Court documents reveal Pac-12 schools to pay well beyond $50 million in Comcast overpayment scandal

By Jon Wilner

 

The future of the Pac-12 hinges, in part, on the two remaining and 10 departing schools gaining clarity on the conference’s assets and liabilities.

One of those liabilities has come into focus.

The conference is taking a $72 million budget hit as a result of the Comcast overpayment scandal, according to commissioner George Kliavkoff’s court declaration in a lawsuit filed against the conference by two former executives.

It’s the first on-the-record confirmation of the financial damage resulting from Pac-12 mismanagement and far exceeds initial presumptions.

In January, when the conference terminated CFO Brent Willman and Pac-12 Networks president Mark Shuken for failing to properly report the mistake, it described the amount of overpayments claimed by Comcast as being “more than” $50 million.

Kliavkoff’s declaration, viewed by the Hotline, is one of dozens of filings in the wrongful termination lawsuit, which began in April in San Francisco Superior Court and is ongoing.

Under penalty of perjury, Kliavkoff stated “the Pac-12 will (have) distributed more than $72 million less than previously budgeted … to our member institutions.”

The decrease comes in two forms, according to a source:

— Distributions withheld by Comcast to offset 10 years of overpayments (2013-22) based on the company’s flawed tracking of Pac-12 Networks subscribers. That total is $58 million.

— Reductions in distributions in the 2023-24 fiscal years to account for a correction in the subscriber figures. That total is $14 million.

“It typifies 12 years of neglect,” a source said.

The withholding and reduction of $72 million (or $6 million per school) is already underway and expected to be finalized before the end of the current fiscal year.

In other words, the liability should be off the books if Washington State and Oregon State attempt to rebuild the conference next summer, after the other 10 schools depart for their new conferences.

In order to offset the reduction in revenue, the Pac-12 trimmed its expenses and tapped its emergency reserve fund.

Multiple sources said the emergency reserves — a potential asset for the Cougars and Beavers if they attempt to rebuild — are fully exhausted.

“There’s nothing left,” one source said.

Sworn statements from Shuken, Willman and Kliavkoff illuminate the nuts and bolts of the fiasco that had previously been kept from public view because of litigation and non-disclosure agreements with Comcast.

What caused the $72 million mistake?

In his declaration, Kliavkoff said the company was “employing a calculation for license fees owed to the Pac-12 that double-counted certain subscribers.”

“Given the systemic nature of the error,” Kliavkoff added, “it was reasonably certain that Comcast had been making this error prior to 2016, and would continue to make this error after 2016 and through the life of the Comcast distribution agreement unless alerted to it or until Comcast discovered the error.”

The Pac-12 was made aware of the error in late 2017, following an audit, but never alerted Comcast. The media giant discovered the overpayments years later, in the summer of 2022, following an internal audit.

Shuken’s declaration to the court indicated the Pac-12’s audit was conducted by Media Audits International, which “did not finalize or even publish its audit findings. The audit was left with Pac-12 to further investigate, or to devote resources to complete.”

The audit showed Comcast was overpaying the Pac-12 Networks by $5 million annually, but the conference had no way to confirm the findings because it lacked access to Comcast’s proprietary subscriber data.

“Due to Comcast’s own ability to determine proper payment and its own sophisticated infrastructure and internal controls,” Willman, the former CFO, said in his court declaration, “this raised extreme skepticism within Pac-12 about the audit findings.”

Willman said the audit results were shared with Shuken, commissioner Larry Scott, three executives (John Oliverius, Kim Sullivan and Alden Budill) and possibly other members of the finance team.

“I had several discussions with each of these individuals in 2017 about the existence of the audit, and the purported audit results, and I believe they had conversations amongst each other,” Willman stated.

Shuken became president of the Pac-12 Networks in August of 2017, nine months after the conference commissioned the audit.

His declaration stated that Budill, the head of distribution, “summarized its findings, and expressed her view that the overpayment seemed surprising to say the least.”

Why the skepticism?

Because Comcast had “complete control over the payments to cable programmers like Pac-12 Networks as well as teams of legal and finance individuals to review and determine contract terms and proper payments,” Willman said in his declaration.

He added:

“In fact, one of the reasons the Pac-12 overpayment allegedly occurred in the first place was because Comcast maintains its subscriber data strictly confidential, even from programmers like Pac-12. The contracts between Pac-12 and Comcast generally provide a rate per subscriber and distribution tiers based on the geographic location of each subscriber but only Comcast has information on subscriber counts and location.

“Because Comcast has complete insight into its subscriber obligations, Larry Scott and other individuals at Pac-12 assumed that Comcast regularly monitors the payments it is making.”

Shuken said he shared the findings with Scott “immediately following that summary from Budill” but Scott responded “that the audit findings were ‘preposterous’ and that we ‘should ignore them’ and not move forward with any further investigation or review. Therefore, at his direction, there was no further conversation on this topic, as Mr. Scott chose to close the matter.”

Once Comcast alerted the Pac-12 to the overpayments in the fall of 2022 — more than one year after Kliavkoff was hired — the conference retained Cooley LLP, a Palo Alto-based firm, to investigate.

On the matter of whether Scott knew about the overpayments and hid them from Comcast, Kliavkoff stated: “While Plaintiffs alleged they verbally reported the Comcast overpayment issue to Scott, Cooley did not find that claim to be credible.”

The Pac-12 declined to comment on the revelations in the court documents.

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