Is ESPN’s College Football Strategy Genius?

In the case of the University of Texas and its ESPN (NYSE:DIS) Longhorn Network, greed is not always good.

After signing a 40-page contract on Dec. 24, 2010, the University of Texas received an early Christmas gift: $3oo million for the school from a 20-year, $15 million per year deal from ESPN (NYSE:DIS) to build the Longhorn Network. The television network will double the school’s annual broadcast revenue, according to a Bloomberg article.

The channel will air 200 live events per year, including two football games this season. Additional football games can’t be televised because of broadcasting rights so if you tune in during games, you’ll find football programming with replays, interviews, Coach Mack Brown’s weekly radio program and team practice clips.

Pre-game days, viewers may find a cooking demonstration for tacos. Perfect for tailgates.

The Conference Wheels Come Off

The channel debuted on Aug. 26 but conference disarray soon followed with other schools expressing interest in their own channels, such as the University of Oklahoma, or in a stronger statement, school defections from the conference. 

Texas’ s longtime rival Texas A&M University left the conference for the Southeastern Conference on Sept. 25, citing  the new Longhorn Network would give Texas too much money, according to the school’s Athletic Director Bill Byrne’s blog and that ESPN (NYSE:DIS) would “push the envelope.”

The exodus continued with four additional schools switching conferences and four additional ones requesting their universities look for new alliances.

And there’s also the effect it’s had on the Big East Conference with West Virginia suing it last week to leave ASAP and join the Big 12 for the 2012 football season.

Small Reach

The network is only three  months old and it is only carried by one cable operator, Grande Communications Inc. The San Marcos, Texas operator covers about 150,000 customers.

ESPN will make its own money from fees charged to cable carriers and ad sales. The network has asked Texas cable systems for 40 cents a subscriber, according to Bloomberg, whereas the Big Ten Network charges 36 cents per subscriber.

The Longhorn Network has the potential to reach 7.3 million cable homes in a state where high school Friday Night Lights rules as well as an abundant amount of diehard Longhorn football fans reside. 

Regardless of the network’s viewership, the almost year-old contract will give Texas its guaranteed $300 million over the next 20 years. While the school may give money to different departments, in the end the questions are asked whether the channel was worth it for the University of  Texas football and the Big 12 conference or will it spur other schools to go after their own large revenue streams causing additional dysfunction?

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