Tuesday, February 12, 2013

The Value and Negotiating Power of the new Big East

By now you've probably read the media reports coming from ESPN that NBC has made an offer to the Big East for a rights fee of $23 million per year.  Feels like a low number, and it may well be a low number, but apparently it is a number that the conference does feel willing to accept and must take back to ESPN for them to accept or reject.

There's a few contractual things here at work that adversely affect the Big East's negotiating power

1) What they must offer third parties after exclusive negotiations with ESPN end - Please accept the premise that I am using another conference's old TV contract.  I'm using C-USA's old TV contract with ESPN that was entered into evidence in their lawsuit against the conference, plus the outcome of the Pac-12 television negotiations.

The C-USA contract from 2005 (Big East was signed in 2006) states the following
(a) Negotiating Period. Conference shall negotiate exclusively with ESPN·for a
period of 30 days (the "Negotiating Period") commencing on a date selected by ESPN
(but not later than Aprill, 2010) with respect to the acquisition by ESPN for one or more years of rights to the package of Events set forth herein. It is of the essence of this Agreement that Conference offer ESPN the same package of rights set forth in this Agreement, and, should the parties not reach agreement, that the Conference make the exact same package of rights available to third parties.
The key part is in bold.  If the ESPN contract states that their contract encompasses all rights not granted to CBS for men's basketball plus some rights CBS Sports Network has for women's basketball, they have to give other third parties that same rights package.  In the case of the Big East, I believe that includes national and regional rights.  I don't think they are separate deals.

If you look at the before & after of the Pac-12 television negotiations, materially you end up with the same total number of football games (44) and men's basketball games (65) that were granted to ABC and FOX Cable in both cases.  FOX Cable had nearly all the basketball games and had the majority of the football games (24) in the old deal.   I suppose its possible that both parties co-signed a deal, then have their own contract between those two parties to divide up the content.

A key note with the Pac-12 deal.  In both the old contract and the new deal(s), the conference never provided exclusive rights to all events or any form of "umbrella" contract where the number of available events to the rightholder(s) was vague.  It provided concrete numbers of games it provided to their national rightsholders with the schools retaining a portion.  The school retained portions are what was pooled into the Pac-12 Networks.

2) The requirement to provide ESPN the ability to match an offer - When the Big East allegedly requested $300 million per year from ESPN for them to retain their existing TV rights, it was done before several future  membership changes were set in motion.  The problem now with a number that high, so high that it is apparently more than any conference gets from their TV contract(s) today, is that they had to hit that number in an offer so they didn't have to offer ESPN the ability to match.  With the marketplace as it stands, it looks like ESPN will always be at the table, at least in a position to allow the Big East to move on or not.

From the C-USA contract:
(b) Offer/Reoffer Procedure. If ESPN and Conference have not reached an agreement by the end of the Negotiating Period, Conference shall make a written offer (the "Offer") within three days thereafter to ESPN of the monetary consideration on which it is willing to license such rights to ESPN. With the exception of monetary consideration, Conference's Offer shall not contain any terms or conditions which are different from those contained in this Agreement("Nonconfonning Terms") other than as permitted by section (d), below. If ESPN does not accept the Offer within fourteen days of its receipt by ESPN, Conference may then enter into an agreement with a third party with respect to the same package of events set forth herein, but not for monetary consideration less than that contained in the offer without first offering to ESPN the same monetary terms as offered to the third party ("the Reoffer"). ESPN shall accept or reject a Reoffer by Conference no later than seven days from its receipt.
3) Nonconforming Terms - This is the wildcard.  It is mentioned prominently in the First Negotiation/First Refusal portion of the contract and as the contract language states, section (d) provides the allowable Nonconforming Terms.  The problem with this C-USA deal, and maybe it was because the C-USA deal did not cover exclusive rights to all conference events, is that section (d) doesn't exist.  Why it doesn't exist and why they didn't clean up this contractual language, I'll never know and no one probably will give me a good reason for it.  This is the sliver of hope the Big East could hang on to, provided their contract has this section.  Maybe they are allowed to divide up their packages.  For their sake, I hope they can.

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