Pac-12 facing a blitz from new athlete pay law and sports rights market
Rep. Anthony Gonzalez (R-OH), who used to play for Ohio State University and the Indianapolis Colts, believes the U.S. should have one federal law which allows NCAA athletes to receive payment, but there must be proper regulation behind it.
As the Pac-12 struggles to compete with its college sports rivals for championships and off-field financial spoils, conference executives are eyeing an investment from a tech giant to help revive their troubled television network.
Unlike its chief competitors, the Pac-12 opted not to partner with an established media company such as ESPN or Fox to launch the Pac-12 Network. As a result, the conference disperses all television revenue to its schools, but lacks an established media partner capable of persuading television /video distributors to include its network in cable bundles, generating paid subscribers in the process.
Pac-12 Commissioner Larry Scott recently said he turned down private equity firms while seeking an investment of up to $750 million from a strategic partner in the tech or media sector. Amazon, Facebook and YouTube are just a few of deep-pocketed tech giants pursuing sports rights as they aim to lure viewers to their streaming platforms, but a minority stake in a struggling network may not be attractive to them, according to a sports finance industry veteran who spoke to FOX Business on condition of anonymity.
“What it sounds like to me is that they went out to private equity and they didn’t get what they wanted. A strategic partner? That’s great, [but] good luck finding one,” the source said.
The Pac-12 Network’s launch without a media partner was a strategic decision by conference executives who bet that full ownership would yield a massive windfall when the current media rights deal expires in 2024. But without a strong distribution partner, revenue from the Pac-12 Network has lagged behind that of its rivals.
The Pac-12 distributed just $29.5 million in television revenue to its member schools in fiscal 2018, while the Big Ten distributed $54 million each and the SEC doled out $43.7 million each. With higher revenues, universities can invest in better facilities, equipment and coaches to produce a stronger on-field product.
Scott, the Pac-12 Commissioner, told the Mercury News last week that the conference passed on multiple bids from private equity firms. The conference may have also not had realistic expectations, however. Last December The Oregonian acquired a copy of the Pac-12's "strategic plan" which projected current and future media rights figures. The documents show that the rights would fuel a valuation of between $5 billion and $8.5 billion. By contrast, the SEC Network -- widely regarded as the most successful college sports property -- has an estimated value of nearly $4.7 million
“The charge I was given by our schools was to narrow the focus to those that might be strategic partners— to media companies [and] tech companies that could possible help with an infusion of capital to our schools financially but also could maybe help us in other ways,” Scott said.
It’s unclear which media and tech firms may be interested in investing on those terms. Scott acknowledged that the decision not to partner with a private equity firm had “kind of slowed down the process.”
California’s ‘Fair Pay to Play’ law could complicate matters
California Gov. Gavin Newsom’s approval of the Fair Pay to Play Act, a law that bars colleges in the state from punishing athletes who collect endorsement money, could complicate the Pac-12’s search for an investor. The law effectively provides a pathway for college athletes to earn income based on their name, image or likeness – a concept that directly conflicts with the NCAA’s bylaws.
Both the NCAA and the Pac-12 opposed the bill.
“This legislation will lead to the professionalization of college sports and many unintended consequences related to this professionalism, imposes a state law that conflicts with national rules, will blur the lines for how California universities recruit student-athletes and compete nationally, and will likely reduce resources and opportunities for student-athletes in Olympic sports and have a negative disparate impact on female student-athletes,” Scott said in a statement.
While proponents for paying college athletes lauded the bill’s passage as a sign of progress, the law is “potentially a disaster” for the Pac-12 as it seeks a partner, the sports finance industry veteran said. With the ability to lure top recruits with the possibility of endorsement income, the four Pac-12 schools based in California --- UCLA, the University of California (Berkley), Stanford and USC -- would gain an immediate advantage over their conference rivals.
The recruiting imbalance could trigger in-fighting among Pac-12 universities or lead the NCAA to bar California-based schools from lucrative post-season events, such as the March Madness basketball tournament.
“Those four will have a huge recruiting advantage over the other eight. If I’m one of the other eight, why would I allow that? It’s going to fracture the conference,” the source said.