Update from C7 Meeting

[ChicosBailBonds]

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."

I would expect Xavier and Butler to say that.  Furthermore, Xavier and Butler both know that without them, the pot of gold for this contract isn't happening for the C7.  Dayton...eh.  SLU..eh.  But Xavier and Butler, especially as a tandem, have some muscle here. 


Brew, I do think the $100 million is high.  Pitt and Syracuse each paid $7.5M to leave early.  That, to me, is the worst case scenario and would cost the 7 schools a combined $52.5 million....worst case scenario.  I wouldn't pay $30 million for the Big East name.  With the marketing and promotion that Fox will give the conference (we were part of that team for several years..they are the best), whatever we are called will be known.  Fox isn't going to spend $500 million on something without totally blowing it out of the water to maximize the promotion of it.  Keeping the name, I have no problem with because of the brand equity, but I wouldn't spend $30 million on it.

[tower912]

Is it possible to use tourney credits toward exit fees?

[ChicosBailBonds]

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?

Disagree, because without those additional schools, that $500 million contract doesn't exist so the value of increased earnings is overstated.  It's actually tied to them being in the conference, thus the power and leverage that they have.  Sure, they'll make more money by joining the new league, but how much more they make is absolutely tied to them actually joining the league.  Without the additional schools, that contract isn't the same, not close. 

"Dear C7,

We are excited that you are willing to consider us to join your not yet named, not yet approved or certified athletics conference.  However, we have a few concerns.  We understand you want us to be paid less than you guys in terms of media revenues, despite the fact your basketball prowess for most of the your schools is not very good, your attendance is lower than ours and you generally are trading in on achievements from decades ago (not you Marquette, Georgetown and Villanova).  More importantly, we understand that we are the vital piece missing so that you guys can actually implement this plan of inequitable payments.  We are sorry that you have to incur exit fees from the Big East, we also would have to incur exit fees from the MVC and Atlantic 10.  We're sorry that legal fees will be large and consulting costs added to the expenditures, we also have to incur these costs.  As for the Big East name, well what is that worth today?  It has become a name that has been tarnished, mocked, sullied, and weakened in the last few years.  A sunken ship where schools can't wait to get off before they drown.  We're fine not paying for that name and coming up with a new one which Fox will promote heavily.

So let us know when we are all aboard this new conference TOGETHER, on equal footing.  We're happy to split up all of the costs, our exit fees...your exit fees, our lawyer fees and your lawyer fees and equally happy to share in the revenues equally.  It seems you need us for that television contract you so desire.  We want more revenues, as well, but to make both of these objectives a reality, we both need each other and cannot get their on our own.  So call us when terms are equal, in the meantime we're going to continue winning games, going to the NCAA tournament....we're happy to explain that to DePaul, Providence, Seton Hall, etc if they don't know what that means"

Sincerely,

Butler, Xavier, Creighton (and two others we don't particularly care who they are

[bilsu]

What we do not know is whether the C7 is willing to pass on Xavier or Butler, if they would not accept a less money from the TV deal. The TV deal is dependent on a 12 team conference, not on whether Xavier and Butler join.

[brewcity77]

Chicos, I specifically said "half that" regarding the $30M name rights figure. I don't think $2M per team would be too much to retain the name. But let's say we all get out for $5M each, get the Big East name for $10M, and spend only $5M on lawyer's fees. That's still $50M in expenditures not counting what we leave on the table in NCAA credits which will be millions more.

We should all just eat that and congratulate the I5 (Invitation) on their new bounty?

I'm not saying forever. I'm not saying the length of the deal. But even if we take $4M and they take $2.7M for the first 5-6 years, they make a ton more than they make now and we recoup our costs. How on earth would getting them more than six times their current earnings be seen as a negative? It's all about getting a fair return on our investment.

[Canned Goods n Ammo]

This is business, not communism.

The deal needs to be fair, but "fair" doesn't always mean "equal".

With this said, create an agreement that allows the other schools to eventually get a better share of the pie, and it's perfect.

I actually like the schools keeping their own NCAA money. It encourages them to succeed. That would keep the competition high and encourage schools to invest in their programs.

Oh, and Chico's is turning into a socialist. Too much time in California.

[ChicosBailBonds]

What we do not know is whether the C7 is willing to pass on Xavier or Butler, if they would not accept a less money from the TV deal. The TV deal is dependent on a 12 team conference, not on whether Xavier and Butler join.

I don't think we know the latter of that statement fully, either.  If it's any 12, we should just add 5 dregs that will get us to 12.  FOX is going to help dictate who these schools are with that kind of change being thrown around.  Get X, Y and Z...you get this.  Get plan B, B1, and B2, you get less.  They have to monetize that investment and the only way they do that is with attractive content that people want to watch.  Xavier and Butler know this.

[GGGG]

I don't think we know the latter of that statement fully, either.  If it's any 12, we should just add 5 dregs that will get us to 12.  FOX is going to help dictate who these schools are with that kind of change being thrown around.  Get X, Y and Z...you get this.  Get plan B, B1, and B2, you get less.  They have to monetize that investment and the only way they do that is with attractive content that people want to watch.  Xavier and Butler know this.

And the C7 do as well.  Look, Fox, the C7, the potential invitees...everyone likely knows where they stand.  And I'm pretty sure everyone wants this to work out.  The rest is just negotiations.

[ATL MU Warrior]

Chicos, I specifically said "half that" regarding the $30M name rights figure. I don't think $2M per team would be too much to retain the name. But let's say we all get out for $5M each, get the Big East name for $10M, and spend only $5M on lawyer's fees. That's still $50M in expenditures not counting what we leave on the table in NCAA credits which will be millions more.

We should all just eat that and congratulate the I5 (Invitation) on their new bounty?

I'm not saying forever. I'm not saying the length of the deal. But even if we take $4M and they take $2.7M for the first 5-6 years, they make a ton more than they make now and we recoup our costs. How on earth would getting them more than six times their current earnings be seen as a negative? It's all about getting a fair return on our investment.

I'm not sure how NCAA credits got wrapped all up in this?  Those are not an expense.  They are future revenue which the C7 are willingly walking away from to gain control of their future.  You want to be made whole on real expenses, that's fine.  Including those NCAA credits is silly. 

[real chili 83]

Chicos,

You should be in politics.  Your spin on this is brilliant.  

Wrong, but well done.  

And yes, that was meant as a compliment.

Bottom line is, the c8+ will get a tiered deal.  It will be just and honorable.  They will AGREE to it.  It will be the TERMS they agree to.  it will have a sunset.  All will be happy.

Go WARRIORS!!!

[The Equalizer]

I don't think we know the latter of that statement fully, either.  If it's any 12, we should just add 5 dregs that will get us to 12.  FOX is going to help dictate who these schools are with that kind of change being thrown around.  Get X, Y and Z...you get this.  Get plan B, B1, and B2, you get less.  They have to monetize that investment and the only way they do that is with attractive content that people want to watch.  Xavier and Butler know this.

If the C7 (including DePaul, St. Johns, Providence and Seton Hall in their current state) and any five generic teams are worth $500 million, I have to think a conference built around Butler, VCU, Xavier, Gonzaga, and Creighton is would wind up in a similar neighborhood.  Clearly they start out with an argument that they are a  better basketball conference, more tounrament-calibre teams, more recent on-court success, and probably a greater national following.

[brewcity77]

If the C7 (including DePaul, St. Johns, Providence and Seton Hall in their current state) and any five generic teams are worth $500 million, I have to think a conference built around Butler, VCU, Xavier, Gonzaga, and Creighton is would wind up in a similar neighborhood.  Clearly they start out with an argument that they are a  better basketball conference, more tounrament-calibre teams, more recent on-court success, and probably a greater national following.

They aren't coming nor are they in the discussion. And they probably have more of a national following than the other four combined.

[Pakuni]

Disagree, because without those additional schools, that $500 million contract doesn't exist so the value of increased earnings is overstated.  It's actually tied to them being in the conference, thus the power and leverage that they have.  Sure, they'll make more money by joining the new league, but how much more they make is absolutely tied to them actually joining the league.  Without the additional schools, that contract isn't the same, not close. 

"Dear C7,

We are excited that you are willing to consider us to join your not yet named, not yet approved or certified athletics conference.  However, we have a few concerns.  We understand you want us to be paid less than you guys in terms of media revenues, despite the fact your basketball prowess for most of the your schools is not very good, your attendance is lower than ours and you generally are trading in on achievements from decades ago (not you Marquette, Georgetown and Villanova).  More importantly, we understand that we are the vital piece missing so that you guys can actually implement this plan of inequitable payments.  We are sorry that you have to incur exit fees from the Big East, we also would have to incur exit fees from the MVC and Atlantic 10.  We're sorry that legal fees will be large and consulting costs added to the expenditures, we also have to incur these costs.  As for the Big East name, well what is that worth today?  It has become a name that has been tarnished, mocked, sullied, and weakened in the last few years.  A sunken ship where schools can't wait to get off before they drown.  We're fine not paying for that name and coming up with a new one which Fox will promote heavily.

So let us know when we are all aboard this new conference TOGETHER, on equal footing.  We're happy to split up all of the costs, our exit fees...your exit fees, our lawyer fees and your lawyer fees and equally happy to share in the revenues equally.  It seems you need us for that television contract you so desire.  We want more revenues, as well, but to make both of these objectives a reality, we both need each other and cannot get their on our own.  So call us when terms are equal, in the meantime we're going to continue winning games, going to the NCAA tournament....we're happy to explain that to DePaul, Providence, Seton Hall, etc if they don't know what that means"

Sincerely,

Butler, Xavier, Creighton (and two others we don't particularly care who they are

You've got a few faulty assumptions here, but the biggest is this notion that the potential invitees are acting as a unit, in the way that the C7 are. They're not. Butler isn't looking out for Xavier. Xavier doesn't have Creighton's back. Creighton doesn't give two poops about what happens to St. Louis or Dayton. Most of these programs have little to no history with one another and none will subordinate their own individual interests in favor of the others'. What you have here essentially are five free agents all looking for the best possible deal for their programs. If there's one enduring lesson of all this conference realignment, that's it - it's every school for itself out there. Do you really believe Butler or Creighton are going to turn down an extra $2+ million in revenue just from TV - not even mentioning the benefits of additional exposure, etc. - to stand on principal with Xavier?
So, this idea that these schools hold some notable leverage over the C7 is misguided. They might have a little if they were somehow acting in concert, but they're not and they won't.
And, to further the point, what this means is that none of these schools want to chance being left behind in a gutted A-10. Sure, Xavier would like to get equal revenues from the get-go, but are they going to take a stand on that and see the C7 add VCU instead, along with Dayton, Butler and St. Louis? Is Butler going to stand on principal and risk Gonzaga taking their spot, relegating them back to their Horizon League days?
I doubt it.
Also, you overrate their influence over the TV deal. The deal certainly is better with Xavier and Butler and Creighton, but how much better than with VCU, St. Louis and Gonzaga instead? I don't think much. And the real value for the network is in the C7 programs that inhabit larger markets like New York, northern Jersey, Philly, Chicago and D.C., not a divided Cincy market, Dayton or Indy. Heck, even Milwaukee brings more to a network than Cincy (which is shared by UC) or Omaha.
So, is the contract better with Xavier, Butler, etc.? Yes. Is it so much better that those schools somehow are in a position to dictate terms? No chance. From an economic perspective, a smaller TV deal with unbalanced revenues probably is more profitable to the C7 than a slightly larger deal in which all revenues must be divided equally.

Lastly, I think you may just be playing a bit contrarian here if you believe all parties involved don't believe the schools that are doing the work creating this conference should be compensated for those costs and efforts.

[Pakuni]

If the C7 (including DePaul, St. Johns, Providence and Seton Hall in their current state) and any five generic teams are worth $500 million, I have to think a conference built around Butler, VCU, Xavier, Gonzaga, and Creighton is would wind up in a similar neighborhood.  Clearly they start out with an argument that they are a  better basketball conference, more tounrament-calibre teams, more recent on-court success, and probably a greater national following.

Really? You think a conference featuring teams in the Cincy (divided among two major D-1 programs), Indy, Omaha and Spokane markets is as valuable as one with teams in Washington, D.C., New York, Chicago, Philly and Milwaukee?
You really think that?

The new A-10 deal is worth $6.4 million per year. The proposed C7+ deal is worth nearly $42 million per year. So, apparentlyCreighton and Gonzaga are worth about $35 million a year. At least that's what it would take to get that conference in your similar neighborhood.
Really?

[The Equalizer]

Really? You think a conference featuring teams in the Cincy (divided among two major D-1 programs), Indy, Omaha and Spokane markets is as valuable as one with teams in Washington, D.C., New York, Chicago, Philly and Milwaukee?
You really think that?

Really?  Do you really think more people coast-to-coast would actually prefer watching a DePaul game right now as opposed to Goznaga or Butler?  Really? 

Hell, I don't think DePaul ratings would beat Gonzaga or Xavier in CHICAGO.  Coast to coast wouldn't even be close. 

But networks don't care about eyeballs or ratings, right?  Doesn't matter that Gonzaga would bring in better ratings. DePaul is in a bigger city--that's the ONLY thing that matters.  Is that what you're saying?

Based on your logic, phones at Iona and Cal State Northridge and Chicago State should be ringing of the hook with offers--becuase you know the size of their market makes them oh, so much more valuable than teams from  Durham NC, or Lawrence, KS, or Bloomington, IN or Lexington KY.

[brewcity77]

Based on your logic, phones at Iona and Cal State Northridge and Chicago State should be ringing of the hook with offers--becuase you know the size of their market makes them oh, so much more valuable than teams from  Durham NC, or Lawrence, KS, or Bloomington, IN or Lexington KY.

Nope. That one is BS. You simply can't compare a state school to local schools. They carry the weight of not just their city but all their state's cities.

I get your argument an you're right in the sense that viewers matter more than markets because we aren't selling a channel (like the B1G Network) but using a state school as your example is simply an unfair practice.

Durham is the only one there that works.

[DegenerateDish]

Chicos, you realize both CBS and NBC are in negotiations with the C7 as well, right?

I don't say this often, but terrible argument on your end on this.

At the end of the day, it's business. C7 have a forthcoming product. Schools that want in know the terms and weigh the risk (12 yrs) vs reward (increased revenues and exposure).

If schools don't like the deal, tough crap. Stay in th A10 or Valley. Good luck getting a better deal down the road. It ain't happening in the next 12 yrs.

[The Equalizer]

Nope. That one is BS. You simply can't compare a state school to local schools. They carry the weight of not just their city but all their state's cities.

I get your argument an you're right in the sense that viewers matter more than markets because we aren't selling a channel (like the B1G Network) but using a state school as your example is simply an unfair practice.

Durham is the only one there that works.

Actually the population of the Chicago (9.5 million) excedes the population of the entire states of Kentucky (4.4 million), Kansas (2.8 million) or Indiana (6.5 million).

I can't say I chose it this way, but because they are population states, the analogy still works.  

But you recognized the main point--viewers are more important than market size.

[TallTitan34]

Actually the population of the Chicago (9.5 million) excedes the population of the entire states of Kentucky (4.4 million), Kansas (2.8 million) or Indiana (6.5 million).

I can't say I chose it this way, but because they are population states, the analogy still works.  

But you recognized the main point--viewers are more important than market size.

The population of Chicago is not 9.5 million. Are you counting the whole region?

[keefe]

So $500 million over 12 years split between 12 teams comes out to $3.47 million per year, if split equally.

Yea, but the NPV of that aint crap over 12 years

[Silkk the Shaka]

Yea, but the NPV of that aint crap over 12 years

Wow.  The amount of people throwing around finance buzz terms trying to sound like they know what they're talking about in these threads is hilarious.  So you know the start-up costs?  You know what the incremental revenue numbers are?  You know the discount rate each individual school uses?  You put that all in a spreadsheet and calculated the NPV of the deal?  Or did you just look at a single data point - a $3.47 million annual revenue stream projection - and say to yourself, "man, that looks like one crappy NPV."

[Pakuni]

Really?  Do you really think more people coast-to-coast would actually prefer watching a DePaul game right now as opposed to Goznaga or Butler?  Really? 

Hell, I don't think DePaul ratings would beat Gonzaga or Xavier in CHICAGO.  Coast to coast wouldn't even be close. 

But networks don't care about eyeballs or ratings, right?  Doesn't matter that Gonzaga would bring in better ratings. DePaul is in a bigger city--that's the ONLY thing that matters.  Is that what you're saying?

Based on your logic, phones at Iona and Cal State Northridge and Chicago State should be ringing of the hook with offers--becuase you know the size of their market makes them oh, so much more valuable than teams from  Durham NC, or Lawrence, KS, or Bloomington, IN or Lexington KY.

As has been pointed out by many - you included (an argument you've now abandoned for convenience sake, I suppose) - non-tournament college basketball is not a national ratings draw in the way college football is. The reality is, someone in California or Florida isn't like to tune into a DePaul game or a Creighton game. Coast to coast isn't a major consideration.
Eyeballs is a major consideration, though, and the fact is having the predominant program in a large market has the potential, if not likelihood, for more eyeballs than a program in a smaller market.

I'd love to see some evidence for your contention that a Xavier-Creighton game is going to get more eyeballs in Chicago than DePaul-Marquette or DePaul- Villanova, or maybe more in New York than St. John's-Georgetown.

[keefe]

They aren't coming nor are they in the discussion. And they probably have more of a national following than the other four combined.

Uh, actually they are in the mix.

[brewcity77]

Uh, actually they are in the mix.

Keep dreaming. When you wake up, Gonzaga still won't be here.

[jsglow]

Pakuni has it right.  The C7 hold most (actually almost all) of the cards and will absolutely act in concert for their own benefit.  The Invite 5 (which certainly has more than 5 names on the list) may be given some opportunity to offer suggestions but in the end will be presented with a final 'take it or leave it' offer to join.  Knowing that a 'polite no' will relegate them to the equivalent of the Horizon league and likely not materially change the deal that the C7 can negotiate with Fox, they'll happily sign on the dotted line smiling because good fortune shined on them that day. BOTH sides of the negotiation know it.

Whether that deal has a two tiered structure (I'd put the probablilty of that over 75% but just a guess) and a sunset (maybe yes, maybe no, maybe at the NEXT TV deal), it'll be the C7 that decides, not Xavier or Butler or anyone else.