College football conference realignment: what do we really know about the revenue-maximization endgame?

I never cease to be enthralled by the shenanigans of conference realignment.

We know that the catalyst behind realignment is money-college football television money, to be exact. This was the reason for a seemingly illogical marriage between San Diego State, Boise State, and the Big East, was that AQ status, and access to a guaranteed BCS bowl, would maximize revenue potential for those programs that would make the travel worth it. While those arrangements are in jeopardy, they do bring to light a logical idea that should be getting more press than it is and that I will explore in another post: the breaking of the bonds between a school's football conference alignment, and that of a school's other sports.

But the issue at hand today is football alignment. We all have an idea of what we think stability will entail. The most common model discussed seems to be that of the 16-team "superconference," leaving 64 teams playing big-time college football, with some second tier between what we now call the FBS and FCS levels hosting the MACs, Sun Belts, and Conference USAs of the world. We are, essentially, seeing the professionalization of college football from a revenue-generation standpoint, and there is nothing to be gained from sharing the pie with the MAC schools, which aren't real players in the game, anyways. The "superconferences" also lead really nicely into an eight-game playoff, which we know would be worth beaucoup bucks to the 64 remaining schools.

I have serious doubts about this model. Not about whether this model is viable, or even about whether it will happen-because I think the answer on both accounts is yes. My doubts instead question whether this is actually the endgame. Remember, the game is about revenue maximization. College football doesn't need 64 teams-it only needs enough teams to secure the proper combination of traditional powers and large enough television markets to maximize the television contract for its biggest schools. That means getting your product on as many television sets as possible, and having the fewest number of players to share the pie with. Why should both Washington and Washington State get a piece of the pie? Why Iowa and Iowa State? Such redundancies add no TV markets, but create and extra piece of the pie that must be shared. Its only a matter of time before the battle that we're seeing now-big conference vs. small conference-turns into the battle of big program vs. small program. And we already know who wins.

The Setup

Fifteen teams have won national championships since 1990, so its not hard to figure out that the real number of teams who could compete for a national championship isn't 64. Further, its preferred to split that pie between fewer teams. Yes, there is value to, say, Arizona football. But, right now, USC and Arizona are getting the same amount of money from the Pac-12 TV deal, at about $20 million each. But if the two schools' combined worth is $40 million, it may be more logical that USC's rights are worth closer to $35 million, while Arizona's rights are worth closer to $5 million. USC isn't going to want to share that forever. This is the reasoning behind my model.

So the system is set up into tiers. Tier one has 32 teams, not 64 as there is in the "superconference" model. A second tier has another 32 teams. This second tier is where you would find the Oregon States and Kentuckys of the world. This division will still sign television contracts in the millions of dollars-just many millions fewer than those in the top division. The top division wants to maximize its television contract, which would be worth insane amounts of money if they banded together and included all their games plus their playoffs. To achieve this, The first tier of college football needs an optimal traditional powers and television markets. Recent success also plays a factor in order to maintain the appearance of this being a "meritocracy". I came up with a model of four eight-team divisons, with conference champions comprising the playoffs. The divisions aren't exactly clean, geographically, but there will always be small problems. I've tried my best to retain traditional affiliations, where possible:

No doubt the combination of teams would look somewhat different (I'd bet Oklahoma State, for example, would be somewhere on that list), but you get the idea. Minnesota, Rutgers and Boston College would be great television markets, so their inclusion would be possible, even though their merit on the field of play wouldn't suggest it. But you now see 32 teams sharing that big pie, with all the traditional powers and programs of national stature included. How much would a TV network pay to show the games of those 32 teams? We're not quite at NFL money, but we're a lot further along in that direction. All of these programs will command premium dollars, and the inventory of games is colossal as non-conference matchups become name games, instead of a FCS patsy. A $1 billion per year television contract would net each of these 32 schools $31.5 million dollars per season, just for football. The NFL totals $5 billion per season in television rights. Could these upper echelon programs band together and get $2 billion for the whole package? That would be about $63 million per school, just for football. I think if you look at the numbers for the current conference and bowl contracts that the market would support that. The schools could then make additional revenues by selling their rights to other sports, especially mens' basketball, in the traditional conference formats.

What about the others?

The problem with this plan, of course, is the politics involved in it all. You'd have presidents and alumni of the schools left behind threatening legal action and congressional investigations, while those in charge of the top tier schools would claim it wasn't really about money, but about competitive balance and fairness to the student athletes. However, there is an easy way to rectify this that not only gives the second tier schools the carrot of a potential spot at the table, but also drives interest in both tiers. I'm talking, of course, about promotion and relegation.

Promotion and relegation doesn't happen in American sports because the owners have created a system that protects their own interests. The owner of the Pittsburgh Pirates wants to protect the value of the franchise that he purchased, in spite of the fact that he has no interest in putting a competitive product on the field. College football works somewhat differently. The teams are (mostly) publicly owned, and therefore subject to meddling from political motivations that actually have some kind of power over the respective programs. For example, you could have a situation where the Oregon legislature tries to tell Oregon that they could not move onto tier one if Oregon State gets left behind.

So instead of fighting that, you make those schools part of the system. The bottom team from each division is relegated down, while the top team from each division in tier two is promoted to tier one. This is the American Way. Americans don't care about the wealth distribution in this country so long as they believe that there is a plausible chance that they could be among the wealthy. The allure of an Oregon State having the theoretical ability to become one of those $60 million a year teams would be an immense force. It would help the value of both the tier one and tier two television contracts, as it would drive interest in both tiers and potentially make college football even more interesting than it is now. It allows the major programs to say they are promoting some idea of "fairness." Finally, it isn't really a threat to the major programs, as the idea that a USC or an Alabama would be relegated for an extended period of time is unlikely given the advantaged that those schools have. Even being in tier one 60-80% of the time could be a huge financial upgrade to what is available now.

Conference realignment is the reality of the current college football landscape, and it won't become stable until the schools with the most revenue-generating capacity believe that they have maximized their revenue streams. This framework satisfies that need both practically and politically.