Realignment - A&M in the Catbird's Seat?

Aggie Websider's David Sandhop summarizes the realignment situation and discusses the details that came out of the Texas A&M Board of Regents Meeting on Thursday and what that means for the Aggies, the Big 12, and the University of Texas' network partner ESPN.

Realignment - An Overview

Well, it's been an eventful two weeks. Actually, this all started 13-14 months ago with the well-publicized conference shuffle that saw Texas A&M nix the Texas-brokered Pac-16 deal, Colorado and Nebraska heading out of the Big 12, and the Aggies flirting with the SEC before agreeing to the promises of Dan Beebe and the new Big 12-2. At the time, there was public information that the Longhorn Network (LHN) was certainly in the works and that Texas officials and ESPN were in negotiations. That came to fruition in January 2011, and at the time there was talk of broadcasting high school events. At the time, there was no outcry or inquiries to the NCAA about the feasibility of a university network featuring programming with prospective recruits.

So, why is there such outrage and resistance now just a month away from the premiere of the LHN? Why is the Texas A&M Administration now concerned about the network and publicly showing "concern" and describing the current status of the Big 12 as "uncertain"? Well, those reasons have become clear after yesterday's regents meeting, contrary to the public statements made by A&M officials.

1) The influence of ESPN

While the issue of high school programming within the LHN has garnered the most attention and outrage in the media, the shot across the bow that quickly got the attention of Texas A&M and the rest of the Big 12 was the deal ESPN brokered with Fox Sports to buy a Texas game from the conference tier two rights package to place on the LHN. That move clearly signaled that ESPN has growing concerns about the short term success of the network where they have sole business risk to the tune of $300 million in rights fees to Texas along with the upfront investment in a state of the art broadcast headquarters facility in Austin. According to LHN director Dave Brown, ESPN has recruited top talent from Bristol to establish the broadcasting infrastructure in Austin. Initially, Brown indicated a minimum of 60 ESPN employees were relocating to Texas and that at some point the plan is to have well over 100 employees working the LHN. That's a significant investment for the network, both in dollars and in expertise and manpower. So $300 million is just one component of the investment ESPN has made in the LHN.

So when the network ran into roadblocks regarding distribution on the two major satellite players and other cable systems were hesitant to add the LHN, ESPN felt they needed to go out and sweeten the pot in terms of programming, and that's why they paid a hefty sum to money whip Fox Sports into selling a conference game. According to Brown, the network was also trying to pursue a more aggressive approach to high school programming and was looking into broadcasting Big 12 Conference championships and tournaments events not currently covered by existing broadcast partners. For example, Brown mentioned broadcasting Big 12 Baseball Conference Tournament games (Fox only broadcasts the championship game) and other sports championships. He also discussed broadcasting Longhorn road games and having a broader conference reach in programming. Hmm, sounds like the making of a Big 12 Network with a Longhorn logo.

Clearly, that tells you where ESPN wants to take this network, because a one-team network that sounded great on a business plan doesn't appear to be delivering on subscriptions and distribution at the moment. And it's ESPN on the string here, not the University of Texas. They will cash their $15 million check every year regardless of what happens to the network. So ESPN tried to sweeten the pot, and they will continue to look for ways to broaden the national appeal of Texas so they can get more than just Longhorn fans in the Lone Star state to sign up for THEIR network. The first step was buying the conference game from Fox Sports. If ESPN is willing to do that, then what else will they do to ensure that the Longhorns are a vibrant college sports brand that will sell subscriptions?

How about set-up its preseason two hour special edition of the popular College Game Day on the University of Texas campus with plenty of inside features and goodies about the Longhorn nation sure to get the national audience well-versed in everything Bevo? CHECK.

How about establishing a comprehensive LHN advertising campaign on the parent ESPN channels? With Texas baseball in the College World Series, how about a media blitz during the ESPN broadcasts of those games? CHECK.

What's next? Will ESPN use its first choice of Big 12 games in October to select as its national game the unranked Texas Tech v. Texas contest over the Top 10 matchup between Texas A&M and OU so they can market the LHN nationally? It certainly leaves a lot of gray area and a possible conflict of interest.

So basically, with half a billion dollars invested by ESPN in this business venture, does the University of Texas become too big to fail? That's what Texas A&M officials are now wondering after the "leader in sports" went out and purchased a conference game from their own pockets without informing Big 12 officials. So, it was this transaction that first raised the red flag in College Station and started the Aggies down this path of looking at their options and questioning the current conference structure. The high school games issue was simply icing on the cake.

2) Texas A&M Now has Consensus Moving Forward

When the winds of change blew last spring and the talk of realignment heated up, the Texas A& administration was quite shocked at the size and level of intensity from the fan base to jump ship to the SEC. However, it wasn't a consensus. The older segment of the fan base was content with the status quo and staying close to Texas, while the younger market of Aggies who grew up in the Jackie Sherrill and R.C. Slocum era were pushing for life in the powerful SEC. Internally, there were decision-makers in favor of pursuing membership in the SEC, but athletic director Bill Byrne and those associated with the athletic department were not ready to move forward with a move eastward into a more difficult football conference.

Part of that concern revolved around the fact that Texas A&M simply wasn't prepared for the events of last year. There had been insufficient financial analysis of such a move. There was insufficient analysis of the impact on the individual sports, and there was insufficient research into the detailed policies and legal ramifications of taking such a significant move in joining the SEC. Finally, there was the uncertainty of political issues and the financial penalties attached to leaving the Big 12. In short, Texas A&M wasn't prepared for such an important transaction and I think the Texas A&M fan base under-estimated this aspect of a move. I wanted to give a brief history lesson because it gives the context of yesterday's Board of Regents (BOR) Meeting. This was not a meeting to vote on whether to leave for the SEC. Actually, that vote doesn't have to take place. Earlier this year, the BOR formally gave university president Bowen Loftin the full authority to enter into binding contractual agreements regarding conferences and athletic affiliations.

So this meeting was really to inform the BOR of the current situation with the Big 12 and also to let them know that due diligence is taking place in case the university needs to make a quick move to the SEC or take any other type of action.

From my understanding, there was no debate or difference of opinion from any of the key decision-makers from Bill Byrne and the athletic department to the Twelfth Man Foundation to the President Loftin and the administration. The university wants to move forward with its due diligence and IF the situation in the Big 12 with Texas and ESPN remains unsatisfactory, then the background analysis will be complete and a plan of action is clear and it will be swift.

According to sources familiar with the meeting, the BOR unanimously supported the due diligence initiated by Texas A&M university administrators and supported a plan of action based on the findings of the due diligence and the future actions of the Big 12 Conference.

In layman's terms, Texas A&M is currently not happy with the existing structure of the conference, especially as it pertains to the LHN. That has triggered ongoing due diligence on the part of Texas A&M with regard to a potential move to the SEC. If Texas and ESPN continue on the path that is detrimental to the long-term success of Texas A&M athletics, and the university is satisfied with its analysis of the SEC, then a move is likely. According to my sources, the conditions of what was acceptable and what was not acceptable in terms of the LHN and the Big 12 were discussed and agreed upon by the administrators.

Thus, I was told that Texas A&M has a clear path forward and that certain criteria are in place that triggers action by the university administrators. Texas A&M will give the Big 12 and Texas an opportunity to "walk it back" in terms of the LHN, but consensus from the meeting is that they believe the odds of that happening are small.

As I was told by a source yesterday, "Last year was all about emotion and the university wasn't prepared to do anything. This year, it's about business and the university is unified in moving forward with what's best for Texas A&M."

More Proof That There is Work Behind the Scenes

I spoke to several sources with close contacts to the SEC and its TV partners. They have indicated that meetings have taken place between Texas A&M representation, SEC representation, and even TV network representation to go over the policy details and contractual details of the SEC Conference. Basically, Texas A&M has asked for legal clarification on a number of topics and issues, and the team is collecting operational data and other information pertinent in supporting such a due diligence activity. It's not to a point where A&M is negotiating terms, but simply collecting information and understanding the details of the SEC Conference and how it operates among the member institutions. In short, A&M doesn't want to get caught with its pants down again and will have all the necessary information and analysis to make a quick decision if needed.

This activity in no way signals that a move is a done deal, but there is a feeling that this option is becoming a more increasing possibility as these issues with ESPN and the LHN arise and pose an unfair advantage for the Longhorns that will compromise the future viability and competitiveness of the Big 12.

So What Will Happen?

I'm not sure what will happen. Despite what A&M fans think, the entity that now drives this situation is actually ESPN. They have the money invested. They are the ones absorbing the business risk with hundreds of millions of dollars at stake. It's not Texas. Texas is sitting pretty with a guaranteed $15 million a year coming their way for the next 20 years. Don't get me wrong, Texas has a lot at stake in this game, but the Longhorns have surprisingly little leverage in what happens next. The ball is in ESPN's court. With Dan Beebe desperately trying to keep the league together and announcing a moratorium on high school games and a conference game on the LHN, he just severely handicapped ESPN's ability to sell this network to the satellites and cable systems across the region and nation.

Think about it. If ESPN was happy with the distribution and early sales of the LHN, we wouldn't be here talking about the problem of high school games and conference games. If ESPN could've met their distribution and subscription goals under the original agreement of showing one live non-conference games and a lot of volleyball, soccer, and swimming, everybody would be happy right now.

But seven months ago when Texas and ESPN were shaking hands and announcing this ground breaking new deal, nobody thought the network would fail miserably. Well, it's too early to say it's failure, but given the actions of ESPN willing to throw big money at Fox Sports to buy a tier two football game and discussing the possibility of broadcasting Big 12 Conference championship events and conference road games, it tells you the boys in Bristol are a little nervous about their investment. If you look back at the concept, ESPN was banking on getting a national audience for lower tier live events, practices, non-revenue sports, and a daily news show dedicated to one team. Who in New York, Chicago, or Los Angeles is going to watch that programming? Better yet, who in the nation (even in Texas) will pay $10/month to watch 24/7 non-stop Texas sports? Well, I'd say about the 15,000-20,000 hardcore Texas sports fans that subscribe to Internet services. The casual Texas fan, much less the casual national college football fan, will be interested in this premium service.

At that ultimately is the problem for ESPN and Texas. It's a problem for ESPN because they have the money at risk and stand to lose a lot of it. For Texas, they have to worry about what ESPN will do now that they are sitting on a network with limited programming that is being held back by the Big 12 and the rest of college football that's not quite ready to accept this business model. Will ESPN push to broaden programming by making this the Big 12 Network, forcing Texas to compromise and give up money? That doesn't seem likely. Will ESPN broker some compromise with the Big 12 and its members by throwing a few dollars at schools in exchange for greater access to these tier three rights and even with some tier two rights with more purchases from Fox Sports.

I don't know. I'm not smart enough to know the different options at ESPN's disposal. But I do know that they will have to get creative with all parties involved – Texas, Fox Sports, Big 12, Big 12 member institutions to broker some type of deal to sweeten the broadcasting pot that will entice Dish, DirecTV, and the cable systems around the country. It will be difficult, and even then the cost of doing these compromise deals will offset the gain. But even if ESPN can get a deal brokered with the Big 12, how will Texas react to such a proposal. This would put them back to square one and once again an equal to the other conference members. You would have to believe that's not a scenario that Texas will accept, but then what is the solution where the Big 12 Conference, Texas, ESPN, and Texas A&M will be happy with…I simply don't see one.

That's why I think it's inevitable that Texas A&M moves to the SEC and Texas either brings in a replacement (like TCU) or simply says it's time to go independent. ESPN would be happy with that option. It gives them more power and flexibility in generating revenue for the LHN and they can offset any losses by broadcasting some premiere Longhorn games on the big channel.

But that's the ultimate in uncertainty, and that's a word Texas A&M officials used quite a bit yesterday. That last paragraph was confusing because this situation has no clear resolution at the moment, primarily because we don't know how ESPN will react and we don't know how the other players will react to ESPN's strategy moving forward.

But that's the beauty of what came out of yesterday's BOR meeting. Texas A&M controls its own destiny as long as the SEC offer is valid (and we're told by SEC sources that Texas A&M is of the highest priority to the SEC in terms of expansion and that an offer will always be on the table). It's quite simple now. After all the horse trading and compromises by all parties involved, Texas A&M will look at the landscape and if Texas still has an unfair advantage, the university goes to the SEC in June 2013. If Texas backs down and the Longhorn Network morphs into a Big 12 Network, then A&M got what it wanted….competing in a conference with a level playing field. At the moment, that conference appears to be the SEC, but Texas A&M has the luxury of sitting back and watching the other players in this poker game sweat. Trust me, with the current sales of the LHN and a nervous ESPN staring at a red balance sheet, Texas is sweating.

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