Pac-12 Networks are losing audience instead of gaining
Midway through their seventh year, the Pac-12 Networks aren’t merely stagnating. They’re shrinking in reach and drastically underperforming revenue expectations, according to information obtained by the Hotline that sheds unprecedented light on the financial realities of the conference’s wholly-owned media company.
Some schools, for example, are receiving annual payouts from the networks that are a fraction of what they’d hoped for — and a fraction of what has been reported in the media — when the real cost of the content is included in the calculation.
“From Day One, I worried about them having all those channels and having to produce all that programming,” said USF sports management professor Dan Rascher, referencing the seven feeds (one national, six regional) and 850 live events per year.
“That’s crazy hard to do without spending a lot of money on a lot of programming with low value.”
While frustrated with the lack of revenue, coaches and athletic department officials told the Hotline that the limited reach of the networks is at least as damaging to the football and men’s basketball products.
“We’ve got to get eyes on the product,” Washington State coach Mike Leach said. “It’s about exposure and money, and you don’t have one without the other.”
On a relative basis, the Pac-12 Networks don’t have much of either.
Launched in Aug. 2012, the networks have reached a point in their life cycle, according to several industry analysts, when they should be growing incrementally or holding steady. Instead, they’re losing audience.
Information provided to the Hotline by SNL Kagan, the renown media research firm, indicates the Pac-12 Networks have lost seven percent of their subscribers since the peak in 2016, with much of the decline attributed to the discontinuation of service on U-verse last year.
With just 17.9 million subscribers (per Kagan), the Pac-12 Networks will have fewer subscribers in 2019 than The Pursuit Channel, The Sportsman Channel, Fox Deportes and Z Living, according to Nielsen cable coverage estimates from the fall.
ESPN analyst Brock Huard, the former Washington quarterback who hosts a radio show in Seattle, said the lack of reach has cast a pall over the conference, particularly in football.
“It affects everything. It impacts everything. It is your brand,” he said. “It is what you put out there for the country to see.
“We go on the road and go out to dinner as a (production) crew … and you go to Buffalo Wild Wings or a sports bar, anything you can find, and we want to watch these games and the network isn’t on. You can’t find it.
“It affects everything.” By comparison, the Big Ten and SEC networks have three or four times the audience of the Pac-12 Networks and are believed to generate three or four times the revenue for the schools, as well.
That disparity is due, in part, to contrasting business models:
The Big Ten and SEC partnered with Fox and ESPN, respectively, which gave them leverage in negotiating distribution deals; the Pac-12, which has a smaller population within its footprint, lower ratings for its games and less fan affinity, eschewed a partner and retained 100 percent ownership.
That approach has created steep distribution challenges — DirecTV, to cite one example — but commissioner Larry Scott and campus officials hope having full control of their content will prove visionary when the conference renegotiates its media contracts in several years.
“We are working collectively to be in the best position for the next go around,” UCLA athletic director Dan Guerrero said. “The quality of the network production is first-rate, and we feel there will be incredible interest in our content moving forward.”
Guerrero also acknowledged that the resources generated by the Pac-12 “are obviously not what schools had hoped for at the outset.”
In fact, the resources haven’t even met the lowest expectations held by many campus officials, according to more than 20 interviews conducted for this story. (Most officials declined to speak on the record.)
The conference has never disclosed the financial guidance given to the campuses in 201112, during the run-up to the launch of the networks.
Officially, the schools were advised to avoid budgeting for a specific revenue amount and that in an extreme, worst-case scenario, the networks would still manage to break even.
However, in a pre-launch presentation attended by athletic directors, Scott dazzled the room by providing three ranges of annual payouts (once the networks had exited the start-up phase).
According to a source who attended the presentation, those payout ranges were:
High end: $7 million-to-$10 million per school per year
Middle: $5 million-to-$7 million per school per year
Low end: $3 million-to-$5 million per school per year.
When asked about that guidance, former Washington State athletic director Bill Moos said he didn’t recall the exact figures but remembered vividly the reaction in the room.
“We were all giddy,” Moos said. “And we wouldn’t have been giddy over $2 million (per year).
“We were just coming off the biggest Tier 1 deal in the history off college sports” — the $3 billion agreement with ESPN and Fox — “and everybody was jumping up and down. (Scott) had just walked the walk, so why shouldn’t we believe him?”
The presidents and chancellors were all in with Scott, to the point that his annual compensation of $4.8 million — he’s the highest-paid commissioner in collegiate athletics — is based on his dual roles as conference commissioner and media executive.
(Last fall, during his court testimony in a high-profile lawsuit against the NCAA, Scott explained: “An important component of determining my compensation is based on a unique dual role that I have serving as commissioner of the conference, but also executive chairman of a media company that’s wholly owned by our 12 schools where we’re unique in that regard.”)
But after six payout cycles, the networks have yet to even hit the low end of the expected range, according to financial information obtained by the Hotline.
Details of the networks’ financial performance are closely guarded, with only the total income provided on the federal tax returns. (In the 2017 fiscal year, the listed income was $127,850,701.)
The conference does not separate Pac-12 Networks distributions from the larger annual payouts to the schools, which include revenue from Fox and ESPN, March Madness and the football postseason.
— it does not cut a separate check, so to speak.
Nor does the conference distribute financial details to the schools, thereby avoiding the potential for those details to be subject to public records requests.
Instead, the annual payout figures are made available for temporary viewing by campus financial officers on a secure website, according to multiple sources.
“It’s very frustrating,” one administrator said.
The figure provided on the website is a lump-sum amount. Two Hotline sources with access have copied down that amount over the years, then dived by 12 to determine the payouts to each school.
Those payout numbers are as follows:
• 2013: None listed
• 2014: $862,000 per school
• 2015 $1,677,500 per school
• 2016 $1,980,250 per school
• 2017: $2,522,167 per school
• 2018: $2,666,667 per school Over the six completed fiscal years of the networks’ existence, the total payout per school, as tallied by campus officials, is $9,708,584 per school — not even at the top end of the single-year range referenced by the source who attended Scott’s presentation.
“They told us, ‘This is what we think it’s going to be,’” said John Perrin, the longtime CFO of the Arizona athletic department who retired two years after the networks were launched.
“And it hasn’t panned out anywhere near where they thought.”
But that’s not the end of the financial story, at least from the schools’ perspective.
Not only are the annual payouts below the expectations of many athletic department officials. They are, in the eyes of some, merely a gross number.
The Pac-12 Networks would not exist without an inventory of content, without the games themselves.
But in order to acquire that inventory, the conference needed each athletic department to buy back the TV rights to local football and basketball broadcasts — the games not shown nationally on ABC or ESPN — from its sponsorship and marketing partner.
Once all the local rights had been repurchased from the likes of IMG and Learfield, they were pooled together to form the content backbone of the Pac-12 Networks.
(The SEC went through the same process a few years ago when forming its network.)
The amount and duration of the buy-back process varied by school and was based on individual contracts.
Some, like Washington and Washington State, have completed the repurchasing process; others have not.
In most cases, the cost of repurchasing the local rights was substantial.
Over a four-year period, for example, UCLA had $5.6 million “carved out” of a larger sponsorship deal with IMG as compensation for the loss of its TV rights, according to a school official.
Back that figure out of the $9.7 million distributed to each campus by the Pac-12 Networks, and the Bruins have received $4.1 million in net revenue. That’s an average of $683,333 per year over six years of the networks.
Cal reported a bigger hit over a longer buyback process, reimbursing IMG to the tune of $7.1 million over five years.
Remove that from the Pac12 Networks’ payout, and the Bears have received an average of $433,333 in net annual revenue — or ½0th of the amount in the high range of the scenario presented to athletic directors.
But at least Cal and UCLA are finished with the buybacks.
Oregon State must compensate Learfield $1 million annually through 2022 for the repurchase of its local TV rights.
Carve $6 million out of OSU’s total payout thus far from the Pac-12 Networks, and the Beavers are left with an average of $616,000 per year in net distributions.
To put that figure in context with the cost of doing business in major college athletics consider this:
OSU defensive coordinator Tim Tibesar was paid $550,000 last season.
“When you’re trying to measure the true cost associated with the decision to do (the Pac12 Networks),” a conference source said, “the buybacks are not insignificant.”