In 2010, ESPN signed a huge 20-year, $295 million contract with the University of Texas to create the Longhorn Network. When ESPN signed the deal, Texas was having success on the football field and it was hoping to parlay that into interest for a Longhorn-centric cable network. At the time, rival schools were worried that Longhorn Network would give Texas an unfair advantage over its fellow institutions in the Big 12. Through it all, the school agreed to pay all production costs, somewhere estimated to be $26 million annually.
But a funny thing happened in the five years since the network launched. Texas has experienced a downfall in football, cable networks were slow to pick up Longhorn Network and a plan to carry Texas high school football games was squashed by the NCAA. So instead, LHN had to proceed with one or two minor football games as season, volleyball, soccer, golf and various Olympic sports, programming that would hardly make even the most diehard Texas fan run to his or her couch to watch.
According to SNL Kagan, a media research company, Longhorn Network has lost $48 million in its first five years of operation. At the time of its launch, media observers and some athletic directors were skeptical of ESPN’s deal with Texas saying the Worldwide Leader had overpaid for the Longhorns’ media rights.
When you compare that with Notre Dame, NBC pays the school $15 million over a 10 year period, but the Peacock’s rights are not as all-extensive as ESPN’s for Longhorn Network. For instance, NBC’s contract covers all of the Fighting Irish’s home football games and a handful of hockey games where ESPN’s covers most of Texas’ athletic program.
Texas certainly is reaping the benefits from the cash payments from ESPN, but as for the network itself, it’s been losing money. SNL Kagan says Longhorn Network was saved from certain doom for lack of coverage from cable companies when DirecTV signed a deal with ESPN’s parent company Disney, opening up the channel to 1.8 million subscribers in LHN’s natural reach spanning from Texas to Louisiana, Oklahoma and New Mexico. SNL Kagan says that expanded the subscriber base to 7.5 million, but ESPN differs saying Longhorn Network has 20 million subscribers.
SNL Kagan says with the expanded reach, Longhorn Network is expected to have its first profit in 2016.
Like other cable networks, Longhorn Network makes its money through subscriber fees and advertising. LHN’s fee is supposedly 29 cents per subscriber, but as we have seen from SNL Kagan, that is not enough to curb any of the losses from the first five years.
The San Antonio Express-News citing ESPN’s contract with Texas notes that the annual payments to the university began at just under $11 million and have increased by 3% each year. The contract will expire in 2031 and by that time, ESPN’s payments will average about $15 million annually.
ESPN is in this for the long haul and after five years of financial losses, it appears to be turning the tide after an initial bumpy road. Can it make Longhorn Network a cash cow as the Big Ten Network has become for its league? When you combine this with the network’s recent layoffs due to lower profits, you can see how this can be a drain on the company. Time will tell if Longhorn Network will be a long-term success, but for now, ESPN has had to experience some tough times in the first five years of operation.