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Good Thursday Morning. Here’s the rundown of this week’s Sports Business Playbook:

• 📰 This Week’s Topic: Inside the Pac-12’s demise and the players’ decisions that ultimately put the nail in the coffin.

• 🍸️ Impress Your Friends at Cocktail Party: Want to show off your sports knowledge in a public setting but don’t have time to read the deep dive? Hit the “Impress Your Friends at Cocktail Party” section at the bottom for a CliffsNotes of this week’s topic

• 🤯 “Whoa of the Week”: Biggest spenders in college athletics

• 💪 Weekly Reminders that Sports are Awesome: An MLS story where Messi is only kind of involved!

Hey team,

There have been a number of seismic developments in college athletics the past few weeks that have resulted in the presumed death of the Pac-12 and, more broadly, shaken the entire college conference model to its core.

Two weeks ago, in the span of 96 hours, “all hell broke loose” for the Pac-12. Over the course of a weekend, Washington and Oregon had left for the Big Ten, and Arizona, Arizona State, and Utah were gone to the Big-12.

Coupled with the already announced exits of USC and UCLA (Big Ten) and Colorado (Big-12), the Pac-12’s remaining schools — Cal, Oregon State, Stanford, and Washington State — and bewildered commissioner George Kliavkoff will suddenly become the inoperable Pac-4 next year, with no relief in sight.

As with most things in business, while the collapse was sudden, the decay that led to the demise of the “Conference of Champions” took place over nearly a decade.

It’s a story of hubris, unbridled capitalism, and self-preservation. And its knock-on effects will have far-reaching implications for the rest of the country.

We got good feedback on the “vantage points” concept used in last week’s breakdown of the PENN Entertainment/ESPN/Barstool deal, and it’s a great framework for this topic given the number of players involved.

So, this week we’ll cover how college conferences and their member schools make money, the buildup to the Pac-12’s demise, and, finally, the vantage points of the executives across the college athletics landscape as this unfolded.

Conference Calls

First, the structure of these conferences and how their media deals work.

A commissioner is appointed by the member schools to lead each conference, and the member schools’ presidents, often with the help of the athletic directors and board of regents, provide oversight and guidance on the direction they want the conference to go. This operates similar to the commissioner/owner structure that you see in most professional leagues.

The conference media deals, which now drive most of the growth, did not begin for awhile, though. The NCAA controlled the rights for most of the 20th century.

Starting around the mid-1980’s, the conferences and schools won a legal challenge that forced the NCAA to let them own their media rights. This ruling formed the modern conference media rights deal.

Similar to a professional league structure, the conferences negotiate media deals on behalf of their member schools, who then split the proceeds and use these annual payouts to fund a large portion of their athletic departments’ budgets.

As you can expect, college football — the second most watched programming in the US behind the NFL — and a college basketball (note that it is a distant second) drive most of the interest from the media networks. Performance in the other sports (often called “Olympic sports”) is nice, but it doesn’t move the needle the way the big two do.

Because of this priority, a tiered hierarchy has developed over the past few decades based on which conferences can perform the best in these sports. This hierarchy usually illustrates how the media deals are divvied up.

Today, the four Power 5 conferences not including the Pac-12 would be considered “Tier 1” properties (along with the NFL, NBA, etc.).

The Pac-12, due to its poor viewership time zone (games on the west coast generally start too late to keep east coast fans interested), less rabid fanbases, and lack of recent material success in the key sports, is considered Tier 2.

The schools in all of these conferences, hyper aware of the increasing values and their own skyrocketing costs for coaches, facilities, and administration, have become much more willing to move to a new conference if it meant a bigger piece of the pie. The last 15 years alone have brought more conference realignment than the previous 50 years combined.

Now, the Tier 1 conferences have all recently solidified their standing by signing lucrative new media deals:

1. Big 10: 7 years, $7 billion across CBS, NBC, and Fox (~$60-$80 million annually to each school)

2. SEC: 10 years, $3 billion with ESPN/ABC (~$60-$70 million annually to each school)

3. Big-12: 6 years, $2.28 billion with ESPN and Fox ($~30-$45 million annually to each school)

4. ACC: 20 years, $3.6 billion with ESPN/ABC (~$30 million annually to each school)

Guess who hasn't: the Pac-12.

And here’s why that’s a problem.

While the demand for the Tier 1 properties remains high and is widely publicized, media rights are now much more of a zero sum game.

The rapid increase in the value of rights deals has strained the broadcast partners’ checkbooks. This growth, coupled with the rapid decline in linear (cable) television, has led them to become much more discerning of which rights they will invest in because they know will need to hold their increasingly precious cash in reserves for the next big deal that’s up for grabs.

Meaning, expenses are going up and cash is going down, so it’s more likely they will pass on Tier 2 and lower rights in order to solidify their positions with the sure things in Tier 1.

It makes good business sense, but it also has created the mess we’re in now because the schools are cannibalizing the very thing they fought for four decades ago.

This brings us to our doomed friends out west.

The Anatomy of a Conference’s Collapse

Stewart Mandel at The Athletic has an incredible deep dive on the decade-plus buildup to the Pac-12’s collapse that reads like a sports version of Barbarians at the Gate if you are interested.

For our purposes, here is a condensed timeline of the events that unfolded:

2011 

The Pac-12, under new commissioner Larry Scott, signs the most lucrative TV contract for a conference ever (12 years, $3 billion).

It’s not all good, though. Scott misses an opportunity to create a mega conference with Texas, Oklahoma, and other major Big 12 schools due to negotiation breakdowns with Texas on revenue sharing. This deal would have most likely led to the dissolution of the Big-12 and solidified the Pac-12’s place on top of college sports.

2012

The ill-fated Pac-12 Networks are launched. A series of missteps in its setup — it was wholly owned by the conference instead of a joint venture with a media partner like the SEC (ESPN) and Big Ten (Fox) networks that guaranteed distribution — as well as the on-going operation by both conference and schools lead to its becoming an ineffective, costly black eye for the conference.

Rest of 2010’s

The failed Pac-12 Networks initiative, coupled with the Pac-12 schools’ lack of on-field/on-court success during the 2010’s, moves the conference to the back of the pack.

Early 2021

After years of increasing tension with the schools, Larry Scott is pushed out, and MGM Resorts’ President of Entertainment and Sports, George Kliavkoff, is named new commissioner. One of his near-term goals is a new media deal.

Summer 2021

Oklahoma and Texas announce they’re leaving the Big-12 for the SEC in 2024. This starts to create rumblings about a potential chain reaction of conference realignment, but nothing materializes.

June 2022

Less than a year after the infamous “handshake alliance” between the Pac-12, ACC, and Big Ten, the Pac-12’s most marketable schools in its biggest media market, USC and UCLA, announce they are leaving for the Big Ten in 2024. More rumblings of a chain reaction, but no additional changes occur.

August 2022 

The Big-12 hires Roc Nation COO Brett Yormark as its new commissioner.

August 2022 

The Big Ten announces its landmark, $1 billion per year media contract with CBS, Fox, and NBC.

Fall 2022

Kliavkoff reportedly brings a good, not great media rights deal extension with ESPN and Fox to the Pac-12 school presidents for review. The presidents, believing they should be earning closer to the SEC schools given their past history (lol), reject it.

Winter 2022

Yormark and the Big-12 leapfrog the Pac-12 and sign an extension with ESPN and Fox that nets $31 million per school, effectively taking a deal with those two networks off the table for the Pac-12. Given the other networks (CBS, NBC) are already committed to the Big Ten, options are limited. Kliavkoff begins to negotiate with streaming companies (i.e., Amazon, Apple).

July 2023

In a shocking move, Colorado announces it is leaving the Pac-12 to rejoin the Big 12 in 2024, which it had left in 2011. Kliavkoff is apparently blindsided, and it throws a potential media deal into flux. This is where things really start to escalate.

Tuesday, August 1

Kliavkoff presents an updated media rights deal with Apple to the schools that would have them earning $23 million annually plus potential bonuses if sign-up metrics are hit.

Two major problems come up. First, it is streaming only and features no linear cable presence. This spooks a number of the school presidents, who are used to the cushy guaranteed money from the traditional broadcast partners.

Second, the schools will have to produce the games themselves. A known tactic by Apple (see: their MLS deal), but additional expenses for the schools that cuts into that revenue figure.

The schools and the conference agree to meet again on Friday, August 4th to discuss further and hopefully come to an agreement.

Wednesday, August 2 and Thursday, August 3

Arizona (Big-12) and Oregon and Washington (Big Ten) begin discussions with their potential new conferences, but do not take formal action.

Friday, August 4

After some flirting the past two days, the dam breaks.

Oregon and Washington announce minutes before the scheduled reconvening that they are heading to the Big Ten in 2024.

This sets off a chain reaction, as Arizona immediately bolts to the Big-12 in 2024, and Arizona State and Utah follow suit shortly thereafter to ensure they are not left out.

This leaves the Pac-12 in ruins, and Kliavkoff and the four remaining schools without an exit plan.

Vantage Points: The Pac-12 Black Swan Event

Now that we have given the context on the situation, let’s dig into the vantage points of the key players. Fair warning that some of these got a little silly at the end, but it’s hopefully a good palate cleanser after all of this information.

Presidents/ADs of the Pac-12 schools that initially left

You are the president of USC, UCLA, or Colorado. You saw the writing on the wall here before others did, and it became apparent that the situation was untenable.

These moves you made now look even more prescient, but they also set the conference on the path to collapse. Ultimately, your responsibility is to your school and its constituents, and the safety of the guaranteed money in the other conferences mitigates any risks you face. The collateral damage is not your concern.

Presidents/ADs of the Pac-12 schools that kicked off this current fiasco

You are the president of Oregon or Washington. You are one of the founding members of the Pac-12 over 100 years ago, and this conference’s history means something to you.

But, you are faced with a classic prisoner’s dilemma. It’s become apparent the walls are closing in on the Pac-12, and while you could weather the storm if you all stick together, the reality is that your fiduciary duty is to secure your individual school’s future.

In this instance, that means heading for greener pastures.

Presidents/ADs of Arizona, Arizona State and Utah

Same thing as above, but with an even higher sense of urgency.

You do not have the rich history or athletic footprint of the other schools that have left, so you need to ensure you are not caught flat footed. The Big-12 is a major life raft for your institutions.

Stanford President/AD

You are PISSED.

You oversee not only one of the most prestigious universities in the world, but also an athletic department that has won the Director’s Cup, given annually to the most successful athletic department in the country, 26 of the 29 years it’s been awarded.

Now, you are on the outside looking in as your former conference mates, all of which don’t have the same athletic track record and academic prowess as you, have jumped ship and left you holding the bag.

While frustrating now, you know you are wanted, and you will land on your feet either as an add-on to one of the major conferences or as an independent in the major sports.

Presidents/ADs of Cal, Oregon State, and Washington State

Well, the gravy train had to end some time. A regression to the mean has occurred.

Despite having a smaller athletic footprint and lack of national success in the revenue-generating sports (and a ton of debt if you’re Cal and Washington State), you were a part of a Power 5 conference for a long time and leveraged that ticket to some major paydays.

Now, the future is unclear. Odds are some kind of merger with the Mountain West or other Group of 5 conference, but it’s hard to see a scenario where you will have as sweet of a deal as you once did in the Pac-12.

Pac-12 Commissioner George Kliavkoff

This collapse will most likely get laid at your feet, and it’s hard to see a scenario where you remain commissioner of whatever comes next.

Much of the blame is justified. It would appear that your biggest flaws that led to the conference’s downfall were that you trusted both the schools and the media companies to rally behind the idea of the “Conference of Champions” and not their own interests. A noble, but fatal mistake.

But, in fairness to you, the reality is that you were already playing the game with one arm tied behind your back when you started in 2021 due to the mistakes of your predecessor, arrogance of your constituent schools, and shifting media landscape.

Despite all of the structural and personal shortcomings, you nearly pulled it off, too. What could have been.

Big-12 Commissioner Brett Yormark

Florida State President/AD

You have not been featured at all in this write-up, and in fact, you’re in a completely different conference on the other side of the country.

But, you’ve got something to say about your own personal situation in the ACC in the wake of this news.

Similar to the major schools who left the Pac-12, you (and Clemson, UNC, and Miami, but they’re not as loud about it) are tired of carrying the water for smaller, less athletics-focused schools in your conference yet receiving the same revenue share. This is an “existential crisis” in your mind, as you believe FSU will fall behind your Big Ten and SEC peers by as much as $30 million per year under the current agreements despite being a top-15 media valued institution.

While you bring up some fair points, it’s not clear how you get out of your current predicament. The ACC has an iron clad “grant of rights” that would make it incredibly painful financially to leave the conference, and you don’t have an offer in hand from the Big Ten or SEC that could help you to cover said penalty.

So, realistically, your plan most likely boils down to some saber rattling in order to extract a greater revenue share from the ACC.

But, you are featured in this write-up as a reminder that there are fault lines all around the country, and it only takes one or two major schools dissatisfied with their current situation to set off the chain reaction that reshapes the college landscape even further.

Big Ten Commissioner Tony Pettiti

At what point do they kick Rutgers out?

SEC Commissioner Greg Sankey

Sitting back and reminding everyone “it just means more” down south while the chaos unfolds.

I Think I’ve Read this Story in a Michael Lewis Book Before

The Pac-12’s demise runs parallel to a number of other companies/business sectors that have gone through crises.

Long-simmering, often self-inflicted fundamental flaws eventually boil over and crack. This chasm is then widened by people’s self-preservation instinct, which spreads quickly in today’s age and eventually leads to a full-blown contagion and collapse.

It’s important to note, though: while shocking and somewhat ironic given the schools/conferences fought for the business rights they’re now bludgeoning each other with back in the 80’s, this is ultimately not surprising. College athletics has not been “amateur athletics” for a long time, and the business side of it is fully calling the shots.

A number of prominent people are lamenting these moves and predicting there will be a reckoning one day where the leaders recognize their misguided greed, but I just don’t see the collective group having some “see the light” moment when the money continues to roll in and these executives are judged on what they do for their individual institutions/conferences.

Markets inherently lead to competition, and winners and losers emerge. It does not make it any easier to stomach if you are a Pac-12 school who just got the short end of the stick, but it is a sign of the times.

Lastly, I would be remiss if I did not also mention the impact this shift will have on student athletes. I do not fully buy into the narrative of conference realignment creating some dystopian future for the student athletes given what I said above about the current state of college athletics, but it’s definitely going to create more logistical challenges for the athletes and their families, particularly in the Olympic sports.

My hope is that the school and conference leaders recognize and have empathy/compassion for this increased friction, and they work within the new paradigm to accommodate the student athletes as much as possible.

RIP Pac-12. 1915-2024. Gone, but not forgotten.

Impress Your Friends at a Cocktail Party

Want to show off your sports knowledge in a public setting but don’t have time to read the deep dive? This section is the CliffsNotes of this week’s topic

• Opener: Following a tumultuous 96 hours at the beginning of August, the Pac-12 lost five more schools (Oregon/Washington to the Big Ten, Arizona/Arizona State/Utah to the Big-12). These schools, plus the already announced defections of USC, UCLA, and Colorado, means the Pac-12 is now most likely dissolving after the 2023-24 seasons.

• Shot: This collapse has been over a decade in the making, and the fundamental mistakes and hubris of the various key players (conference commissioners, school presidents) amid a shifting media landscape where the available money to earn keeps shrinking reads like a Michael Lewis book.

• Chaser: If you’re the schools who left, it’s a simple self-preservation instinct. You have a fiduciary duty to protect your school’s interests, and these moves secure your future.

• Chaser: If you’re the schools who got left behind, you’re at varying levels of anger/despair. Stanford will be okay, Cal maybe, but it’s hard to see a clean landing spot in another Power 5 conference for Oregon State and Washington State.

• Chaser: It might not happen now, but the realignment is definitely not finished. Florida State and other ACC schools are already raising concerns about their current deals, so we could see another black swan event soon.

“Whoa” of the Week

Insane, mind-blowing things constantly happen in the sports business world. Here was my favorite of the past week.

1. Ohio State spent how much?

Weekly Reminder that Sports are Awesome

This newsletter is, of course, mostly centered on the business side of sports and the things that happen off the field. That being said, it’s important to remember why we fell in love with sports in the first place, though.

This section is meant to highlight the amazing things that happened in sports this week that serve as that reminder.

1. An MLS story where Messi is only kind of involved!

Thanks for reading! Let me know what feedback you have.

Also, if you enjoyed this breakdown, please consider sharing it with your friends and network by clicking the social media icons at the top of the newsletter.

Until next time, sports fans!

-Alex