The Pac-12 on Tuesday announced it would dissolve the conference office, move to a fully-remote work environment for most employees and rent a small content production studio — all before the lease on the downtown San Francisco rental space expires next summer.
Our reaction to the news:
1. The decision is so smart on so many levels, but above all, it makes financial sense.
Eliminating about $8 million in annual rent on Third Street should generate in excess of $500,000 in cash for each athletic department, with the exact figure depending on the occupancy cost of the production facility. (The location hasn’t been determined.)
2. Running a close second to cash flow considerations is the brainpower component.
The conference was leaving San Francisco next summer, one way or another. Commissioner George Kliavkoff could have maintained an office in the traditional sense — perhaps in the Bay Area exurbs or Las Vegas — but the relocation would have been a burden on the staff.
(The Pac-12 has about 200 employees across the conference and networks divisions.)
The move to a fully remote operation for the roughly 150 employees not directly tied to the content production studio will ensure retention and enable conference operations to maintain continuity.
And there’s this: The remote environment will help the Pac-12 attract new talent that would otherwise balk at moving to the Bay Area.
The only requirement is that employees must live in the Mountain or Pacific time zones.
3. The retention of current employees and the enhanced opportunity to hire new talent carry immense benefits for the campuses, which work closely with the conference office on numerous endeavors.
The more brainpower at HQ — even if there isn’t a physical HQ — the better for the schools.
And because the conference is saving millions in rent, it can afford to hold semi-annual or quarterly meetings on the campuses to further improve collaboration.
The move greatly reduces the physical and psychological space separating the conference from the athletic departments.
4. Kliavkoff’s decision, months in the making, was received “like a breath of fresh air” by the conference staff, according to an employee who lauded the shifting workplace culture that has taken root since the change in commissioners.
The past few years had been tense on Third Street. Everyone knew a massive change was coming; nobody was sure what shape it would take.
5. In one sense, Tuesday marked the start of the Kliavkoff era.
He has been in charge since July 1 and deftly navigated a series of challenges, from conference realignment and the formation of the alliance to the College Football Playoff debate.
He has rebuilt trust between the Pac-12 office and the campuses and created a more collaborative working environment.
He has impressed everyone with what he knows, what he’s willing to admit he doesn’t know, and what he’s willing to learn.
But Tuesday brought the first major decision that directly impacts the operation and organization of the conference and the campuses, not to mention the first that will materially alter the cash flow to the schools.
Steeped in both symbolism and real-world functionality, it was the first palpable break with the Larry Scott era.
6. Tellingly, the decision couldn’t have been more different than the move made a decade ago.
Transitioning to a fully remote work environment with a small, cheap production facility is the absolute antithesis of renting two floors of office space in downtown San Francisco.
Just as Kliavkoff is, in so many ways, the antithesis of Scott.
7. Now, let’s be clear: Neither existence — the free-spending ways of the Scott era or the sensibility of the Kliavkoff era — would have been possible without approval from the university presidents and chancellors.
They were disengaged and indifferent to expense management a decade ago and let Scott do as he pleased.
They are involved and deeply mindful of cash flow now and backed Kliavkoff’s decision.
One approach was wrong for the conference on every level, the other right in every regard.
8. We can close the books on the Scott era in two costly areas: The structure of his compensation and location of the conference and networks office.
The Hotline went deep into our collection of Pac-12 tax filings to determine Scott’s total salary over the course of his 13 years under contract.
We don’t have the 990s for every year, but there are more than enough to confidently state Scott will have received in excess of $45 million from his first day on the job (July 1, 2009) through his last day under contract (June 30, 2022).
That’s an absurd amount, but we don’t fault Scott for taking what the conference was willing to pay.
Nope, the fault lies with the presidents for agreeing to a plan that compensated Scott for being the commissioner of the conference and the chief executive of the wholly-owned media company (the Pac-12 Networks), along with any potential bonuses that came with the media rights deal he signed a decade ago.
Let’s say the contract terms had been more practical. Even a 50 percent reduction would have paid Scott an average of $2 million annually (approximately) over his tenure, which strikes us as reasonable.
That would have saved the conference at least $20 million.
9. Now, the occupancy issue.
What if the presidents had directed Scott to keep the conference office in Walnut Creek and plant the Pac-12 Networks operation on the outskirts of the Bay Area — somewhere, anywhere, that was markedly cheaper than downtown San Francisco?
Instead of paying $7 million or $8 million annually for 11 years for two floors of space on Third Street, imagine the conference paying one-third that amount to stay in Walnut Creek and housing a production facility in the East Bay.
That’s $50 million in savings. (Our estimates are conservative.)
Those two decisions — Scott’s compensation and the location of the office — result in the conference paying about $70 million more than necessary for the exact same results.
Scott was the same commissioner whether he made $2 million or $5 million annually.
The Pac-12 Networks gained no material benefit from being on Third Street as opposed to Walnut Creek.
10. The fiscal sins of the past have given way to a prudent present and encouraging future.
Pac-12 success starts at the top, the very top.
Only UCLA chancellor Gene Block and ASU president Michael Crow remain in place from the group that hired Scott and approved the move to San Francisco and the formation of the Pac-12 Networks.
For a bunch of smart people, they knew squat about college athletics and the media business.
Fans and athletic department officials alike should be encouraged that this group of presidents and chancellors is engaged and has hired the right commissioner to carve a new path forward.
The next step for them: Care as much about football success as they do about reducing rent.
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