Re: Big Ten Hockey Conference Pt III - Revenge of the Sith.
Read at you own risk
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Make no mistake about it; the Big Ten Network is the cash cow driving force in the Big Ten’s current and ongoing expansion agenda which includes the announcement of a Big Ten Hockey Conference. The Big Ten is notably the most profitable college athletic conference in the NCAA. According to the U.S. Dept. of Education, 2010 aggregate profits (rounded) for Big Ten athletic departments was reported as $118M, compared to the SEC which reported a $98M profit with one extra school than the Big Ten. The Big Ten showed average profit/school of $10.7M compared to $8.2M in the SEC and $2.6M in the ACC (Dosh, 2011).
The unprecedented growth in Big Ten profit margins can be directly attributed to the success of the value added Big Ten Network. Although its launch in 2007 was vehemently challenged by skeptics and critics, no one is laughing now. Profits have increased by nearly $50M/year since its inception and the Big Ten footprint has grown to 42M subscribers, an estimated 75M viewers covering 35% of the United States and has more than doubled its initial 2007 revenue to $242M.
The Big Ten Network, with help from its 49% partner News Corp-run Fox Broadcasting, experienced substantive growth through an ambitious and exacting process of penetrating small cable channels on basic tiers and proceeding to the major cable suppliers such as Warner and Comcast. Now the network currently has agreements with more than 300 providers. The network is available on cable in 19 of the 20 largest U.S. media markets. In the last three years, negotiations with Rogers and Shaw Communications in Canada resulted in granting broadcast rights to air the BTN to millions of viewers on basic subscriber tiers throughout British Columbia, Alberta, Saskatchewan, Manitoba, Ontario and New Brunswick (Cabot, 2008).
The league is now suddenly enjoying a windfall infusion of revenue from a source never before available to any college conference through two primary revenue streams: cable rights fees and advertising. Consequently the measurable success of the BTN has NCAA conferences, such as the SEC and Pac-10, trying to emulate the Big Ten’s financial playbook to develop strategies of their own to launch proprietary conference networks. Kevin Weiberg, Pac 10 deputy commissioner and a former Big Ten Network executive stated, “The Big Ten's arrangements do set a very high and new benchmark and there will be some catching up.”
Chicago-based investment firm William Blair & Company concluded from its study that the Big Ten expansion agenda was not only a good idea, but implied that the addition of more than one team might be not only viable but advisable (Jones, 2010). The Big Ten will comprise 12 teams when Nebraska officially joins the conference in July, 2011. Nebraska Athletic Director Tom Osborne said the Big Ten Network was a draw and the alliance would be mutually (financially) beneficial.
The BTN delivered $8M to Big Ten schools in 2010, an increase of 20% from the previous year. In addition, ABC/ESPN also paid the member schools approximately $14M. The Big Ten has a 10 year, $1 billion contract with ABC/ESPN which expires in 2016. Big Ten commissioner, Jim Delany, believes that leveraging the BTN against contract renegotiations with ABC/ESPN will drive up rights fees as well, resulting in millions of dollars in contractual media revenue for the Big Ten Conference (Marek, 2010).
However, what many college hockey fans don’t realize is in addition to carriage fees, the largest revenue generating stream for the BTN is ADVERTISING. A breakdown of the total income indicates that roughly 60% of BTN revenue is derived from advertising. It’s also interesting to note that over the last year advertising revenue on BTN has also increased by 30% (Drape, 2010). It’s common knowledge that key Big Ten athletic events and championship games yield millions of dollars in advertising revenue. Expansion to include Nebraska and the BTHC into established and untapped U.S. and Canadian markets will mean a substantial increase in revenue from advertising and carriage fees.
BTN CEO Mark Silverman is currently setting in motion plans to recruit at least 60 million more subscribers over the next five years. Notably, the announcement of the BTHC plays a significant role in this futuristic financial blueprint. Currently, the BTN yields $.88/household in subscriber fees (Sansirino, 2010). If the BTN raises carriage rates by a negligible $.05/household, an additional 60M subscribers in the U.S. and Canada could conservatively generate an additional $55.8M, and that’s not even considering advertising revenue.
Ad revenue could generate as much as $83.7M for a substantive albeit conservative increase in BTN revenue of $139.5M. In addition to current income, the BTN could over the next five years realistically generate substantially more than a quarter of a billion dollars for the Big Ten conference. That would more than double aggregate revenue distribution to member schools.
Based upon current operating costs, a reasonable estimate to maintain a D1 BTHC hockey program could range anywhere from $1-2M/year. Current area facilities could be temporarily used for any of the potential BTHC schools (i.e. Iowa, Illinois, Indiana), with a view to developing an arena feasibility plan which would require robust funding sources, functional and site analysis, concept design and implementation strategies. However, the ever expanding Big Ten footprint into new markets and the exponential growth potential in all financial aspects of the BTN makes the feasibility of sustaining a Big Ten D1 hockey program for member schools such as Illinois, Iowa and Indiana a much more attractive proposition.
In my view, Big Ten schools with vibrant club hockey programs, USHL teams and an established core fan base like Illinois, Iowa and Indiana will most likely be observing the media exposure and financial landscape after but not before the BTHC launch to determine their next move. The revenue potential increases exponentially by adding more members to the BTHC so I'm sure there's a long term plan for expansion in the foreseeable future.
Schools wishing entry into the BTHC would most likely be considered based upon similar criteria that brought Nebraska into the fold: 1) membership in the prestigious American Association of Universities, 2) Large fan base which translates into ad revenue, and 3) Brand value in other revenue generating sports such as football and basketball. Finally, some of the positive outcomes and perks for BTHC members will be: 1) increased revenue, 2) reinvestment income for sports programs, 3) broadening recruiting possibilities, 4) fan base increase of member schools, 5) wide ranging exposure of college hockey games into new markets, and 6) contributing to a potential increase in the overall interest and development of various strata of ice hockey in the United States.
References
Dosh, Kristi. (2011, January 30). How the Big Ten Stacks Up Against the SEC in Sports Revenue, Sport Money Blog, Forbes.
Drape, Joe, (2010, October 1). Big Ten Network Alters picture of College Sports. New York Times.
Jones, David, (2010, March 7). How the Big Ten Network Makes Expansion More Likely. The Patriot News.
Marek, Lynn. (2010, July 6). Big Ten Network Defies Early Skeptics as Audience and Profits Rise. Crains Detroit Business.
Cabot, Jeff. (2008, December 19). Shaw Launches New HD Sport Channels. HD Report.
Sansirino, Micheal. (2010, May 23). Big Ten Changes Could Have Seismic Effect. Pittsburgh Port Gazette.