Will Declining TV Revenues Price Smaller Schools Out Of Big-Time College Football?

The Football Bowl Subdivision of the National Collegiate Athletic Association's Division I is often described as a land of riches, and for half of the 128 FBS member schools, that's true. Athletic departments in the "Power Five" conferences—the Atlantic Coast Conference, Big Ten, Big 12, Pac-12 and Southeastern Conference—are making more money than they ever have before, and 24 of them now bring in at least $100 million per year.

That's thanks mostly to television revenue, which continues to rise despite changing audience habits that have seen millions of viewers cancel their cable and satellite television subscriptions. The latest case in point? The Big Ten will reportedly sign a six-year, $2.64 billion deal with FOX and ESPN, which means first-tier television rights alone will soon be worth more than $36 million per year to each Big Ten school.

That figure has the other power conferences eagerly awaiting their next round of media rights negotiations.

"The trajectory of college sports rights has been impressive," Pac-12 commissioner Larry Scott said. "It probably exceeded most people's expectations, as far as most of the deals that have been done in the past five to 10 years. I think it's driven by the popularity of football and men's basketball in this country."

Outside of the Power Five, the revenue trajectory could be markedly different. Earlier this year, Conference USA—one of the five smaller "Group of Five" conferences—renegotiated its television deal. According to the Virginian-Pilot, it will pay each school just $300,000-$400,000 per year, which is around a third of the $1.17 million each Conference USA school is currently receiving.

Just as the Power Five schools are excited about the new money flooding into the Big Ten, the Group of Five should be terrified by C-USA's pay cut. Because if reduced television rates become the new normal for smaller conferences, their FBS football viability could come into question.

"The networks are going, is there any ROI here? Is there any payoff?" said Ohio University sports administration professor David Ridpath, who was at Marshall when that school chose to join C-USA. "I think we're going to see what's happening with Conference USA happening for a lot of conferences.

"When people have access for multiple Power Five games, it's going to be really, really hard for the little guys to carve their niche."

Conference USA is the first Group of Five conference to renegotiate its television deal since ESPN, the go-to rights-holder for smaller conferences, reportedly was told by parent company Disney to slash $100 million from its budget this year, and another $250 million in 2017.

Why the sudden cutbacks? Viewers increasingly are demanding smaller, cheaper satellite and cable television packages, or abandoning pay television outright in favor of Internet services such as Netflix. Both erode ESPN's subscriber base—the millions of households who traditionally have paid for the network every month as part of the bundle of channels they receive from their TV providers, regardless of whether they actually watch ESPN.

According to The Hollywood Reporter, the network reportedly lost 7 million subscribers from 2013 through last fall, and has lost an additional, unspecified amount since then. That means less of those monthly fees—an average of $6.41 per subscriber, per month for ESPN, according to whatyoupayforsports.com.

With less money to spend, both ESPN and its competitors—who are subject to the same television market forces, and have smaller budgets to begin with—likely will become more picky about what they pay for college sports rights. Gone are the days when conferences can assume ESPN will pay an ever-rising amount to broadcast any football game, just because it's a football game.

Instead, a new—well, frugality isn't quite the right word, so let's just say cost-consciousness—could end up widening the divide between the haves and have-nots of college sports.

"As fees go up, there's certainly a likelihood of the gap increasing between the most premium sports content and that which is seen as not quite as valuable," Scott said. "Having said that, I do think the value of college football, particularly, is continuing to rise."

The Power Five conferences already are changing their media rights approaches to better deal with cord-cutting. The Big Ten is diversifying its partners, splitting its most valuable games among different networks. The Big Ten Network and SEC Network both have apps on Roku and Apple TV, and both have partnerships with Google Chromecast. (Likewise, the major professional sports all have been selling games online and on TV, a la carte, for years, and the NFL will even begin broadcasting games on Twitter this year).

Conference USA has tried to mirror this approach. Part of its deal is with beIN Sports, a network that is adding American football. However, it's hard to tell if that partnership means C-USA is a actually valuable property, or just a low-cost stepping stone for a network trying to crack the American football market on the (relative) cheap. Meanwhile, C-USA's efforts to land a non-traditional, streaming video deal haven't worked out.

"I do think, though, we (had) a lot of different opportunities," said Kelly Carney, Conference USA's senior associate commissioner for marketing and television. "The Amazons, the YouTubes, the Twitters, those are the types of opportunities. All of those types of things, we wanted to look into, but I'm not sure our timing synced up just yet."

Conference USA signed mostly two-year deals with its partners, hoping that sports networks and others potential broadcast rights buyers are simply in a holding pattern, temporarily retrenching as they figure out where the industry is headed. "It's so hard to pinpoint what a specific sports property is worth because the networks bundle all the sports and are selling them for a subscription fee to distributors, and you really can't isolate what the price is," said the Pac-12's Scott.

Of course, a case can be made that retrenchment is where the industry is headed, especially for less-popular leagues and sports. So what if ESPN and others continue to decide that their previous smaller conference deals amounted to overpays? What if bidders are able to pinpoint value, and then figure out that non-Power Five football simply isn't valuable in bundle-less world?

Since 2009, ten schools have joined the FBS. Five of them added football programs to do so. Over the same span, only Idaho has dropped out. Yet in the long run, flat or reduced television revenues for the Group of Five could force some schools to follow Idaho's lead.

For smaller schools, joining or staying in the FBS amounts to a bet: spend more money to field a team at college football's highest level, and hope that increased television rights fees make your outlay worthwhile.

For example, the average athletic department in Idaho's old FBS conference, the Sun Belt, spent $6.3 million more per year than the average athletic department in its new Football Championship Subdivision conference, the Big Sky. Much of that spending is the result of higher FBS football costs, including larger rosters (85 scholarship football players for FBS versus 63 for FCS); expanded travel (C-USA stretches from Norfolk, Virginia, to El Paso, Texas) and "creative accounting" to compensate for failing to meet NCAA minimum game attendance requirements, as has been the case for a number of Mid-American Conference schools.

So long as television rights fees for smaller FBS conferences remain sufficient, the math works. But if and when they fall, dropping to FCS may become a much more economically responsible proposition. Already, the Power Five and the rest of the FBS are playing different games. One group of schools keeps getting richer. The other group, not so much. And the group with the money and power likes it that way. It's highly unlikely that any Group of Five school will ever reach the College Football Playoff, just as no Group of Five Team was ever selected to play in the Bowl Championship Series national title game.

Big-time FBS football has an undeniable allure. Schools of all sizes love engaged alumni, excited students, television and brand exposure. But if the gap between the sport's one percent and everyone else continues to grow—all while rights fees begin to shrink—the same sheen will dull. And rather than see conference realignment based on schools trying to jump into FBS and/or the Power Five, we could see schools jumping out.

After all, what's the point of spending more money if you're not making any?

"You get a lot of other schools that really get starry-eyed and think, hey, we're going to make this Division I jump," Ridpath said. "They don't realize they're playing schools that have 100 million more dollars (in their budget). I haven't seen good data that says enrollment, marketing, fundraising (improve).

"Some of them think they'll get more TV money and more exposure, all these things will build, and maybe the next round of conference realignment we'll get chosen (for a Power Five conference). It's a dog chasing its tail."