Dale Nicholson, III: The SEC Wins at Everything … Even Network Television

Last week, SEC Commissioner Mike Slive broke the news many had been expecting. The SEC, and its namesake network, made lots of money last year – lots and lots of money. A NCAA record $455.8 million in revenues, to be exact. For comparison’s sake, last year the league reported $292.8 million in revenues.

Each school will get a $31.2 million cut this year, versus the $20.9 million they took home last year. The league will distribute $436.8 million to its schools because $19 million was retained by the conference’s bowl participants.

Of course, the SEC Network wasn’t the only change this past year that contributed to the SEC’s record year. The College Football Playoff debuted this fiscal year, and that contributed to a higher payout to the SEC, along with other, more lucrative bowl deals. In fact, the CFP has said the SEC would have received $34 million in the old BCS format for its teams’ bowl appearances last year. Under the new format, the CFP said the SEC should have received a payout of $87.5 million.

But it’s the SEC Network that is the chief driving force in this $163 million increase year to year. The scariest part of all of this, if you’re a fan of a conference that’s not the SEC, is that this number will likely only go up. Keep in mind, the SEC Network isn’t even a year old. The league had a record year thanks in large part to a 9-month-old cable network. On top of that, the league and its schools had to pay the startup costs in the first year of the network.

ESPN actually owns the SEC Network and pays a rights fee to the SEC. It’s not a perfect split, either, because advertising dollars will far outweigh revenue from subscribers, and ESPN is the one dedicating manpower to running and selling ad space on the network. ESPN took on all of the risk and must pay the taxes on the network, too. Slive did not divulge what the split is between the SEC and ESPN, but he did mention the channel is now available in 65 million homes across the country.

More interesting than the number of homes is where those homes are located. 35 million of them are outside the SEC’s footprint. This is more than just some regional network catering to a small section of the country. The interest in the SEC’s success (and failure) goes coast-to-coast. The Big Ten Network (launched in 2007) has 90 million subscribers in the U.S. and Canada, while the Pac-12 Network (launched in 2012) is at 60 million subscribers.

It’s clear, both from a fiscal and popularity sense, the SEC Network was a resounding success in its inaugural campaign. But what does it mean going forward?

Without knowing the inner details of the revenue split, it’s difficult to say. However, allowing ESPN to retain ownership of the network seems to have been a very fortuitous move by the league. While the conference could never sell its own network to another provider, like the PAC 12 could, it hasn’t had to manage all that goes into running a television station, either. Andy Staples of Sports Illustrated wrote a fantastic piece comparing the three league networks and outlining what it means for the SEC and college football. You can find that article here, and I highly recommend it.

Where the SEC has the edge over its competitors is in its business partner. While the Pac 12 owns its network, the Big Ten split ownership of its network with Fox Entertainment Group. The SEC made the bold choice to allow ESPN to wholly own the network. But that could end up being the right move. ESPN is now fully vested in the success of this network. That could largely be the reason for its initial success, along with the league’s rabid fan base.

In owning the network and taking on the risk involved, ESPN will have ample reasons to promote the network and its league. The advertising revenue drives any network’s success, and the same will go for the SEC Network. Gone are the days of ESPN’s networks having their own individual identities. Graphics, music and talent have all been streamlined into one network with multiple outlets. That has meant an onslaught of resources from ESPN to make the SEC Network another member of the “Mothership,” as it’s sometimes called, rather than some also-ran acquisition.

But the implications for what this means for the SEC and college sports are potentially dangerous. The league’s student athletes now have a permanent home in front of 65 million TV households, and that number is sure to increase. The days of amateurism seem to be all but over. With the current debate over paying players, the powers that be within these conferences and schools, not just in the SEC, may not be able to claim student-athlete status for the players much longer. These players are now TV personalities. In most other entertainment ventures, the talent eventually wants to get paid.

When that day comes, the SEC will have the luxury its competing leagues don’t: its own TV channel cranking out millions of dollars in revenue. Each school has $10 million more this year than it did last year, thanks to a network still in its infancy. While that may turn up the heat in the amateur status debate for college athletes, the SEC’s balance sheets will be just fine.

Editor’s note: Dale Nicholson, III AAMS® is a Financial Advisor at Raymond James & Associates, Inc. Member New York Stock Exchange/SIPC, located 100 Morgan Keegan Dr. Ste. 200, Little Rock. He is a former sportscaster for KATV and KFSM and can be reached by email at [email protected].

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