Conference Realignment

[TechPhi97]

Those are interesting numbers. Where are you finding those numbers for GT and other schools?

College Athletics Database

That is for the base debt and debt service numbers, and then I did some fancy math in Excel to look at the ratios. I used the Athletic Association's financial report from GT to fill in the blanks in my head. I think the way we've been financing these things it that we've got a commitment for a particular $$ amount (probably as a % of cost) before we start the projects, but those commitments typically show up as balance sheet entries as money is actually donated. I think we have floated bonds for the entire amount (or a majority) and then we use those committed donations / endowments to pay that down. If you look at our debt service vs. outstanding debt, we've got a pretty great rate on borrowings, and I imagine the endowments that grow through the Foundation are growing at a better annual rate than our debt interest.

I'm just reading the tea leaves, but it feels like we're in a solid position.

 

[Vespidae]

That isn't what is happening exactly. The recent NLRB decision is that Dartmouth basketball players are employees of the school. If that decision holds and is expanded, that would mean that football players at Auburn are employees of Auburn, not students who are employees of a third party collective. Not saying this will happen, but if the current path continues, Auburn players could organize a union and negotiate a contract with Auburn. Or SEC players could organize a union and negotiate a contract with the SEC. Or all college players could organize a union and negotiate a contract with the NCAA. I don't think the SEC would want a national players union to negotiate a contract that the SEC only has minimal ability to control. I think that any governmental declaration (law, NLRB, courts, etc) that athletes are employees of the schools would force a break up of the NCAA. I think it is already headed in that direction. This would just make it happen faster, and by faster I mean almost immediately.

To be clear, Barkley wasn't referring to the NLRB decision.

 

[CEB]

My reading is this:
The grant of rights is the ownership of the broadcast rights. The ACC owns these through the GOR contract with the conference members. This goes through 2036.

The ESPN contract is essentially a lease for those rights, or a loan of those rights through 2027, and where the payments currently come from.

FSU’s lawyers are conflating those two things. That’s not necessarily incompetence—that’s also something you do when there’s an inconvenient fact you want someone to ignore. FSU’s lawyers are trying to say “the GOR ends when the currently negotiated payments end”, rather than being something that could be sold to someone else

If they were mineral rights, it’s the same as a group of property owners pooling their rights for a bigger deal. The rights are pooled to 2036, and Exxon has an extraction contract through 2027, renewable through 2036. If they don’t renew, the pool can be sold to BP or another company.

FSU is trying to argue the 2027 date is an out, when they certainly didn’t view it as an out when they signed the contract. So far, I think their arguments are pretty weak, but weak arguments have worked before.

I agree with all you’ve said, with one point of clarification (or maybe a point of disagreement… or maybe just a point TBD)…
FSU is wrong if they are pushing that 2027 is an expiration date. It’s not… unless ESPN determines that it is by refusing the option. If ESPN takes the option, the contract is unchanged and uninterrupted and the GOR thru 2036 is going to hold.

However, if ESPN refuses the option (I believe that this is a long shot and that ESPN will likely extend), then the ACC / ESPN deal is done. THAT is where FSU and others could have an argument.
The GOR says that it is in force through 2036 AND it says that it is for the purpose of fulfilling the obligations of the ESPN agreement, specifically. The part about the ESPN agreement may have just been a point of clarification and not a indication that the GOR exists solely and only for the ESPN deal, but there will be an argument that since the referenced agreement is terminated, the GOR has served its purpose and is void. There will be an opposing argument from the ACC that 2036 is the term of GOR and that the intent was not to tie GOR specifically to ESPN agreement. Therefore the ACC can shop the media rights of its members to anyone else through 2036.

All of that is moot if ESPN extends to 2036, which I think they will. BUT, it will be interesting if they don’t.

 

[RonJohn]

To be clear, Barkley wasn't referring to the NLRB decision.

I understand that Barkley wasn't. However, it is the second NLRB finding that supports college athletes being considered employees. Several members of Congress have made statements that college athletics needs to figure things out before Congress is forced to step in. Justice Kavanaugh wrote after the Alston decision that other NCAA regulations "also raise serious questions under the antitrust laws" and that they would be struck down if challenged.

There are far too many signs that athletes are going to be considered employees at some point to ignore them. It is extremely rare that a Supreme Court Justice will offer insight into what might happen if someone files a lawsuit. I would say that is a very clear indication that the Supreme Court will rule that the NCAA cannot restrict schools from paying the athletes directly. All it will take is someone to file a lawsuit. It would take several years to make it to the Supreme Court, but a Supreme Court Justice has given the roadmap for how to file and how to structure that lawsuit to be all but guaranteed to win. The schools that are members of the NCAA simply waited until laws made them change the ability of student-athletes to be able to profit from their NIL. The NCAA and the member schools absolutely know that athletes will be employees one day, yet they appear to be just waiting to be legally forced into it instead of trying to fashion it in a way that makes sense to all parties. (I do understand that "NIL" is currently being used mostly for things not related to name, image, or likeness. But that is because the NCAA had clamped down and restricted actual NIL for a very long time and as a result have no control over it now.)

 

[roadkill]

College Athletics Database

That is for the base debt and debt service numbers, and then I did some fancy math in Excel to look at the ratios. I used the Athletic Association's financial report from GT to fill in the blanks in my head. I think the way we've been financing these things it that we've got a commitment for a particular $$ amount (probably as a % of cost) before we start the projects, but those commitments typically show up as balance sheet entries as money is actually donated. I think we have floated bonds for the entire amount (or a majority) and then we use those committed donations / endowments to pay that down. If you look at our debt service vs. outstanding debt, we've got a pretty great rate on borrowings, and I imagine the endowments that grow through the Foundation are growing at a better annual rate than our debt interest.

I'm just reading the tea leaves, but it feels like we're in a solid position.

First, thanks for doing the math for me as I had been thinking of a similar analysis. I use the Knight DB as a reference as well.

I don't see the absolute amount of debt as being as important as the annual debt service payments when discussing it in the context of the AA's total annual income, or income from media. Also, I am interested to see where it lands when the 2023 numbers are available. 2022 payments ($13M) dropped from 2021 ($14M) which is a good trend. And while the 2020 Covid year numbers were an anomaly, 2019 was even higher at $15M. Someone is managing our debt payments to be less impactful.

 

[wrmathis]

I understand that Barkley wasn't. However, it is the second NLRB finding that supports college athletes being considered employees. Several members of Congress have made statements that college athletics needs to figure things out before Congress is forced to step in. Justice Kavanaugh wrote after the Alston decision that other NCAA regulations "also raise serious questions under the antitrust laws" and that they would be struck down if challenged.

There are far too many signs that athletes are going to be considered employees at some point to ignore them. It is extremely rare that a Supreme Court Justice will offer insight into what might happen if someone files a lawsuit. I would say that is a very clear indication that the Supreme Court will rule that the NCAA cannot restrict schools from paying the athletes directly. All it will take is someone to file a lawsuit. It would take several years to make it to the Supreme Court, but a Supreme Court Justice has given the roadmap for how to file and how to structure that lawsuit to be all but guaranteed to win. The schools that are members of the NCAA simply waited until laws made them change the ability of student-athletes to be able to profit from their NIL. The NCAA and the member schools absolutely know that athletes will be employees one day, yet they appear to be just waiting to be legally forced into it instead of trying to fashion it in a way that makes sense to all parties. (I do understand that "NIL" is currently being used mostly for things not related to name, image, or likeness. But that is because the NCAA had clamped down and restricted actual NIL for a very long time and as a result have no control over it now.)

Would or could all this that’s happening with college football eventually be pushed down to high school football too? Making the student athletes of HS being paid and being employees of the school? If so, when does it stop?


I have no idea, but was just wondering if it was a possibility

 

[WreckinGT]

My reading is this:
The grant of rights is the ownership of the broadcast rights. The ACC owns these through the GOR contract with the conference members. This goes through 2036.

The ESPN contract is essentially a lease for those rights, or a loan of those rights through 2027, and where the payments currently come from.

FSU’s lawyers are conflating those two things. That’s not necessarily incompetence—that’s also something you do when there’s an inconvenient fact you want someone to ignore. FSU’s lawyers are trying to say “the GOR ends when the currently negotiated payments end”, rather than being something that could be sold to someone else

If they were mineral rights, it’s the same as a group of property owners pooling their rights for a bigger deal. The rights are pooled to 2036, and Exxon has an extraction contract through 2027, renewable through 2036. If they don’t renew, the pool can be sold to BP or another company.

FSU is trying to argue the 2027 date is an out, when they certainly didn’t view it as an out when they signed the contract. So far, I think their arguments are pretty weak, but weak arguments have worked before.

I don't think FSU is referencing the 9 year option as a means of nullifying the GOR as much as they are referencing it for their argument on the ACC's failure to meet their fiduciary responsibility. I don't know if that entire argument holds water. I don't know how anyone determines where the line is for fiduciary responsibility. I do think one of FSU's strongest points is that the ACC agreed to moving the option date from 2021 to 2025 without any kind of board vote and without receiving anything in return. If that is true, then it doesn't look good for the ACC and frankly we should all be upset about it.

 

[CEB]

I don't think FSU is referencing the 9 year option as a means of nullifying the GOR as much as they are referencing it for their argument on the ACC's failure to meet their fiduciary responsibility. I don't know if that entire argument holds water. I don't know how anyone determines where the line is for fiduciary responsibility. I do think one of FSU's strongest points is that the ACC agreed to moving the option date from 2021 to 2025 without any kind of board vote and without receiving anything in return. If that is true, then it doesn't look good for the ACC and frankly we should all be upset about it.

With regard to the bolded, why is that a strong argument? The agreement is between ACC and ESPN. The option and the deadline to exercise it are between the ACC and ESPN. Why would any member vote be necessary with regard to the espn agreement? The GOR gives the ACC the media rights of all members in order to strike a media deal. The ACC did that. They have the right to amend it. The members themselves are not party to the media deal and don’t get a “vote” on the terms of it.
Now, if all members of the ACC did indeed have input and approval of the ESPN deal initially ( which would be the only logical assumption if they now claim they have a right to approve any changes to it) that would also WEAKEN FSUs argument. FSU would have knowingly agreed to the “fiduciary irresponsibility” of which they now accuse the ACC.
The arguments by FSU so far seem to be circular… and not terribly compelling. The only interesting thing that has come out of this is the option. I’m not sure that’s terribly interesting either as ESPN likely will exercise it through ‘36.

 

[WreckinGT]

This chart was produced by FSU (or their lawyers). It is not from the ESPN contract.

It doesn't make sense for the ACC to announce, at the annual meeting in June of 2016, that they had extended their "rights agreement" for nine years when, in fact, they had not done that. I don't always agree with the ACC folks in Greensboro Charlotte, but to stand up there and lie about something that the members know isn't true is just ludicrous. Every member school is represented on the conference board and knew the details of the ESPN agreement. Do you believe every conference member was in on the lie? And now FSU has forgotten what happened in 2016? Or, do you believe the conference tricked the member schools and lied to them about the contract? And, UNC and NC State and UVA, who almost own the conference outright, missed on that detail as well?

The big question mark for ESPN in 2016 was how profitable would be ACC Network be out beyond 2027. That would be a reasonable option for the ACC to agree to.

They did extend their media rights agreement for 9 years. That we know. What is said in the legal complaint is that they did not guarantee payouts past 2027. Basically ESPN has the media rights to the ACC past 2027 if they choose to have it. It's their choice.

72. Perhaps most glaring, as the above chart demonstrates, (a) in 2016, the ACC negotiated NO guaranteed payments from ESPN for the nine-year period of extension mandated under the 2016 Grant of Rights, from 2027 to 2036; and (b) the ACC left in place an outdated and increasingly below market base payment rate (first negotiated in 2012), for 24 years – more than a generation.

73. For reasons never explained to FLORIDA STATE, the 2016 ACC Tier I Agreement granted ESPN a unilateral option to extend that Agreement with its already out-of-market rates an additional nine years beyond its expiration on June 30, 2027, or until 2036 (the “Unilateral ESPN Nine-Year Option”).

 

[Vespidae]

Would or could all this that’s happening with college football eventually be pushed down to high school football too? Making the student athletes of HS being paid and being employees of the school? If so, when does it stop?


I have no idea, but was just wondering if it was a possibility

Highly likely.

 

[Vespidae]

With regard to the bolded, why is that a strong argument? The agreement is between ACC and ESPN. The option and the deadline to exercise it are between the ACC and ESPN. Why would any member vote be necessary with regard to the espn agreement? The GOR gives the ACC the media rights of all members in order to strike a media deal. The ACC did that. They have the right to amend it. The members themselves are not party to the media deal and don’t get a “vote” on the terms of it.
Now, if all members of the ACC did indeed have input and approval of the ESPN deal initially ( which would be the only logical assumption if they now claim they have a right to approve any changes to it) that would also WEAKEN FSUs argument. FSU would have knowingly agreed to the “fiduciary irresponsibility” of which they now accuse the ACC.
The arguments by FSU so far seem to be circular… and not terribly compelling. The only interesting thing that has come out of this is the option. I’m not sure that’s terribly interesting either as ESPN likely will exercise it through ‘36.

Eric J. Barron, then president of FSU, stated that the GOR would "ensure that the conference will strengthen its position of leadership among Division I athletics", and stated that "we are also very pleased that we will be moving forward on the next phase of developing an ACC network."

Note: ESPN seriously questioned the long-term viability of the ACCN and ONLY moved forward to develop it as the insistence of the ACC and its members. That is why there are two agreements. One establishing the media rights between the ACC and ESPN (justifying the investment to be made by ESPN) and two, the GOR which protects the ACC from dissolving.

 

[Augusta_Jacket]

Colleges cannot sustain athletes who must be considered employees.

They absolutely could sustain it, they'd just have to cut some costs elsewhere.

 

[WreckinGT]

With regard to the bolded, why is that a strong argument? The agreement is between ACC and ESPN. The option and the deadline to exercise it are between the ACC and ESPN. Why would any member vote be necessary with regard to the espn agreement? The GOR gives the ACC the media rights of all members in order to strike a media deal. The ACC did that. They have the right to amend it. The members themselves are not party to the media deal and don’t get a “vote” on the terms of it.
Now, if all members of the ACC did indeed have input and approval of the ESPN deal initially ( which would be the only logical assumption if they now claim they have a right to approve any changes to it) that would also WEAKEN FSUs argument. FSU would have knowingly agreed to the “fiduciary irresponsibility” of which they now accuse the ACC.
The arguments by FSU so far seem to be circular… and not terribly compelling. The only interesting thing that has come out of this is the option. I’m not sure that’s terribly interesting either as ESPN likely will exercise it through ‘36.

When the ACC members agreed to the 2016 rights extension, it was known that upon the launch of the ACC network that ESPN would have to exercise its 9 year option shortly after or walk away. Membership signed the GOR with that knowledge. By extending the option without any consideration from membership and getting nothing in return for it, you have now changed what was originally communicated. Plus you put into question if you are meeting you own responsibility to the conference by making questionable decisions of that nature with no consideration. I don't know the full legalities of doing this but at the very least, it makes the ACC leadership look incompetent.

 

[TechPhi97]

First, thanks for doing the math for me as I had been thinking of a similar analysis. I use the Knight DB as a reference as well.

I don't see the absolute amount of debt as being as important as the annual debt service payments when discussing it in the context of the AA's total annual income, or income from media. Also, I am interested to see where it lands when the 2023 numbers are available. 2022 payments ($13M) dropped from 2021 ($14M) which is a good trend. And while the 2020 Covid year numbers were an anomaly, 2019 was even higher at $15M. Someone is managing our debt payments to be less impactful.

Yes, 100% agreed. The other thing to remember is that the declared sources of revenue do not include income from investments or the sale of investments. The financial statement themselves show the value of these assets, which are effectively what sits in our "savings account". In the last year of reporting we had to sell some of those investments to cover operating expenses, but in other year the value of those investments has gone up significantly with the market. I feel like a lot of our financial strength is "hidden" on the balance sheet, basically.

 

[stinger78]

They absolutely could sustain it, they'd just have to cut some costs elsewhere.

I was referring to risk, not the general ledger.

 

[Vespidae]

Yes, 100% agreed. The other thing to remember is that the declared sources of revenue do not include income from investments or the sale of investments. The financial statement themselves show the value of these assets, which are effectively what sits in our "savings account". In the last year of reporting we had to sell some of those investments to cover operating expenses, but in other year the value of those investments has gone up significantly with the market. I feel like a lot of our financial strength is "hidden" on the balance sheet, basically.

GTAA realizes about $500K a year in investment income. It’s permanent endowment contributions are about $2.5M.

The auditors stated “The Association’s financial outlook is positive based on anticipated revenue growth from the conference, fundraising existing revenue, and external partnerships, as well as reduced annual debt service.”

Translated, “They can pay their bills.” But not by much.

The reason the debt is a problem is you can’t hire. Salaries are $30M. The debt service is about half of that. Think who Tech could hire, or how many more, with running room.

It’s a bare bones operation for D1.

 

[CEB]

When the ACC members agreed to the 2016 rights extension, it was known that upon the launch of the ACC network that ESPN would have to exercise its 9 year option shortly after or walk away. Membership signed the GOR with that knowledge. By extending the option without any consideration from membership and getting nothing in return for it, you have now changed what was originally communicated. Plus you put into question if you are meeting you own responsibility to the conference by making questionable decisions of that nature with no consideration. I don't know the full legalities of doing this but at the very least, it makes the ACC leadership look incompetent.

“It was known…”
How was it known? Was it not memorialized in agreement form? If this was a hot button issue that conference members had input or concerns about, why was it not documented? If the ACC acted unilaterally against the wishes of members, why did it take two years to end up in a complaint?
Bottom line to me is that the ACC is the sole entity responsible for negotiating with ESPN and as far as I can tell, there is nothing in the GOR that says schools grant their rights with any conditions. If there were conditions, it probably would’ve been prudent to paper said conditions, right?

And to be clear, none of this should be construed in any way as me defending the competency of the ACC leadership

 

[CEB]

Eric J. Barron, then president of FSU, stated that the GOR would "ensure that the conference will strengthen its position of leadership among Division I athletics", and stated that "we are also very pleased that we will be moving forward on the next phase of developing an ACC network."

Note: ESPN seriously questioned the long-term viability of the ACCN and ONLY moved forward to develop it as the insistence of the ACC and its members. That is why there are two agreements. One establishing the media rights between the ACC and ESPN (justifying the investment to be made by ESPN) and two, the GOR which protects the ACC from dissolving.

Yes… it’s funny how FSU is peddling revisionist history. I guess they have to blame somebody though!

The GOR goes deeper than the ACCN though… the GOR is what allows the ACC to enter into ANY media agreement with ESPN, whether it includes an ACCN or not. It may have been amended for the ACCN, but really the GOR is the document that assures ESPN they will get the media they are paying for. Without the GOR, the ACC doesn’t have anything to sell, so to speak.
Maybe I read something into the “note” portion of your post that was not intended… apologies if so.

 

[Vespidae]

Yes… it’s funny how FSU is peddling revisionist history. I guess they have to blame somebody though!

The GOR goes deeper than the ACCN though… the GOR is what allows the ACC to enter into ANY media agreement with ESPN, whether it includes an ACCN or not. It may have been amended for the ACCN, but really the GOR is the document that assures ESPN they will get the media they are paying for. Without the GOR, the ACC doesn’t have anything to sell, so to speak.
Maybe I read something into the “note” portion of your post that was not intended… apologies if so.

That is not my understanding.

My understanding is that the ACC is authorized to make a deal with ESPN or any other media partner.

The concern was that ESPN wasn‘t crazy about the ACCN and questioned its viability as well as the future of the ACC itself. So the GOR ensures that no one leaves the conference during the media rights period, otherwise, ESPN is stuck with a network with already limited programming.

 

[CEB]

That is not my understanding.

My understanding is that the ACC is authorized to make a deal with ESPN or any other media partner.

The concern was that ESPN wasn‘t crazy about the ACCN and questioned its viability as well as the future of the ACC itself. So the GOR ensures that no one leaves the conference during the media rights period, otherwise, ESPN is stuck with a network with already limited programming.

Ok… I thought that is what you meant.

I have a slightly different understanding, but I have not poured over documents to get here. I agree that the GOR insures against anyone leaving, but it’s for the WHOLE deal, not triggered by the ACCN.

The order of events (in my mind, fwiw), the ACC reaches a deal with ESPN in which ESPN says they’ll pay X for the current conference, but that’s subject to change if the conference changes. It’s the ACC who says, OK, to insure that the conference doesn’t change and to get top dollar, we’re getting all members to give us their media rights. No one can leave, so there can be no material change to the conference and consequently no change to ESPN agreement. I know there was an additional consideration for ACCN, but I don’t believe the need for GOR would go away if the ACCN were gone.