Do Terps Really Stand To Tarnish Image For A Big Payday in Big Ten?

           I am one of the few people happy about the University of Maryland’s move from the Atlantic Coast Conference (ACC) to the Big Ten Conference (Big Ten). Having grown up in Maryland and attended Northwestern University, I am excited to see football games between the Terrapins and Wildcats in either of the two smallest football stadiums in the Big Ten.            

            For most sports fans and media members, however, the moves by Maryland and Rutgers University (who is leaving the Big East) to the Big Ten conference seem like little more than “money grab”. More specifically, both the schools and the conference want to make more money through the Big Ten Network. Started in 2007, the Big Ten network provided each conference school (except for Nebraska this year) with $24.7 million in revenue this year.

            While B6A has often advocated for sports organizations maximizing all potential revenue streams, I recognize that strategic decisions cannot be made in a vacuum. Sports managers and decision makers need to gauge how attempts to make more money will impact their brands and via reactions by fans, boosters, sponsors, media, and employees. The damage caused by the vehement opposition by fans and the media to the school’s brand is the main argument against Maryland’s move to the Big Ten. The school was a founding member of the ACC when the conference was created in 1953. In addition, basketball games with Duke University and the University of North Carolina have created some of the Maryland's most iconic athletic moments. It does not make sense to many Maryland fans to jettison these games to play schools like Northwestern or the University of Iowa.

            Both the brand and revenue arguments, however, are questionable at best and flawed at worst. From a brand perspective, Maryland was already less likely to play its “rival” schools given the ACC’s recent expansion to 14 schools. Maryland’s protected rival (i.e. the school it would be guaranteed to play in all conference games) was the University of Pittsburgh. Since Pitt only recently joined the ACC in 2011, Maryland really has no history in competing with the school. In fact, Maryland’s stronger academic, recruiting, and athletic rival is probably Pennsylvania State University – a school already in the Big Ten. In addition, the recent additions of Pitt, Syracuse University, Boston College and Notre Dame (for all sports other than football) to the ACC makes impossible for all schools to play against each other in a football or basketball season making it games against Duke and UNC less frequent. Most importantly, not all of the school’s core audience members are against the change. In fact, Kevin Plank, the founder and CEO of Under Armour as well as the school’s biggest booster, applauded the team’s move to the Big Ten.

            If the brand argument has its flaws then what about the financial argument? That seemed like a no brainer. Maryland is leaving the ACC primarily to make more money. While the school is likely to make more money, it is actually far from a guarantee that this will occur. The ACC signed a new agreement with ESPN through 2027 that provides each school with $17.1 million in revenue. The additions of Maryland and Rutgers to the Big Ten mean that each of the 14 schools in the Big Ten would make about $20.3 million per year per school (a $2.6 million dollar year-on-year increase for Maryland) if media rights agreements remain constant.
             However, Maryland is currently required to pay a $50 million exit fee to the ACC for leaving the conference. B6A is not anticipating a significant change in the other sources revenue for Maryland by moving to the Big Ten. We do not see a great improvement in-game, sponsorship, merchandise, or event revenue based the on Maryland playing schools like the University of Michigan and The Ohio State University in football or Indiana University and Michigan State in basketball when the school already plays against nationally recognized programs like Florida State University and the University of Miami in football or Duke and North Carolina in basketball. Therefore, the school would rely on its increase in the media rights agreement to cover this costs. Because the school is only making $2.6 million more per year by leaving the ACC and joining the Big Ten, it would take over 19 years to pay off the exit fee.

            However, this assumes that Maryland will both have to pay the full $50 million and the Big Ten Network will not generate any increases it revenue. Neither part of the previous statement is likely to occur. First, it appears unlikely that the school will have to pay the full $50 million exit fee. Even though the $50 million fee is legally binding according to sources, it can be paid over a number of years. B6A believes that Maryland and the ACC will work out an agreement where the school will pay more up front to leave the conference but less in overall dollars. How much is difficult to anticipate, but we believe it will be somewhat closer to the $20 million dollar exit fee that existed for teams leaving the conference in 2011 (i.e. before the conference added four additional schools). We also think it is unlikely that Maryland will challenge the $50 million fee in court (as has been mention by the university’s president) and instead negotiate a lower amount in a settlement agreement.

            The larger question is will the Big Ten Network achieve the revenue growth targets that it is betting on by adding Maryland and Rutgers. The conference wants to make the Big Ten Network into a national network that could compete with the likes of ESPN and the NBC Sports Network. Adding schools like Maryland and Rutgers would give the conference a reason for cable providers in the Washington D.C. and New York areas to carry the Big Ten Network on their basic tiers (many carry the network on a premium sports tier). The increase in audience would mean an increase the carriage fees and advertising rates for the Big Ten Network as well as increase the number of companies who want to purchase advertising time on the channel. The addition of Maryland and Rutgers is expected to enhance the Big Ten Network’s annual revenue by up to $200 million (or about an additional $14.3 million per school).  

            While it is likely that adding Maryland and Rutgers will increase carriage fees and advertising revenue by some amount, it is far from certain that it will result in a $200 million increase on an annual basis. Maryland and Rutgers are not the universities that dominate their media markets. Maryland faces stiff competition from the University of Virginia and Penn State from a football perspective and Georgetown University (among others) from a basketball perspective. Rutgers certainly is not the dominant school in the New York television market as Syracuse and Notre Dame attract larger audiences. More importantly, professional teams have traditionally dwarfed college teams in the Washington and New York media markets in terms of ratings and interest.

            In addition, the Big Ten Network is not renegotiating its television contracts until 2017. Since Maryland is joining the Big Ten Conference in 2014, it will not see any impact of the new Big Ten television revenues for three years. If it has to follow a similar path as the Nebraska did when it joined the Big Ten conference in 2011 then it will also not receive the same portion of revenue as the other current Big Ten Schools in at least its first two years in the conference. Yet, it still has start to paying the conference exit fee likely starting ten months before leaving the conference. Therefore, it appears the school will not recoup its losses on its exit fee losses for at least five years after it starts making exit payments to the ACC even if that fee is reduced from $50 million.

And what happens if the league does not receive its estimated increases in revenue? While the sky appears to be the limit right now for current media rights deals, it is possible that the landscape could change over the next four years. In fact, there is an argument to be made that media rights deals are experiencing a bubble in the same way that the housing and technology markets experience a bubble before their collapse. If the league receives less than a $200 million annual increase then it could take Maryland even longer to make up the money it is losing by paying the ACC exit fee. If the media rights deals do decline in value and the Big Ten Network actually makes less money than in previous agreements then Maryland could be in more troubling financial situation than it is now.  

            The larger of point of this admittedly long analysis is that the popular sentiment may not actual hold true when it comes to analyzing Maryland’s move to the Big Ten. Maryland is unlikely to suffer the long-term damage to its brand base of its move from the ACC. The financial impact of Maryland moving to the ACC is not the guarantee it appears to be. The truth, like many of the universities in the Big Ten when it comes to their geographic location in the United States, lies somewhere in the middle.