The SEC is currently making more money than it ever has – but could it be a bubble?
We all know about financial bubbles. America has slugged on in a stagnate economy for years now because of the housing bubble. So do we have a sports bubble that could effect the SEC, and in turn, Mississippi State?
Probably.
Clay Travis has written extensively about this on Outkick the Coverage. He makes some good points….
- ESPN and ESPN2 get a combined $7.50 per cable subscription per month adding up to $9.2 billion per year.
- ESPN networks pay at least $6 billion per year in sports rights fees to broadcast live NBA, NFL, MLB, CFB, etc. games.
- Cable companies have lost seven million subscribers in the last two years adding up to $600 million in lost revenue for ESPN networks.
- Americans continue the trend of “cord cutting”, and only 6% of people would even bother paying $20 per month just to have the ESPN networks.
Basically ESPN props up all the sports because of their huge sports rights contracts. And the large majority of Americans who don’t even watch these sports are propping up ESPN because it is included in their cable package as far and away the most expensive channel.
But what if people who don’t watch ESPN anyway realize they don’t need cable anymore? There’s Netflix, Amazon, Hulu, etc. There are a number of options to watch movies and shows without having a subscription to cable. People are starting to realize this, and for non-sports fans who don’t mind living without live TV, it’s a logical option.
That means the money ESPN is getting from subscriptions will start to dwindle. And without the same number of subscribers their advertisers will start to dwindle as well.
If ESPN doesn’t have the money coming in, they can’t pay the same amount for the NBA, NFL, MLB, CFB, etc. Either they’ll hit the bottom and have to declare bankruptcy or re-negotiate the contracts. Most likely it’ll be the latter.
Of the $527 million the SEC made in 2014-15 (the first year of the SEC Network), $311 million of it came from TV rights fees. That is a whopping 59% of total revenue.
Divided among 14 schools, that’s $22.2 per each athletic department coming from TV rights – and the vast majority of it is from ESPN (who owns the SEC Network as well).
There was a poll done by BTIG Research that said 56% of subscribers would remove the roughly $8 per month they are paying for ESPN networks if they could.
That means 56% of cable subscribers don’t watch ESPN networks at all / don’t care about losing them at all. If half of those people (25 million) decide they don’t want cable anymore, ESPN would lose $2.5 billion in revenue. If all of them jumped ship then it would be $5 billion in revenue. Obviously, you can’t survive on $4.2 billion from sports fans and pay out $6 billion in rights fees.
So non-sports fans are propping up the TV market for sports by purchasing cable packages. With other options available now, their absence would burst the bubble.
Eventually this will happen, right? So many people – including sports fans – are cutting the cord. It’s wildly popular because cable bills are really expensive and there are much cheaper options to get the entertainment you want when you want it. The rights fees will have to decrease when this happens because there aren’t enough consumers to buy ESPN directly for more money….not even close (only 6% said they buy it for $20 per month).
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What happens then? It’s a big deal for college football fans because ESPN is far and away the leader in broadcasting the sport. Just think about all the Mississippi State games that are on a ESPN network whether it be ESPN, ESPN2, ESPNU, SEC Network, etc. Typically it’s 10-11 games per year and sometimes all 12.
Like I said earlier, the most likely scenario is that contracts are re-negotiated. The options would be to not negotiate and watch ESPN burn and then get nothing later, or re-do the deal so the SEC gets something but it’s not as much as it used to be. So as far as the fans are concerned – nothing will really change TV-wise. Although with less money some of the smaller sports coverage may suffer in terms of quality coverage.
Also, other networks like Fox Sports may increase their coverage and become more on par with ESPN. It would take a lot for that to happen, but it could come close.
Ultimately what all this would mean is less money in the pockets of SEC athletic departments. The $22 million per year I referenced earlier would become about $10 million. What would MSU and other SEC schools do with $12 million less per year? It would hit Mississippi State harder than Alabama or Florida for sure, but it would sting everyone.
This would decrease coaching salaries, slow up facility upgrades and more than likely increase ticket prices. Athletic departments aren’t going to just accept a $12 million cut lying down – they’ll want to charge double and triple to get into the stadium.
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Now all the of the sudden, maybe there’s more than 6% of people willing to pay $20 per month for ESPN if their $50 ticket is now $150. But still, they would never create the current revenue stream they have with cable by selling it direct to the consumer. Nevertheless, they may have to.
It’s going to be a mess when this bubble burst. Construction projects are going to stop, salaries re-negotiated and it will bring the smaller schools just a tad bit closer to the big boys.
It will be interesting to watch as we dive into the future of sports entertainment.