ESPN & Fox Can't Kill College Football
Neither can the Big 10 or SEC Commissioners
While I’m waiting on a dozen public records requests to come in, I’ve penned this general article drawn from top-line economic data, past practices subsidizing professional sports teams, and my personal experience negotiating public financial support for professional sports franchises.
In this article, I argue that most football programs in the ACC, Big 12, and Pac 2/MWC will not suffer significant damage from changes in media revenue distribution and student-athlete compensation requirements. I start by replacing the tired “have and have-nots” framework with a more useful “big market vs. small market” dichotomy. With this understanding, I provide top-line data on untapped tax revenue currently flowing into lesser-value sports and entertainment offerings in small markets. Finally, I suggest a roadmap, drawn from past practices of professional sports teams and my own experience, on how the untapped revenue will flow from lesser-value entertainment activities into CFB to balance the revenue disparity between big and small market CFB teams.
In the future, I will break down the top-line untapped revenue data into team-specific revenue opportunities. In this granular data, I suspect that some schools in the ACC, Big 12, and Pac 2/MWC will see a brighter future than some of their counterparts in the Big 10 and ACC.
Big Markets & Small Markets
Let’s dispense with have’s and have-nots as a framework to respond to the seemingly cataclysmic changes in CFB. Fox and ESPN are simply culling the smallest value “properties” from their large media contracts. Oregon State and Washington State were the first victims of this process, and they won’t be the last. This process will continue as conference-based media contracts are renewed, with Fox and ESPN offering incentives for select high-value universities to jump to new conferences with a larger grouping of high-value universities.
I suggest we frame this dichotomy of higher and lower value media properties using the big market and small market labels. I recognize that, more so than professional sports, the market for a college team can either transcend or fail to capture, its local Nielsen Designated Market Area. For example, Stanford is located in a top ten DMA (San Francisco), yet has a significantly smaller market for viewership than the University of Oregon, located just beyond the #22 DMA (Portland). And while “more eyeballs” and “less eyeballs” are the most accurate distinguishing characteristics for media contracts, big market/small market is part of our sports lexicon and population will play a factor, as it often does in major league sports, in determining the public assistance universities can expect to receive to stay competitive in the new CFB financial structure.
More State and Local Government Assistance is Coming
I spent eight years working in Sacramento’s City Manager’s office. During that time (1990’s) I had small and big roles working to attract (NFL/MLB) or retain (NBA) professional sports franchises. After my stint in government, I jumped to the private sector where I cobbled together development financing for hundreds of projects - including a minor league ballpark and a university expansion project. Along the way, I taught public finance and public policy at USC’s graduate school in public administration. After I retired in 2014, I returned to school to earn a Ph.D. and study how local and state governments distribute the financial benefits of taxes collected from tourism, sports, and entertainment projects.
From my research and experience, I can confidently state that 1) States and cities with FBS division universities are deriving significant economic and tax benefits from the athletic events held on those campuses, 2) Those economic and tax benefits, for the most part, come with minimal public funding support (free-riding), and 3) States and cities that host FBS division universities use tax dollars to support competing sports, entertainment, and tourism activities that provide far less economic value than college sports.
States and local governments have not fully participated in college sports because they did not have to under the old financial structure of small media contracts and equal revenue sharing. Now, for small market schools they need to, and they will. Politicians and bureaucrats are tethered to the financial success or failure of sports teams in their jurisdiction. Professional sports at every level leverage this dependency. In baseball, every level, from Single-A to the Major Leagues has dipped into the public coffers. Small-market college football will fit right in line, if not move to the front. And oddly, while it seems like another extended hand would irritate politicians, many in this line of work welcome the chance to save the day and rub elbows with quasi-sports celebrities.
The public revenue used to support private sports and entertainment projects comes in part from taxes levied on tourism and in part from general tax revenues. The tourism revenue comes in the form of taxes and surcharges on hotel and rental car charges or ticket surcharges. This revenue source alone dwarfs the media revenue distributed to CFB. According to the 2022 US Economic Census, the accommodation industry earned $301 billion in revenue in 2022, up from $260 billion in 2017. Using a hotel tax rate of 10% for estimating purposes, state and local governments are collecting as much as $30.1 billion in revenue from hotel occupancy. Much of this revenue is plowed back into entertainment and sports activities that support tourism.
Small Market Guide to Survive Unequal Revenue Sharing
The strategy for small market CFB programs suffering diminished media revenue contracts is three-fold, 1) Secure additional annual appropriations from your state’s general fund, 2) Shift your revenue source for one-time capital improvements from booster donations and ticket revenues to state funds, and 3) secure annual contributions from hotel taxes by displacing lower value beneficiaries. In a future article, I will detail how each state is positioned to help their university (i.e., UNLV has a better chance of getting hotel taxes than Auburn).
Assuming 40 small market CFB programs need $40 million a year to remain competitive with big market programs, state and local governments need to contribute up to $1.6 billion per year to address the gap.
Here are the four pots you are attempting to stick your hands into to get $1.6 billion (you can use two hands, three if you have them):
$3.3 trillion in general revenues used by State and Local Governments for Operations
$443 billion in various revenues used by State and Local Governments for Capital Improvements
$115 billion in general revenues allocated by States for higher education
$30.1 billion collected by State and Local governments from hotel occupancy.
Some of these funds come with restrictions or support critical operations, but we only need less than a tenth of 1% of this massive revenue stream to make our local politicians a hero.
To secure a public subsidy we follow the small-market professional team playbook, with a nod to the University of Oklahoma’s departure speech from the Big 12.
Create a sense of urgency. This one is simple. If you are not in the Big 10 or SEC, the commissioners of those two conferences are doing the work for you. The media exposure they are garnering for shifting revenues away from small markets can be pasted straight into your PowerPoint.
Invite every and all potentially helpful politicians to a luxury suite on the biggest football game of the season, introduce them to your star athletes, give them an autographed game ball, let them partake in a ceremonial coin toss, throw out a first pitch at a baseball and softball game, etc.
Show the return on the requested public investment using an economic impact report. I despise this tactic but it works every time. Economic advisers spit out economic impact reports in their sleep that provide cover for politicians. One hundred million dollars per year in expenditures from an athletic program can easily be shown to contribute half a billion dollars a year to the local and state economy.
Use Oklahoma’s, “playing on the national CFB stage is good for all Oklahomans” line. It seems sappy, but it tugs at the pride and love citizens have in their state. It is something business owners can use in supporting the subsidy (little if any of the subsidy would come from their taxes).
Privately threaten to shut down the athletic department without the requisite public subsidy. Politicians don’t have to believe the threat, they just need it to justify their support for your subsidy.
College sports fans, embittered by competition off the field for every nickel and the vitriol among fans rooting for the demise of conferences, will adjust to the new normal in time. State and local governments stepping in to stabilize small market programs should help minimize off-the-field drama and let fans be fans of football again.
Now back to collecting public records….
I'm glad to see this and hope it's true. The super conference idea is so dumb and shortsighted - 10 years ago wouldn't include Michigan or Clemson, and maybe not Georgia either. 20 years ago, you'd have to include Nebraska, Tennessee and Miami. You'd include Bama and ND only grudgingly. 30 years ago? Not sure about USC and Texas but you'd definitely include Washington, Colorado and Georgia Tech...Washington would be included now but not at any other junction mentioned.
They pushed this narrative that there was a concentration at the top and now are trying to formalize it, but the truth is that concentration was far more diffuse than they've pretended, with far more changes and turnover than they want to admit.
Love to read your material. You have literally taught me many aspects of college athletics never before envisioned and rarely covered. My concern about small market vs. big market is that the P2 may split from the rest sooner than later and have their own post-season formats. I sure hope not. The big market doesn't exist without the small market at the collegiate levels (see March Madness). Keep on truckin' Bill and thanks.