At the conclusion of its CEO meetings two weeks ago, the Pac-12 announced the creation of an internal sales unit that would handle the multimedia rights for any school that wanted to participate in the endeavor.
While hardly a break-the-Internet development — sponsorship sales is the opposite of a sexy story — the venture is nonetheless significant because it’s revolutionary (for reasons I’ll explain), it carries inherent risk (for reasons I’ll explain), and it could provide a revenue boost for the participating schools (ditto).
I spent a portion of the past 10 days discussing the league’s plan with eight industry sources — contacts that are familiar with both the conference and the sale of multimedia rights at the collegiate level.
This topic might be unfamiliar to many fans/readers, so before drawing conclusions, let’s: 1) define multimedia rights, 2) examine how they have been handled in the past and 3) outline how the Pac-12 wants to turn the existing model on its head.
*** BACKGROUND
Multimedia rights consist of, but are not limited to, signage in stadiums/arenas and sponsorships for corporate dealings, radio broadcasts and digital content (i.e., websites). They do not include apparel sales, which are contracted out to Nike, Adidas, Under Armour, etc.
Schools typically reap seven figures annually on their multimedia rights, but the range (high seven figures, or low) depends on the market.
USC collects far more than Washington State, for example.
(* Important point I: As with politics, all multimedia rights are local. Everything depends on the campus: Big market or small, public or private, football school or basketball school. No single sales formula works for everyone; no single approach to inventory works for everyone.)
For as long as it has mattered, the schools have outsourced the sale of their multimedia rights to the Learfields and IMGs of the world.
These third-party companies have sales expertise, with employees working out of a school’s athletic department — on-site service allows for greater efficiency in the local market.
Learfield/IMG also have scale on their side: With dozens of universities from coast to coast as clients, their size enables them to attract (and leverage) sponsors and gives them the financial clout to ride out economic downturns and provide support to schools for capital expenditures. (Learfield makes video boards.)
The third-party economic model works like this, generally speaking:
Learfield/IMG would guarantee $5 million per year (for example) to School X in multimedia rights income, regardless of the dollar value of the actually sales.
If Learfield/IMG sold $7 million in sponsorships, it would pocket the $2 million difference, less expenses. (At a certain threshold, revenue is shared between the seller and the school.)
If Learfield/IMG sold $3 million in sponsorships, it would take a loss.
(Yes, the third parties sometimes lose money.)
*** THE PAC-12 PLAN
The Pac-12 is detonating that model by bringing the multimedia rights in house — by forming its own sales unit.
Again, generally speaking: Participating schools will pay the conference an administrative buy-in fee (believed to be low-to-mid six figures), and a league-trained/operated sales team will canvass the local markets for sponsorships in the same manner Learfield/IMG staffers would.
The conference believes … I’m continuing the example from above … that it can match the $7 million in gross sales generated by Learfield/IMG on an annual basis, with School X keeping all of it, minus the buy-in fee.
Sound intrigue, no? The conference is cutting out the middleman in a growing, lucrative space, with schools having more control over their signage/sponsorships because the sale staff will be working for them, not a third party.
There’s a downside, however: The lack of scale means reduced leverage, less margin for error and greater risk in a bad economy. Sponsorship sales isn’t an easy business, and the Pac-12 will be responsible for hiring and training the staff, with success riding on the outcome.
(Important point II: Learfield/IMG have decades of sales expertise. All the glowing projections in the world will be rendered meaningless if the Pac-12 entity cannot sell as well as the market leaders it’s replacing.)
Schools in all the power conferences are watching carefully to see if the middlemen are truly as essential as their reputations indicate.
So, of course, are Learfield and IMG. Their business models would be in jeopardy if the Pac-12 plan works.
If. It. Works.
*** THE BIG PICTURE
At this point, let’s address the landscape. Three critical points:
1. As has been documented extensively on the Hotline, the Pac-12 is facing a significant revenue gap in coming years:
The SEC and Big Ten schools could receive $8 – $12 – $15 million more per year from their TV deals if the Pac-12 Networks continue to lag in subscriptions and revenue.
The league’s multimedia rights plan, although groundbreaking, won’t come close to erasing that revenue gap. Industry sources believe successful execution by the league’s sale arms could result in anywhere from $1 million (average) to $2 million (high side) in additional revenue for the participants.
But hey, that’s something, right?
2. The conference office has a credibility issue on many of the campuses because its other major in-house project, the Pac-12 Networks, have under-performed significantly (11 million subs and $1 million per school/year in income).
Now commissioner Larry Scott is presenting another bold strike with more projections of additional revenue. Some schools are wary, and can you blame them?
At the same time, Scott will no doubt be highly motivated to make sure his latest endeavor succeeds.
3. The plan is not for everyone, as evidenced by the fact that schools have been given the option to participate.
USC and UCLA, for instance, want no part of it: The Trojans have Fox and are thrilled, while UCLA is almost assuredly playing the long game with IMG (negotiations underway).
That means the Los Angeles basin (population: 22 million) is off the table, and several sources questioned the upside potential for a sales entity that lacks access to what is, by far, the league’s largest market.
(This really will be a local venture for the participants. Has to be. No choice.)
4. How many school will ultimately opt into the program?
That’s anyone’s guess, because most schools are under contract with Learfield/IMG for at least three, and in some cases nine, more years.
They could attempt to severe their existing third-party contracts, but don’t count on that approach: Arizona State tried it with IMG … and IMG has responded by claiming $34 million in damages.
Instead, the campuses will monitor’s the Pac-12 sales arm’s progress and weigh their options when their rights come up for renewal.
Bottom line:
Give Scott and his team credit for creativity — he doesn’t think outside the box; he lives there — in the endless search for new revenue.
This endeavor clearly isn’t for everybody and lacks umpf without USC and UCLA. But it could work for some schools over time … if the league executes properly.
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