Jon Wilner The San Jose, California Mercury News
In recent years, the Pac-12 has become much more transparent about its finances. While it once refused to disclose expenses not required by law, it now releases revenues and expenses for the conference and media divisions each spring, along with its 990 tax returns.
However, the deals don’t go that far: the net worth of the Pac-12 networks has never been revealed.
But thanks to a development thousands of miles away, we finally have a sense of the worth of the wholly-owned Pac-12 media company founded a decade ago by former commissioner Larry Scott.
According to a report last week in USA Today, the Big Ten in 2021 “exercised a pre-existing option to sell 20% of its stake in the Big Ten Network to Fox…The deal put in approximately $100 million in cash or to receive on the Big Ten books.
The Big Ten schools own half of the Big Ten Network (BTN); the other half is owned by Fox.
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So the conference sold 20% of its 50% stake and received $100 million in exchange.
This suggests a $1 billion valuation for BTN and gives us a rough framework from which to assess the equity value of the Pac-12 networks.
BTN has about 50 million subscribers, based on pre-pandemic Nielsen tracking data (and taking into account the secular decline in pay-TV subscribers).
Meanwhile, Pac-12 networks had 14.8 million subscribers at the end of 2020, according to estimates provided to the Hotline by S&P Global Market Intelligence.
Affiliate fees follow a similar pattern:
With distribution leverage provided by its partnership with Fox, BTN generates 59 cents per subscriber per month, compared to 13 cents per subscriber per month for the Pac-12 networks. (Both numbers are from S&P Global.)
Thus, Pac-12 networks produce about 30% of BTN’s transport and 22% of affiliate fees.
If BTN is worth $1 billion, that indicates an approximate valuation of $250 million for Pac-12 networks.
However, our estimate does not take into account the quality of content, which favors BTN.
As one industry analyst explained, “The value of BTN is derived not only from the number of plays, but also from the quality of the plays…The Pac-12 Nets don’t have the same selection structure quality games than BTN.”
Why the disparity of content available on the respective networks?
BTN’s partnership with Fox “encouraged the media company” – Fox – “to maximize the value of the channel”, the analyst said.
“The Pac-12 networks didn’t have that special co-ownership relationship between channel and media partner, so the denials with FOX and ESPN involved a different set of strategic considerations.”
A second analyst offered the following after reviewing our market valuation estimate: “Big Ten Network still has a programming contract for 10 years and maybe more. The Pac-12 has (two years) of programming. All value comes from the commitment of programming.
At $250 million, the Pac-12 networks would be valued at just over double their last reported revenue in a non-pandemic year: $118 million for fiscal year 2020, which included the 2019 football season. fully played.
At $250 million, Pac-12 Networks would have a lower valuation than the $291 million owed to the conference in a single year (FY22) of Tier 1 deals with ESPN and Fox.
And at $250 million, the market valuation would be significantly lower than what the conference envisioned when Scott launched the networks in 2012.
At the time, Scott was offering campus officials a range of annual payments, according to sources who attended the presentation.
The estimates assumed airing on DirecTV and pegged the average payout range at $6 million per school per year — or $72 million per school over the term of the Pac-12 networks’ distribution contracts.
Instead, each school will receive about $25 million from Pac-12 networks over the entire 12-year cycle, according to Hotline research and figures provided by the conference with annual tax filings.
(That translates to 50% of Scott’s own compensation during his tenure as commissioner — compensation based on his dual role as conference commissioner and chief executive of the networks.)
With two years remaining in its contract cycle, Pac-12 Networks faces a murky future as a linear media company with a handful of subscribers outside of the conference footprint.
Despite their high production quality, it is essentially a Regional Sports Network.
They could be sold to a major media company for use on its direct-to-consumer platform (e.g. ESPN+ or CBS’s Paramount).
Or they could exist as a standalone streaming service that only airs Pac-12 Olympic sporting events.
Because regardless of the future, the men’s football and basketball games currently airing on the Pac-12 networks will undoubtedly be sold to a media company that offers wider reach and more money.
“The Pac-12 needs to put its inventory where the eyeballs are,” another analyst said. “Regional sports network business is tough right now.”