HERE COMES THE MONEY: Big Ten Payouts to Exceed $50 Million, per UM Regents Report

By Patrick Vint on June 16, 2017 at 8:27 am
Jim Delany

Geoff Burke-USA TODAY Sports

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A copy of the Michigan Regents' one-page athletic budget summary leaked yesterday (thanks to the Detroit Free Press's Mark Snyder) and HEY EVERYONE WE'RE RICH WE'RE ALL RICH:

If you can't read that fine print, the important part: Big Ten distributions are projected to increase from $36.3 million to $51.1 million next year "due mostly to a new conference television agreement."  And because this isn't the Longhorn Network but the Big Ten, that means Iowa is also projecting $51.1 million from the conference.

The most recent USA Today data, from the 2014-15 academic year, indicates that Iowa's total athletic revenue has hovered around $105 million since 2013, so we're looking at a 14 percent increase in athletic revenue on television alone.  Iowa's total rights and licensing will now make up more of its revenues than all other sources combined.  That $15 million increase covers Iowa's total scholarship bill for all sports, with enough left over to take care of whatever legal settlements Gary Barta has rung up in a typical year (he'd be just a couple million short this year, and it's been a banner year for legal settlements).  It's an enormous windfall made possible because we now have to play Maryland and Rutgers.

BREWSTER'S MILLIONS

There are two potential problems here.  In the short term, The University of Iowa is still a non-profit and needs to spend its money, and we're running out of things to spend the money on.  Kinnick Stadium is nearing the end of a complete renovation began more than a decade ago with the new press box.  Football has a gargantuan practice facility.  Carver Hawkeye Arena has also been renovated, and practice facilities for basketball and wrestling are complete.  Rowing has a boat house.  Golf has an indoor driving range.  Swimming and diving got a new pool.  Baseball probably deserves more than new artificial turf, but at least it's something.  There is only so much Iowa can do with facilities before it turns into "Alabama has a waterfall in the football complex" level grandiosity.

After a decade of overpaying on football, Iowa's coaching salaries are now in line with its size.  The only positive aspect of the most recent Kirk Ferentz extension is that it did not come with a giant pay increase, and bigger programs have finally passed Iowa in salary spending (Michigan is lighting cigars with thousand-dollar bills on behalf of Jim Harbaugh and his staff).  Again, baseball probably deserves some more love, but those are peanuts compared to Iowa's income.  And any attempt to dramatically increase assistant pay will probably meet some resistance.

So, if facilities are nearing their maximum and coaching salaries are similarly topped out, and players can't be paid, where does the money go?  LSU started paying $10 million a year to its general fund a few years back; with a business-minded president at the helm, that looks most likely.  And yes, there will be anger from some quarters if Iowa hands off ticket revenue to chemistry professors, but with state budget cuts and tuition increases on the horizon, it's the right move.

Or they can start a hockey program.  Because that would be cool.

RUNNIN' OFF THE RAILS OF THE GRAVY TRAIN

The long-term issue is just how long this model will be sustainable.  The Big Ten's television rights distributions come from two primary sources: The league's external television rights package, sold either to ESPN or Fox Sports, and its share of BTN revenues.  You would be right to note the biggest issue with those three entities: They are all cable networks at a time where it is particularly terrible to be a cable network.

ESPN and (to a far lesser extent) Fox Sports both work not because of their ratings from people who watch them.  Advertising is a small piece of the pie for sports networks.  Rather, ESPN and (again, to a far lesser extent) Fox Sports charge a per-television set fee to cable companies for their rights so that the network can get bundled into a cable package; a cable subscriber is paying for ESPN (and ESPN2, and probably ESPN News or ESPNU or the SEC Network) even if they never watch it, and ESPN's rates are by far the highest in the industry.  ESPN understands that many people simply expect the ESPN networks in their cable package, and they use that leverage to their advantage.  Fox isn't that ubiquitous, but cable companies don't want the backlash when a customer's favorite team is on FS1 and it's not available.

The BTN runs on a similar model.  Fox and the Big Ten negotiate separate rates for those inside the "Big Ten footprint" and those outside it.  Like ESPN, the Big Ten Network used the passion of sports fans to drive a higher price for those in the footprint, because an Illinois fan is going to find a new provider if you won't give him their ninth loss of the season.  That led to long battles with cable providers (famously, Mediacom among them) when the BTN was formed, battles which the conference largely won.  

Much like ESPN, if you're in the footprint, you're paying for the BTN -- again, at a much higher rate than, say, the Food Network -- whether you watch it or not (those outside the footprint pay roughly ten percent of what in-footprint subscribers are charged).  It's why the addition of Maryland and Rutgers was such a windfall; suddenly, every cable television between New York City and Washington D.C. was in the footprint and paying a dollar more per month for BTN, regardless of whether those people were actually interested in Big Ten athletics.

Of course, the country is largely and increasingly moving away from cable altogether.  The only thing keeping many people on cable is live sports, which is why ESPN has hesitated to move to a Netflix-esque stand-alone streaming platform that doesn't require a cable subscription.  Also, because live sports keep subscribers on cable, both ESPN and Fox Sports have been willing to overpay for broadcast rights.  And that's how you get a $15 million per-school year-over-year increase in revenue at the same time ESPN is gutting its staff.

That model is clearly unsustainable, though.  As more people leave standard cable and revenues fall, those companies won't be able to maintain the contractual increases the Big Ten has seen in the last decade.  Similarly, with every cord cut on the eastern seaboard, the BTN generates less revenue.  There is a reckoning coming, and with speed.  Jim Delany was a revolutionary and a prophet with the BTN.  He'll have to be just as good to navigate the problems nipping at his league's heels.

The one thing the Big Ten has in its favor: It's been ahead of the curve on revenue for longer than anyone else, and it's likely better insulated against the inevitable dip in rights revenue than, say, the ACC or Big 12, which missed the network boom (talk is that the recent ESPN layoffs might be the beginning of the end of the nascent ACC Network.)  Big Ten schools have been receiving considerably more revenue than their non-SEC counterparts for more than a decade, which gives them some cushion, and even more power, if college sports goes from Brewster's Millions to Mad Max.

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