College Football Wars | The New Champions | 2

0:09April 2011. In a New Orleans hotel suite, Pac-12 Commissioner Larry Scott and ESPN Executive Vice President John Skipper are negotiating over a hastily arranged dinner. This morning, the two men had no dinner planned and were 1 ,400 miles apart. But now, Skipper's flown in from Connecticut in a last-minute bid to keep Pac-12 games on ESPN. The Pac-12's media rights are up for auction, and right now Comcast NBC is the frontrunner. Scott levels with Skipper. John, Comcast's offering us everything we want. A major increase in our media revenues and a higher profile for all our colleges' sports. Comcast's unproven in cable sports, and college sports matters to us at ESPN.

0:57ESPN was built on college sports. Sure, but our colleges need money to improve their facilities. Compared to the colleges in the Big Ten and Big Twelve, ours are underfunded. They need a big deal to remain competitive as colleges. Skipper sits back and thinks. ESPN can't match Comcast's offer. Not just financially, but in airtime too. ESPN owns lots of sports rights. And there's only so much time it can give to Pac-12 games. Really, ESPN just wants to hold on to the Pac-12 games it already shows. And Fox Sports wants to keep showing the Pac-12 games ESPN doesn't air. Skipper smiles at Scott. Okay, okay.

1:43What if... What if we and Fox got together? Scott raises an eyebrow at the idea of a joint offer from ESPN and Fox Sports. But he gets it. Comcast is determined to challenge them both. ESPN and Fox might be rivals. But they would rather ice out their mutual enemy. Interesting idea, John. But this is an auction. Biggest offer wins. So tell me, what do we need to offer to make this happen? Big Ten gets$220 million a year. I want more. That's a sizable check you're asking for. The biggest TV rights deal in college sports. I know. In that case, I want a long-term deal. 12 years. Well, I'm open to that.

2:35But the clock's ticking, and I'm not going to risk losing Comcast waiting around for you and Fox. Skipper rises from his chair, his dinner half-finished. Where are you going? To L.A. to meet Fox. Then I'm coming back to get this deal. Within two weeks, ESPN and Fox get the Pac-12 rights by offering to pay an average of$250 million a year. Last season, the Pac-12 earned just$60 million. Now it's the richest of all the college sports conferences, out-earning the previous leader of the Pac, the Big Ten. But Scott hasn't sold everything. He's also kept back the rights to a handful of college football games.

3:21Now that he's enriched his conference with ESPN and Fox's millions, he's ready for the final phase of his grand plan. launching a TV network that'll make the Big Ten network look minor league. But his mega deal will also sow the seeds of the Pac-12's demise.

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5:55From Wondery, I'm David Brown and this is Business Wars.

6:26On the last episode, the Bowl Championship Series gave college football a national championship game. The Big Ten Conference launched its own TV network, and the Pac-10 became the Pac-12 after luring colleges away from its rivals. Now, Pac-12 Commissioner Larry Scott wants to cement its new status as the richest conference of all by launching a cable network to rival the Big Ten. This is Episode 2, The New Champions.

7:02Summer 2011, Pac-12 headquarters, Walnut Creek, California. In the boardroom, Commissioner Larry Scott and a media consultant are exploring options for creating a Pac-12 TV network. The consultant flicks to the next slide in his presentation. The simplest option is to do what the Big Ten did to get its network going. You partner with someone like ESPN or Fox. So what are the pros and cons? They know how to run a TV network and already have the studios. You don't. They can also cover the costs of getting started, which are considerable. Also, a media company like Fox can bundle your network with its existing ones and essentially force it onto cable providers.

7:45All right. Downsides? Well, your TV partner will likely want to keep as much as half the subscription and advertising revenue. That's what Big Ten had to give Fox to get the Big Ten network going. What's the alternative? Do it yourself. You'll need finance to build a studio, recruit people who know what they're doing, fund everything from host salaries to camera crews and sound rigs. It's expensive and it's hard, but you do get to keep all the money. Scott likes the sound of that. After all, it's his job to bring in as much money as possible for the colleges that belong to the Pac-12. But time is short.

8:23The games he didn't sell to Fox and ESPN start in August 2012, and unless the Pac-12 network is on air by then, they won't get broadcast. Scott leans forward. Do we have time to build a TV network? We have to be broadcasting by August 2012. August? That's barely over a year away. It's not impossible, but Larry, you're going to have to move real quick to make that deadline. Then we'll do that. I don't want to share the revenue. It might be more expensive at first, but it'll pay off in the long run. Okay, but you'll need to hire people who know what they're doing. TV people. Don't half-ass it or it'll come back to bite you.

9:09But really, your biggest challenge is going to be distribution. Distribution? You've got to get a cable provider who will put your network into homes. But the big providers vary from county to county. Comcast will want lots of Stanford games because it's big up here, but Time Warner's going to be more interested in USC and UCLA. You got a solution? I've got an idea. You do a national network, but you also create six regional sports networks. A network focused on Southern California that Time Warner will want. A Bay Area one that'll appeal to Comcast, that kind of thing. That way we can get maximum distribution because we'll be giving providers the games their customers want most.

9:54Scott pauses to think. He imagined launching one national Pac-12 network, but now he's envisioning something bigger. A media company with seven networks. Seven networks. Seven ways to reach more college sports fans and bring in even more money for the colleges he serves. It's a super ambitious plan that'll need tens of millions of dollars in upfront investment. The college regents aren't going to like it. But then he hits on a plan. If he expands the PAC-12 to a PAC-16, then the cost per college of getting PAC-12 networks going will shrink, and the potential revenues would rise even higher. And he knows exactly which college to recruit first.

10:50September 2011. A business office at the Rose Bowl in Pasadena, California. Pac-12 Commissioner Larry Scott looks at University of Texas President William Powers with hopeful eyes. Texas belongs to the Big 12 Conference, but the Big 12 isn't a happy family. Its northern and southern schools are at odds over how to share revenue. Texas leads the Big 12 southern schools that are the biggest draws in the league, and they want a larger slice of the money. But the Big 12's northern schools are resisting. So now, Texas is seeing if a move to the Pac-12 will pay off. And the Pac-12 knows that if Texas joins, Oklahoma, Oklahoma State, and Texas Tech will follow it.

11:38For Scott, getting Texas would be just the start of his master plan. He wants to increase revenue by adding four more teams. Each team that joins the conference extends its appeal into new markets and increases the size of the fan base. And the greater the conference is following in geographical appeal, the more money it can extract from the TV companies that air its games. We almost got a deal over the line last summer, Bill. We can do this. We both know that the Big 12 is not in great shape. You'll be joining a conference that's on the up. Powers strokes his chin. Scott's right about the Big 12.

12:18But if Texas stays, it could rebuild. The Big 12 commissioner is close to persuading the league's northern colleges to swallow their pride and give Texas more money to stop the conference from becoming irrelevant. Powers looks Scott in the eye. I hear you, but we got a lot of questions and a lot of barriers to work through. Well, if the will is there, barriers can be overcome. Give me an example. Well, there's the Longhorn Network. ESPN is paying us$15 million a year for that. We're not giving up that revenue stream. Scott nods. Texas and ESPN run the Longhorn Network cable channel. It's a lucrative showcase for the college's hugely popular athletics department.

13:04Okay, but equal revenue share is a hard-won principle for the Pac-12. However, what might work is we let you keep the revenue you currently make from the Longhorn Network. Powers seems to soften a little. But then Scott continues. But only if that revenue is higher than what each of our schools makes from similar media rights. And if we make less? Then the money's shared equally between all. But that scenario seems unlikely to me. Of course, the Longhorn Network would need to be branded as part of the Pac-12 networks. Maybe it could run some Texas Tech games and other Pac-12 programming. Hmm. Not bowled over.

13:47We're bringing a lot to you. We want more than that. It took a lot to get UCLA and USC to agree to equal sharing of media rights revenue. I am not reopening that discussion. The offer on the Longhorn Network is as far as I can go, Bill. Equal shares allow everyone in the conference to invest in their teams. Better teams mean better games and more fans. Eventually, that means even bigger media rights deals. Unequal shares is a short-term play. Well, that's the price for getting us and the three colleges that'll follow our lead. Okay. Okay, I'll take you to the Pac-12 colleges, but don't hold your breath.

14:28What you're asking for is a deal killer. And it is. The following week, the Pac-12 rejects Texas' request for a bigger slice of the TV rights pie. Texas decides to stick with the Big 12, as do Oklahoma. Oklahoma State, and Texas Tech. The Pac-12s missed its chance to grow again and deal a potentially lethal blow to the Big 12. But for the colleges already in the Pac-12, the benefits of equal revenue shares are already becoming evident.

15:09It's December 2011, and on the Washington State University campus in Pullman, Washington, There's a buzz on campus, a buzz that's been missing for years. Its football team, the Washington State Cougars, had been the runt of the Pac-12. But now, change is in the air. The Cougars' home turf, Martin Stadium, is undergoing an$80 million renovation that will add premium seating and VIP boxes. And in a ballroom nearby, the college is introducing another expensive upgrade to its football team. His name is Mike Leach, and he's the new head coach. In front of 1 ,300 students, players, and reporters, the former Texas Tech coach holds up a Crimson Cougars shirt bearing his name and the number one.

15:59And that's his ambition, to make Washington State the number one team in the Pac-12. People ask me why Washington State. Well, I think that's a stupid question. The students in the room roar with approval. The answers are obvious. The commitment to excellence in every phase of the university. The excitement around this community and the fact that you can win here and win big, I believe. The students go wild. But Leach had another reason to come to Washington. Money. Washington State's Athletics Department is about to get an extra$11 million a year thanks to the Pac-12's mega deal with ESPN and Fox.

16:42And it's eager to splash the cash not just on a spruced-up stadium, but on its coaches, too. Its previous coach earns$600 ,000 a year, about the same as Oregon spends on locker room showers. But Leach is getting$2.25 million a year. After years of defeats, tight budgets, and aging facilities draining morale, the Cougars crowd feel something they've not felt for years. Ho.

17:19December 11th, Pac-12 headquarters, Walnut Creek. In a meeting room, the Pac-12 network's morning team meeting is underway. Three months ago, this team didn't exist. Now there's a half dozen executives scrambling to launch seven TV networks at breakneck speed. Through the speakerphone in the center of the table, the latest hire voices her concern at what she's just signed up for. The way I see it, feels like we're six months behind schedule. On a good day. Pac-12 Network CEO Gary Stevenson responds. He once helped start NBC's golf channel, so he knows what a cable TV launch should look like. We know.

18:00Okay. Well, first question I have is about archive games. On paper, we've got more than 61 ,000 hours of TV time to fill. We can't do it without running old games. Do the colleges own those rights? The team's legal advisor responds. No, I'm still reviewing this, but in almost every case, TV networks own or co-own the rights. Then we've got to get them to buy them back. It'll cost millions, but we need those games. Stevenson grimaces. The colleges won't like it, but they're just going to have to live with it. Agreed. Next, do we have an update on the new studio? When's construction starting? Well, we've got a date to break ground in February.

18:41February? Are they even going to have it built in time? We need to get in there by mid-July. That's the fastest we can start. Stevenson sighs and moves on. The to-do list keeps growing, and time is running out. But it's too late to change course. Deals are being struck with cable providers. The land for the studio has already been secured. Pac-12 Networks is happening, no matter what. And somehow, he and his team must deliver.

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20:47Spring 2012, San Francisco. In the Soma neighborhood, a group of athletic directors from Pac-12 colleges are touring the construction site that will be home to their TV networks. Leading the way and wearing hard hats are the two men shepherding the Pac-12's push into television, Commissioner Larry Scott and Gary Stevenson, the CEO of Pac-12 Networks. Stevenson brings the group to a large room where a team of electricians are connecting up hundreds of wires and cables. This will be the production facility, the heart of the operation. Here, producers will get raw feeds of the audio and video from live games and mix them for broadcast as they come in.

21:28Scott interjects. Some of the colleges are nervous about how much money getting into TV is going to cost them, and he wants to calm those fears. And that saves money, doesn't it, Gary? Yes, yes. ESPN and Fox hire production trailer trucks to produce games on site. Those trucks are expensive, and there's not enough of them out there. Instead, we're going to send that same raw footage here using high-speed internet connections and produce it in this studio. One of the athletic directors asks a question. Even so, this place looks like it costs a lot. Scott smiles. It's not a cost, it's an investment.

22:06Once it's operational, Pac-12 Networks will earn millions for each of your conferences. Our low-end estimate is that it will earn each college$3 to$5 million a year. What's the highest-end figure? Seven to ten million. The athletic directors break into smiles. Those numbers are much better than they imagined, and enough to make them feel giddy with excitement about the cash coming down the line. But while Pac-12 Networks readies for launch, college football's top executives are about to tackle the sport's thorniest problem, the Bowl Championship Series, or BCS. It's been 14 years since the BCS gave college football its equivalent of the Super Bowl.

22:52But its convoluted and computer-assisted process for picking which two teams will play in its national championship pleased no one. Fans, players, teams, coaches, journalists, lawyers, and even presidents have called for the BCS to be replaced with a playoff system that doesn't involve complicated equations to crown a champion. For years, the college football executives in charge of the BCS refused to change. But now, they finally caved. In June 2012, at a meeting in Washington, D.C., the BCS colleges, conferences, and bowls voted to create the college football playoffs. Late this evening, there was an announcement out of Washington that will revolutionize college football.

23:40A committee of college presidents has approved a national championship series beginning with the 2014 season. The BCS is dead. Under the new system, the equations will be replaced by a committee of 13 people, including a former sports writer, a former NFL quarterback, a host of athletic directors, and former Secretary of State Condoleezza Rice. The committee will pick who the top four teams are every year. Then, those teams will play two semifinal games. The winners of those games will then face each other in the national championship game, starting in January of 2015. The host of the national championship game and the semifinals will rotate between six different bowl games, and teams from every college football conference will have a chance at being picked for the playoffs.

24:33But it won't just be the championship process that changes. It will also be the finances of the colleges, as the playoffs' media rights are expected to sell for as much as$400 million a year. But while the BCS prepares to exit the field, the Pac-12 Network's launch deadline is closing in. In mid-July 2012, the network's production team moves into its half-finished facility in San Francisco to prepare to go live. The whole operation is moving fast. It now has dozens of employees, bought back the rights to its school's old games, and the schedules for the year ahead have been mapped out. The PAC-12s also secured distribution deals with cable providers Bright House, Comcast, Cox, and Time Warner, ensuring that 12 million households have the option of watching its networks from day one.

25:29The four cable companies liked the PAC-12's regional networks plan so much, they even agreed to pay the PAC-12 network's launch costs up front so that its colleges weren't left out of pocket. But to reach as many customers as it needs to, the PAC-12 needs to convince a satellite TV provider to carry its networks.

25:56It's early August 2012, and in the offices of DirecTV in El Segundo, California, PAC-12 Commissioner Larry Scott is hoping for a last-minute breakthrough. For months, he's been trying to convince satellite TV giant DirecTV to carry Pac-12's networks. But the DirecTV executive he's negotiating with isn't playing ball. The cost of carrying sports programming is soaring, eroding the margins distributors make. DirecTV isn't going to let the Pac-12 add to the problem. Opposition is the same, Larry. We do not see the value of carrying your networks. Our subscribers are already paying for Pac-12 games on ESPN and Fox.

26:41I'm not going to charge them more for second and third tier games they don't want. Scott pushes back. We're offering lots of quality games. Your subscribers won't want to miss out. We disagree. We don't believe there's much interest in the Pac-12 among our subscribers in the East. Besides, the fees you're looking for here make no economic sense to us. Comcast and Time Warner have no problem with it. It's because they're cable providers. They can switch off the feed in areas where interest is low and avoid paying you. We don't have that option. Satellites supply everyone or no one. You're asking us to pay you$18 million to give people outside the Pac-12 markets access to networks they don't want to watch.

27:27You need to change the pricing structure. Scott purses his lips. Well, you know I can't do that. Our contracts with the cable providers included most favored nation clauses. If we lower the price for you, we have to lower it for them too. I'm not the one who signed those contracts. Look, if you don't offer Pac-12, you're going to get a lot of angry customers. I'm telling you, customers who might find new providers. Maybe. But we doubt the games on your network are going to be enough to move the dial. Scott sighs. He's boxed in. DirecTV won't budge unless the Pac-12 charges less. But he can't lower prices without lowering them for everyone and destroying the entire business model of Pac-12 networks.

28:19Scott just hopes that the demand from fans for the Pac-12's networks will be enough to force DirecTV's hand.