Should the cord-cutting trend worry the SEC?

SEC Network-ESPN
The launch of the SEC Network was announced in 2013 in Atlanta.

DESTIN, Fla. — The contrast in messages was hard to miss.

First, there was ESPN executive Burke Magnus, presenting to SEC officials the network’s latest data, including financial, that conveyed the health of its future and its lucrative partnership with the league.

“You always want to be very cognizant of market directions and where they’re going. ESPN is still very profitable, and is very strong,” Alabama athletics director Greg Byrne said after hearing Magnus’ presentation. “Is there an evolution going on, yes. But that doesn’t mean they’re just going to sit still idly and not make any changes.”

Then, there was one of those changes evident in the lobby at those same meetings. There stood Brett McMurphy, a highly respected national reporter who was part of ESPN’s layoffs last month, who was on vacation with his family and stopped by to catch up with old friends. He served as a visual reminder of the uncertainty that exists.

For years now, it’s been taken for granted that the SEC is a cash cow, thanks to its TV contracts and the success of the SEC Network, which launched nearly three years ago. But viewer habits are changing, starting with the cord-cutting trend, which manifested itself in ESPN’s cuts and lower ratings for many events.

It leads to the question: Should the SEC be worried?

The prevailing sentiment here last week: Nah.

“ESPN is a topic of a lot of those conversations, and they’re obviously an important partner for the SEC. If you look at their financials, they’re a very healthy, profitable company,” Florida athletics director Scott Stricklin said. “Their growth rate has slowed, as that market has changed. But that doesn’t mean that we’re hurting as a byproduct.”

‘A transition period’ 

SEC schools each received around $40 million from the SEC this year, an explosion of revenue that was already happening before the SEC Network came into effect. It went from “just” $13.8 million in 2009 to $21 million five years later, when the SEC Network began. Then, it jumped to over $32 million a year later.

This happened because of the television deals, and those are so lucrative because of cable carriage fees: Cable companies were desperate to have sports programming because those are almost always watched live, and less susceptible to people scrolling through commercials on their DVR. So people who didn’t want to watch sports were still paying for it.

But then came the cord-cutting trend. People who either didn’t care to watch sports on their cable system, or chose to just watch it online, canceled cable in favor of Netflix, Hulu, Roku, another service or nothing at all.

Arkansas AD Jeff Long said the TV industry is in a time of transition. (Wesley Hitt/Getty Images)

“Are we in a transition period, when people are moving away from traditional cable or satellite? Sure,” said Arkansas athletics director Jeff Long, who was the inaugural head of the College Football Playoff committee.

“You know, I’ve got a 22-year old daughter myself. She doesn’t have cable. She doesn’t have satellite. But she’s gotta have her sports, too, so she may watch that streaming on her computer or phone or whatever, but she isn’t giving up her sports. We’re in that transition period where people are moving away and cutting the cord.”

When could this have a downward effect on SEC revenues? Maybe never, said those interviewed in Destin, but there was some acknowledgment that the huge annual payout could be leveling off.

Byrne, the Alabama athletics director, said his school would be “conservative with our approach” to the annual SEC payout, not budgeting another huge increase. Long, the Arkansas AD, said that the SEC’s deal with ESPN, which owns the SEC Network, has streaming built into it, with the same revenue split.

“I think at the end of the day, it’s a good item to talk about. It creates a lot of interest from everybody, because we all pay attention to ESPN,” Byrne said. “At the same time, too, the bottom line is they’re extremely healthy and we don’t see that changing in the near future.”

‘We’re attentive to what’s going on’

According to SportsBusiness Journal, the complete package of SEC games on CBS last season was up 1 percent — from 5.6 million viewers to 5.65 million — but that was still below the average viewers in 2014 (6.38 million) and 2013 (7.35 million).

That’s not because interest is down, analysts say, but because of cord-cutting. People are increasingly watching on mobile devices — which ESPN and CBS are participating in, too, but have not monetized yet the way they have regular television.

There is plenty of reason for the SEC itself not to be worried. Its deals with CBS and ESPN still have five years to go. But what happens after that? The SEC made $375 million from its TV deals for the 2015-16 fiscal year, the most of any conference, according to Forbes magazine.

SEC commissioner Greg Sankey says his league is ‘in conversation continuously on the health of ESPN and the health of the SEC Network.’ (File Photo)

SEC commissioner Greg Sankey was asked last Friday, as he prepared to leave Destin, whether there was any worry about cord-cutting.

“We’re attentive to what’s going on in the cable universe, and that’s why we have good partners and we’re in conversation continuously on the health of ESPN and the health of the SEC Network,” Sankey said.

Sankey was asked if the conference had looked into dipping its toes into streaming options.

“I’ll withhold my perspectives on media opportunities, for my own purposes,” Sankey said, adding with a smile. “Thank you, though.”

Television revenue might be the biggest source of income, but it’s not the only one. The SEC gets a huge payout when one of its teams makes the College Football Playoff.

According to the most recent figures, every school in the conference is operating in the black, with many schools having a profit margin beyond $10 million.

So the basic message from those in Destin is this: Yes, viewing habits may change. But they just trust in their television partners to adjust. And the bottom line is, as long as SEC football remains as popular as it is and its teams keep winning, they’re not worried.

“Keep in mind that when people do, so to speak, cut the cord, they may go to another outlet where they still get sports. But we’re still included in that,” Stricklin said. “And we’re still included at the same rate. You’re always concerned about growth in anything that you’re doing. But we’re comfortable that we’re still in great position.”

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