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Further Analysis of the Texas Longhorns TV Deal With ESPN

Now that the dust has settled--and the pundits have spoken--the narrative for the ESPN/Texas TV deal is largely written.  And that narrative is "Mo' Money."  Which, to be honest, is pretty awesome. However, while we all celebrated what this TV deal means for Texas in another post, I think it deserves a second post with a bit more discussion and analysis.  Luckily, we've got a couple of writers who have been following this issue and wanted to provide some thoughts.

Naturally, I think this deal is a pretty big home run for Texas--at least in the short and medium term--but I wanted to highlight a few issues related to this story.  For the most part, these issues go beyond rehashing the sticker shock reaction of "OMG! 300 million!  THREE HUNDRED MILLION!" that occurred across the country.  For one thing, Texas is "only" guaranteed $247.5 million.  For another thing, I think the ripple effect of the money is perhaps the more important story.  I don't think any of these issues are necessarily groundbreaking, but they are the ones that stick out to me as being somewhat overlooked in the overall analysis of this TV deal.

1) What will be the short-term and long-term actions taken by Texas A&M?

Txtwstr7: To me, A&M could be the whole key to the stability of the current arrangement.  When I heard the final news--and saw the final figures--I was immediately curious as to how OU and A&M would respond.  Everyone else in the conference (except maybe Mizzou--see below) doesn't really have enough stroke to make any legitimate noise or create a similar network.  OU quickly announced their own upcoming network, but A&M is seemingly banking on Beebe's promise and a potential conference network.  If the OU/TX TV deals put a wrench in any Big12 Network--as some have speculated--then  what does A&M do?  

The general consensus is they will be forced to stay put--even if they wanted to leave--but I'm not so sure that's the case.  If they can't get the $20+ million payout in a long-term deal, can't create their own network, and aren't going to be a part of a Big 12 Network, then is it still a slam-dunk that they stay put?  I understand the argument that the legislature would never let them leave.  In fact, I think it's still fairly unlikely that they do leave. However, if the aforementioned situation comes to pass, their financial disparities with TX/OU would be staggering, and it could give them a decent argument for why they need to jump ship.  And, if they do, it's not like they are an easily replaceable commodity.  Are the Aggies pretty much locked into the conference, or should Texas fans monitor their levels of dissatisfaction?

Hopkins Horn: My attitude about A&M and realignment remains the same: stay, go, whatever, I don't give a f*ck.  There's no chance they'll get the same money from their own network, and they know it.  A move to the SEC, even if they still have that alleged standing invitation to join the conference, would still leave A&M behind Texas financially.  So Aggie will do what Aggie does best: bitch and moan and not do a damn thing to better its own situation.  But if they do get a golden ticket to the SEC, whatever, go.  To be honest, a large part of my indifference to an Aggie move to the SEC stems from my discounting supposed recruiting advantages A&M, or the whole damn SEC, would receive if the Aggies headed east.  Texas is a huge state, and we'll always get our share.  The rest have to wind up somewhere, whether it's OU or A&M or LSU or wherever. So, again: leave, stay, I don't give a f*ck.

Learned Hand:  I showed up late to the party, but I'll give it the old college try.  I think A&M missed the boat by not trying to form a Texas Network with UT and Tech.  Institutionally, they're a conservative lot, which is all well and good, but the pace of these deals seems to repeatedly catch them off guard.  If I'm right that we're seeing the beginning of a "divide and conquer" strategy by the T.V. networks, A&M needs the cachet the Texas brand has become, at least in the short term.  In the short term, I see more flirtation with the SEC and a great deal of sound and fury signifying nothing.  In the longer term, I expect them to exert pressure, along with Tech, to join what Texas started.  Keep an eye on your legislators.

2)  Could Missouri actually be the first team to jump ship?  

Txtwstr7: I almost skipped this section, but I think Missouri is being overlooked in the fallout of this deal.  And, after what happened in the Realignment Chronicles, I get that.  They talked big, but they were forced to stay put.  However, while Missouri isn't a big dog in the conference, they aren't exactly a kitten, either.  First off, Missouri is becoming increasingly competitive in the two "money" sports.  Second, the state contains the St. Louis TV market and has lots of eyeballs.  Third, they don't have any political baggage from a sister school.  Unlike basically every other school in the conference, they are truly a standalone university who won't be forced to bring another less desirable dance partner to the table.    

As mentioned above, we know that Missouri wasn't happy in the "old" Big 12.  I mean, their football coach and governor came out and said as much while they were throwing themselves at the Big Ten.  And all that went down *before* TX/OU cut side deals for their own networks that would leave the other schools further in the financial dust.  Missouri got embarrassed in the Realignment Chronicles--badly--but they may be the only other school (besides A&M) who might be an attractive option to another money conference.  Is Missouri being overlooked as a potential sleeping giant in this whole ordeal, or are they still hopelessly tied to the Big 12?

Hopkins Horn: I remember seeing an article during all the realignment madness that indicated that Mizzou was also looking at its own network.  I'm not quite sure they're a sleeping "giant," but they're one of those schools that has historically underperformed its potential.  A Maryland of the Midwest, if you will.  But I don't think they're a flight risk quite yet.  The only logical conference for them to move to which would also be a step up is the Big 10, and I don't think the Big Ten would risk ripping apart the Big 12 if there were any chance that would force us to the Pac 12. The Big Ten definitely got the better of the Pac 10 in each conference's move to 12 schools.  We might have reached an equilibrium point with realignment for a while.

Another interesting question to ponder: the Pac 10 seemed to reach out to Colorado last summer as a way of keeping Baylor out of the mix.  After we turned down the conference, they settled on Utah for a twelfth.  In retrospect, if the Pac 10 knew that we were ultimately unobtainable, would the conference have even invited Colorado or would it have stayed at 10?

3) How will Texas exploit its unique relationship with the UIL?

Txtwstr7: Until a few months ago, I didn't realize that UT had such a unique relationship with the UIL.  According to state law, the UIL is actually a part of the University of Texas.  So, yeah, that's a pretty big deal, and it provides an endless source of potential content.  In fact, I think the potential inclusion of UIL events might be the most underrated aspect of this TV deal. 

As the linked article explains, the Longhorn Sports Network could televise Texas high-school football games on both Thursday and Saturday nights.  It could also televise all non-championship football playoff games.  But this barely even scratches the surface of the potential UIL content. The network could televise other high school sports outside of football, in addition to selectively televising some marquee state academic competitions.  While I don't think the network should stray too far from the Texas brand, using UIL content seems like a slam-dunk.  The possibilities here are endless, but will they be properly exploited?

Hopkins Horn: Heh.  I like going after you, as it makes my job easier if you hit the salient points first.

Will the relationship with the UIL be properly exploited in terms of having sych must-see TV as a Game Of The Week and being the exclusive home of the championship games?  It very well damn better be, and I can't imagine why it wouldn't be.

Learned Hand:  I have nothing to add.  I am, however, stocking up on popcorn and awaiting the impending meltdowns from Lubbock and College Station.

4)  The Cable Fees Fights for Out-of-State Subscribers

Txtwstr7: As I'll be stationed in D.C. for the next few years, this subject is near and dear to my heart.  Unfortunately, it is also largely outside my working knowledge of the situation.  Do you have any thoughts on how the network will operate out-of-state?  If it simply means paying an extra $2/month or so, that's a pretty easy sell to potential out-of-state subscribers.  But will it be that simple?  Or can we safely pencil in nasty fights with the cable companies that will prevent a bunch of people from seeing a football game and eight basketball games next year?  

Hopkins Horn: This is just pulling things out of my ass, but I imagine some nationwide providers (DirecTV and Time Warner most likely, in my estimation) will play ball pretty easily, and others (Comcast) won't.  I think it's a near-certainty that, at the time of the first game on lSN, that we'll see some bitching this fall from some out-of-state BONers that they can't see the game, while other out-of-state fans will have access in their living rooms.

One interesting issue: would UT and ESPN decide to put the more attractive game with BYU, a school with a nationwide following, instead of the weaker Rice game on LSN to force more pressure on OOS providers to pick up the network?  There'd be a lot more pressure on Utah (and, to a lesser extent, Vegas and Phoenix) cable providers to pick up the network if that happened.  If I were a betting man, I'd wager we'll see the debut of LSN for the BYU game for that very reason.

Learned Hand: Someone correct me if I'm wrong, but I believe this covers certain internet broadcast rights, and thus there may be a single pricing tier for internet TV viewing.  If there's anything akin to ESPN 3, even on a subscription basis, I'm in.  Actually, I'm in anyway, even though I see no chance whatsoever in this being a purely al la carte purchase.

5) The Fluidity of the Long-Term Profit Sharing Under the Agreement

Txtwstr7: As everyone knows, 20 years is a long time.  We know that Texas will receive about $10 million/year over the first 5 years, and that the contract has some flexibility built in to account for new profits.  However, I don't think anyone has nailed down the exact amount of flexibility involved.  If this thing turns into a major cash-cow and dramatically exceeds expectations, how much bigger of a piece will Texas take under the agreement?  I feel pretty confident that we covered our bases in this deal.  However, since ESPN is fronting so many of the start-up costs--and giving us a high guaranteed figure--are we accepting and perhaps even embracing the risk that we'll be dramatically underpaid 10-15 years down the line?

Hopkins Horn: This is getting beyond my pay grade, but I would put some faith in those negotiating the deal for us (and for ESPN, for that matter) to have built in some protections if this starts going either extremely north or extremely south.  If it goes north, then we're going to make even more money.  If it goes South, then what have we really lost?  The revenue from one weak OOC game and eight weak OOC men's hoops games?  We'll still be getting money from the conference's football deal, whatever conference that may be.  Seems like a pretty risk-free proposition for us.

Learned Hand: We can safely assume there is a strong likelihood that the success of this venture will be known in the 5 year guaranteed period, and reasonable odds both sides will want to renegotiate.  There is a substantial portion of the contract going directly to academics, an area that is being hit in the current Texas budget crunch.  UT has found a new and innovative way to defray academic costs without the use of tax dollars, and I fully expect the legislature to try to leverage that solution onto other "suitable" schools (A&M and possibly Tech and U of H).  I also would expect change in market clauses that would allow both sides to return to the table in certain other circumstances (e.g. Fox-USC for 10 years and 300 million dollars), that alleviate my concerns about Texas being relatively underpaid in the next decade.

6) What Game Will be the "One Football Game Per Year" Under the Agreement?

Txtwstr7: I think this is an interesting question, and one made even more interesting by the fact that our non-conference schedule is booked solid for the first few years of the contract.  I would imagine that the "one televised football game per year" will not be a conference game.  That really narrows down the options, and it really sets the stage for my main question here.  If the game will likely be a non-conference game, is it going to be one of the marquee non-con matchups slated through 2017?  Going a step further, was agreeing to put those games on the network a key component of this deal?  For example, will the Texas channel be the only way some people can see Texas/ND?  Or should we all just expect to see Texas/ISU or Texas/Rice on the network every year?

Hopkins Horn: I wouldn't be so sure that it won't be a conference game once the conference-wide contracts are renegotiated.  That will be a very interesting thing to watch.  In the interim, I have to imagine that most, if not all, of the sweep of non-conference deals reached over the past few months will have provisions allowing us to show the game on LSN.  ND and USC might be the exceptions, but I don't think it's silly to think that the ND home games could be on LSN.  And, to be honest, I don't know if anyone involved with the network knows yet, as there are several years to see how the network will play out, but I doubt anyone would unequivocally say "no" to such a proposition today.  Also remember that the language, as I saw it, isn't that we'll show one game a year on the new network.  It's that we'll show "at least" one.

Another issue is that one must assume that Texas (or any other conference school, for that matter) has the right to tell an existing conference television broadcast partner "no" when that partner tries to select a game for broadcast.  One can make this assumption because Texas would have no way to guarantee that it would be able to show "at least one" game a season if all Fox (the scorned partner) had to do to scuttle those plans is select both the Rice and BYU games for showing on FSN.

The idea of a school vetoing being selected for television has been largely a theoretical one until now (why wouldn't anyone not want to be selected?!?), but now Texas will have quite the incentive at least once, if not twice, a season to discourage Fox/FSN from selecting its games.  What will this do to the overall value of the conference's television package[s] in the next negotiations if all potential non-ABC/ESPN partners know that one or two Longhorn games will be unavailable?

Update: As this neared publication, I raised this issue on Frank's blog, and a couple of knowledgeable board members chimed in and indicated that Texas probably doesn't have veto rights but that, instead, ESPN will probably use the games it sublicenses from FSN to pick the 1+ games to be moved to the new network.  If that explanation is the correct one, then I don't know why that 1+ games couldn't be a conference game.  I think I'd been focusing too much on the assumption that it would be the PPV-quality games which would make their way to the new network, but now I'm not convinced that's the case.  And I cannot recall, in any off the official announcements, any sort of "OOC" qualifier for which 1+ games will be shown.  Perhaps an enterprising reporter can get some clarification?

7) What is a key aspect of this deal that hasn't been previously addressed?

LearnedHand: I do have one question that I want to kick around, and that is: "Is ESPN Changing the Game?"  I think ESPN sees some value in trying to change the way it does business away from conference networks/contracts and this may be the first big step. 

With the exception of the SEC, I think conference loyalty tends to be a bit of a myth.  Fans are typically happy to see their own school, and it's essentially guaranteed that they will pay some premium to ensure that content out of state. With that as a given, the current scheme of conference packages results, to some extent, in significant, margin killing overpayment so that schools like Northwestern/Baylor/Vanderbilt can be paid at a rate sufficient to keep tOSU, Florida and Texas happy. The program network can do a few different things on this front, and at its ultimate form could drastically reduce the cost of signing a conference, if a series of side deals are cut with the individual universities - getting closer to FMV for each school.  It could, potentially, nullify the threat of things like the Big Ten network.    Downstream, it may decouple negotiations from the conferences, e.g. an ESPN network carrying Texas (and possibly one day A&M and Tech) or USC, UCLA, Cal, Stanford with a staggered contract could largely negate the leverage of the other schools in the conference.  Call it divide and conquer, or call it University related union busting, but I think this deal means a lot on the grand stage.

Hopkins Horn: That's a great point.  Coming out of this deal, what needs to be followed closely is OU's attempt to form its own network.  They've already announced their plans to give it a go, which is a pretty interesting development to this story.  (Again, I find myself admiring the Sooner approach while mocking A&M's.)  If the Sooner Sports Network forms quickly, with a major partner (ESPN or Fox unless someone else like Comcast wants to jump in), for pretty good bucks (not what we got, but substantial nonetheless given the smaller market), then I think we can say that we've just witnessed a game-changer rather than a Texas-sized one off. 

Txtwstr7: LearnedHand eloquently stated something I've tried to explain to my friends.  We've been largely focused on our own plight, but the potential ramifications of this deal's success are much, much larger.  I think the most likely scenario here is that ESPN wants to see if individualized networks are the natural progression from the massive financial success the Big Ten Network.  And, if that's their endgame, then how better to test drive this hypothesis than by using the University of Texas as the guinea pig? 

Anyways, those are our thoughts, for better or worse...what say the BON Community?

Hook ‘Em!