ESPN And Its Role In The Future Of Bowl Games

For decades, prognosticators who loved to prognosticate argued that the world had hit peak oil. They swore over and over again that soon the people of the earth would produce oil at a declining rate. Well, as current events seem to tear this theory to shreds, we can safely put another theory to bed: Peak Bowl. For decades, prognosticators who loved to prognosticate continued to roll their eyes at the growth of bowls. Soon, they believed, we would hit the maximum amount of bowls humanity could stand and the rate of bowls would decline over time. This would probably also lead to global instability similar to the end game of peak oil.

Well, I'm here to tell you that current events are tearing that theory apart also. And I'm sure it hurts Putin as much as the whole oil thing. What is happening to the bowls, why is it happening, and how does this affect our beloved California Golden Bears?

WHAT IS HAPPENING TO THE BOWLS!

OK, so the first question is that they are growing growing growing growing and also, additionally, moreover growing. Look at the numbers over time:

In particular, mid-major bowls are exploding:

In June 2013, ESPN.com reported that the so-called "Group of Five" conferences-the American Athletic Conference, Conference USA, MAC, Mountain West Conference, and Sun Belt Conference-were considering adding one or more new bowl games once the NCAA's current moratorium on new bowls expires after the 2013 season. This move was driven by a trend for the "Power Five" conferences (ACC, Big Ten, Big 12, Pac-12, and SEC) to play one another in bowl games. The 2013 season, the last of the current four-year bowl cycle, will have 16 bowls that involve two teams from "Power Five" leagues. The 2014 season, the first of a new six-year bowl cycle, will have at least 19, and possibly more, matchups of "Power Five" teams. The "Group of Five" was apparently concerned that this trend would mean that its teams might not have available bowl slots.[11]

According to the report, the aforementioned Christmas Bowl would involve a Mountain West team against an opponent from either the Pac-12 or The American. As for The American, it is seeking to start a bowl game, most likely at Marlins Park in Miami. Two other venues of "Group of Five" schools in Florida-Bright House Networks Stadium (UCF, Orlando) and FAU Stadium (Florida Atlantic, Boca Raton)-are being considered for other potential bowls. A possible bowl in Little Rock would pit C-USA and the Sun Belt. Finally, the director of the current Little Caesars Bowl indicated that he had been in contact with officials from all of the "Group of Five" about starting new bowl games in Ireland (most likely Dublin), Dubai, and either Toronto or Nassau.[11] Recently, though, reports have indicated the proposed games in Ireland and Dubai would be unworkable.[17]

They want to send mediocre teams abroad! There are currently 39 bowls (with more on the horizon) meaning that you can even play with a losing record:

With the increase to 39 bowl games in 2014-15, the NCAA has eased the bowl eligibility rules to make teams with a losing record fully eligible to participate without the need to apply for a waiver.

WHY IS THIS HAPPENING?

This is where it gets complicated, but the bottom line is one thing and one thing alone: $. It's always about money and, in particular, TV money. See, the reason for bowls has changed substantially over the years.

They started as tourism junkets:

The historic timing of bowl games, around the new year, is the result of two factors-warm climate and ease of travel. The original bowls began in warm climates such as Southern California, Louisiana, Florida and Texas as a way to promote the area for tourism and business. Since commercial air travel was either non-existent or very limited, the games were scheduled well after the end of the regular season to allow fans to travel to the game site.[1] While modern travel is more convenient, all but 5 of 35 bowl games (as of 2013-14) are still located in cities at or below approximately 36° N.

Look at this map:

The vast majority are in warm weather climates. While the start of the bowls was for tourism in warm weather areas it has now changed basically to make money for ESPN. The bowls and ESPN are working to create more, mediocre bowls to make money for themselves either off the back of the teams themselves or by viewers like you! Let's take them in turn.

HOW BOWLS MAKE MONEY

Well, the bowls make money in several different ways, but one important factor I want to focus on is their risk as it relates to the schools' risk. The riskiest aspect to holding any entertainment event (which a sporting competition really is) is whether people will pay to show up. In specific, whether they will pay you to show up. The bowls circumvent this concern by forcing all of the schools to pay for unsold tickets. This is how you can have schools lose money on bowls; even big name ones like the Fiesta Bowl:

The athletic department expenses were $4,280,998 while it received a payout of $2,523,200.

By far the largest expense the university incurred came from absorbed ticket sales. The university sold only 2,771 out of an allotment of 17,500 tickets, resulting in the university absorbing 14,729 tickets worth $2,924,385, the newspaper reported.

The official figure of 2,771 tickets sold is substantially lower than the previously reported amount of 4,600 tickets sold.

Travel expenses for the university were extensive as well. UConn spent a total of $685,195 on travel, spending $315,378 on 213 members of the team, coaching staff and administration over eight days ($1,481
per person) and $369,817 on 335 members of the band and cheering squad over three days ($1,104 per person).

On meals and lodging, UConn spent a total of $460,941. Of that, the university spent $215 per day on each of the 213 members of the team, staff and administration over the course of eight days, as well as $94 per day on each of the 335 members of the band and cheering squad over three days.

Other expenses that UConn incurred included entertainment, promotion, awards, equipment and supplies, administrative, band facility rental, bag tags and lanyards. These expenses combined totaled $210,477.

So, the teams have a significant amount of expenses to get everybody/everything to the bowl for the game. Then, they sell a small percentage of their tickets (UConn sold 15% of their tickets) and had to eat the remainder (to the tune of approx $3 mil). The bowls do not have to sweat whether people show up, because even if they do not, they will get their money from the teams.

Even when the fans do show up, it does not always mean money for the teams. This year Penn State took on BC in the Pinstripe Bowl. This game was in NY, which is reasonably near both of the schools.  The teams actually sold their tickets really well and what was the final result:

BC did not have a problem selling tickets for a holiday weekend game against Penn State in Yankee Stadium.

"I haven't seen the final budget numbers, but my suspicion is that we were pretty close to breaking even,'' said Bates. "New York is expensive, but we didn't have to charter a plane. We work as a conference [BC is in the Atlantic Coast Conference] as to finances, and we don't want anyone to lose money on a bowl game.''

They *may* have broken even! WOW! Plus, the situation is getting worse:

It's not just the teams playing in low- and mid-level bowls this season that are having trouble selling tickets. According to reports, several BCS-bound teams are struggling to get rid of their allotment.

Both teams playing in the Fiesta Bowl, Baylor and Central Florida, have returned thousands of unsold tickets from their 17,500 seat allotment. Baylor sold about 12,000 tickets while Central Florida managed to sell less than half of its allotment.

Perhaps more surprising is that Ohio State, a school whose tradition trumps both Baylor's and UCF's, is having a hard time ridding itself of a 17,500 ticket Orange Bowl allotment. According to the Toledo Blade, the Buckeyes have only sold about 7,000 tickets thus far.

The hits just keep on coming:

Last year conferences and schools ate nearly $21 million in unsold tickets.

All told, only a handful of bowl-bound programs will make money in the postseason, and most of those are BCS teams.

HOW TV MAKES MONEY

So, that is how the bowls do it, but how does TV do it? And by TV, I mean ESPN (they show all but one bowl).

The first and most important thing that you need to understand here is that TV is not in the TV production business. It is in the ad sales business. The TV is just a way to sucker people into watching the ads. The game has changed radically in the last 5-10 years, however. Now, the vast majority of people watch TV through various non-traditional methods. Some of them may watch it online. Some may watch it with their DVR and skip through the commercials (Neilson is trying to use a live TV plus 7 days model to count viewers, but even if you watch it days later, you'll FF through the commercials). Some may illegally download it. Either way, the ways that channels derived their money is significantly less through these new methods and so they make less money. This is true except for one key area: sports.

Nobody wants to watch sports late. Nobody wants to be behind. Nobody wants to miss THAT moment that everybody is talking about. So, we watch sports live. We don't cut the cable, we pay extra for obscure channels like Big Ten Network and Pac12 Channel.

So, channels are unusually desperate for sports product. New sports channels are popping up all over the place. Existing sports channels are ramping up product. Sports sells ads to passionate people who will watch ads, so its programming nirvana right now. How does that relate to college football?

Even if people are not showing up to bowls, they are watching them in droves.

Only one bowl game last year drew fewer than 1.2 million viewers on average, according to Nielsen. That's better than the 1.1 million who watched an opening day baseball game last year between the New York Yankees and Boston Red Sox. Nationally broadcast regular season baseball games in 2012 and 2013 averaged about 680,000 viewers.

Look at some of these discrepancies:

That's because even though ticket demand is relatively low for lesser bowls, millions of viewers keep watching, even if it's the Camellia Bowl in Montgomery, Ala., a game that drew just 20,256 fans last week but attracted an average television audience of 1,114,000, according to ESPN.

And:

Air Force beat Western Michigan Saturday in the Famous Potato Bowl 38-24, a game that drew an announced stadium crowd of only 18,223. On television, ESPN said the game still drew an average of 1.45 million viewers.

It does not matter whether people are in the stands, because the schools deal with that. To the broadcasters, all that matters it the eyeballs on TV and those are ridic. And by broadcasters, I mean broadcaster. It's all the Mouse:

If not for ESPN, many of these games might not exist. ESPN Events, a subsidiary of ESPN, owns and operates 11 bowl games, including two new ones this year.

All but one of the 39 postseason games this season will be broadcast by ESPN or ABC networks, both owned by The Walt Disney Co.

So, ESPN creates bowls. They make money off of the bowls themselves. Then, they make money off of the broadcasts of the bowls. It's win-win for them. Plus, the more viewers they have, the more they can charge to the cable companies to carry them. ESPN, in particular, is the 800 pound gorilla of cable subscriptions.  Look at the numbers here:

The wholesale cost per network is expected to increase 36% by 2018 according to media-research firm SNL Kagan estimates. Cable providers currently pay a total of $28.32 for a few dozen channels, depending on the provider and the cable package, with ESPN taking over $6 of that. Meanwhile median price paid for each channel a subscriber gets is 14 cents. ESPN is estimated to cost $8.37 per month in 2018, an increase of 39%.

All but a handful of channels cost less than $1.00 and ESPN costs over $6.00! So, besides making money on the bowls themselves and making money on the broadcast of the bowls, ESPN has an interest in making more money off of their rates to the cable providers. Creating more bowls is win-win-WIN! for them.

HOW DOES THIS AFFECT CAL?

Up until this point, you may be saying "NO BEAR, NO CARE!"  So, let's look at how this affects our beloved California Golden Bears.

Thankfully, Cal hasn't made a bowl since 2011. JOKING! Kind of. The next few bowls that Cal makes will probably go well for us since we'll sell out much of our forced ticket allotment. But there are no absolutes. If we end up in a mediocre bowl, we could end up eating a lot of money in costs/ticket sales.

Cal is in a unique position in the college sports constellation.The vast majority of athletic departments lose serious money (hello, UAB! Also, goodbye, UAB!) and Cal appears to be almost exclusively the only department interested in trying to lose less money:

Just five of the 227 public schools that were in Division I from 2009-10 through 2012-13 have managed to reduce their subsidies for athletics in each of the past three years, a USA TODAY Sports analysis found - Cal, Illinois, Missouri, South Carolina State and Southern Illinois. And Cal was the only one of those five to drop its subsidies by more than $1.2 million during those years.

So, losing money on a bowl game could be extremely problematic for Cal's penny-pinching ways. Additionally, Cal has 440 million reasons to be in the black. Starting in FY2013, Cal is paying this debt off. In FY2013, they paid approx $15 mil:

So, wait, the Department made 91mil and spent 76mil, why did they only have 1.4mil profit? That is because THE CALIFORNIA MEMORIAL STADIUM UPGRADE DEBT SERVICE HAS BEGUN!!!!!!!!!!!!!!!!!!!!!!!!!! The feared half century payment of 440mil is underway. Cal paid 14 mil for this year, so the Regents are not going to come and break Sandy's thumbs. CELEBRATE GOOD TIMES, C'MON!

So, when you factor in that 14mil plus a few other mil (more on that in a bit), your total expenses rise quite substantially. This debt service is the new normal, so Cal is going to need to make a lot more in revenue and keep expenses down to be able to service the debt. The half century finger cross continues!

Schools are receiving large sums of money from their conference/media rights these days. Cal is not alone in that. However, Cal is lonelier in using that money to pay off stadium debt instead of paying assistant coaches or whatever. So, Cal is in a worse position to deal with losing money on a bowl. Other teams may be able to handle it with a supplement of conference/media money. Cal cannot.

CONCLUSION

So, what is the end game here? Right now there is a bloodlust for more and more mediocre bowls, because even mediocre bowls make money for the key stakeholders. These will not be Rose Bowl 2, but instead yet another mediocre bowl at which you roll your eyes. These bowls will potentially be financially painful for some athletic department which requires large subsidies from its parent school to make ends meet. However, they'll hide that to help get increased passion from their fans and donations etc etc. ESPN will be happy, because they have more bowls to show, which means more high quality viewers even if there are not many fans in the stands.

The bottom line of all this is that it makes ESPN more powerful and more valuable to cable companies. So, they will pay the increased amounts to ESPN and then try to pass it on to you. This will only hasten the demise of the traditional cable channel, in my view. It will inspire non-sports fans to look for more cord cutting opportunities. When sports channels make up the largest and fastest growing portions of cable subscriptions and you do not care about sports, you want to cut that cord. That makes sports fans even MORE important, because they are the last people remaining, so the cycle continues unabated.

I think that this bowl issue ties in several other issues that I've been following recently. You have the issue of the monetization of college sports, including the massive red that most athletic departments bleed. You have the weird scam that is most bowl games. You have the increased value of sports programming in the media spotlight, including the awe-inspiring power of ESPN. You have the growing interest in cord cutting, which should only increase as ESPN and other sports channels make your cable subscription more expensive.

What are your thoughts on all these issues as they swirl around? Tell us in the comments!