Deal gone dry?

8/10/2019 Deal gone dry?

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Cover Sheet

Reese Miller

Business Story

Deal gone dry?

December 4, 2014

Budget line:The University of Texas at Austin signed a deal with ESPN to create the Longhorn

Network in 2011. While this looked like a financial boom at the time for Texas, currently every

school in the South Eastern Conference makes more money per year off the newly founded SECNetwork, including Texas A&M and Missouri who left the Big 12.

Sources:

Joel Lulla-Professor at the University of Texas, former consultant for Nebraska and theBig 12 to create possible networks

o Email [email protected]

o

Date(s) contacted: in person 12/1/14

o Met with him and discussed his work for a networks within the Big 12

Michael Cramer-expert on the business of sports and current UT professor

o Email: [email protected]

o Date(s) contacted: email 12/1/14

o Discussed his thoughts on the future of the Longhorn Network and the success ofthe SEC Network

Josh Blount-LHN Employee (asked not to be named)

o Phone: 713-823-1669

o Date(s) contacted: in person, over the phone 12/2/14

o Talked about the current state of LHN

Gracie Blackburn-Public Relations worker for ESPN

o Email: [email protected]

o Date(s) contacted: email 11/24/14

o Asked about the current state and future of LHN, she declined to comment

Invisible sources/web sites used:http://www.sportsbusinessdaily.com/Journal/Issues/2014/08/11/In-Depth/Conference-

breakouts.aspx?hl=longhorn%20network&sc=0

http://www.kansascity.com/sports/college/article437058/Big-money-headed-to-Big-12-SEC-

schools-thanks-to-giant-revenue-distribution.htmlhttp://www.foxsports.com/college-football/outkick-the-coverage/every-sec-school-will-make-

more-tv-money-than-texas-notre-dame-072314

http://www.fool.com/investing/general/2014/08/09/sec-network-launch-means-payday-for-schools-higher.aspxJoel Lulla also provided me with select numbers regarding networks.
http://www.sportsbusinessdaily.com/Journal/Issues/2014/08/11/In-Depth/Conference-breakouts.aspx?hl=longhorn%20network&sc=0http://www.sportsbusinessdaily.com/Journal/Issues/2014/08/11/In-Depth/Conference-breakouts.aspx?hl=longhorn%20network&sc=0http://www.sportsbusinessdaily.com/Journal/Issues/2014/08/11/In-Depth/Conference-breakouts.aspx?hl=longhorn%20network&sc=0http://www.kansascity.com/sports/college/article437058/Big-money-headed-to-Big-12-SEC-schools-thanks-to-giant-revenue-distribution.htmlhttp://www.kansascity.com/sports/college/article437058/Big-money-headed-to-Big-12-SEC-schools-thanks-to-giant-revenue-distribution.htmlhttp://www.kansascity.com/sports/college/article437058/Big-money-headed-to-Big-12-SEC-schools-thanks-to-giant-revenue-distribution.htmlhttp://www.foxsports.com/college-football/outkick-the-coverage/every-sec-school-will-make-more-tv-money-than-texas-notre-dame-072314http://www.foxsports.com/college-football/outkick-the-coverage/every-sec-school-will-make-more-tv-money-than-texas-notre-dame-072314http://www.foxsports.com/college-football/outkick-the-coverage/every-sec-school-will-make-more-tv-money-than-texas-notre-dame-072314http://www.foxsports.com/college-football/outkick-the-coverage/every-sec-school-will-make-more-tv-money-than-texas-notre-dame-072314http://www.foxsports.com/college-football/outkick-the-coverage/every-sec-school-will-make-more-tv-money-than-texas-notre-dame-072314http://www.kansascity.com/sports/college/article437058/Big-money-headed-to-Big-12-SEC-schools-thanks-to-giant-revenue-distribution.htmlhttp://www.kansascity.com/sports/college/article437058/Big-money-headed-to-Big-12-SEC-schools-thanks-to-giant-revenue-distribution.htmlhttp://www.sportsbusinessdaily.com/Journal/Issues/2014/08/11/In-Depth/Conference-breakouts.aspx?hl=longhorn%20network&sc=0http://www.sportsbusinessdaily.com/Journal/Issues/2014/08/11/In-Depth/Conference-breakouts.aspx?hl=longhorn%20network&sc=0


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Deal gone dry?

By: Reese Miller

December 4, 2014

While the Longhorns looked like they stole the loot from the USS Bevo when they signed a

television deal with ESPN to create the Longhorn Network, currently Texas A&M and Missouri

make more revenue per year from their television deals with the newly founded SEC Network,

which is also a branch of ESPN.

When the University of Texas signed a 300 million dollar, 20 year deal with ESPN in 2011 to

create the Longhorn Network, it sent a shockwave through collegiate athletics and created a rift

in the Big 12, which ultimately irked Missouri and Texas A&M enough to split from the

conference and join the SEC.

Three years later, the SEC reached a 20 year agreement with ESPN to partner for the SEC

Network. In August of 2014, according to the Sports Business Journal, the network experienced

the most successful cable network launch in television history and reached almost 90 million

homes, bringing the value and success of LHN into question.

I think for ESPN it made a lot of sense to be involved with the Longhorn Network and with

UT, said Joel Lulla, a University of Texas professor who studied the possibility of Nebraska

obtaining its own private network. LHN is a different kind [of network], they had a hard time


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getting distribution on cable or satellite systems, but certainly have more now. The SEC just has

such broader content and a more wide regional fan base.

A problem that effects LHN is its lack of reach to households across the United States. ESPN

isnt accustomed to this issue, as they reach 96 million per year and earn 6.96 billion on their

flagship channel alone.

The SEC currently has deals with CBS, ESPN, and the SEC Network. It has the advantage of

equal sharing of all conference revenues, meaning Vanderbilt and Alabama will make the same

amount off television deals even though their brands are vastly different. Meanwhile experts

project every SEC school to make around 28 million dollars per year off their conference-wide

network. Texas will make less from having its own private network. While LHN hasntpeaked

with television ratings or distributions, some still consider LHN a success.

From a financial standpoint, it is paying for itself with ESPN and, of course, UT is getting the

incremental money that it did not havebefore, said Michael Cramer, an expert on the business

of sports from the University of Texas. So, therefore, it is successful. Is it as successful as

ESPN hoped? Probably not.

LHN revenue is split between UT, ESPN and International Management Group. IMG, which has

controlled Texas marketing rights since 2001receives 17.5 percent, giving UT 12.5 million per

year.


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While the Big 12 has equal sharing revenue from ESPN and FOX for television rights, Texas is

the only school in the conference that boasts its own 24/7 cable network. Oklahoma, Kansas and

Kansas State have all tried variations whether digital or regional, but none accrue money within

nine million dollars of what LHN brings to Texas. The PAC 12 and the Big 10 now have their

own cable networks that project to make more per school than LHN in the next few years.

Experts feel one possibility for ESPN is when the LHN contract is up, transforming it into a Big

12 Network similar to that of the SEC.

I think it is very possible it will morph into that, Cramer said. UTwill not get less and the

conference members will get more than they get today in all likelihood. However, the future of

the conference is not assured and therefore I dont see this happening in the next year or two.

The Big 12 conference leaves one football game and several basketball games to the schools to

broadcast on a non-FOX or ESPN network per year. But, since LHN has first rights to the open

slot, it would prohibit a Big 12 Network from showing the Longhorns. It would be unlikely any

provider would want to create a Big 12 Network if they didnt get a piece of Texas, so right now

experts feel a Big 12 Network isnt a realistic aspiration.

An opportunity could arise however for Big 12 teams to bolt to other conferences looking to

expand and obtain more revenue. Although few teams in the Big 12 possess the same prowess

without the Longhorns.


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Its a bit of a double edged sword because they make a lot more money on their conference

deals with ESPN and FOX because Texas is in the big 12, Lulla said. But, at the same time

they cant monetize their own network like Texas can. Financially they are not in the same

position for exploiting their own individual school rights but at the same time they are making a

lot more from the big 12 conference if the longhorns werent in it.

Texas will receive 70 percent of LHN profit once ESPN earns back its original 295 million dollar

investment. The issue for both is that they may not reach that plateau.

A spokesperson from ESPN declined to comment on the state of their competing networks.

The current LHN contract expires in 2031, while the SEC Network contract expires three years

later in 2034.


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Deal gone dry?