Update from C7 Meeting

[Pakuni]

This is the thing that has me concerned about the shake-ups in conferences and where I could see Congress getting involved (as much as that is distasteful to me). 

So, the deal is contingent on the league adding 5 teams.  Essentially you have a corporation dictating the terms of amateur/collegiate athletics. 

I think going to 12 is a no-brainer, but when it is placed out in front like this, it has me concerned that we may see intervention that I don't want. 

This isn't anything new. ESPN orchestrated Pitt's and Syracuse's departure from the Big East.

[Pakuni]

No, not saying that at all.   It's all about bucketing.  I would pull that (start up costs) out separately as an expense and have that covered separately from the various revenue streams as well as any "buy-ins" required to join the conference.  Not that hard, really.  Just make it part of the provision of jumping into the conference.  If the cost is $100 million to startup, then each school is on the hook for $8.33 million...get out your check books.  They're all going to be charter members...right?  Then the revenues are split evenly on the receivables side.  What you can't have is two tiered approach that breeds contempt from the start.  To me, this is pretty simple and can be addressed with a bucketing of dollars approach that shouldn't be all that hard to do.

Where are you getting $100 million in start up costs?  

1. What other shared revenues streams are significant enough to make the C7 schools whole in a relatively timely manner?

2. You think a (hopefully temporary) two-tier revenue-sharing model will be unfair/unpalatable to the non C7 members, but they'll go along with paying more than $8 million upfront to make the C7 whole?

[mu03eng]

No, not saying that at all.   It's all about bucketing.  I would pull that (start up costs) out separately as an expense and have that covered separately from the various revenue streams as well as any "buy-ins" required to join the conference.  Not that hard, really.  Just make it part of the provision of jumping into the conference.  If the cost is $100 million to startup, then each school is on the hook for $8.33 million...get out your check books.  They're all going to be charter members...right?  Then the revenues are split evenly on the receivables side.  What you can't have is two tiered approach that breeds contempt from the start.  To me, this is pretty simple and can be addressed with a bucketing of dollars approach that shouldn't be all that hard to do.

Where are you getting $100 million in start up costs?  

First best news all day is that this is going to happen next year.

Second, not to dip into the other thread, as long as C7 start-up costs are covered then great.  If the methodolgy is add up everyone's cost divide by 12 and then right a check to the community pool and we split revenue equally fine.  If it's C7 incur your costs but you get X% more for y years before we're even fine.  Either way the C7 have more value and are spending way more than the +5 are and whatever deal is struck needs to compensate for that.

The C7 members should not lose more money in the deal than they would have gotten staying with the BE, doesn't make business sense.

[mu03eng]

1. What other shared revenues streams are significant enough to make the C7 schools whole in a relatively timely manner?

2. You think a (hopefully temporary) two-tier revenue-sharing model will be unfair/unpalatable to the non C7 members, but they'll go along with paying more than $8 million upfront to make the C7 whole?

+$1

[ChicosBailBonds]

This is a brand new league, meaning EVERY school that is in the conference day 1 is a charter member.  I don't understand why the C7 are going to be spending more than the others..if so, they should be equally distributed as part of the payment to get into the league.

From a purely business sense, why would the C7 take on all the financial risk to begin with?  You start the league, you have 10 or 12 schools, the costs should be distributed equally and the revenues equally.  Someone will have to explain to me how 7 charter members are incurring costs that 5 other charter members wouldn't, and thus the revenue model needs to be portioned out differently to make the 7 whole.  Why are the 7 incurring costs the other 5 aren't?

[Benny B]

From a purely business sense, why would the C7 take on all the financial risk to begin with? 

The only way to avoid the risk is to stand pat, and that's just simply not an option.

You start the league, you have 10 or 12 schools, the costs should be distributed equally and the revenues equally.  Someone will have to explain to me how 7 charter members are incurring costs that 5 other charter members wouldn't, and thus the revenue model needs to be portioned out differently to make the 7 whole.  Why are the 7 incurring costs the other 5 aren't?

See below:

We should pay the exit fees, pay the lawyers, buy the naming and MSG rights, and then split profits after that with everyone evenly despite half of them not putting in anywhere near the investment we did?

That's kooky talk.

[ChicosBailBonds]

And can someone show me where the $100 million is coming from, or was that just conjecture.  Honestly, don't know...just asking.

[Benny B]

And can someone show me where the $100 million is coming from, or was that just conjecture.  Honestly, don't know...just asking.

Call it $50M, $20M, a kabajillion dollars... whatever.  Point is that the C7 are either coming out of pocket and/or giving up revenue that the Invite 5 won't be.

[honkytonk]

This is a brand new league, meaning EVERY school that is in the conference day 1 is a charter member.  I don't understand why the C7 are going to be spending more than the others..if so, they should be equally distributed as part of the payment to get into the league.

From a purely business sense, why would the C7 take on all the financial risk to begin with?  You start the league, you have 10 or 12 schools, the costs should be distributed equally and the revenues equally.  Someone will have to explain to me how 7 charter members are incurring costs that 5 other charter members wouldn't, and thus the revenue model needs to be portioned out differently to make the 7 whole.  Why are the 7 incurring costs the other 5 aren't?

Im hung up on the same things. Invite the other 5 and THEN get together and split all the costs evenly. What's the problem with that?

[brewcity77]

And can someone show me where the $100 million is coming from, or was that just conjecture.  Honestly, don't know...just asking.

Just for starters, the exit fee for the Big East is $10M per team. So that's $75M without factoring in anything else. Will we pay that? Probably not, but it will be very expensive to make this move. Anyone thinking otherwise is crazy.

[Pakuni]

This is a brand new league, meaning EVERY school that is in the conference day 1 is a charter member.  I don't understand why the C7 are going to be spending more than the others..if so, they should be equally distributed as part of the payment to get into the league.

From a purely business sense, why would the C7 take on all the financial risk to begin with?  You start the league, you have 10 or 12 schools, the costs should be distributed equally and the revenues equally.  Someone will have to explain to me how 7 charter members are incurring costs that 5 other charter members wouldn't, and thus the revenue model needs to be portioned out differently to make the 7 whole.  Why are the 7 incurring costs the other 5 aren't?

Whether it's the best approach or not, clearly the C7 have taken the tact that they're going to organize the conference and then bring other members aboard. Hence, they're negotiating TV deals (which requires lawyers and consultants, who cost money); they're negotiating exit terms with the Big East (which requires lawyers, who cost money); they're very likely negotiating/paying for the Big East name (which ... well, you know); they're interviewing and hiring commissioner/administrative candidates; etc.
Remember, they've already hired Proskauer Rose and Pilson Communications.
That's why the C7 are spending more than the others.

What do you see as the difference between requiring the other schools to make a "payment to get into the league" and simply reducing their share of early revenues to make the C7 whole?
One might think the latter is even preferable, given that it doesn't require these schools to come up with a large fee upfront - at a time when they may be having to for over their own exit fees - and their "loss" isn't really a loss, but rather less of a gain.

[Dawson Rental]

Whether it's the best approach or not, clearly the C7 have taken the tact that they're going to organize the conference and then bring other members aboard. Hence, they're negotiating TV deals (which requires lawyers and consultants, who cost money); they're negotiating exit terms with the Big East (which requires lawyers, who cost money); they're very likely negotiating/paying for the Big East name (which ... well, you know); they're interviewing and hiring commissioner/administrative candidates; etc.
Remember, they've already hired Proskauer Rose and Pilson Communications.
That's why the C7 are spending more than the others.

What do you see as the difference between requiring the other schools to make a "payment to get into the league" and simply reducing their share of early revenues to make the C7 whole?
One might think the latter is even preferable, given that it doesn't require these schools to come up with a large fee upfront - at a time when they may be having to for over their own exit fees - and their "loss" isn't really a loss, but rather less of a gain.

Nailed it.

[ChicosBailBonds]

Benny, you just make those part of the cost of doing business of the new league and distribute those costs across the schools.  Just as Xavier will be paying an exit fee to the A-10, lawyer fees, etc.

Maybe it's an optics thing for me, but in putting deals together in my line of work, I believe in partnerships and bad deals just simmer and come back to haunt business down the road.  I'd prefer the put all the costs associated with this conference creation and distribute them to all charter members as the cost to enter.  That way, at least optically, everyone has the same skin in the game and everyone is sharing equally in the pain and the reward.  There is no second class citizenship, unified from the start.  This really isn't hard to do.  Hell, I'd even include the fees the non C7 institutions will incur (their legal fees, their exit fees, etc) into the same pool of expenditures.  I'm all for Socialism in this case.   

[Pakuni]

Im hung up on the same things. Invite the other 5 and THEN get together and split all the costs evenly. What's the problem with that?

Invite them to what? A league which doesn't yet exist?
You have to have a conference in place before you can invite anyone to it.
Will the invite look like this:

Dear Xavier,

We're forming a basketball-centric sports conference. We don't know its name yet. Or when it will begin play. We hope to have a TV contract, but we don't know how often teams will appear on television or even on what network. We don't know how much revenue schools can expect from this deal. We don't know where the conference will be based, nor where the conference tournaments will be played. We don't know what other sports will be included. We don't have a commissioner or any semblance of a staff.

Now please leave behind the conference in which you've had great success for more than a decade and join us.
Sincerely,

Marquette, DePaul, Georgetown, St. John's, Villanova, Providence and Seton Hall

[brewcity77]

Just for starters, the exit fee for the Big East is $10M per team. So that's $75M without factoring in anything else. Will we pay that? Probably not, but it will be very expensive to make this move. Anyone thinking otherwise is crazy.

In that I'm including exit fees for the other 5 teams. If the Big East name is worth $30M, we'd probably have to buy out half that. Add in lawyers fees and I think $100M may be high bit isn't at all far-fetched.

[The Equalizer]

Whether it's the best approach or not, clearly the C7 have taken the tact that they're going to organize the conference and then bring other members aboard. Hence, they're negotiating TV deals (which requires lawyers and consultants, who cost money); they're negotiating exit terms with the Big East (which requires lawyers, who cost money); they're very likely negotiating/paying for the Big East name (which ... well, you know); they're interviewing and hiring commissioner/administrative candidates; etc.
Remember, they've already hired Proskauer Rose and Pilson Communications.
That's why the C7 are spending more than the others.

What do you see as the difference between requiring the other schools to make a "payment to get into the league" and simply reducing their share of early revenues to make the C7 whole?
One might think the latter is even preferable, given that it doesn't require these schools to come up with a large fee upfront - at a time when they may be having to for over their own exit fees - and their "loss" isn't really a loss, but rather less of a gain.

The logic behind this seems to be because the C7 had to take a financial bath to get out of the Big East, they feel they deserve more of the revnues from a new league going forward.  This might be finanicaly advantagous to them, but is inconsistent with the accounting concept of sunk cost.

I don't think its unreasonable for Xavier or Butler on the other hand to say "Look, I don't care how much it cost you to get out of your old deal, if we're going to do business together going forward we want to be  equals from Day 1."

[mu03eng]

The logic behind this seems to be because the C7 had to take a financial bath to get out of the Big East, they feel they deserve more of the revnues from a new league going forward.  This might be finanicaly advantagous to them, but is inconsistent with the accounting concept of sunk cost.

I don't think its unreasonable for Xavier or Butler on the other hand to say "Look, I don't care how much it cost you to get out of your old deal, if we're going to do business together going forward we want to be  equals from Day 1."

First, two assets that those schools absolutely can't get without the C7 are MSG and Big East brand.  Second the C7 paying to get out of the Big East is the only way the +teams even get this opportunity for more money....so whether they like it or not, this league and associated revenue doesn't occur without the C7 and therefor there is a value to the C7 that the +teams need to account for.

As has been pointed out, if the C7 lose money over the next 12 years compared to what they would have gotten staying in BE why would they do it?

[honkytonk]

Invite them to what? A league which doesn't yet exist?
You have to have a conference in place before you can invite anyone to it.
Will the invite look like this:

Dear Xavier,

We're forming a basketball-centric sports conference. We don't know its name yet. Or when it will begin play. We hope to have a TV contract, but we don't know how often teams will appear on television or even on what network. We don't know how much revenue schools can expect from this deal. We don't know where the conference will be based, nor where the conference tournaments will be played. We don't know what other sports will be included. We don't have a commissioner or any semblance of a staff.

Now please leave behind the conference in which you've had great success for more than a decade and join us.
Sincerely,

Marquette, DePaul, Georgetown, St. John's, Villanova, Providence and Seton Hall

Well, 7 schools have already gotten together despite the fact that none of those questions have been answered. Why not make it 12?

[Pakuni]

The logic behind this seems to be because the C7 had to take a financial bath to get out of the Big East, they feel they deserve more of the revnues from a new league going forward.  This might be finanicaly advantagous to them, but is inconsistent with the accounting concept of sunk cost.

I don't think its unreasonable for Xavier or Butler on the other hand to say "Look, I don't care how much it cost you to get out of your old deal, if we're going to do business together going forward we want to be  equals from Day 1."

Except you didn't finish the sentence by listing the other schools' alternatives.

 "Look, I don't care how much it cost you to get out of your old deal, if we're going to do business together going forward we want to be  equals from Day 1 or we'll stay in the A-10/MVC, where we stand to earn $12-$20 million less over the next decade."

Given the full sentence, it's wholly unreasonable for them to say that. Pragmatism usually wins out in these matters. And suggesting that a school like Butler is going to turn down $2.1 million a year in added television revenue - not to mention all the other benefits of the new league - over a demand to be equals in every regard from Day 1 is not pragmatic at all. You think that extra $2.1 million won't come in handy for Butler when other programs make runs at Brad Stevens?

[mu03eng]

In that I'm including exit fees for the other 5 teams. If the Big East name is worth $30M, we'd probably have to buy out half that. Add in lawyers fees and I think $100M may be high bit isn't at all far-fetched.

Counting all 7 schools, $100M might be low
-Exit fees for each school
-Lost NCAA fees for each school
-Legal and PR fees for the BE exit and creation of new league
-Legal and PR fees for any new contracts required for tv deal
-What has to be paid to retain BE brand
-What has to be paid to retain MSG tourny contract

Lets say $100M is correct, +teams have the following choice:
-Cut a check for $8.3M now and receive an equal share of revenue for $3.47M each year for the next 12
or
-Cut no check now and receive $2.3M revenue each year for the first 7 and then $3.47M each year for the last 5

Take your pick.  Chico's argues the bad optics of the later, I would argue the time value of money for the former.  The $8.3M the +teams aren't paying can be spent on something else.

[brewcity77]

The logic behind this seems to be because the C7 had to take a financial bath to get out of the Big East, they feel they deserve more of the revnues from a new league going forward.  This might be finanicaly advantagous to them, but is inconsistent with the accounting concept of sunk cost.

I don't think its unreasonable for Xavier or Butler on the other hand to say "Look, I don't care how much it cost you to get out of your old deal, if we're going to do business together going forward we want to be  equals from Day 1."

No, the logic behind it is "we are making a 9-figure investment to get this going and you are jumping in virtually for free, we want to get a return on our investment, not wait 5-6 years just to break even, especially as you will be multiplying your own incomes well beyond your current state from day 1."

[Niv Berkowitz]

The most tried and true of Catholic doctrine: "It is better to beg for forgiveness than to ask for permission."

...and collect money whenever possible.

Don't forget about the money. Ever. The Catholic Church never does.

[MUBasketball]

Can everybody please stop all "C7" or "Catholic 7" references??? Let's call it "Hoops 7" or "Basketball 7" or "Big East 7"...this needs to be branded as a basketball league, not a religion conference.

[drewm88]

Can everybody please stop all "C7" or "Catholic 7" references??? Let's call it "Hoops 7" or "Basketball 7" or "Big East 7"...this needs to be branded as a basketball league, not a religion conference.

Are you telling me I've been scouting Leviticus for nothing? crap.

When there's a new name, people will use it. In the meantime, who cares what we call them?

[Ellenson Guerrero]

Can everybody please stop all "C7" or "Catholic 7" references??? Let's call it "Hoops 7" or "Basketball 7" or "Big East 7"...this needs to be branded as a basketball league, not a religion conference.

Good luck with that. The fact that the name has arisen naturally in the media probably bodes well for the Catholic League as the alternative to Big East if we can't get it. Atheists please don't get your panties in a bunch...