Capital Markets

For College Sports, a Financial Hail Mary?

Sorting out the winners and losers requires a spreadsheet, not a score sheet.
Joseph McCaffertyJuly 14, 2010

Last month Dan Beebe, commissioner of the Big 12 collegiate athletic conference, gave the financial presentation of his life.

The University of Nebraska had already left the conference to join the Big Ten, and the University of Colorado had bolted to the Pac-10. Now the conference’s two marquee athletic programs, Texas and Oklahoma, were also considering offers to defect. Beebe’s mission: to convince the five largest remaining schools that not only was the conference still viable, but member schools would fare better economically by keeping it intact.

Beebe worked the phones and got assurances from the Big 12’s television partners, Fox and ESPN, that current contracts wouldn’t be affected much by the fact that the “Big 12” now numbered 10 schools. More important, he determined that a new television deal could be worth between $14 million and $17 million per school annually, up substantially from the current payout of between $7 million and $10 million. Next, he promised the larger football programs — Texas, Oklahoma, and Texas A&M — a larger cut of the revenue, and explained that with fewer schools splitting the pie, and with as much as $20 million in penalty money coming from defecting schools, remaining in the conference was a financial victory.

It worked. The Big 12 stepped back from the brink of collapse as the remaining 10 universities announced they would stay put.

Part of Beebe’s efforts focused on attempting to convince the media that the brouhaha wasn’t all about money, but that proved a tougher sell. “In all the recent moves in college athletics, the financial part of it is trumping everything,” says Dan Fulks, director of the accounting program at Transylvania University in Kentucky and a research consultant for the NCAA. He says that while conference realignments were as much about ego as anything, with universities often taking into consideration such nonfinancial factors as academics, tradition, and the effects on student athletes, “The amount of money has become so staggering that these are now purely dollar decisions.”

The biggest winner in the shuffle is likely to be the University of Texas Longhorns, the largest college athletic program in the nation, with 2009 revenues of $138 million. As part of the deal, Texas secured the right to launch its own sports network, something it would not likely have been able to do if it had opted for a competing offer from the SEC or Pac-10. “This could be a very lucrative deal for us,” says Ed Goble, associate athletics director for business, who acts as CFO of the athletic department and advised the university on the financial aspects of the decision. “We did not want to lose our ability to hold on to our TV rights.”

Indeed, when major college sports programs address money, they are, for the most part, focusing on TV deals. “You have to think about your footprint in terms of TV markets,” says Goble. Rodney Fort, a professor of sports management at the University of Michigan, explains that “most of the other revenue streams are fairly constant. TV is the only place schools can look to improve their finances.”

That fact is pushing conferences to seek out universities in desirable television markets. For example, the Pac-10’s recent acquisition of Colorado and Utah “locks up the remaining two large television markets in the West,” says Fort. And he expects that conferences aren’t done exploring expansion possibilities. “We could still see four superconferences before this is all over.”

One result may be a winner-take all system in which the largest athletic programs, like Texas, don’t hesitate to flex their muscle. “The top 25 football programs are trying to figure out how to preserve the current system for themselves,” says Fort. “They are less happy about sharing the revenues with some of the smaller schools.”

“It’s clear that the gap between the haves and have-nots is just getting wider,” says Fulks. The haves, like Texas, argue that they have an obligation to themselves more than to their rivals. “We’re happy with the projections [the Big 12] have given us,” says Goble. “Our hope is that not only are we able to support our own operations, but that we can continue to provide some funding back to the university.”