Skip to comments.This Bubble Will Burst: How Greed Will Bring Down Modern Amateur Athletics
Posted on 11/29/2012 1:30:54 PM PST by GSWarrior
This won't end well.
Pardon us as we take a break from our regularly scheduled delusion to provide a brief dose of reality. The news of the past week has perturbed me. Not because I am a Georgetown fan, Big East fan, or college basketball fan, but because something smells rotten in the state of amateur athletics. All this talk of TV contracts, TV markets, and TV valuations in the latest round of conference realignment has made me feel all, well, bubbly.
Let's take a look at current trends in the TV market:
Sky Rocketing Valuations. The value of the ESPN family of networks was recently estimated at a mind-boggling $66 billion. To put that in perspective, three years ago an analyst pegged the value of the sports network at $23 billion. That is nearly a 3x jump in valuation in three years for a well-established company; we're not talking Facebook in 2007 here. Heck, ESPN was basically a throw-in when Disney purchased ABC-Cap Cities in 1996. The real value of that deal was perceived to be the ABC broadcast networks. Disney top brass reasoned that they could extract some extra value from ESPN by creating themed restaurants utilizing the brand, ahem, ESPN Zone. We all know how that worked out.
So what drove this massive increase in value you ask? Well, many things did, the most important of which is the very different way we now consume television content. In 1996, everyone gathered around the television on a set date and a set time to watch a specific show (and its accompanying commercials). If you missed the show, you had better hoped your VCR worked correctly or you would be forced to watch it on re-runs at a much later point. This was an age before DV-R and On-Demand; it was an age where broadcast television reigned supreme. It goes without saying that today things are very different. The only type of content that requires a person to tune-in at a specific point at a specific time on a specific device is live programming, which mostly consists of sports. Hence, sports content and the networks dedicated to the airing of sports content are seeing immense jumps in value. Values of infinity, and beyond.
Slowing Ad Market. Advertisements represent roughly 50% of revenues for cable networks. It is no secret that advertisers hate DVRs and have not figured out a way to effectively monetize On-Demand programming. Some also don't really get online video, yet. The only thing they know, and know well, is TV. To them, TV is the most effective method of reaching their target demographics. So logically, if advertisers love reaching people through linear TV, and sports is the only content that can predictably provide viewers watching live programming, then advertisements on televised sports content are the most effective way to reach viewers. And therefore, the TV ad market for sports content should be growing. Only, it's not. Recent reports from Disney and Time Warner have indicated that the sports ad market is actually slowing down. It could be because of the economy. It could be because there is an over-supply of sports content. It could be because advertisers are finally figuring out the Internet. Or it could be because advertisers are realizing they are overpaying for access to a blanket label called sports content.
Decreasing Customer Demand. The other 50% of revenues for cable networks come from subscriptions fees, which are the monthly charges content distributors pay the networks for the right to deliver their channels. This was the driving force behind the Maryland and Rutgers moves as the BigTen reasoned that if it was able to add new television markets, it would be able to make more money off of the BigTen Network. The BigTen Network is only included in the basic tier package if a member school is situated in that DMA. Hence, by adding Rutgers and Maryland, all people in the 1st and 8th largest DMAs will now receive the BigTen Network as part of their basic cable TV subscriptions and the distributors will have to pay the BigTen Network for every basic cable subscriber they have in those areas. Makes perfect sense, if everything were to stay the same forever. Again, it's not.
There is already a growing fear in the TV industry about cord-cutters, cord-shavers, and cord-nevers - people that no longer receive some or all content via the traditional coaxial cord/satellite and receiver setup. Forcing people to pay for more content that they do not necessarily want will only increase this trend. This is especially true if other conferences that have announced plans to launch dedicated cable networks follow a similar approach to the BigTen. What if the SEC adds Virginia Tech? Are all DC residents willing to pay an extra ~$5-6/month to Comcast for access to Tier 2 and Tier 3 BigTen and SEC games just because they live in the same geographic area that Maryland and Virginia Tech also situate? Am I willing to be forced to pay $60-72 a year for the privilege to watch Indiana and Minnesota or Tennessee and Mississippi State play football? This is on top of the annual increases Comcast already levies upon me. Non-sports watchers have already noticed that the ESPN Networks account for 20% of the wholesale subscription fees paid by distributors and then passed along to subscribers. Might this be the final straw for the current content distribution system?
New Competition. There used to be only ESPN. Now there is NBC Sports Network. There is CBS Sports Network. Turner Sports has entered the playing field by acquiring NCAA Tournament rights. And News Corp might launch a cable sports network. More competition, more bidders, even higher prices paid for content. But it also means there will be even more sports content on television, increasing the supply for advertisers. Increasing supply with decreasing demand ... recipe for disaster.
Technological Innovation. The above four trends assume that the traditional pay-TV system stays the same going forward. Prices increase and decrease, consumers come and go, competitors enter and exit, but the fundamental system of paying a monthly sum for access to a hundred TV channels, ten of which are probably watched, remains the same. It embraces a complete and utter disregard for what Google, Netflix, Microsoft, Amazon, Apple, Facebook, and many of today's other top innovators are currently doing with video content. Google has already launched a broadband service in Kansas City and has been slowly unveiling details about its TV initiative. It has already proven that it can host live content on YouTube for a mass audience and could be entering the wireless service market soon. Despite its recent struggles, Netflix still has more subscribers than any pay-TV distributor. And Xbox Live has quietly amassed a subscriber base equal to that of the top two pay-TV distributors combined.
The innovation is not only limited to outside players, traditional media companies are embracing and reacting to the changing environmental as well. HBO recently launched HBO GO as a standalone service in parts of Europe; it could very well do the same in the U.S. Cox Communications is offering an ultra-low priced package that excludes sports channels. Everyone knows that change is coming, yet sports content is following the same old broken model.
Money-Hungry and Short-Sighted Leaders. The people at the center of this circus are the highly-esteemed leaders of our educational academies and the directors charged with finding accord between academics and athletics. There is no shortage of impressive degrees following the surnames of these people yet they so rashly lose focus at the mere prospect of more money, like a child in front of candy. Promises of greener pastures and greater paydays by simply publicly saying one thing and privately doing the opposite. No concern for the long-term ramifications of their hasty decisions, rather an impetus to be seen as doing something rather than nothing in an enigmatic market. Two Maryland officials turned their backs on 60 years of traditional over the course of a weekend. Insert whatever cliché you want here about there being no free lunch on the one day it took to build Rome.
So let's sum this up. We have increasing valuations despite slowing ad revenue and decreasing customer demand. New competition is quickly entering despite the fact that technological innovation is primed to transform the industry. And people in positions of very high power are making rash decisions based on information derived from past trends and not future outlooks. Does this sound familiar to anyone?
What Happens After the Bubble Bursts?
Sports content will still be valuable. Sports content will still drive people to the television set at a specific date and time. And advertisers will still pay massive premiums to know they are reaching people. It's just that not all content related to sports will be as valuable as the hype it is getting today. And I think the losers in this not-too-distant future are the schools/teams/conferences that made drastic and short-sighted decisions with the expectation of a major payday just because what an outdated TV model has dictated in the past. The BigTen added two broke and historically bottom-feeder football programs because of where they were located. The Big East added two nationally (probably even regionally) irrelevant schools for access to different TV markets. It remains to be seen what the remaining conferences choose to do.
At the end of the day, the quality of a product is the only characteristic that will lead to consistent and stable sales. I am sure the inner-marketers in you will be sure to point out that there are three other P's in the marketing mix that I am neglecting. Promotion and placement will certainly bring attention, and price should be a factor, albeit it is not now, but the product itself is what will bring recurring consumers. And unfortunately for a lot of fans, the quality of the on-field content just got a lot worse.
I am sure Rutgers fans have visions of greatness as their team toes the line of scrimmage against Ohio State in the BigTen Championship game. Sorry, it's not going to happen. And I am sure Big East executives have dollars signs in their eyes as they envision the 2018 Big East Championship match between Southern Methodist University and Tulane in front of a sellout crowd at the World's Most Famous Arena. Not happening either. All that has happened is a complete and utter dilution of what makes college athletics great: competition.
My lowly suggestion is for each and every university President and Athletic Director to take a break from the madness and do some inner soul-searching. Find what put your athletic program on the map, whether it is football, basketball, field hockey, intense local rivalries, or whatever. Find it and preserve it, because becoming something you are not in order to chase money will only result in irrelevance. The pay-TV tide is ready to turn, and when it does, the programs/conferences that built castles on shells will be swept away.
I hope I am wrong, but this won't end well.
Pro Longoria just signed for 100 mil. It will never burst!
Can you imagine growing up with the great basketball teams in the Midwest, moving out here, and there's nothing but third-rate fleabag college ball ~ NO NO NO~!!!!!
This is long overdue ~ FOR THE FANS!
I already think of it as semi professional
Calling college sports amateur is a charade, these days.
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