SEC Network Launch Means Payday for Schools, Higher Bills for Consumers

The SEC Network launches next week, and it's big business.

Aug 9, 2014 at 5:43PM

Tbo Sec

Just Dog, Wikimedia.

The SEC Network is heavily anticipated, and for good reason. When it launches next week, millions of viewers will have access to a channel dedicated to some of college football's most dominant programs. But Disney's (NYSE:DIS) ESPN and the conference aren't creating the network out of fandom -- there's a ton of money to be made.

What are cable and satellite providers paying?
Since announcing the network's launch, ESPN and the SEC have reeled in more TV providers than the doubters expected. First came AT&T's U-verse, followed by Dish Network and Google Fiber. More recently, Cox Cable, Comcast, Time Warner Cable, and DirecTV have jumped on board, followed by a handful of smaller companies, including Bright House Networks and Cable One. Altogether, these operators will allow the SEC Network to reach 87 million homes at launch.
Assuming most pass the network's carriage fees on to customers, wallets everywhere could be squeezed. Estimates vary, but SportsBusiness Daily reports that a monthly rate of $1.30 per subscriber is likely for in-conference providers. The fee is $0.25 in the 39 non-SEC states. Comcast, which reached a long-term deal with the network last month, is paying a slightly higher cost of $1.40 per subscriber, the outlet adds.
That rate is about 40% more expensive than what the Big Ten and Pac-12 networks charge, indicating ESPN and the SEC appear to be leveraging the conference's popularity. Last year, it was the top-rated conference on television, and it had seven of the 10 top-rated teams, according to SB Nation. The SEC was also the most-watched conference in 2012.

How much money will the SEC and ESPN make?
The network is set to bring in the big bucks. If half of all households are subject to the in-conference rate, that's a little over $700 million a year in revenue. The remaining non-SEC customers should pitch in another $130 million or so. In terms of sheer carriage revenue, that would be near the size of ESPN2, and over three times as large as the Big Ten and Pac-12 networks, Fox Sports estimates.

If ad sales and programming costs cancel out -- a fair assumption -- that leaves $830 million in annual revenue up for grabs between both sides. While the exact terms of the ESPN-SEC deal aren't public, a 50-50 split is reasonable, Fox says. And in reality, a 60-40 or even 70-30 split in favor of the SEC isn't out of the question. The conference's popularity may have created a better negotiating position.
Given these estimates, the SEC's portion of revenue should be no less than $400 million annually. In that scenario, each of its 14 universities would net an extra $28 million per year, a truly astounding number, considering the average SEC school made close to $21 million from 2013's conference payout. If it holds, that sum -- $49 million -- would be a few million dollars more than what the Big Ten, Big-12, and Pac-12 expect to pay their schools in the future.

The obvious critique
To some fans, the SEC Network feels like a money grab. "ESPN and SEC can now siphon content I already had access to onto a new network I have to pay for. YES," The Big Lead's Tyler Duffy tweeted sarcastically this week. "The SEC Network Channel? wait what? I thought ESPN already was the #SEC NETWORK?," another Twitter user wrote. 

This sentiment is understandable. In the past, the biggest SEC games were already available to the typical viewer. A dollar or two in carriage fees may not seem like a lot, but they add up. Division I college football alone is home to 11 individual conferences, and a future with 11 different networks likely won't fly with most fans.

The bottom line
The bigger issue, though, is this: The movement takes more money from viewers and puts it in the pockets of television networks and schools, rather than the athletes themselves. The college-pay debate could be a defining issue of this generation, and evidence suggests that although players are worth thousands of dollars, many face scholarship deficits.

Most likely, the SEC Network will succeed. Over the long run, fans just need to decide if athletes deserve a piece of that success.

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Jake Mann has no position in any stocks mentioned. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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