Thiel: Pac-12 falling behind rivals in revenues

While Huskies fans were busy speculating on the football abilities of 17-year-old boys last week, some news came out of the Southeast that told a less-thrilling tale about Pac-12 Conference sports — if you care about the arms race that is slowly rotting big-time NCAA sports.

According to tax returns provided by the Southeastern Conference to USA Today, the SEC had revenues of $639 million for fiscal year 2016, from which it made a distribution of about $40 million for each of the 14 member schools.

By comparison, the Pac-12 in its most recent figures — they don’t release FY 2016 until May — distributed $25.1 million to its 12 members, according to reporting by Jon Wilner of the Mercury News.  The Big Ten was distributing $32.4 million to its 14 schools in the same period.

The primary cause of the disparity was TV revenues. As you may have read over the past five years of reporting on TV channels created by the Power 5 conferences, the Pac-12’s decision to own and control its propaganda arm, the Pac-12 Networks, rather ceding ownership to ESPN and Fox Sports, as the SEC and Big Ten have done, has not worked out well.

Defensively, the Pac-12 office says its arrangement is providing the schools benefits, such as recruiting exposure, that don’t show up on the spreadsheets. Network president Lydia Murphy-Stephans said revenue comparisons are misleading.

“We’re seven networks,” she told the San Fransisco Chronicle. “We’re managing athletic (websites) for the schools. We’re producing content for each of the universities. We’re owned by the universities. We’re an extension of the conference and the universities.

“We’re providing a lot of media support that the other schools aren’t getting from their media companies. We’re the only conference to partner with Twitter for our broadband service live stream.”

That is probably true. And it is exactly the reason revenues aren’t prospering. Since inception, the Pac-12’s failure to get satellite provider DirecTV to carry the channel has been a Hindenburg-class mistake.

Because the Pac-12 includes six geographically large, less densely populated states, satellite delivery is much more successful than terrestrial cable. You try getting a cable truck to East Bugthorpe, Utah.

The reason DirecTV keeps saying no on behalf of its 22 million subscribers is simple, according to a source familiar with the staunch refusal to pay carriage fees the Pac-12 Nets scored from cable systems when they thought Pac-12 content was attractive to large numbers of sports consumers.

“Most of it is a big infomercial for the conference,” he said.  “Aside from football games and a few men’s basketball games, the content isn’t worth it.”

Murphy-Stephans’ remarks seem to make that very point. Pac-12 Networks covered more than 850 events in 2016, but the audience for the non-revenue sports of baseball, softball, volleyball, etc., is confined largely to potential recruits, current athletes and members of their families.

So unless the Pac-12 lowers its price to DirecTV, distribution is stuck. And if the conference did lower its charge, the cable companies would demand make-good deals to match.

The Pac-12 is reaching 15 million homes, compared to the 60 million reached by the SEC Network as well as the Big Ten. The Pac-12 audience isn’t likely to grow a lot, simply because of the numbers of consumers cutting the cord and switching to either satellite or streaming. (But P12Nets is still capable of dictating game starting times, and withholding that info to as late as six days before kickoff.)

The seven channels of the Pac-12 Networks (independent of the revenues from ESPN and Fox) paid each school $1.5 million in 2015, and Wilner forecasted a bump to about $2 million in 2016. The numbers are well short of what was anticipated.

“We were hoping for $5 million to $6 million when we were launching,” Washington State athletic director Bill Moos told the Chronicle. “There was never a guarantee, but we were optimistic because we owned it outright.”

WSU’s athletic department reported a deficit of $13 million in each of 2014 and 2015. Washington reported a $14.8 million deficit for 2015. Other Pac-12 schools are also running deficits.

Fans who care only about their schools’ game outcomes are missing a point. When Washington considers the basketball coaching fate of Lorenzo Romar, whose team is about to miss the NCAA tourney field for the sixth consecutive season, it must consider that the buyout in his contract, which runs through 2020, is $3.2 million after this season.

While it’s true that UW athletics has a reserve fund that was up to $30 million at one point, it’s also true that the increased cost of providing scholarship athletes the full cost of attendance, as well as continuing legal setbacks for the NCAA in student-rights litigation, means that giving a coach $3.2 million out of the reserve fund to go away is a serious matter.

Especially when football coach Chris Petersen is likely in line for a contract extension and raise after his team reached the College Football Playoffs in his third season.

If the expectation now is to go into gunfights regularly with the likes of with SEC powers such as Alabama, Petersen is going to request his bosses provide him with more than a knife.

At some point the Pac-12 is going to have to realize the way it has done its TV business isn’t working, or risk falling back among the have-nots in the ruthless industry of big-time college sports.