A Look at Realignment Costs

Adam Sparks of the Murfreesboro Daily News Journal has big story on Middle Tennessee State's move to Conference USA. The financial data he presents provides some interesting insight about the value of realignment.

A few key things aren't outlined in the article. For example, the Sun Belt has been assessing membership dues of about $100,000 per school while C-USA's dues have been around $1.3 million, how those dues are accounted for in the article or if they are accounted for consistently between the two leagues. Also left out of the article is the treatment of some NCAA revenue distributions such as grant-in-aid fund and sports sponsorship. The NCAA calculates these distributions based on each school's situation but rather than sending checks to each institution the NCAA pays the money to the conference with a statement showing how much each school is entitled to. Some conferences, such as the Sun Belt do not count this money as league revenue because it is based on each school's number of grants awarded and sports sponsored. Some leagues count this as league revenue, it appears C-USA counts this as league revenue but the documentation isn't 100% clear and even if C-USA accounts for it as league revenue it isn't clear if MTSU accounted for that in stating the revenue differences. I am assuming that the article is treating distributions as net (after dues) and excluding NCAA revenues that belong to individual schools.

First let's look at the numbers that can be determined with certainty.

In 2012-13 MTSU had to give up roughly $35,000 in Sun Belt revenue. They had to pay C-USA the first payment of their $2 million entry fee and wrote a check for $500,000. To exit the Sun Belt early, the Blue Raiders paid $700,000 to the Sun Belt. In all 2012-13 the Blue Raiders spent $1,235,000 to join C-USA.

Sparks reports that MTSU is expecting to receive about $700,000 from CUSA in 2013-14, an anticipated distribution of $1.2 million minus $500,000 in entry fees. If they had remained in the Sun Belt, MTSU would have received between $60,000 and $75,000 because of the Sun Belt's extra NCAA and BCS revenue. Playing conservatively, they gave up around $60,000 in revenue. So that would put MTSU about $640,000 ahead of the Sun Belt but still $595,000 in the hole on the move.

Now the certainty begins to drop off.

In 2014-15 there are some significant changes. Sun Belt will gain at least $1 million per program in revenue from the College Football Playoff (CFP) while Conference USA will gain $143,000 less because the league is at 14 members rather than 12. This will also be the year when C-USA stops collecting for the Memphis NCAA championship appearance and the five units worth about $250,000 each. If CUSA stays on track with the performance of the past four seasons, the league will have a net loss of $750,000 or nearly $54,000 per school. With two extra teams vs the past it is reasonable to expect the loss to be closer to $36,000 per school. MTSU is still giving up $500,000 in league revenue as admission fee.

Taking those factors into consideration, MTSU would still be about $134,000 behind financially vs. having remained in the Sun Belt.

Then in 2015-16 MTSU finally has the opportunity to come out ahead on the investment. Assuming the Sun Belt is not placing ahead of C-USA in the CFP standings and has not improved in basketball, MTSU would net about $500,000 more than had they remained in the Sun Belt.

But there is more uncertainty in the equation thanks to television and the Big 10.

C-USA's TV deal expires in 2016. That in and of itself is a large uncertainty. The American Athletic Conference (formerly Big East) after losing the bulk of membership ended up taking a TV contract worth about 35% less than the old TV deal. While CBS Sports and Fox Sports have agreed to not reduce the existing contract, that provides no assurances for what the next deal will look like when the networks have three years of ratings data to base the future bid on.

The Big 10 enters the picture because their top-tier television rights expire in 2016 as well. In between now and then, there will be resolution to the lawsuit between Maryland and the ACC. The result there may have a significant impact on whether the Big 10 can look to the ACC if the league chooses to seek added members. If the Big 10 does expand ahead of that TV negotiation new ripples of instability could make dramatic changes.

In summary, if C-USA can move ahead of the Sun Belt in the CFP (the league finished behind the Sun Belt in the BCS in 2012) and C-USA basketball can regain some of strength Memphis offered, MTSU will recover its costs for moving to C-USA in the 2015-16 athletic year. If the next TV deal is similar or better to the current deal and realignment is truly in a pause, the investment pays off.