The method by which media companies assign valuations to football programs has been the source of much discussion and debate over the past eight weeks.
After all, the fate of both the Pac-12 as a collective and the schools specifically depends on desirability, and media value is integral to desirability.
It doesn’t carry a simple explanation, however.
A decade ago, the prime driver of media value was, in fact, market size – revenue potential was based on pay-TV (cable) subscribers within a school’s footprint.
By adding Colorado, for example, the Pac-12’s valuation increased because its partners (e.g., Comcast) wanted the Denver market.
Market size still matters in this round of realignment, but not to the extent it once did. Now, ratings (audience) also matter.
Three essential revenue streams for linear media companies are advertising sales, monthly subscribers (cable) and retransmission fees, which are the payments local providers send to broadcasting networks for the programming. And those fees are based on audience.
Fox and Disney, which owns ESPN and ABC, want their conference partners to provide big games and popular teams in order to generate ratings. But they also want markets for the monthly subscriptions.
They want it all.
Within this space, Washington State is an interesting case. The Cougars produce viewership numbers that exceed what might be expected of a program with a small local media market. (Spokane is the 66th-largest market in the country, according to Nielsen data.)
Why would WSU’s audience outperform its local market?
One reason is the Apple Cup, which typically moves the ratings needle. (The Friday afternoon slot on Thanksgiving weekend, with little competition, is partly responsible for that.) But WSU’s alumni base in Seattle, the nation’s No. 12 media market, undoubtedly contributes to the ratings success, as well.
When the media consultants working for the Pac-12 or Big 12 create valuation models for each school, they consider both market size and audience. All those Washington State fans watching in Seattle are, in fact, contributing to the Cougars’ media valuation.
The problem for WSU? Its overall valuation doesn’t come close to clearing the Big Ten’s bar; nor would it be accretive enough for the Big 12 when other factors – geography – are considered.
If you transplanted WSU’s campus into one of the Four Corners states and assigned the football program the very same valuation it currently carries, the Cougars would warrant consideration.
But the combination of remote geography and what we would call B-level valuation are significant impediments.
If the Pac-12 dissolves – and that possibility exists until a new media rights deal is signed – then WSU is probably bound for the Mountain West.
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