August 25th, 2011

TV Cash Tilts College Playing Field

The Wall Street Journal

As TV networks grow increasingly desperate to lock in exclusive sports rights, well-known sports programs like the University of Texas football team are gaining more power and bigger paydays.

On Friday, the home of the Longhorns will launch its own TV network—one of the first of its kind—with Walt Disney Co.’s ESPN. Texas and its licensing partner, a division of IMG Worldwide, will earn an average of $15 million a year for the next 20 years from the deal, says DeLoss Dodds, Texas’s men’s athletics director. That’s on top of the money Texas makes from TV rights through its membership in the Big-12 conference. Texas will earn roughly $14.3 million from the Big 12 this year, a significant portion of which will come from TV.

The prices for collegiate TV rights are rising because the rabid fan bases for such sports are one of the few audiences TV programmers can count on to tune in for live broadcasts, which are more valuable to advertisers than on-demand viewing. But the big checks for Texas and other college sports programs have sparked new discussion about how the money should be used and what strings should be attached.

The escalating TV dollars are reshaping the amateur realm of college sports. With more money at stake, coaches say, the pressure to win is rising. Head coaches have long earned multimillion-dollar salaries, but now the TV money is cascading into the ranks of assistant coaches. Gus Malzahn, the offensive coordinator at Auburn University, college football’s defending national champion, has received a new deal valued at $1.3 million annually. Schools are also pouring money into stadium renovations and new training facilities.

“More schools are reasonably wealthy,” says Neal Pilson, a sports TV-rights consultant and the former president of CBS Sports. “Instead of the top 10 schools chasing some player, you have 20 or 30.”

Mr. Pilson says he worries about how the large sums may taint the recruiting process, too. Potential violations “now must be policed more vigorously,” he says

Texas’s share of the $15 million yearly average from the Longhorn network still pales in comparison with the money that flows to National Football League teams, which earn an average of around $100 million a year from their network-TV deals.

But elsewhere, some collegiate TV rights are approaching the realm of some professional sports leagues. In May, the Pac-12 college athletic conference struck a 12-year, $3 billion programming-rights deal with ESPN and News Corp.’s Fox Sports Media Group that pays each school a yearly average of about $20 million over the life of the deal. (News Corp. also owns The Wall Street Journal.) National Basketball Association teams earn an average of $31 million a team from national TV rights. The National Hockey League reached a new deal with NBC in April that will earn each team nearly $7 million a year. Teams in both leagues also have substantial local-rights deals.

“There is tremendous value in college sports,” says Burke Magnus, ESPN’s senior vice president for college sports programming. He says that the pageantry and the greater volume of programming compared with pro sports are also driving demand.

“The subscription-TV business is under assault,” adds Chris Bevilacqua, who was the media adviser for the Pac-12 on its recent deals. On-demand video sources like Netflix and Hulu are giving viewers more choices, he says. “But the one thing people can’t cut the cord on is live sports.”

College athletic officials note that the TV funds are also critical amid university belt-tightening and the escalating arms race for players, who have gotten harder to recruit as more schools are competing for the best talent. To woo players, athletic directors say, they have to invest heavily in stadiums, training facilities and scholarships.

Washington State University, whose athletics program has been in the red for the past three years, will earn around $14.5 million a year from the new Pac-12 deal next year, up from the roughly $2.7 million in TV rights it took in last year, says athletics director Bill Moos. He calls the money a “godsend” that will in time wean the program off university support and permit facility upgrades that will benefit recruiting. “All of us are investing to get in a position to compete with each other for the best athletes,” he says.

The University of Texas plans to allocate around $5 million of the funds from its new TV network to the school each year for the next five years and to contribute the rest to the athletics program’s $154 million-a-year budget. The money “is far more than we expected,” says Mr. Dodds.

But the new business opportunities have raised questions about fairness and rattled alliances. In the months leading up to the launch of Texas’s new network, fellow members of the Big 12 athletic conference grew concerned about the network’s plans to broadcast high-school games, fearing they could provide an unfair recruiting advantage.

Bill Byrne, the athletic director of Texas A&M University, questioned whether such broadcasts would violate NCAA rules, which strictly limit how much contact schools can have with recruits. “I have continued to have concerns about the Longhorn Network since the original announcement by ESPN and Texas,” he said in a statement last month.

The NCAA ruled that school- and conference-affiliated networks can’t air high-school games or other youth programming, but it said Monday that it would continue to evaluate the issue.

Meanwhile, tensions over the network remain. Texas A&M, one of Texas’s major rivals, is considering leaving the Big 12 for the Southeastern Conference. Its departure could lead to further instability for the Big 12, which nearly came apart last year as the University of Colorado and the University of Nebraska left for the Pac-10 and the Big Ten, respectively.

Mr. Dodds declined to comment on the matter. Mr. Byrne of Texas A&M didn’t respond to a request for comment.

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