which doesn't have as many deals to leverage in a negotiation, has taken the more aggressive tone. Regardless of their differences, executives at both networks feel the Big 12 is violating the spirit of the original deal.
Network executives believe they helped save the Big 12 by agreeing in 2010 to pay the same for 10 schools and no football championship what they paid for 12 schools and a football championship. They contend the language in the current deal was included so the Big 12 didn't have to go through the uncomfortable process of assigning value to each of its members. They did not do any of this out of the kindness of their hearts, of course. Had Pac-10 commissioner Larry Scott succeeded in taking six Big 12 schools to form the Pac-16, both networks would have faced a huge price surge from that league which would have raised their total overhead costs. Still, the fact remains that the people who made the deals for the networks never envisioned the Big 12 would use that clause in this way.
So what can the networks do about it now?
1. Try to negotiate the actual cost down by dangling something most of the Big 12 members want.
As Big 12 commissioner Bob Bowlsby said the day before the league announced it would evaluate expansion candidates, everything is a negotiation. The networks and the Big 12 also have to agree to a price on the football championship game that will start next year. Though it might require a change to the current contract, the networks could agree to pay $30 million for the championship game and $10 million more after the Big 12 adds two schools. That would equal $40 million more, but it would include $25 million-$30 million a year the networks planned to spend anyway.
This probably wouldn't be agreeable to Big 12 members who assumed they'd pocket an extra $2 million-$3 million a year from the championship game and more after taking their cut from the expansion loot. (Remember, the new members won't get full shares for several years.) But it might be agreeable to most of the schools in the Big 12 if the contract went into the 2030s. The Iowa States and the Baylors just want security. They learned in 2010 where they'd land if they weren't tied in with Texas and Oklahoma. They would absolutely extend their grant of rights from 2025 to 3025 if they could. Of course, the tricky part here is that Texas and Oklahoma might not want to extend the Big 12 grant of rights past 2025. Why would they sign away some serious leverage? Unlike expansion votes, which everyone claims are unanimous but usually aren't, the decision to extend the grant of rights must be unanimous.
2. Try to offer more money so the league stays at 10.
If this is nothing but a naked cash grab from the Big 12, then it might behoove ESPN and Fox to give the Big 12 members some money on top of whatever they pay for the championship game to keep them from expanding until the current deal ends. Straight cash doesn't address the making-the-College Football Playoff issues the Big 12 hopes to ameliorate by expanding, but straight cash is awfully tough to turn down. If spending a little more now keeps ESPN and Fox from spending a lot more later—and keeps everyone out of court—then it might be the best deal for everyone.
3. Go nuclear. Refuse to pay more and prepare for court.
Even ESPN executives, who desperately want to handle this across a table and not in a courtroom, will blanch at a Big 12 decision that adds four schools and simply sends the networks an invoice demanding a 40% rights fee increase. Sure, that's what the contract calls for. But since neither ESPN nor Fox believe that is keeping with the spirit of the deal, both would—in what they consider an extreme situation—consider more drastic action. The most drastic move would be to refuse to pay the Big 12 any additional money. The networks would simply pay what they pay now and force the Big 12 to take them to court over the rest.
If this happened, the current Big 12 schools would have to pay the new members out of their own pockets until the case was resolved. If this is indeed a cash grab, no one is going into it expecting to have to take less, even for a little while. That's what ESPN and Fox would rely upon in that situation. Plus, the schools are going to hate the discovery process. Attorneys representing athletes in antitrust suits will be on the hunt for inevitable juicy bits that come out when the defenders of amateurism fight over money.
Why would they do this to schools they may have to deal with later? Executives at both networks consider an expansion by four to be an admission by Big 12 members that the league—as currently constituted—won't exist past 2025. They really only care about Oklahoma and Texas anyway, so relationships with the other schools after Oklahoma and Texas leave for other leagues (where they'd be paid handsomely by ESPN and/or Fox) is of only minor concern to the networks.
So watch the rhetoric from the Big 12 in the next few weeks. If the language softens with regard to the pro rata clause in the TV deal, then you'll know the league and the networks are trying to hammer out an agreement everyone can live with. If Big 12 officials or school leaders continue to take a hard line about enforcing that clause, get ready for fireworks. ESPN and Fox are not about to pay full price to get stuck with Aqua's Aquarium.