San Diego State Takes Calculated Risk Joining Big East
Dr. Michael Lorenzen is the principal owner of Collegiate Athletics Strategy Advising, a firm that provides advisement services to collegiate athletics administrators
One of the most significant trends to impact intercollegiate athletics in the last several years has been conference realignment. While some of the most landscape-altering changes have probably already been completed, there is almost certainly going to continue to be movement as universities make decisions that may seem to contradict completely the traditional understanding of conference membership. After all, the historic significance of collegiate athletic conferences has been to organize a group of universities around a common sense of mission, history, size, and geographic location in order to create affiliations and rivalries that benefit all involved. In that context, it is reasonable to ask how in the world some of the latest changes make any sense at all–does San Diego State really fit in the Big East?
There is a fairly straightforward analytical approach to evaluating that sort of move and in the case of San Diego State, the financial bottom line would suggest that the move makes both dollars and sense.
The first consideration for most schools is the most obvious one–what sort of media rights contract exists in the target conference and how does that compare to their current situation? San Diego State has been a member of the Mountain West, which was likely paying out up to $1.9 million per institution per year according to Boise State President Bob Kustra. By comparison, the Big East media deal was projected to pay $3.7 million per year to football schools. A gain of $1.8 million per year could be a powerful incentive.
At the same time, that Big East deal pales when compared to the other conference negotiations in the last several years. The new Pac 12 contract, which will begin with the 2012-13 season, will be worth more than $225 million per year — or $2.7 billion over the life of the deal, according to the Sports Business Daily and The Associated Press.
The ACC currently operates under a deal for $155 million a year, and the Big 12 reached a deal with Fox that made its total annual package worth about $130 million. The SEC gets $205 million per year and the Big 10 gets $220 million. Though there is clearly some variation in the number of ways each of those pies gets split, a $10 million per year distribution per school is rapidly becoming the norm.
So what might the Big East alignment eventually net San Diego State? One former television executive consulting to the Big East estimates that the next Big East media package will conservatively bring $90 million per year. The current Big East practice is to split the total package with 70% going to football and 30% to basketball.
As announced last week, the new Big East includes 8 full members: Houston, SMU, UCF, Cincinnati, Connecticut, Louisville, Rutgers, and USF. Boise and San Diego State have committed to be football only members, and the Big East could still land Air Force and Navy as football only members. The 8 basketball only members would be: DePaul, Georgetown, Marquette, Notre Dame, Providence, Seton Hall, St. John’s, and Villanova.
Based on a $90 million annual package, there would be $63 million for football and $27 million for basketball. Given the projected membership above, that leaves a $5.25 million share for football only schools, a $1.687 million share for basketball only schools, and a $6.937 million share for full members. Under that scenario, San Diego State could be increasing their annual take from football media rights from $1.9 million to $5.25 million, for a net gain of $3.35 million.
The second consideration is the share of BCS revenue that a school in a conference with an automatic qualifying slot would gain as a result of their membership, assuming the conference has an equal revenue sharing agreement. The Big East currently has an AQ slot (the Mountain West has appealed for a spot).
Under the current BCS arrangement, each conference whose team qualifies automatically for the BCS receives approximately $22.3 million in net revenue. A second team brings an additional $6 million to its conference. Notre Dame receives $1.8 million. Army, Navy and Brigham Young also receive $100,000 each, and each of the NCAA’s Football Championship Subdivision conferences receive $250,000.
At one point late in the season this year both Houston and Boise State were ranked in the top 10 in the BCS, which would mean $28.9 million for the Big East if both had been members and chosen for BCS games. Adding Houston, Boise State, and two other schools for football gets the Big East to 12 football members, which would yield a max of $2.4 million per institution from BCS participation if two schools were chosen to participate in BCS games. Add that $2.4 million to the incremental $3.35 million from the media rights deal, and now San Diego State is $5.75 million ahead on revenue by switching conferences.
The third consideration is the impact on the cost side of the athletics equation. According to the US Department of Education, SDSU is currently spending $12.1 million on 121 football players, or $100.2K per player. That is almost double the median spending in the Mountain West conference in absolute terms and $39K more per player than their current peer institutions spend. This gives SDSU a fairly dominant position in the Mountain West.
After taking out Georgetown (who does not play football at the BCS level), the median spending in the Big East on football is $12.6 million on 111 players, or $112.1K per player. To rise to the median level of football spending in the Big East that would require an incremental $12K per player, or $1.45 million per year.
Another important component of the cost bar is staffing. One way to quickly measure and benchmark athletic staffing levels is to evaluate the number of Full Time Equivalent positions in each department as reported on their websites. In order to match Big East average staffing levels SDSU would have to add a total of 12 staff FTEs. Relative to their peers in the Mountain West, SDSU would require an additional 9 FTEs. At an average of $60K including benefits that would require an additional $720K per year to match the Big East and $540K per year to reach Mountain West norms. Since SDSU is only participating in football in the Big East, let’s assume that only 15% of staffing is attributed to football, or 2 FTEs. That would still require an incremental investment of $120K per year. Add that to the increased spending per player and you get an annual operating expense increase of $1.57 million per year, which still leaves a tidy net gain of $4.18 million per year by switching football to the Big East.
The fourth consideration, and one that gets dwarfed by all of the others in the current world of professionalized collegiate athletics, is the impact on the remainder of the athletic department. In the case of SDSU, the biggest factor is the effect on what is currently a very successful basketball program. Last year SDSU earned more than $1 million profit from basketball operations on revenues of $4.7 million. The Mountain West median basketball profit was $300K on median revenues of $2.9 million, so SDSU has a very strong and successful position compared to their current peers.
With the move of the football team to the Big East, SDSU had to find a new home for all of the other sports since the Mountain West was no longer interested in having the school without football. The destination conference is the Big West, which is generally a weaker conference in terms of revenue and level of play. Last year the Big West median revenue on basketball was $1.4 million and not a single school reported a profit, with several losing money.
If SDSU approximated the rest of the Big West as a result of lower level of competition, smaller venues, lower attendance, lower level recruits, etc., it would be reasonable to assume that SDSU basketball would become a break-even enterprise. The impact on the department as a whole would be a reduction in departmental revenues by several million dollars and departmental income available for supporting other sports/programs by $1 million.
Under the best case scenario, where the Big East lands a media rights deal worth $90 million a year and has two teams in BCS games, SDSU stands to gain $4.18 million per year after deducting incremental spending on football. However, on the other end of the spectrum, the worst case scenario could cost SDSU approximately $770,000 per year, which would involve no increased media rights deal and loss of AQ status in the Big East and decreased basketball revenue consistent with typical Big West basketball revenue.
Those are likely the most significant considerations for a university in SDSU’s position and the ones that would be expected to drive the final decision. More difficult to quantify are issues like the impact on football student-athletes from a more demanding travel schedule, the effect that playing lower ranked teams has on recruiting and quality of experience for every other team in the department, and the overall message that accompanies the move.