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September 1, 2011

Nothing personal, strictly business

Envy, pride, jealousy, resentment, little brother syndrome…Those are all words and terms used in the past few weeks to describe Texas A&M's desire to leave the Big 12 and become a member of the Southeastern Conference. Those words convey the sense that the decision is an emotional one, in a situation that has been portrayed as a family feud or divorce between A&M and it's long time rivals, most notably Texas. However, in reality, the breakup is less about family than about a business partnership and in that sense A&M is simply following Texas' lead (rightly or wrongly) in looking out for its own interests on two fronts: money and trust.

When the Big 12 remained intact after the flirtations of various members with the SEC and Pac 12 last summer, the future of the conference was still believed to be tenuous at best. The root of the problems, below market television contracts and unequal revenue sharing, could not be easily solved over the span of a few months because the most profitable contract itself, the Tier I agreement with ESPN and ABC, did not expire until after the 2015 football season. Even so, ESPN agreed to maintain its current total payout for the Tier I rights despite the fact that the conference no longer had a title game and two fewer members. By the spring of 2011, Fox had entered into a new agreement on the conference's Tier II rights to increase annual payouts per team from $2 million to over $9 million annually and even pay a bonus to member institutions in 2011 even though the new contract did not begin until 2012. Finally, in June, the school presidents voted to equally share 76% of all television revenues which was the highest proportion in the conference's history. These moves all but eliminated the gap between the Big 12's payouts and those of other leagues as the payout for 2011-2012 was estimated to be from $17 million to $19 million (an increase over the $10 million paid to Texas in 2009 which was the highest in the league that year).

These events promised to restore harmony to a dysfunctional league, especially with the promise of even higher revenues once the Tier I rights came up for bid again. However, that accord was shattered by the official announcement in January of this year that Texas and ESPN would be teaming up to form the Longhorn Network. Even during the summer of 2010, Texas indicated that it would be launching its own network rather than team up with the rest of the conference (as the Pac 12, Big 10, and Mountain West had done). Although the network promised to provide Texas with advantages in promotions and marketing that no other school could match (not just in the Big 12 but nationwide as well), the real impact of the network came via the revenue stream -- a minimum of $15 million annually (although Texas' athletic department would receive a reduced cut with the rest going to IMG and the university itself) as well as the observation that the agreement would make it impossible to form a Big 12 network for the conference's third tier rights.

During the summer of 2010, A&M's leadership was split amongst those who wanted to stay in the Big 12 due in large part to the rivalries that A&M had with other programs and as long as the aforementioned revenue deficiencies were addressed as opposed to those who were sitting on the fence between the Big 12 and SEC. In other words, A&M's decision to stay in the Big 12 at that time was more about emotion than business. However, when word first broke about the amount of the payout to the Longhorns, the decision makers who were sitting on the fence jumped off. They recognized that Texas was being paid first tier revenues for its third tier rights. More importantly, A&M's decision makers recognized that these items ensured that no Big 12 school could ever hope to match Texas (already the country's top revenue producing program) financially because as long as they stayed in the conference, Texas would make as much or more for its first and second tier rights and trump that income with its third tier money.

Long term, A&M's leadership concluded that the revenue discrepancy would affect the ability of all schools in the league to remain competitive with Texas. A&M conducted a study in which it looked at the National Football League and Major League Baseball and how each operated with regard to revenue sharing. A&M found that because the NFL had revenue sharing, it was more competitive because each team's resources were more equal. In turn, this generated a greater amount of interest in the sport which translated into more total revenue for the league and for each individual team. In the minds of A&M's leadership, the Big 12's imbalance with regard to revenues precluded such competition. In contrast, the SEC had revenue sharing, was more competitive (five SEC teams have won conference titles since 2004 as opposed to just Texas and Oklahoma in the Big 12), and thus generated more money for individual programs.

If A&M needed a place to maximize its revenues, the SEC certainly appeared to be where A&M needed to be.

However, Texas also got more than it bargained for in its relationship with ESPN besides money. Texas obtained a business partner that needed quality programming to attract advertisers and providers. With the football season fast approaching both parties in the summer of 2011, ESPN decided it needed to do two things to increase such programming: broadcast high school games and obtain additional Texas football games to show on the network.

Broadcasting high school games in and of itself was perceived to be a recruiting advantage by competitors. In July, ESPN executive Dave Brown indicated that the network wanted to televise high school games involving Texas commits such as Aledo's Jonathan Gray and even out of state commits such as Connor Brewer, then the purpose of the network itself was questioned: was it to market Texas itself or provide a recruiting advantage and perhaps even be used as an inducement for uncommitted prospects to attend Texas.

Later that month, ESPN approached Texas Tech to televise their Nov. 5 contest in Austin (Texas obtained this right via a deal with Fox which would normally exercise its second tier rights to the game). In return for showing the game on Texas' branded network (which would not be a popular move with Tech alums), ESPN would televise two other of Tech's non-conference games for $5 million. Tech would not be bought and turned the deal down.

The NCAA eventually ruled in August that the Longhorn Network could not televise high school games although it did say later that it could provide scores and highlights of such games. ESPN continued to push for televising a second conference game and succeeded in getting Kansas State to agree to have its November game with the Horns televised on the network . In both instances, despite initial resistance and a stated desire from Texas athletic director Deloss Dodds to work with the Big 12 and NCAA, Texas eventually got its way (albeit not 100%) in both instances. These events created the impression that Texas's deeds were not equal to its words, in large part because Texas is not used to communicating its moves as an equal but rather as an authority figure out for personal gain.

From A&M's perspective as a business partner of Texas, these events created "uncertainty" as A&M president R. Bowen Loftin put it after a meeting of A&M's board of regents on July 21. Virtually immediately after that meeting, Loftin contacted SEC Commissioner Mike Slive, even though A&M had not spoken with the SEC in months. Just over a month later, A&M is on the verge of officially joining the SEC.

For all of the talk of family and friendship, A&M and Texas also had a business relationship that transcended the historic and personal relationships that the schools had due to the amount of money at stake in today's college athletic landscape. The developments regarding the Longhorn Network made it clear to A&M's leadership that Texas would maintain the upper hand financially if the relationship continued and that Texas/ESPN would seek to maximize that advantage at every opportunity for their own gain.

When A&M finally announced its intentions to leave the Big 12 yesterday, it didn't file divorce papers as much as it filed papers to terminate a business. As with most break ups, there are casualties--A&M's relations with other schools in the Big 12, not to mention the end of long term rivalries on the field that translated into friendships off of it. But in the end, A&M did something that Texas did not expect even though it was exactly what they have done in their dealings with others all along: looking out for their own best interests.


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