SPK breaks down the Big East's finances

[Halldan1]

Research done by Steve.



Big East Finances - June 30, 2014

The financials for the Big East for the year ended June 30, 2014 (the first full year of the new Big East) are in and they seem disappointing to me on a number of levels.

First and foremost, though, keep in mind that the seven members of the old Big East (“OBE”) received a windfall in the year ended June 30, 2013 of $5 million each from the new Big East (“NBE”) from a bonus rights fee from the FOX TV contract plus each received a share from the OBE as follows that includes the negotiated buyout amounts and is much higher than the normal payouts from the OBE (see below for further info on that):

DePaul $ 4,358,861

Georgetown $ 5,316,925

Marquette $ 5,213,277

Providence $ 4,226,185

Seton Hall $ 4,267,356

St John's $ 4,703,420

Villanova $ 5,605,060


Here is a review of the NBE financials for the period March 22, 2013 (date of inception) through June 30, 2013:

Revenues

Fox Bonus Rights fee $ 35,000,000
Entrance fees $ 10,000,000
Infrastructure report $ 6,000,000

TOTAL $ 51,000,000

Expenses

Payment to OBE schools $ 35,000,000
Expense to run league $ 2,003, 297

TOTAL $ 37,003,297

Retained by conference $ 13,996,703

Some thoughts:

- Entrance Fees are from the 3 new members: Butler, Creighton, and Xavier

- Infrastructure Support is from the 7 members from the OBE and average $857K per school


Now let’s take a look at the financials for the year ended June 30, 2014, the first year of competition in the NBE:


Revenues

Fox rights fees $ 30,388,692

NCAA credits $ 10,969,746

Conference championships $ 4,346,883

Corporate sponsorship $ 1,750,000

Other $ 410,345

TOTAL $47,865,666


Expenses

Payment to conference members $ 35,838,549

Expenses to run conference $ 10,152,115

TOTAL $45,990,664


Retained by Conference $ 1,875,002


Some thoughts:


- FOX TV fees of $ 30 million are low based on what has been reported in the media previously

- Good to see a healthy NCAA Credits amount

- Conference Championships expenses were $ 3,170,824, leaving a margin of $ 1,176,059



Here is the breakdown of the payments to conference members from the NBE and a comparison to what each of the seven members of the OBE received in the year ended June 30, 2012 (a normal year):

Butler $ 2,274,702 $ -------------

Creighton $ 3.142,530 $ -------------

DePaul $ 2,595,191 $ 2,939,620

Georgetown $ 4,273,068 $ 4,007,936

Marquette $ 6,084,421 $ 3,530,111

Providence $ 3,104,615 $ 3,104,423

Seton Hall $ 2,300,985 $2,973,642

St John's $ 2,893,590 $3,762,477

Villanova $ 6,258,848 $3,910,608

Xavier $ 2,910,599 $ ------------


I don’t like this at all. What happened to conference members sharing the proceeds basically evenly, give or take a few percentage points? Marquette and Villanova getting huge jumps and more than double what most other conference members received? Seton Hall taking an almost $700K cut? Butler, Creighton, and Xavier got huge increases although it collectively cost them $10M to gain entry into the NBE as previously noted in the 2013 financials. Also, each of the 7 members from the OBE had to cough up an average of $857K in Infrastructure Support as previously noted in the 2013 financials.

My main takeaways are that the FOX TV contract may not be as lucrative as originally thought (although there is probably/hopefully escalation each year) and the division of funds to the members seems awfully skewed. It also takes quite a bit of money to run the conference. Certainly can’t take what has been reported in the media on the FOX TV contract, divide by 10, and think that is what each school gets. This was still a great option of course for the seven members of the OBE, given the other options, and now they control their own destinies.

Thoughts and questions?

 

[HALL85]

Good to have a finance guy parsing this.

The thing that sticks out to me (what you pointed to) is the disparity of payments, especially with Villanova and Marquette.

What's your take on this?

Were both of them holding the conference up and threatening to bolt if they didn't get more? Otherwise, whey would everyone agree to that?

 

[Save Continental]

Research done by Steve.

I don’t like this at all. What happened to conference members sharing the proceeds basically evenly, give or take a few percentage points? Marquette and Villanova getting huge jumps and more than double what most other conference members received? Seton Hall taking an almost $700K cut? Butler, Creighton, and Xavier got huge increases although it collectively cost them $10M to gain entry into the NBE as previously noted in the 2013 financials. Also, each of the 7 members from the OBE had to cough up an average of $857K in Infrastructure Support as previously noted in the 2013 financials.

My main takeaways are that the FOX TV contract may not be as lucrative as originally thought (although there is probably/hopefully escalation each year) and the division of funds to the members seems awfully skewed. It also takes quite a bit of money to run the conference. Certainly can’t take what has been reported in the media on the FOX TV contract, divide by 10, and think that is what each school gets. This was still a great option of course for the seven members of the OBE, given the other options, and now they control their own destinies.

Thoughts and questions?

1. Where did you find this info? I would like to read it in its entirety.

2. I agree that the disparity in payouts seems rather large but in no way did I think we'd be within percentage points of Nova/Gtown, etc. All we did was ride their coattails. Seton Hall has no leverage with anyone and most likely just has to do as they are told. The fact that it's a cut from the previous Big East years is a bit surprising, anyway.

 

[SPK145]

The thing that sticks out to me (what you pointed to) is the disparity of payments, especially with Villanova and Marquette.

What's your take on this?

Were both of them holding the conference up and threatening to bolt if they didn't get more? Otherwise, whey would everyone agree to that?

I don't know the answer to that. Part of the NCAA Credits is X amount per scholarship awarded in all sports but that X amount is minuscule, very minuscule.

It could be contractual like you state but I'm thinking it's more about the number of NCAA Credits each school is responsible for. Almost all conferences share this equally though.

 

[SPK145]

2. I agree that the disparity in payouts seems rather large but in no way did I think we'd be within percentage points of Nova/Gtown, etc. All we did was ride their coattails. Seton Hall has no leverage with anyone and most likely just has to do as they are told. The fact that it's a cut from the previous Big East years is a bit surprising, anyway.

Almost all conferences share the proceeds pretty much evenly, the OBE used to do this, Seton Hall used to get the least amount there too but much, much closer to the rest of the conference. I've never seen such a discrepancy before.

 

[Save Continental]

Thanks for the info SPK. I guess it shows you what the other schools think of Seton Hall, if nothing else.

 

[batts]

Nova wins and makes the Tournament every year. They are a more marketable commodity. If we want respect from the recruits and the other members of the B.E. we need to win. It's that simple.

 

[Seton75]

Thanks Steve. Always appreciate your perspective on this subject,.

 

[SPK145]

Nova wins and makes the Tournament every year. They are a more marketable commodity. If we want respect from the recruits and the other members of the B.E. we need to win. It's that simple.

But that goes against the very reason conferences are formed and joined. The SEC, for instance, gives every member school virtually an equal share. So do just about all other conferences.

 

[SPK145]

Surprised no comments on the FOX TV rights at only $30 million that year.

 

[batts]

Perhaps they negotiated an incentive formula on top of the base member payout? I don't think it's that unreasonable if the incentive is applied uniformly to all members. However, this is conjecture on my part without more of the financial details being disclosed.

 

[seton1996]

Perhaps they negotiated an incentive formula on top of the base member payout? I don't think it's that unreasonable if the incentive is applied uniformly to all members. However, this is conjecture on my part without more of the financial details being disclosed.

I guess another possible scenario, is it is some type of formula based on the past NCAA credits that the schools left behind in the Old Big East. I would assume some of those schools walked away from some serious amounts of money they would have been owed if they had remained in that conference. This would make some sense, as a school like Nova had earned those, and may have even allocated that money, so if they are getting some extra share in first few years of the New BE it would make some sense to me.

Would think it would be pretty easy to get some type of answer on this from someone in the know, maybe not specifics but a general understanding of how money is distributed.

 

[HALL85]

My takeaway from all this is that we did certainly end up in the best possible landing place in the NBE (because all of the options would have either been disastrous with less compelling (being part of a lesser or football conference) with less financial upside.

On the other hand, anyone who thought the NBE was going to be a financial windfall/panacea should note that these numbers are sobering and there is much work to do. Right now we haven't really differentiated ourselves too much from the A-10 in terms of results. The history and FOX relationship will only last so long. You gotta put up at some point.

 

[radecicco]

######Right now we haven't really differentiated ourselves too much from the A-10 in terms of results. The history and FOX relationship will only so long.#####

There is absolutely no comparison between the BE and the A-10. The BE is a top 5 power conference in BBall, has 4 teams in the top 20, 3 in the top 10, and has 10 years to go on a 12 year deal that will pay out about $500 million over that time. I have no idea about this but would bet the A-10's TV deals aren't even 10% of the BE's deal (same with the AAC and they play football). Give it up already.

 

[SPK145]

I guess another possible scenario, is it is some type of formula based on the past NCAA credits that the schools left behind in the Old Big East.

Based on the $10 million in NCAA credits the NBE received, they didn't walk away from them. But the distribution of those credits could be based on some earnings criteria. I do this for a living and I've never seen this done this way by any major conference.

 

[SPK145]

I have no idea about this but would bet the A-10's TV deals aren't even 10% of the BE's deal (same with the AAC and they play football). Give it up already.

For the same time period, the A-10 got just under $4 million from its TV contract. The AAC has a 7-year, $126 million contract for football and basketball.

 

[wpc75]

Steve-looks like you are getting info from tax returns of Big East. Is it possible that Fox paid direct payments in first year to teams directly before organization was even set up? After the next tax return becomes public it might sort itself out.

 

[SPK145]

Steve-looks like you are getting info from tax returns of Big East. Is it possible that Fox paid direct payments in first year to teams directly before organization was even set up? After the next tax return becomes public it might sort itself out.

As noted in the article, the NBE filed a tax return for the stub period 03/22/13 (date of inception) through 06/30/13 which included the FOX bonus rights fees of $5 million to each old member. Also, if FOX paid directly, that would violate the non-profit status. All has been accounted for.

 

[Section112]

I wonder if our share goes up if we make the tourney a few years in a row vs other teams not making it? Seems like the deal may be weighted more to teams making the dance.

Also makes we wonder why we are paying our coach on the high side of salaries vs some of the other teams that are making much more than us from the NBE deal.

 

[HALL85]

######Right now we haven't really differentiated ourselves too much from the A-10 in terms of results. The history and FOX relationship will only so long.#####

There is absolutely no comparison between the BE and the A-10. The BE is a top 5 power conference in BBall, has 4 teams in the top 20, 3 in the top 10, and has 10 years to go on a 12 year deal that will pay out about $500 million over that time. I have no idea about this but would bet the A-10's TV deals aren't even 10% of the BE's deal (same with the AAC and they play football). Give it up already.

You missed my point....yes, now financially there is a big difference, but on the court during the first two seasons of the NBE, the A-10 actually did better in the NCAA's. Rankings in December mean very little...no one is watching now. If we can't beat the A-10 in March Madness (where it counts), why would FOX or anyone continue to pay the NBE a premium for substandard results?

 

[batts]

Based on the $10 million in NCAA credits the NBE received, they didn't walk away from them. But the distribution of those credits could be based on some earnings criteria. I do this for a living and I've never seen this done this way by any major conference.

Who negotiated the revenue distribution formula for SHU, Pat Hobbs?

 

[SPK145]

I wonder if our share goes up if we make the tourney a few years in a row vs other teams not making it? Seems like the deal may be weighted more to teams making the dance.

If so, that goes against every thing that conferences are formed for and goes against what every other conference does.

 

[batts]

If so, that goes against every thing that conferences are formed for and goes against what every other conference does.

As we know, Rutgers is setting itself up as the Cousin Eddie of the Big 10. Once the phase in period for full revenue shares kick in, is RU going to get an even split of the Big 10 revenues with an Ohio State or Michigan?

 

[HALL85]

Who negotiated the revenue distribution formula for SHU, Pat Hobbs?

Thanks...just spit up my coffee!! LMAO

 

[Section112]

If so, that goes against every thing that conferences are formed for and goes against what every other conference does.

I agree and understand but I cannot seem to make sense of the distribution any other way. I wonder also if a few teams held the conference hostage to get a bigger share?

 

[Piratz]

Wow, really interesting and revealing information to read into. Tremendous insight and work by SPK!

 

[SPK145]

Upon further research, the $10 million is not from NCAA basketball fund credits but from other NCAA revenues. Appears that the NBE did, in fact, leave their basketball fund credits behind.

 

[seton1996]

According to this article, the Catholic 7 got $10 million of the $110 million that was in the BE reserve fund at time of split, $15 million went to lawyers & consultants, and the other $85 million went to remaining and incoming members (what became AAC). Could this be the $10 million?

http://espn.go.com/college-sports/story/_/id/9031167/catholic-7-leaving-big-east-june-30

 

[seton1996]

According to this article from 2013, the original 7 would split TV revenue evenly, with the additional teams taking less of a share, but who knows if that happened or not.

http://espn.go.com/mens-college-bas...-schools-working-lucrative-tv-deal-basketball

 

[radecicco]

You missed my point....yes, now financially there is a big difference, but on the court during the first two seasons of the NBE, the A-10 actually did better in the NCAA's. Rankings in December mean very little...no one is watching now. If we can't beat the A-10 in March Madness (where it counts), why would FOX or anyone continue to pay the NBE a premium for substandard results?

Because the BE is a better league and FOX will be paying that premium for another 10 years. Again the BE has been a top 5 power league in basket ball each year of the NBE, with many more recognizable brand name schools, and fairly recent trips to the Final Four by Butler, Nova. The league will continue to put quality teams in the NCAAs, it's just a matter of time until BE teams get to the 2nd weekend and beyond.

Yes, Dayton has had a nice NCAA run the last few years but that's about it. The A-10 is a solid league with Dayton, Davidson, GW and occasionally the Philly schools. VCU is fading without Smart as the coach. They have no teams in top 25, the highest vote getter being GW with 40.

IMHO the brass at FOX and the BE presidents know more about the value of the BE brand than you or I.

 

[SPK145]

According to this article, the Catholic 7 got $10 million of the $110 million that was in the BE reserve fund at time of split, $15 million went to lawyers & consultants, and the other $85 million went to remaining and incoming members (what became AAC). Could this be the $10 million?

http://espn.go.com/college-sports/story/_/id/9031167/catholic-7-leaving-big-east-june-30

No, that $10 million was paid to the old members at 06/30/13 as part of that last year windfall I talked about above.

 

[HALL85]

Because the BE is a better league and FOX will be paying that premium for another 10 years. Again the BE has been a top 5 power league in basket ball each year of the NBE, with many more recognizable brand name schools, and fairly recent trips to the Final Four by Butler, Nova. The league will continue to put quality teams in the NCAAs, it's just a matter of time until BE teams get to the 2nd weekend and beyond.

Yes, Dayton has had a nice NCAA run the last few years but that's about it. The A-10 is a solid league with Dayton, Davidson, GW and occasionally the Philly schools. VCU is fading without Smart as the coach. They have no teams in top 25, the highest vote getter being GW with 40.

IMHO the brass at FOX and the BE presidents know more about the value of the BE brand than you or I.

Need to be there in March. Not saying the league can and should get there, but right now it's not.

 

[ironlung75]

SPK, you are the analyst. How can you get information on why the disparity? I am not a financial analyst, but based on what you and some others have said and reading the documents despite performance, which I didn't specifically read anywhere, there is nothing here that should show we would be paid a significant difference. Should be investigated.

 

[Halldan1]

I have stayed away from this conversation for a reason that's best left to myself. But I will say this......the school is well aware of Steve's info and they were complimentary of the work he put into it. But without giving details they did mention it wasn't complete and left out factors that would change some conclusions.

This in no way is a knock on Steve who did an outstanding research job. I'm just noting what I was told.

 

[HALL85]

I have stayed away from this conversation for a reason that's best left to myself. But I will say this......the school is well aware of Steve's info and they were complimentary of the work he put into it. But without giving details they did mention it wasn't complete and left out factors that would change some conclusions.

This in no way is a knock on Steve who did an outstanding research job. I'm just noting what I was told.

Dan, I know you're only the messenger on this and the school also doesn't have to provide any additional information, but for them to say "it's not complete" and it "left out factors" leaves me with the same-old, same-old taste in my mouth with our leadership. If you're not going to shed light on the information that withhold comment all together.

Let's face it, we have a spotty track record for making good business decisions (see untenable contract), so if there are reasons why the numbers look suspicious than just share them. An opportunity to show some transparency is missed yet again.

 

[Halldan1]

There's no way any school or any administration is going to comment about league policies on a message board. Just not going to happen.

The fact that those I spoke to were complimentary of Steve was enough for me. They didn't in any way trash him. In fact quite the opposite.

BTW, I have a lot of faith in those running the Pirate ship. A far cry from years past.

 

[SPK145]

I can only report here what is out in the public domain and was only concerned with the conference and its distributions as a whole to shed some light.

 

[The Crows Nest]

I can only report here what is out in the public domain and was only concerned with the conference and its distributions as a whole to shed some light.

If Steve culled this from IRS 990's he did a heck of a job, and know that you cannot determine infinite detail from a 990; you have to look at all the "sister" corporations, etc., where funds may be funneled, etc. Plus in some instances, the same "dollar" (or million dollars) may appear on more than one 990 (ie, 2011 and 2012) which is an artifact of the reporting rules. I am not specifically familiar with University structures and their 990s, so some of this may apply and some not; but speaking from another non-profit segment, I can tell you that, as with most things, this only reveals part of the story. And, I think what Steve laid out gives us a pretty good picture of the finances, albeit that there may be some missing pieces or information.

Bottom line is, the league needs to perform better in the Tourney, rack up more "credits" and SHU needs to also perform better for what would appear to be a larger share of the pie

 

[garyshu71]

I think we should kill the messenger. It's always their fault.

 

[Pirate64]

Crow summed it perfectly

" Bottom line is, the league needs to perform better in the Tourney, rack up more "credits" and SHU needs to also perform better for what would appear to be a larger share of the pie"