ESPN is still the unquestioned leader in sports broadcasting and news, but that doesn't mean they're immune from changing economic times. Rumors that the Worldwide Leader would need to cut budgets circled all summer, and now, it seems that it's become a reality, as the company is expected to layoff hundreds of employees as soon as today. Per The Big Lead, ESPN has been asked to trim $100 million from the 2016 budget and $250 million from the 2017 budget. Even for a massive company like ESPN, those are not insignificant numbers.
Why the cost cutting? It's not like ESPN just suddenly stopped making money, after all. But more and more consumers are cutting their cable cords, which eats into ESPN's profit margins and lucrative cable subscriber fees. That trend isn't likely to slow down over the next few years either.
This isn't just an interesting story to those of us who work in sports media or sports business. ESPN, after all, is now a vital business partner to BYU, thanks to their television deal that has helped enable the Cougars to remain independent in football. That deal doesn't go on forever...could ESPN's financial situation impact what the Cougars do next? Let's take a look.
What are the specific details with ESPN's BYU deal?
We don't know all of the specifics, since BYU is a private school and thus exempt from public records requests, and ESPN isn't exactly in a hurry to publish the contract on WikiLeaks or something, but we do know the basics. ESPN is contracted for the exclusive rights to BYU home football games, from the 2011 season to the 2018 season, with an ESPN option for the 2019 season. The deal gives BYU a minimum of three games on either ESPN, ESPN2 or ABC, as well as at least one game on ESPNU.
We don't know exactly how much money BYU is getting, but the Sports Business Daily, a trade journal for the industry, puts the number at "between $800,000 and $1.2 million per home game", which would give BYU about $6 million a year from the deal, perhaps a little more. BYU was getting less than $2 million a year from the Mountain West Conference, so ESPN represents a significant increase.
Could ESPN's financial situation deteriorate so badly that they would cancel the agreement before the end of the contract?
This would probably depend on the exact wording of the contract, but I feel pretty confident that the odds of this actually happening are essentially zero. BYU is contracted with ESPN, not some local UHF station that worries about making payroll. Backing out of a rights deal like that would be unprecedented, unless something major happened in the college football landscape, or to BYU (like say, joining a conference or something).
How does ESPN feel about their relationship with BYU right now?
It's hard to say for certain, but they've been nothing but positive about the deal in the press, and there is little reason to think that's just smoke. An ESPN VP said, back in April, that they are "No question, we are thrilled with the relationship we have with BYU", although to be fair, you wouldn't expect them to say "well, shoot, this was probably a mistake" in print.
A deal with BYU gives ESPN access to a strong brand for non-Saturday games, and BYU's independence, plus ESPN's influence, has been able to produce mutually beneficial scheduling arrangements. ESPN would probably be a teensy bit happier if BYU had been just a little bit better over the duration of the deal so far, but the ratings have been fine, and they get a team that people actually care about that is more than happy to work with them, and fills unique inventory slots, all at a relatively reasonable price. What's not to like?
How does BYU feel about their relationship with ESPN?
If they aren't over the moon about it, they're doing a great job hiding it. BYU has been pretty effusive with their praise towards this relationship at just about every opportunity, since ESPN has been an important partner in helping BYU not just broadcast themselves nationally, but in scheduling big games. Bronco Mendenhall said that "with ESPN, all things are possible", after all. Back in February, Tom Holmoe said that "we have a really solid relationship with ESPN." It's hard to imagine BYU's independence bid working at all without a partner like ESPN.
Okay, so if ESPN says they're happy, and BYU says they're happy, why would there even be a chance this changes?
Well, for starters, a ton can change before 2018/2019. The industry trend of folks canceling their cable subscriptions is unlikely to change, but perhaps ESPN can figure out ways to make up those margins elsewhere in their business. BYU could be in a conference by then and not need the contract. A dozen other things could change as well.
There are not a ton of media rights deals that will open up between now and the end of BYU's deal. The Big Ten's team is up next year, and that's projected to be the biggest one yet (although maybe not quite a big as many thought it could be say, two years ago), and Conference USA will have their deal up as well...but before BYU, that's it. That means that even if ESPN and BYU are happy with their arrangement, it is probable that there will be other bidders.
The two biggest names would be Fox Sports, and NBC Sports (NOTE: in the interest of being a Serious Professional, I should note that NBCUniversal now owns a minority stake in Vox Media, which owns this site). Fox Sports is expected to make a major run at the Big Ten right deal, and if they don't get it, trying to grab BYU as a consolation prize could make some sense. NBCs college football programming bench beyond Notre Dame isn't deep, and adding the other major independent could help diversify their programming. Since ESPN has way more rights deals than the other channels, grabbing BYU might be more important to another network than it is for ESPN, especially if cost-cutting elsewhere prohibits ESPN from wanting to get into a bidding war. $6.5 million a year for BYU games might make a ton of sense for ESPN. Does it still make sense at say, $10 million? $12?
Another thing that might come into play in this decision, is what happens with the WCC. Their TV deal with ESPN also ends in 2019. If the WCC goes elsewhere, or is that deal is worth less than hoped for, it could potentially be a reason for BYU to consider other bids.
Is BYU a lock to go with the highest bidder?
I don't think so. There's a few things to consider here:
1) A partnership with ESPN goes beyond just money. If anybody really "runs" college football, it's ESPN, thanks to their relationships with every conference, and several bowl games. If you need help scheduling a game, or securing a postseason arrangement, no outside party currently has more influence than ESPN, and that includes FS1, or CBS, or NBC, or any other broadcasting company. Maybe that changes by 2019, but I doubt it. BYU could decide that it's worth taking a little less money in order to stay on the good side of a major influencer in the sport.
2) On that same note, money could be a secondary concern to just general 'exposure'. BYU wants to play nationally, and be seen nationally, and that means being in front of as many eyeballs as possible. Right now, and probably in 2018/2019, that means playing on ESPN channels and properties, which are in more homes than their competitors. If BYU made a little more money with say, Fox, but risked getting bumped to a channel that few Americans have, or put into timeslot situations where they are competition with bigger ESPN games, it may defeat the purpose of being an indie.
3) On some level, if you're BYU, does the money matter that much? BYU's TV contract with anybody will almost certainly pale in comparison to what P5 teams are going to be able to bring in, and the financial and resource gap between the proverbial haves and have nots will only continue to grow. If you're recruiting against and playing against teams with twice as much money, does an extra 3 mil a year make or break you?
What is your prediction?
This is a fluid business, and I suspect this won't be the last time I write about this before the deal comes up again. I suspect BYU will not be an independent in 2019, but if they are, my guess right now is that multiple firms bid for the rights, and ESPN's bid is not quite as large as BYU would like (or maybe not even the biggest bid), but at the end of the day, the two sides re-up, and BYU will look for other ways to make up some of that revenue, perhaps by doing a game on Pay-Per-View or something.
So tl;dr, it's not something worth panicking about now, but it is worth keeping an eye on. A lot can change in a few years.