American football

Shocking Deal: Longhorns Management have finally breaks their bank fees $500 million deal to…

world of college athletics in Texas was rocked with the news that the University of Texas along with the University of Oklahoma would soon be leaving the Big 12 Conference. The immediate plan is to depart for the Southeastern Conference in 2025 when the current television contract expires.

In many ways, this move is not surprising and will undoubtedly bring benefits to UT and the Austin area. But those universities that get left behind in the conference realignment, and their hometowns, would suffer. Baylor University, TCU and Texas Tech are at risk of losing out, and, by my calculations, that could cost the Waco, Fort Worth and Lubbock economies over $500 million per year and thousands of jobs.

The outcome of the UT and OU move could change for a variety of reasons. For one, the move might not be approved by the SEC. On the other hand, the timing of new media deals could cause it to happen sooner or a better opportunity from another conference might come along. UT and OU have made it clear that they are prepared to adapt to a changing environment. One thing we can be sure of in a fluid situation is that these elite programs are not going to stay put.

Advertisement
College athletics, like the tectonic plates beneath us, are always shifting, normally at a somewhat glacial pace but with periodic jolts and accelerations. We have seen major realignments on multiple occasions. The ongoing ebb and flow were recently given a seismic shift with a Supreme Court ruling and resultant new NCAA rules allowing athletes to benefit financially from the use of their name, image and likeness.

There is certainly nothing inherently wrong with anyone being compensated for their skills and abilities (in fact, this concept drives much of the global economy). Nonetheless, this change, particularly when coupled with the prospects of massive new television contracts and an expanded playoff format, puts a premium on elite leagues and marquee matchups, fundamentally altering the field of play for collegiate sports.

Given the fact that universities with the highest levels of exposure to major media outlets are likely to offer athletes the best personal marketing opportunities, the premier athletes in all sports will naturally be drawn to them, even more than before. The next few years will no doubt bring notable changes, and, while much is not known at this point, it’s almost certain to include gravitation toward a smaller number of top-tier schools dominating the competitive landscape. A basic economic concept dating back to Aristotle is that you get what you incentivize.

Advertisement

It remains to be seen precisely what structure will ultimately evolve. After all, sports thrive on competition, and some parameters may be imposed to limit the degree of concentration (much like the function that antitrust laws perform in tempering market behavior). Such practices are common in professional sports, including salary caps, reserve clauses, and constraints on free agency. Similarly, the NCAA has long sought to level the playing field, implementing restrictions on the number of scholarships dating back to the early 1970s. The process will play itself out over time.

For now, however, schools with large alumni bases and high national profiles are going to have a decided advantage. A sophomore Alabama quarterback who has hardly played varsity ball is approaching seven figures in NIL deals, furthering the recruiting advantage of an already iconic team.

At the same time, the market for television rights is growing substantially but is finite at any point in time, and resources will be allocated based on what is expected to yield the best outcomes for networks and advertisers. That march will inevitably and inexorably be toward big markets, powerhouse programs, intense rivalries and elite players.

Advertisement
Against this background of evolution (and, at the moment, revolution) is the fact that two storied institutions have announced their intention to leave the Big 12 Conference. Texas is consistently ranked as one of the very highest schools in athletic revenue and OU is in the top 10. No other Big 12 school even ranks in the top 25. Without Texas and OU, the rest of the conference undoubtedly faces smaller television deals, lower attendance, and other negative consequences.

The action in college athletics, of course, is not limited to the field, court, diamond, pool or gym. It has profound implications in many arenas, including the economy. We can’t know exactly how things will look, and speculation is rampant. One proposal has been to merge the Pac 12 and the remainder of the Big 12 into a 20-team league (unlikely due to logistical, administrative, geographic and cultural barriers, but certainly not impossible).

Despite the uncertainty, it is worth considering some plausible outcomes and their implications. I recently trained my economic lens and models on this topic and can offer some reasonable assessments.

In particular, my firm recently estimated business losses to the remaining Big 12 communities based on the effects of:

1. Reductions in athletic department revenue that would be reflected in lower instructional and administrative services spending in these areas.

2. Direct tourism losses from lower spending at home games for food, lodging, travel and other activities.

The total economic impacts (direct as well as indirect and induced) were then estimated using my firm’s impact assessment system.

My colleagues and I looked at two scenarios. Scenario 1 reflects a situation in which the Big 12 Conference remains largely intact with the remaining eight teams (and potentially expands). We assumed that television revenue and attendance patterns in this instance are similar to those in the American Athletic Conference (adjusted for specific characteristics of the individual schools).

Advertisement
This approach is adopted to reflect the facts that this conference is the most successful of those that do not include teams of the stature of the University of Texas and the University of Oklahoma, and several of the member schools have been widely mentioned as potential candidates for expansion of the Big 12 Conference.

Scenario 2 reflects an alternative potential outcome in which the Big 12 Conference is not maintained and individual schools must seek opportunities elsewhere. Although a variety of possibilities are potentially available, this scenario assumes that the ultimate performance mirrors that of the five most successful athletic programs in the Mountain West Conference (the next most successful league following the American Athletic Conference).

The total losses from reduced tourism and educational spending and related multiplier effects were estimated based on the level of athletic revenue in 2019. For the communities across the Big 12 Conference, the realignment could be expected to cause losses of $938.9 million in annual gross product and 12,623 jobs under Scenario 1, and loss of $1.3 billion in annual gross product and 18,063 jobs for Scenario 2.

Looking specifically at the Texas universities (the Waco, Lubbock and Fort Worth areas due to effects on Baylor University, Texas Tech University and Texas Christian University), total annual losses were found to include $397.7 million in annual gross product and 5,322 jobs under Scenario 1 and $569.1 million in annual gross product and 7,615 jobs under Scenario 2.

Advertisement
The substantial difference between Scenario 1 and Scenario 2 is a reflection of the potential value of maintaining the Big 12 as a viable conference headquartered in Texas.

These illustrations likely understate the actual losses to the affected communities for a variety of reasons. They do not account for the effects of new opportunities for athletes to be highly compensated and the resulting incentives to opt for conferences with high media visibility, the likelihood that gaps in television revenue will expand over time, potential additional costs associated with excess capacity in facilities or increased travel expenses to accommodate less geographically cohesive areas, and numerous other downstream effects.

Such downstream effects could include less media exposure, more difficult student and faculty recruitment, lower alumni and donor engagement, general loss of recognition and prestige, and potential effects on economic development opportunities as companies and knowledge workers are drawn to attractive amenities such as major college sports.

All of that is to say that the future of college athletics is enormously important to the economy of Texas (and those of other states). The movement from five schools with major national profiles to only two impacts much more than what happens in the arena. In Texas alone, even the immediate effects translate into hundreds of millions of dollars in lost output and thousands of jobs.

The tectonic plates have shifted, and the earthquake is happening. We can’t prevent it, but we can limit the damage. Efforts to minimize the fallout and maximize the prospects are important to the very character of university education going forward, and, thus, our economic destiny.

Ray Perryman is an economist in Waco. Find more details of his athletics conference analysis at www.perrymangroup.com. He wrote this column for The Dallas Morning News.

Got an opinion about this issue? Send a letter to the editor and you just might get published.

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button