Wilner – Power Five revenue projections for FY2023: Comcast mess leaves Pac-12 far behind

The financial report released by the Pac-12 last month provided crucial insight into the post-COVID budget but fell short of a real-time look at the numbers. Like many of its Power Five peers, the conference files its 990s to the IRS a full 10 months after the close of the fiscal year. The data made public in May of 2023 addressed the year that ended in June 2022.

There’s no way to track present-day revenue and efficiency unless we piece together clues and take our best guess.

Welcome to that very exercise.

With the 2023 fiscal year closing in three weeks, the Hotline gathered information from conference sources and is prepared to offer a back-of-the-envelope calculation of the Pac-12’s campus distributions for the 2023 fiscal year — the data that won’t be made public until next May.

Let’s start with a baseline figure: $37 million, the amount sent to each school in FY2022.

It was a record amount, to be sure. But it also lagged campus payouts in the other power conferences as Pac-12 schools continue to suffer from strategic mistakes made years ago by former commissioner Larry Scott and the university presidents.

So we ask: Will the conference beat that $37 million distribution figure when books close on the 2023 fiscal year?

Approximately 95 percent of revenue generated at the conference level comes from three buckets:

— Regular-season media rights: The 12-year broadcast contracts with ESPN and Fox, and the Pac-12 Networks’ annual carriage deals with Comcast, DISH and others.

— The College Football Playoff (via ESPN).

— The NCAA Tournament (via CBS and Turner).

Our math makes one significant but reasonable assumption: Revenue from the CFP and NCAAs will remain essentially flat year-over-year. (In reality, there will be a slight adjustment based on the amount of NCAA Tournament units earned by the conference during the six-year payout cycle.)

However, we must adjust upward the FY2023 revenue from the media rights deals with ESPN and Fox. Why? Because according to the term sheet signed in 2011 — the Hotline has a copy — the networks agreed to an escalator clause of 5.1 percent annually. Split the increase 12 ways, and the result is a $1.85 million-per-campus year-over-year uptick.

That said, the Pac-12 Networks will provide no such increase. In fact, the conference’s wholly-owned media company likely will report a year-over-year reduction in payouts to the schools.

The Comcast overpayment fiasco is expected to carry a total wallop of more than $70 million — not the estimated $50 million to $60 million that has been previously reported, according to a conference source.

That gargantuan number is the sum of 1) the excessive payments made by Comcast to the Pac-12 Networks from 2012-22 and 2) the diminished payments from Comcast to the networks for 2023-24 resulting from a recalculation of the Comcast subscriber base.

The hit will be felt in conference distributions to the campuses across the two fiscal years:

— For FY2023, sources on multiple campuses expect a $3.5 million reduction compared to what was originally forecast by the conference.

— For FY2024, the reduction is expected to be $2.2 million compared to prior forecasts.

That brings the total reduction in payouts to $5.7 million per school over two years, which is actually less than the raw dollars being withheld by Comcast because of measures taken at the conference office. (More on that piece in a minute.)

Without the Comcast issue, the conference likely would have experienced record revenue in FY2023.

“It’s going to be painful,” said a source with direct knowledge of the projected distributions.

Unexpected expenses surfaced at the conference level during FY2023 in two other areas:

— Exiting San Francisco this summer. The lease on Third Street called for the office space to be restored to its original state, according to sources, leaving the conference to spend millions in construction costs.

— Relocation of the Pac-12 Networks production studio. The cost of the new office space in San Ramon exceeded initial projections because of supply-chain issues and a tight deadline to have the 42,000-square foot facility ready by July.

However, those expenses are expected to be inconsequential to the amount distributed to the campuses in FY2023, in part because of lower expenses at the conference office.

Which brings us to the final component to our calculation: Pac-12 operational expenses that are unrelated to relocation costs.

Spending in San Francisco was a source of continual frustration on the campuses during Scott’s tenure, but Kliavkoff has slashed expenses on several fronts:

— The shift to a remote-work environment allows the conference to avoid compensating new employees for the Bay Area cost-of-living.

— Several executives have left the conference in the past 18 months and are not being replaced. Among them: former Pac-12 Networks president Mark Shuken, who was terminated for his role in the Comcast mess and earned more than $1 million annually in salary and bonuses.

— The third source of cost-cutting was described by a source as general “belt-tightening” ordered by Kliavkoff.

Overall, operational expenses at headquarters are expected to drop by $5 million in FY2023, to $36 million. That’s a 12 percent year-over-year reduction and a 23 percent plunge from the pre-COVID spending peak of the Scott era ($47 million).

Those savings in FY2023 are being combined with the use of the Pac-12’s emergency reserve funds to mitigate the impact of the Comcast wallop and relocation expenses. Without those measures, the reduction in campus distributions would have soared past $5.7 million.

(The university presidents must approve the use of emergency reserves. The total amounts available and used are not known.)

It’s worth noting that the Pac-12 will save another $8.25 million in annual rent by moving the production studio to San Ramon, according to a source. But that cut won’t be reflected in the budgets until the 2024 fiscal year.

So we are left with three key numbers to consider for FY2023 projections:

— The 5.1 percent increase in media rights from Fox and ESPN, resulting in a gain of $1.85 million per school.

— The reductions in operational expenses, providing a boost of $416,000 per school. (That figure excludes the draw on emergency reserves.)

— The Comcast overpayment debacle, leading to a loss of $3.5 million per school.

Our back-of-the-envelope math indicates the Pac-12 will distribute approximately $36 million per campus in FY2023, a year-over-year decrease of $1 million per school.

It could have been worse if not for the spending cuts and the use of the emergency reserves. But the decrease runs counter to the situation across the Power Five, where conferences are expecting distributions to increase.

Assuming fixed amounts for the CFP and NCAA Tournament and including escalators for the regular-season media rights deals, the Hotline projects the following distributions for FY2023:

Big Ten: $61 million per school
SEC: $53 million per school
Big 12: $44 million per school
ACC: $42 million per school
Pac-12: $36 million per school

Without the Comcast mess, the Pac-12 would be approaching the $40 million mark. Instead, the situation has exacerbated an existing revenue gap and will impact the distributions again in the 2024 fiscal year.

So if you were wondering what happens when a group of academics running institutions of higher education agree to create their own media company and install a conference commissioner as CEO, well, there’s the answer.