Pac-12 Networks: Record surplus expected in 2022 fiscal year, assuming normalcy in college sports returns
It has been a difficult year for the Pac-12 Networks, which lost football inventory, tens of millions in revenue and dozens of staff members.
But the other side of the pandemic could bring unexpected success in one aspect of the core mission.
Assuming college sports return to normal in the fall, the conference’s wholly-owned media company is projected to produce a record surplus in the 2022 fiscal year.
Current estimates call for a net surplus of $45 million, resulting in distributions of $3.75 million per campus, according to a Hotline source familiar with budget projections.
That figure is approximately $1 million more per campus than the last publicly reported payout of approximately $2.8 million per school from the 2019 fiscal year.
The FY20 payouts are expected to have increased slightly from that point and will be reported by the conference this spring with the release of its 990 tax filings.
The FY21 payouts are in flux and will feel the full impact of the pandemic .
When asked to explain the expected surge in both net surplus and campus distributions in FY22, Pac-12 Networks president Mark Shuken said via email:
“The Pac-12 Networks has been able to significantly increase distributions to members during the period 2019-2022 (projected) through a combination of diversification of revenue streams and efficiencies realized through new and innovative production technologies.”
Notably, the post-pandemic payouts will mark the first time the networks have reached the baseline revenue goals laid out by commissioner Larry Scott prior to the launch of the networks in 2012.
According to a source who attended Scott’s presentation to campus officials, the payout ranges cited were as follows:
High end: $7 million to $10 million per school per year
Middle: $5 million to $7 million per school per year
Low end: $3 million to $5 million per school per year.
To this point in their existence, the Pac-12 Networks have not met the $3 million-per-school threshold.
That could change with the FY20 figures, which will be released this spring. And barring an unexpected disruption to the sports calendar, it will change in FY22 when the anticipated record surplus pushes payouts to $3.75 million.
Shuken attributed the increased surplus to several factors:
• The 2020 launch of Pac-12 Insider, an ad-free streaming service that features events not shown on the Pac-12 Networks; it is expected to generate annual income in the range of seven figures.
• An increase in sales
• A streamlined production process that allows the networks to eliminate the need for costly TV trucks and crews at the competition sites.
The new approach, used for Olympic sports events, allows cameras mounted in fixed locations throughout the venue to be controlled by software in San Francisco, with public and private links used for data transmission. Rolled out quietly this year, the technology is expected to be fully implemented in the fall.
All in all, the networks have cut $12 million in programming and production expenses through a plan approved by the presidents and chancellors at the start of the pandemic.
Those savings should help offset continued headwinds on the revenue front. The networks have lost about 20 percent of their subscriber base over the past five years, mirroring declines across the cable industry.
“All of this has been achieved despite a very challenging TV media landscape from a subscriber perspective and the challenges of the current pandemic,” Shuken said.
Every operational decision is framed by one of two longstanding issues:
• The networks are obligated to produce 850 live events annually for their broadcast partners; failure to meet that goal (in a non-pandemic year) would result in a breach of contract.
• The networks are expected to deliver as much revenue as possible to the campuses each year.
In that regard, pandemic-related adjustments to the Pac-12 calendar created a monumental challenge.
Football games account for less than five percent of the live broadcasts on the networks but approximately 60% of the revenue, which typically exceeds $100 million.
In the abbreviated 2020 season, every game but one (Colorado vs. San Diego State) was shown on the ESPN and Fox networks, which generate more revenue for the conference than Pac-12 Networks broadcasts.
As a result, income for the current fiscal year cratered, and Shuken was forced to downsize.
The networks laid off 10 employees and placed more than 60 on furlough. In addition, many open positions haven’t been filled, resulting in a leaner staff – and lower expenses – moving forward.
(The layoffs and furloughs came after Scott approved performance bonuses for executives and mid-level employees.)
Asked about the human toll created by the loss of revenue and the need to pay the schools, Shuken said via email:
“As a Networks we are our people, so our staff is always a critical priority. We work in a rapidly changing industry and one that has its fair share of challenges and opportunities. It has not always been smooth sailing and we have essential obligations to our members, but we always think about how we can best support our team and our people.”
Launched in August 2012, the networks are viewed as an unqualified success in helping promote Pac-12 Olympic sports and powering women’s basketball to its current position of national dominance. (Stanford won the national championship last week; Arizona was the runner-up.)
At the same time, the networks have missed badly on providing exposure for football and men’s basketball and delivering revenue to the schools.
Shuken, who was hired as president in the summer of 2017, must navigate three competing forces: The requirement to produce 850 events, the need to pay the schools, and the declining subscriber base.
A few years ago, the Pac-12 Networks had more than 19 million subscribers, according to S&P Global Market Intelligence; now, the figure is 14.8 million (per S&P).
Meanwhile, there are few options to either grow audience or revenue or to cut additional expenses:
If the Pac-12 shuttered the six regional networks and left only Pac-12 National, as some analysts have suggested, it would be unable to meet the contractual obligations to broadcast partners like Comcast and DISH.
Asked about the likelihood of the networks operating in their current form, Shuken said: “We have obligations to our distribution partners through 2024. At the same time, we are committed to always thinking innovatively and exploring the very best ways to support our members and student-athletes and grow the value of the Networks.
“Pilot programs with leading technology companies, innovating in the area of software-based production and direct-to-consumer explorations are all examples of initiatives we are working on in anticipation of and to build value for 2024 and beyond.”