The Longhorn Network Contract and What It Means for the Rest of the Big 12

Welcome! I registered this site for the purpose of blogging about Texas A&M football games once the season starts but since there seems to be so much chatter about the recently released contract for the Longhorn Network, I decided I'd use my training as an attorney to break it down both in terms of what it says and what it means for the member schools of the Big 12. A big thanks to @spadilly and the Texas A&M blog themidnightyell.blogspot.com for requesting and publishing the contract, which can be read in its entirety here. 

While there's already been some analysis by both spadilly at The Midnight Yell blog and by Kristi Dosh at businessofcollegesports.com, one comes from the perspective of a sports fan without necessary legal context while the other is legal analysis without the context of the current landscape of the Big 12 Conference. While both are helpful, I'm hoping to bridge those two discussions in this post and perhaps expound a little more upon the rest of the contract. This is all based on my reading of the LHN contract and what I know/have read about the Big 12 television contract - if any facts about that appear wrong, please let me know.

So here goes.

What's in it for Texas?

In terms of money, Texas will receive $10,980,000 per year for twenty years, with a 3% increase per year. 

Though it is not stated in the contract, IMG, the company that acquired Texas's third tier programming rights, will take 17.5% of that (source). Half of the remainder will go to academic initiatives (source), leaving the Texas athletic department with approximately $4,529,250. That is about 3% of Texas's athletic revenue last year.

Once the LHN generates profit over $295,000,000, Texas will receive 70% of the profit. The profit is defined as actual net income minus all actual expenses (including overhead, advertising costs, etc). These actual expenses include an estimated operating budget of $26,000,000 per year according to the contract (that's production costs of $15,000,000 and overhead costs of $11,000,000). On top of that is the $10,900,000 ESPN must pay to Texas. Using loose math and not taking into account the projected increases, the LHN would have to bring in over $50 million every year for twenty years before that $295 million mark is reached.

What's in it for ESPN?

Rights to Content:

Under the terms of the contract, ESPN gets a license to all of Texas's third tier rights, which includes the right to one non-conference football game.  ESPN also gets the rights to some archived athletic content and non-athletic programming. Except for the archived content, these rights are exclusive, meaning Texas cannot license this content out to any other entity. For all intents and purposes, think of it as ESPN's property for the duration of this contract.

Rights to First Negotiation/First Refusal:

If Texas were to go independent, ESPN has 60 days to negotiate a deal with Texas for all rights currently held by the conference (first and second tier). If no deal is worked out in those 60 days, Texas can negotiate with other networks but ESPN has 48 hours to match any competing offers.

Assistance from Texas:

Texas must use its "best efforts" (a common legal term) to help ESPN get the right to telecast UIL (high school) championships. This is not limited to football. Keep in mind that Texas more or less owns the UIL; however, the UIL has maintained that it will not be biased in favor of the LHN when its TV contract with Fox is up in three years. (source). Also remember that the UIL does not control the media rights of individual high schools. It's up to the LHN to directly negotiate with those school districts to air regular season high school games, which it has been doing. (source).

What's going to be on the LHN?

ESPN is obligated to show at least 200 Longhorn athletic events. 10% of total programming must be non-athletic programming, though.

Football: a minimum of one football game and, starting in 2012, the spring football game. The parties documented their "mutual desire" to show at least two regular season games. This is just an acknowledgement that a second game is wanted, not a requirement that more than one football game be broadcast. Any decision to show more than two games is subject to mutual approval - either Texas or ESPN can nix the additional games.

Men's basketball: eight regular season men's games; any decision to show more than eight is subject to mutual approval.

Women's basketball: at least three regular season women's games. Additional games are not subject to mutual approval.

Other sports: ESPN has the rights to broadcast all other home sports, including baseball.

Television shows: ESPN is required to produce at least 27 weekly television shows, thirty minutes in duration. These shows will emphasize football or men's basketball, depending on the season, and will feature the respective head coaches.

During each of these games and shows, there will be a minimum of four and a maximum of six 30-second commercials dedicated to Texas and/or Longhorn sports. So, contrary to popular fears, football games won't be a three-hour promo for Texas (although arguably the mere fact that it's on the LHN serves such purpose).

What does this mean for Texas A&M and the rest of the Big 12?

Is this contract proof that Texas is going independent?

No. While Texas may want to go independent someday, this is in no way proof of that. Contingencies for Texas's independence are to be expected. Don't forget, this contract is intended to last for at least twenty years - think about the landscape of college football twenty years ago and how much it has changed through today. It is the attorneys' jobs to make sure every possible scenario is covered. For example, there's what's called a force majeure clause in case war or an act of nature prevents ESPN from continuing the LHN; I wouldn't say this means Texas is anticipating either of those take place. I would have been utterly shocked if such language regarding independence weren't included.

There is a one-year ban on broadcasting high school sports - is ESPN limited by that?

It appears so. In multiple places, this contract is subjected to "all governing laws, documents, rules, regulations and policies applicable to UT, the NCAA, and/or the Conference." That appears to prohibit the LHN from breaking NCAA rules. If the NCAA rules that high schools cannot be broadcasted, or if the Big 12 Conference itself so decides, then the LHN may not broadcast high school games according to the terms of the contract.

Just to be clear, this could always change if all parties, Texas, IMG, and ESPN agreed. Also, this contract does not give anyone but those three the right to enforce that clause. So if ESPN played high school games on the LHN in violation of the rules of the NCAA or Big 12, only IMG or Texas could use the contract to stop them.

Can we have a Big 12 Network given the terms of the LHN?

Yes, but it would not include the third tier rights of Texas or Oklahoma (if it follows through with its network)*. A Big 12 network would most likely consist of third tier content and ESPN now owns Texas's third tier rights for the duration of the contract. Fox has been in discussions with IMG and Learfield, the holders of the rest of the Big 12's schools' third tier rights, to test the possibility of a Big 12-2-2 Network:

"Talks have centered on having Fox flip one of its three Fox College Sports national channels, which are carried on cable sports tiers...Under terms of the new cable agreement with Fox, each school will be permitted to retain the rights to at least one home football game and a handful of men’s basketball games.

That means a new conference channel would have the rights to a minimum of eight football games total. In men’s basketball, anywhere from six to 13 games per school typically fall into the third tier of rights.

By flipping an existing Fox College Sports channel, Fox would save on development and facility startup costs, and would start with a national distribution footprint of between 10 million and 20 million homes." (source)

I like the sound of that. While the all extra shows about the head coach, traditions, and such are appealing to the most rabid of fans, quite honestly I just want to see more Aggie sports than I do now, especially basketball and baseball. And I want all of our sports to get more exposure. That's what we'd get with this proposed national network.

Keep in mind that this network would be different from the Big Ten or Pac-12 network. This would basically be a bundling of the separate rights to broadcast third tier games by Fox, not a comprehensive endeavor by the conference itself. 

*Food for thought: Fox bought the rights to the Big 12's second tier games. If Fox started a Big 12-2-2 Network, they could possibly play any Texas or Oklahoma games that fall to second tier on that network, depending on whether the terms of the Big 12's TV contract expressly prohibit that. Additionally, if Texas or Oklahoma plays at A&M, that would be A&M's third tier content and could be shown on the network.

Wait, if Fox creates a Big 12 Network, isn't Texas prohibited from playing on it?

No. There seems to be some confusion over this and I think it stems from the following paragraph:

All that means is that ESPN's right to Texas's third tier content is exclusive. Texas cannot allow any hypothetical Big 12-2-2 Network to broadcast its third tier content but in no way can it prevent other schools from placing their third tier content on a network. So if Texas baseball plays A&M at A&M, that is A&M's third tier game, which can be played on a conference network without conflicting with the LHN contract.

So has the LHN has negatively affected the value of a potential Big 12 network? 

Maybe, maybe not. 

As our conference is currently structured, with each school retaining its third tier rights, it doesn't necessarily affect it. The Big 12 Conference could not create a network out of something it doesn't own nor could it sell those rights (collectively, as a conference) to Fox or ESPN. At best, we can have a deal like Fox is pursuing - a third-party company collecting the third tier rights from each school individually, possibly with a different price paid for each school, and then broadcasting the games from those rights on a designated channel. 

Theoretically, that difference in price wouldn't matter since the money would go to IMG and Learfield, who in turn pay each school according to the contracts that are already in place.  In other words, what we get from Learfield is already set no matter what Learfield does with our rights. That's why the Sporting News Journal doesn't believe the schools involved in the network would get additional money:

"But while a new channel would significantly boost exposure and potentially aid recruiting for the eight schools, it is not expected to provide a financial windfall. Those schools already are being paid for their third-tier rights in their multimedia contracts with Learfield and IMG College." (source)

So the LHN may not affect how much money we'd receive if Fox creates that Big 12 Network. However, that argument presumes that we do not re-negotiate our contract with Learfield (which we might) or that A&M's compensation isn't tied to how much Learfield receives (I don't know whether it is). Both of those factors could allow for additional income to A&M.

I think the biggest issue is that we are now incapable of pooling our third tier rights and creating a conference-owned network (as Larry Scott did in the Pac-12). In other words, we can no longer change what we have in place and create a structure in which a conference-backed network would be possible. That ship sailed when ESPN was given the exclusive right to broadcast Texas's sports. In that sense, the LHN does hurt the conference's ability to create a comprehensive network and therefore its value. But in all fairness, this is the way the conference was set up and that's what A&M agreed to. The Big Ten Network launched four years ago, so we have been aware of the Big 12's ability to do something similar but have chosen not to act on it. And that's why nobody at A&M has taken issue with the LHN itself, only some of the things the LHN has attempted to do.

If the LHN is a bust, can it be converted into a Big 12 Network?

No. That contract would pretty much have to be ripped apart - there's nothing in it that allows for the conversion to a conference network (unless that's the redacted portion of the contract but I doubt it).

Speaking of that redaction, what are Texas and ESPN hiding?

I'm not sure but the Austin American-Statesmen was told the section was redacted because it being public "would cause specific harm to the university's marketplace interests." (source). I don't read anything nefarious into the redaction (it was vetted by the Attorney General's office) although I'm definitely curious about it since it pertains to termination.
 

Will the LHN become a "de facto Big 12 Network," but with Texas getting all of the money?

I will defer to Kristi Dosh at BusinessOfCollegeSports.com since she already posted on this subject and basically her answer is, "No." 

They could possibly pick up additional conference games if the other conference school so agrees. ESPN asked Texas Tech if it would allow the Texas-Texas Tech game to be broadcast on the LHN in exchange for $5 million and the airing of additional Texas Tech non-conference games; Tech declined. (source).

Does this diminish the Big 12's overall value in terms of television rights?

I don't think so. Fox and ESPN are after first and second tier rights so this does not directly affect any future deal on that front. I've already addressed the issue of third tier rights. 

Some fear that siphoning conference games off Fox and onto the LHN decreases the value of our television rights overall, but Fox receives some sort of compensation for those games. In other words, Fox is receiving more from LHN getting the game than it would from actually broadcasting the game and collecting ad revenue - otherwise, Fox would not agree to the deal. And with the extra incentive the LHN will provide, the member school receives the same amount of money or more whether the game stays on ESPN or Fox or ends up on the LHN.

 

That being said, of course there are considerations apart from just the simple economics when you push these conference games to the LHN. Even the most homerific of Longhorn fans should understand why Texas Tech does not want its game broadcast on the LHN. First of all, if and when the LHN gets picked up for distribution, it will probably get statewide distribution in Texas and perhaps some limited national distribution on Dish Network, DirecTV and the like. Therefore pushing the game from channels like ESPN, ABC or Fox Sports to the more limited LHN obviously diminishes the exposure that the other school might otherwise get. And then there are the not-entirely-minor considerations of pride, perception, and other intangibles that come into play here. It's not always about the money.

I am just dying to know your opinion on the LHN overall. Please, do tell.

First of all, I have no issue with the existence of a network solely for Texas or the fact that it's partnered with ESPN. I can't say that I blame Texas for this unprecedented deal. It is every school's job to pursue what is in its best interests, as long as that pursuit is within the bounds of conference ethics and NCAA rules. Along those same thoughts, Longhorn fans and the Texas administration should understand why A&M (and Oklahoma and Missouri for that matter) has voiced concerns over the parts of the network that it feels are not within those bounds, namely high school games and conference games. And if those concerns are not appeased, it is absolutely within the rights of those schools to take themselves out of the situation and find a new conference where such concerns do not exist. 

Specifically, the A&M administration and many Aggie fans feel that the plans for the LHN are out of line with the agreements that were made when the member schools decided to remain in the Big 12. Per A&M athletic director Bill Byrne:

"We had an agreement in place that Big 12 members would have the right to one non-conference football game and four to six basketball games for third tier, or institutional rights. The concept of the Longhorn Network broadcasting two live football games — with one of these being a conference game — had not been discussed among the Big 12 athletic directors." (source).

That is another source of concern. This conference is more like a loose network of independent entities rather than a cooperative of institutions acting in concert for the greater good. From unequal revenue sharing to individual ownership of third tier rights, it appears that schools are not really interested in working together as a group. And while A&M is certainly guilty of willingly participating in and benefitting from this setup, the conference members had drawn certain lines in the sand that all schools apparently agreed to. Texas seems to be trying to make a mile out of the inch they were given and that is causing a lot of friction within the conference. 

And that's the issue. It's not that the LHN is unfair; as a conference, we've agreed to quite a bit of inequality. But that's the key word - agreed. What Texas is doing with regard to high school games and conferences games goes beyond the agreements and that should not be allowed. To all the Longhorn fans that say the LHN is their network and Texas should be able to do what it wants to do, keep in mind that Texas agreed to remain a member of a conference. With that, they do have some accountability to the remaining members of the Big 12. Part of that is keeping the compromises that were made. Texas wasn't given a blank check to create the LHN - certain rights were limited by agreement and that agreement must be upheld.

And on that note, I still believe a lot of the blame lies with our conference commissioner, Dan Beebe. You can't necessarily blame any of the schools for their actions or opinions thus far (at least not all of those actions), but you can blame the inadequate leadership that led to these squabbles in the first place -  Beebe's failure to check unmitigated power in the name of conference stability. If he's going to get the credit for the Big 12's accomplishments, he's got to take the blame for its troubles too.