The Big Ten's Gamble: Conference To Subsidize Maryland's Travel Costs

According to a report in The Baltimore Sun, Maryland is set to receive an extra travel cost subsidy from the Big Ten when they join the conference starting in 2014-15:

The University of Maryland's deal to join the Big Ten includes not only the lucrative annual payouts that all members receive, but also a significant concession obtained by the school - a subsidy worth tens of millions of dollars from the conference to offset athletic teams' anticipated higher travel costs, according to multiple sources.

The subsidy, which Maryland was promised in negotiations with the conference late last year, made an already appealing offer of Big Ten membership even more attractive to the school.

Since financial details of the agreement are kept private - the amount of the subsidy is not publicly available. But the amount is in the range of $20 million to $30 million, according to sources familiar with the deal.

"WTF!" - Nebraska and Rutgers.

This likely brings the Big Ten's total capital outlay to $72 to $82 million for reeling in the Terrapins, a sign as to how badly the Big Ten wanted all those Baltimore-Washington TV sets. The ACC has sued Maryland to collect a $52 million exit fee from the Terps. Maryland has countersued, claiming enforcement of an exit fee is a violation of antitrust law.

While this seems like a sweetheart deal at face for the Terps, I think this represents a pretty sizable gamble on the part of the Big Ten's leadership. Delany is banking on the Big Ten's cable TV network, BTN, gaining carriage in two of the nation's top 10 media markets (Baltimore-Washington and New York). The goal is to raise the value of the conference's media rights in time for contract renegotiations in 2017.

The success of this strategy largely depends on the financial health of the Maryland athletics department, something that has been a problem for a number of years due to its own financial mismanagement. The Big Ten is betting that Maryland can solve its financial issues and provide stability to the conference; all while raising the value of the next media rights contract.

The other concern is the longer-term viability of cable TV's economic model. The current model is straightforward: cable companies pay content providers and broadcast networks for the right to broadcast content. Cable companies then turn around and charge customers more money than they paid content providers to turn a profit, passing on the cost of acquiring the content to customers. This bundling pricing strategy allows cable companies to purchase broadcast rights for the BTN for, say, $3 dollars per month per customer, and then turn around and charge you, the consumer over $100 / month for the right to watch a couple hundred channels.

As cable prices continue to rise, fewer subscribers will be willing to fork over hundreds of dollars per month for cable TV, instead turning to other new disruptive models. Customers choosing what channels they want to watch -- a model called a la carte pricing -- or mini cable packages where customers pay for a smaller base package plus additional channels around a theme -- sports, cooking, news, politics -- may threaten the traditional model as base cable package costs continue to rise

If given the choice, will half of all Baltimore-Washington households choose to purchase the BTN? One-fourth? What percentage of the New York TV market would pay a monthly fee for the BTN?

Another potential long-term problem is the feeling of inequity that Maryland's travel subsidy creates within the conference. The Big Ten has made it clear that all members are equal, refusing to give Notre Dame a conference affiliation similar to the one recently offered up by the ACC. One is already hard-pressed to find a fan of a current Big Ten program who likes the additions of Maryland and Rutgers. Will Maryland's perceived "special treatment" engender even more hatred for the program before they even join the conference?

Finally, I think the Big Ten has also lost some leverage here if it hopes to lure fellow ACC members North Carolina, Virginia and Georgia Tech into the fold. Is the conference going to offer a similar travel subsidy to a combination of these three schools? What North Carolina and Virginia may lack in TV markets they more than make up for in athletics prowess over a school like Maryland. Short of giving both Virginia or North Carolina a similar travel subsidy, I don't see a situation where either school goes running into the arms of a conference that just gave ACC defector Maryland special treatment. Notre Dame Maryland is not.