Posted: Monday November 19, 2012 4:48PM ; Updated: Monday November 19, 2012 5:54PM
Andy Staples
Andy Staples>INSIDE COLLEGE FOOTBALL

Despite backlash, Maryland's move to Big Ten is a sound fiscal choice

Story Highlights

Maryland's move to the Big Ten may attract criticism, but it makes financial sense

By taking in additional $15-20 million per year, Maryland can fund other programs

The move may be bad for nostalgia, but it provides money to school in need of it

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University of Maryland president Wallace D. Loh
University of Maryland president Wallace Loh opted for a move to the Big Ten in order to guarantee long-term financial stability.
Patrick McDermott/Getty Images

In May, the Maryland assembly passed a set of tax increases to ward off what lawmakers called the "Doomsday Budget." That budget, if put into effect, would have severely cut state spending on education. As a result, students at the University of Maryland would have had to pay more in tuition. The state faced two unattractive options: soak taxpayers more or jack up the costs for students. This time, lawmakers chose to hit the taxpayers.

Given the nation's current economic conditions, the Maryland assembly will certainly face this choice again. No matter what it decides, someone will be unhappy. The only way to avoid raising costs for either group is if a school such as Maryland could find a privately funded revenue stream that would bring in more money without asking taxpayers or students to foot more of the bill.

What if I told you one department at Maryland found such a revenue stream? Every dollar the new stream brings in is a dollar that won't have to come from a tax increase or a tuition hike. This would be wonderful news, wouldn't it?

So why does everyone hate Maryland's move to the Big Ten?

The answer is simple. College sports are built on nostalgia. Everyone wants everything to be exactly as it was when they attended Old State U. That way, every Saturday is a trip back to the best time of their lives. When they flip on the television and see Utah playing USC in a conference game, it wrecks that nostalgia. Most people either can't or won't accept what big-time college athletics actually is. It is a big business that happens to be attached to mostly publicly funded universities. That attachment brings with it a number of complications. Taxpayers are schools' shareholders, and administrators have a fiduciary duty to them. In other words, if you're in charge at the University of Maryland and the Big Ten invites you and you say no, you should be fired immediately for breaching that fiduciary duty.

Maryland will make more money in the Big Ten. So will Rutgers, which is expected to announce its move on Tuesday. Maryland's athletic department is in a financial crisis now because it doesn't take a subsidy from the university. With more money flowing in, it should never have to ask for one. That's one less thing Maryland's students and taxpayers will have to pay for in the future. In the ACC, Maryland could expect to make between $20-25 million per year from the league. In the Big Ten, which has its own cable network and probably will set a new all-time high when it renegotiates its Tier 1 television rights in a few years, the distribution will be closer to $40 million a year beginning in 2017. Maryland's proud history as a charter member of the ACC means little at a time when universities must cherish every dollar they can get. The math is pretty simple. The Big Ten offers a better deal than the ACC. "We're still living paycheck to paycheck," Maryland president Wallace Loh said Monday. "What membership in the Big Ten does is allow us to truly guarantee the financial stability of Maryland athletics for a long, long, long time."

This happens all the time in business. Because of economic forces, government regulation, technological advances or all of the above, things can change dramatically. For years, everyone filled their tanks at Standard Oil stations. They don't anymore. For years, people bought Pontiacs. They don't anymore. For years, people flying between Detroit and Memphis bought tickets on Northwest. Now they buy tickets on Delta. For (a few) years, Americans bought their Internet access primarily through America Online. Now they buy it through their phone or cable companies.

So, unless you can think of a better way for Maryland to bring in an additional $15-20 million per year, quit being so sentimental about it.

When reports of negotiations between the Big Ten and Maryland surfaced Saturday, the responses were pretty predictable after almost two years of constant realignment.

1) Why would the Big Ten want Maryland?

2) Why would Maryland want to leave the ACC?

3) Great. Just what we needed. Maryland-Indiana in football.

4) At least it will allow the Big Ten to change those awful division names.

Let's address each of those responses.

1) The simple answer is always money, but to understand why the Big Ten targeted specifically Maryland and Rutgers requires an understanding of how money gets made in television these days. In the old days, the bulk of revenue came from advertisers buying commercial time. That isn't the case anymore.

The owner of a cable network -- such as the Big Ten Network -- receives a fee from each distributor (your cable or satellite company) for each subscriber. These fees range from a few cents to an industry estimate of $5 per month per subscriber for ESPN. (That's just ESPN. All the other ESPN channels command their own lower-but-not-unsubstantial monthly fee.) According to industry insiders I spoke to for this August story about how television has impacted college football, BTN commands about a dime a month for cable subscribers outside the Big Ten's geographic footprint and about $1.10 a month for subscribers inside the Big Ten footprint, where BTN lives in the expanded basic package on most cable systems. Pete Thamel tossed out some of the potential cable revenue increases in his column earlier, but let's break down the numbers a little more.

Realignment winners, losers
Source: SI
Maryland and Rutgers are joining the Big Ten. Who benefits? Who suffers? Michael Rosenberg evaluates the ledger after the latest conference realignment ripple.

By adding Maryland, BTN could likely get placement in the expanded basic package by cable systems serving millions of subscribers. The television markets in Washington and Baltimore -- the two that would be considered Maryland's local markets -- contain about 3.4 million television households. If the league can negotiate with cable and satellite providers to get $1 more per subscriber for three million subscribers in the market, that would generate an additional $3 million per month, or $36 million per year. This is before the first ad gets sold. Rutgers is a bit more complicated. New Jersey doesn't exist as a TV market; its population is included mostly in the New York and Philadelphia markets. It is highly doubtful the BTN would be in such demand that it would go on expanded basic for the 10.3 million households in those markets, but less than a fifth of that number would generate an additional $24 million per year. At those (very conservative) numbers, Maryland and Rutgers would pay for themselves. They also will allow the Big Ten to move into areas where the population is growing instead of shrinking.

This doesn't even take into account the massive fees the Big Ten's Tier 1 rights will generate beginning in 2017. In 2011, Pac-12 commissioner Larry Scott and consultant Chris Bevilacqua provided the roadmap for conferences negotiating their primary rights. Instead of selling the league's entire football and men's basketball slates, the Pac-12 demanded top dollar from ESPN and Fox for only 44 football and 68 men's basketball games per year. That deal will bring in $3 billion over 12 years. Expect Big Ten commissioner Jim Delany to ask for an even higher price per game, and expect him to get it. The games Delany doesn't sell to ESPN or Fox or NBC will only enhance the value of the BTN.

2) The answer to this one is simple. Money. Maryland's athletic department hasn't handled it well lately. The Terrapins took on big debt to renovate Byrd Stadium, and they had to pay millions to fire a football coach (Ralph Friedgen) who probably didn't need to be fired. Earlier this year, Maryland cut seven sports it couldn't fund. (Loh said Monday that some of those sports would be reinstated.) More money will allow Maryland to handle that debt and meet its budget without taking more money from taxpayers or students. Some schools in big-revenue conferences such as the Big Ten and the SEC actually give money back to the academic side after balancing their budgets. This is obviously a better arrangement.

There is the matter of the $50 million ACC exit fee, but don't expect Maryland to pay the full amount. In most of these realignment cases, the school has negotiated the exit fee down. That doesn't mean Maryland will pay nothing, though. The Terrapins will have to come up with a significant chunk of change on the front end to make more on the back end. Regarding that, I'm just going to leave a link to this story about Under Armour CEO -- and former Maryland football walk-on -- Kevin Plank cashing in $64.5 million in stock.

3) This is always the stupidest argument regarding realignment. Of course I don't want to watch Texas A&M-Kentucky. But I had a blast watching Texas A&M-Alabama. No one complained about how much Indiana-Minnesota hurt the Big Ten before. Besides, what schools do people think leagues are going to get? Ohio State, USC, Texas and Alabama aren't leaving their conferences right now. Plus, the Big Ten's football coaches will love the chance to recruit the talent-rich DMV (District of Columbia, Maryland, Virginia). Penn State has been the only Big Ten school with a consistent recruiting presence there. They're all coming now.

4) We can only hope. Leaders and Legends only invite ridicule. Maybe an East-West split would work. This would also allow me to keep my current Big Ten division mnemonic device. I sing the Michigan fight song and remember that the divisions run counter to the lyrics. Because the Michigan fight song refers to "leaders and best," it makes sense that Michigan would be in the Leaders Division. Naturally, Michigan is in the Legends division. The Victors also refers to the Wolverines being "champions of the west," so naturally, the Wolverines would be in the East Division. (Which would actually make geographic sense.)

None of us grew up with Ohio State-Maryland or Michigan-Rutgers. This is different, and different is always scary. But the Big Ten saw a chance to add value, and Maryland saw a chance to make more money in a time of economic uncertainty. This marriage may not square with your idea of which teams should or shouldn't play in the Big Ten, but in this economy, none of us should be criticizing a school for making a sound fiscal choice.

 
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