The Confidential

Conference De-Alignment–Part II of II

We may be at a point where there is a several-year “cease fire” with respect to conference realignment.  The leading blog on conference realignment, Frank the Tank, certainly thinks that it plausible.  With all conferences other than the SEC signing Grant of Rights agreements, there is solidarity across the major conferences.  The cost of adding schools will simply be too great to justify a return on investment.  One question that must be posed, however, is whether we will see conference “de-alignment,” that is–a conference parting ways with a parasitic school.  It has happened only once in recent years–with the Big East and Temple.  Will it happen again?  With revenue such a central part of the conference alignment reality, the Confidential thinks it is inevitable.  Part I will discuss the conference landscape.  Part II will look at the targets for de-alignment.

Part II: The Targets for De-Alignment

The Weakest Schools

Assume that, someday, conferences may have to look inward to increase revenue.  In other words, that going from 14 to 12 schools is a better way to increase revenue per school than going from 14 to 16 schools.  Who are the schools in each conference that would be most nervous?

Let’s start with our own backyard–the ACC.  One has to think Wake Forest is the easy target here.  Being the 4th school in a state in one conference may work for the Pac-12 with USC, UCLA, Cal, and Stanford, but Wake Forest is a far cry from any of those schools.  The bottom line is that Wake Forest contributes very little to the ACC in terms of finances, away-game attendance, football success, or basketball success.  Look at it this way–if the ACC dissolved, where would Wake Forest go?

The next most vulnerable conference is the Big XII.  Here, one has to look to Iowa State.  While they add the Iowa “market,” that market is not particularly lucrative.  While Iowa State may be better at football than Kansas, Kansas is a basketball blue blood.  There is really no comparison here.  Iowa State just has not performed on the field well enough to make anyone think that they do anything other than “take.”

The Pac-12 is a strong conference, but it is not quite as strong as the Big 10 and SEC.  Here, Washington State wins going away.  When is the last time that Wazzou was relevant academically or athletically?

The SEC gets tougher.  Vanderbilt used to be a football punching bag, but they have outstanding academics and good basketball.  Kentucky football struggles, but they are a basketball elite.  If the SEC had to lose one school, it would probably be Mississippi State–the second school in a low-revenue state.

The B1G is easy.  Purdue.  See Part I.  Purdue basketball is good, but they are second fiddle in Indiana across-the-board.

The Implementation

While it is not tough to come up with the weakest school in most conferences, it gets a lot harder to find a second-weakest school.  And given that odd-numbered schools do not work for conferences, next to tradition, that might be the most important thing favoring the status quo.

In our ACC, who else does not carry its own weight?  Boston College has been dreadful recently, but adds the Boston market.  Moreover, they have been to more conference title game appearances than Miami.

But what about swapping schools?  It certainly does get more compelling when discussing an outsider school that increases value.  Who has more value to the Big 10–Purdue or Georgia Tech?  From 1909 to 2009, the easy answer was Purdue.  In the era of conference networks?  Not so sure.  And if UNLV were to improve its football product and academics, one could see it catching up with and passing Washington State.  Adding UNLV alone might not generate increased revenue, but swapping it for Washington State might.

Who has more value to the SEC and an SEC Network—Mississippi State or North Carolina State?  Frankly, the SEC doing that–allowing the ACC to then get rid of Wake Forest, could benefit both conferences.

Your response will be… the conferences would never ever do that.  Tradition is far too important. 

The Confidential’s response is… huh?  Tradition did not stop the end of Texas-Texas A&M, Kansas-Missouri, or Pitt-WVU.  It did not stop Nebraska from leaving Oklahoma, or Maryland from leaving the ACC.  It did not stop founding members of the Big East in Syracuse and Boston College from choosing the ACC.  And if this was all orchestrated by ESPN and/or Fox, then the concern about tradition is even more illusory.  AND if conference networks start wielding more power, isn’t it more likely that financial issues will become paramount.  What if TV revenue starts decreasing someday?  These “business decisions” may go from “leaving for greener pastures” to “getting rid of the weeds.”

Frankly, an argument could be made that the Conferences–all armed with networks someday–could benefit by deliberately re-organize the landscape for the mutual benefit of all.  Suppose ESPN sat down with the SEC and ACC and said this… we cannot get maximum value for the SEC in North Carolina and Virginia.  We cannot create an ACC Network unless there are a few more states.  We suggest this… “NC State and Virginia Tech to the SEC (adding two markets) and Vanderbilt and Mississippi State to the ACC (adding two markets to the footprint and being a somewhat offsetting academic arrangement).  Doing this will allow us to bundle the SEC and ACC Network across the entire region from Texas to Maine.”  And that is with just two conferences working together.

Is this any worse than a system where Iowa State and Wake Forest have no options outside of their current conference?  Not saying this is likely, who knows where TV revenue is taking the college sports landscape.  Just remember a few things.  Princeton has as many football championships as Alabama and Texas, combined.  And 50 years ago, the Sweet Sixteen in basketball included NYU, St. Joseph’s, Bowling Green, Loyola of Chicago, Oklahoma City, and San Francisco.

Things change.

Conference De-Alignment–Part I of II

We may be at a point where there is a several-year “cease fire” with respect to conference realignment.  The leading blog on conference realignment, Frank the Tank, certainly thinks that it plausible.  With all conferences other than the SEC signing Grant of Rights agreements, there is solidarity across the major conferences.  The cost of adding schools will simply be too great to justify a return on investment.  One question that must be posed, however, is whether we will see conference “de-alignment,” that is–a conference parting ways with a parasitic school.  It has happened only once in recent years–with the Big East and Temple.  Will it happen again?  With revenue such a central part of the conference alignment reality, the Confidential thinks it is inevitable.  Part I will discuss the conference landscape.  Part II will look at the targets for de-alignment.

Part I: The Conference Landscape

First, we need to revisit what has transpired in the past few years.  We have had numerous schools switching allegiance, ostensibly to secure their financial future.  The commentariat over in Big 10 country will tell you that the Big 10 is looking at per school distributions of $40M in the next several years.  Whether that is accurate is anybody’s guess.  But what IS clear is that nobody was talking TV revenue when considering expansion before Frank the Tank clarified just how important than criteria was.  And, while the Big 10 ended up taking Nebraska, they also took Rutgers and Maryland because of the impact on television dollars.  With Big 10 schools currently making $25M a year, it was plausible that these schools could still increase the per-school distributions.

Second, as the TV revenue increases, the value a new school needs to add in order to justify expansion also increases.  See discussion of Texas and the Grant of Rights.  At some point, further expansion may be blocked simply because there are no longer any schools that can cause an increase.  As an example, if we assume that the Big 10 will get to a point where it is distributing $40M in revenue to each of its 14 schools, that will mean overall revenue of $560M.  In order to justify going to 16 schools and not losing money in the process, the two new schools would have to each contribute $40M per year, right?  If the two new schools contributed $30M per year, that would mean a net TV revenue of $620M, or per school distributions of $38.75M.  That does not make sense.  To be sure, the Big 10 appears to be using phased in distribution of TV revenue to help balance that out.  For a school desperate to get to the Big 10 due to concern about a present conference, like Nebraska or Rutgers, that works out.  But the Big 10 is gambling that all added schools will ultimately at least pay for themselves.  Otherwise, they will drag down the per-school revenue distributions once they are entitled to that equal share.

Of course, the ultimate goal is to add members that will actually increase the per-school distributions using an equal share distribution philosophy.  And here is where the math gets crazy.  To actually cause an increased distribution such that all 16 schools could see a 10% increase–i.e. get to $44M apiece–the two new schools in a $40M/year per school distribution model would actually have to contribute $72M per year.  That would increase the TV revenue to the $704M necessary to get to $44M per 16 schools.  The question that begs is what schools can add $72M per year?  Texas?  Notre Dame?  Florida?

This does not just apply to the Big 10.  Take the Big XII at 10 teams.  With $24M in distributions annually, to get to 12 teams and not lose money requires that each of those teams add at least $24M.  The Big XII currently does not see any schools out there that are available and can do that.  Otherwise, they would make the move, right?  And the Big XII being at 10 teams means that a jump to 12 teams would add a lucrative conference championship game, perhaps more than $1M per team.  So it can take a school that simply can earn at par with the rest of the schools and generate a revenue increase for the rest.

Maybe it is an over-simplification, but it appears that the more success a conference has financially, the harder it will be to justify adding new schools.  The odds of these schools contributing enough goes down.  It is just easier to find value-adding schools when making $25M per school than it is when you are at $40M per school.

Third, as it becomes harder to find schools that add value, the inevitable result will be that conferences begin to look inward to those schools that are not contributing to the current distribution.  Take the Big 10.  Will there ever be a point in the future of the Big 10 where Purdue will be contributing to the Big 10 more than it receives?  If the Big 10 is at a $40M per year payout per school some day, will that be despite Purdue or because of it?  With Indiana already contributing the “Indiana market,” a compelling argument will be made that a school like Purdue is taking more than it receives and always will.  At $40M per year, that subsidy from Ohio State and Michigan will be even greater.  Stated otherwise, if Purdue decided to leave to the Big 10, would the per-school payouts actually increase?  Somewhere between perhaps and probably.

Will there be a point where the only way a lucrative conference can increase its per-school payouts will be to jettison those schools that are taking significantly more than they are receiving?  Given what we have seen in the past few years, one can only suspect that the resentment of revenue-parasitic schools will increase.  Tradition will delay the discussion until the numbers are meaningful and significant, but the discussion is inevitable.  As TV revenue grows, the Confidential thinks that we may see de-alignment in the future–conferences getting rid of schools that underperform financially.