These documents may help explain what the Pac-12 is thinking

Sell an equity stake? Keep the status quo? Another option?

Good morning! I hope you all had a wonderful holiday week, full of food, fireworks, and basking in the glory of our world champion USWNT.

*sips tea*

Mmmm. Tastes like….victory.

Okay. On to the college sports news.

How is the Pac-12 talking about their options to the Pac-12? These documents may help

You’re probably aware that the Pac-12 is kicking the tires on selling an equity stake of their future media rights to a third party, the first college league to ever consider such a drastic move. Despite most of the internet, including yours truly, laughing at the idea that anybody would want to kick in hundreds of millions of dollars to buy into Pac-12 media rights without meaningful control, multiple parties are reportedly interested.

There’s no guarantee the Pac-12 actually follows through with this. One document I’ve obtained may help illustrate the thought process behind the entire operation, and why the league leaders may decide to go on with a sale, or not.

Thanks to a Public Records Request, I obtained a deck from late 2018 of Pac-12 commissioner Larry Scott presenting to the Pac-12 university presidents, on “market trends and strategic options” for the Pac-12. This is not the pitch deck on the conference that the league shared with potential investors. Multiple universities have told me this is a privileged document that is not responsive to records requests. So I’m probably not going to get my hands on it…unless, you know, one of you wanted to leak it to me.

I don’t want to share the entire thing, but let me highlight a few slides that may be interesting and instructive.

First, here’s the Executive Summary of the entire deck:

Reading between the lines, based on the other data included here, I think the Pac-12’s internal messaging is a bit more bullish on linear TV, as well as the ability for new companies (say, Facebook) to entire the market than many analysts…or at least, they were in late 2018.

The Pac-12 also basically says they have three choices. They can hold off on doing anything now, which is easy to do, seeing as they have a few years before their major rights hit the market, they can sign an extension with ESPN/Fox and try to alleviate their distribution issues, or they can sell that NewCo stake.

We already know Option #2 is off the table, at least for now.

Here’s some more detailed data on what the Pac-12 is communicating about cord cutting and new media platforms.

Now, I’m just a guy with a laptop, but I haven’t found many business analysts who are optimistic that Facebook, Apple, Amazon, etc are going to enter the college media rights bidding wars in a meaningful way in the mid 2020s. I’m not very optimistic myself! But again, this deck is older, and hey, lots of things can change between now and 2024.

Here’s what the league is saying in a bit more detail about the pros and cons of their three choices:

To me, this is the most interesting part of the whole deck. In case you can’t read that image very well, here are the takeaways.

The league could do nothing. If the league’s primary goal is to retain flexibility, as the very top of this slide claims it should be, then waiting would give them the most control. But the league also admits their network distribution problems, especially with DirectTV, are unlikely to be resolved if they wait. Because of that, the widening financial gaps between themselves and the Big Ten, SEC, etc aren’t going to get any smaller either. If you’re a school that needs money now, I can see why waiting doesn’t seem so attractive.

Renewing with ESPN can potentially provide cash right this second, allows them to actually properly monetize their Pac-12 Network assets (which are underperforming relative to their initial projections), and could potentially solve the distribution issues. But the league also sees this pathway as having less upside, and could lock them into a long-term deal as the marketplace evolves significantly.

That leaves option #3. The league sees this as having the highest potential financial upside, while also giving an immediate cash payout. Such an agreement doesn’t necessarily mean the league can’t enter into a long-term deal with ESPN—in fact, I’d expect that they would. But the stated drawback is a significant one: there would be reduced flexibility for future decisions.

You don’t enter into an agreement like this thinking your partner exits the investment in five years or less. This would probably be closer to a 30 year deal, if not longer.

Below is a quick look at what exactly would likely fall under NewCo’s umbrella. It sure looks like more than just broadcast media rights, since it includes “production investments”, “archive content”, and “merch rights”.

Finally, the deck concludes with case studies of what it sees as similar arrangements. No college conference networks are included, but entities like the YES Network or NBA China, are.

Additionally, in a different set of obtained documents, Larry Scott reached out to the conference presidents in late March, after news of the AAC’s new ESPN TV deal was announced. Scott took that as an opportunity to remind the group of the value of TV rights, saying:

Now, I might personally pick a few nits here with trying to draw too many conclusions about the value of any Pac-12 inventory from the AAC deal, given that it’s a very different type of agreement than what the Pac-12 is pursuing (for one thing, a good chunk of the AAC’s value would be from paywalled content)…but that’s how he chose to message it.

Is this enough data to conclusively state what the Pac-12 will do? No. But it may help inform us of their thinking a bit.

There’s obviously a ton of information we don’t know. We don’t know who the potential bidders are, although we have a general idea of what types of firms they are (think media or sports marketing types, not private equity firms). We don’t know much about the specific financials, how this analysis may have changed over the last several months, and a slew of other variables.

If anything though, I think it’s a useful look at how a league digests similar data that a well-connected fan or reader of industry journals might get. And if the true priority here is to maintain flexibility, I suspect the decision to accept one of these potential bids is more difficult than we may have thought a few months ago.

After all, if you make a bad media deal, it stings for several years, but generally you get another crack at one at least every decade or so. If you make a bad coaching or administrative hire, you can really damage your program, but you can make another hire in a few years. But if the league makes a bad choice on this level of strategic partner, it’s a decision that successive university presidents will have to deal with for decades, long after the folks who initially made the decision are gone. That’s not a move to be made lightly.

What the league decides to do next will be fascinating. They may not have an obvious great choice to make. But they sure will have some impactful ones.

Thanks for reading and supporting Extra Points. You can reach me @MattSBN on Twitter (my DMs are open), or at Matt.Brown@SBNation.com. Questions, comments, tips, or especially creative insults are always welcome.