The Pac-12’s revenue issues aren’t a secret. The Pac-12 Network has languished, struggling to reach a distribution deal with DirecTV and other carriers.
This November, a four-part series from The Oregonian revealed more on the financial issues the conference is facing, while the league placed a copyright claim when Oregonian reporter John Canzano published a self-congratulatory video from commissioner Larry Scott that revealed his own contract extension, making them look even worse in the process.
Scott makes $4.8 million a year, which puts him at the top of his particular category, despite the myriad issues the Pac-12 is facing. His latest attempt to justify that salary and properly monetize the Pac-12 in an era when seemingly every major conference is printing money: selling off 10% of the league. According to Canzano, that’s what Scott is trying to pitch to the member universities, in a plan that would essentially create an umbrella company under which all of the league’s revenue generation would live.
The “Pac-12 NewCo” plan was introduced to the conference presidents and chancellors at their mid-November meeting and was subsequently discussed in a conference call in December, per sources. Private investors would own 10 percent equity in the newly formed entity in exchange for a $500 million investment.
A six-page document obtained by The Oregonian/OregonLive outlines the plan presented by conference commissioner Larry Scott to his bosses during the November meeting of the “Pac-12 CEO Group.”
If you’ve watched Shark Tank before (or if you’re capable of basic math) you can figure out this deal would essentially be valuing the Pac-12 at $5 billion, which actually seems light, considering what they’d be selling.
The conference’s broadcast rights, sponsorship rights, merchandising and all other commercial assets would be consolidated under the umbrella of “Pac-12 NewCo.” The conference would retain 90 percent of the equity.
This would obviously a short-term cash grab move for the league, with hopes that things turn around swiftly enough that they’d be looking at 90% of a much bigger pie instead of 100% of a pie without Pac-12 Network distribution. But there’s nothing about the move that would guarantee anything changing on the Pac-12 Network front, even though Scott’s projections optimistically include a turnaround:
The strategic plan documents include a chart outlining the current and projected media-rights distributions. It reads, “based on the Pac-12’s current media rights deals and making conservative assumptions going forward, we estimate that a Capitalized NewCo could be valued at approximately $5 billion to $8.5 billion.”
The projections, however, include $36 million in annual revenue from DirecTV beginning in 2020 and a one-time payment in 2024 from ESPN in the amount of $347 million. Neither is certain. Also, the plan assumes FOX would renew its current broadcast contract with the Pac-12 in a 10-year deal worth more than $2 billion.
What’s perhaps most interesting about this is that it’s the kind of move that typically would be seen as a last resort for any successful private enterprise. No other conference is looking to strip their own earnings potential for a short-term gain, and that’s probably because they don’t need to. The Big Ten and SEC, for example, are thriving. The Pac-12’s footprint is massive, with multiple highly desirable media markets therein, and they’re being pitched on selling plasma for rent money.