In a hotel conference room in Portland, Ore., in early December, four representatives of the Pacific-12 Conference, including Commissioner Larry Scott, 47, sit at a square table with five creative directors from Imaginary Forces, a Los Angeles advertising studio. They are trying to come up with the look and feel of the Pac-12 Network, a 24-hour cable enterprise launching in August 2012 that will be devoted exclusively to Pac-12 sports. Peter Frankfurt, the creative director of Imaginary Forces, is narrating as an associate clicks through a series of gleaming computer-generated graphics in silver, white, and blue. “The word we are thinking about is, ‘connection,’ ” Frankfurt says. “We are dealing with 12 schools, so there is this connection.”
Scott leans back in a wire mesh chair and holds a pen up near his ear so that it vibrates like an antenna. Scott is six-foot-three, with a broad, sloping forehead and diamond-shaped eyes. It is hard to read his reaction to the presentation. The rest of his team, including Gary Stevenson, president of Pac-12 Enterprises, the division that oversees the network, and Marketing Director Danette Leighton, look unimpressed. Scott nods, then sits forward.
“I was thinking about ‘ownable,’ ” he says. The Imaginary Forces team all scribble the world “ownable.” “I was thinking this can’t be something the Big Ten or the SEC would do. This has to be ours. Something only we could do.”
“But without being too busy,” says Stevenson.
“And without losing the history and tradition,” says Leighton.
“And futuristic, cutting-edge,” adds Scott.
“But don’t lose the simple,” says Stevenson.
As the meeting goes on, it becomes clear that the Pac-12 Conference, like college sports as a whole, is changing so rapidly and profoundly that even the people in charge are struggling to describe what it has become. In the two years since Scott took over as commissioner of the conference formerly known as the Pac-10—which includes some of the most prestigious research universities on the West Coast—it has added two new members, the first additions since 1978; negotiated the largest television rights package in college football history, $3 billion over 12 years; and begun the process of building a seven-channel television network. In so doing, Scott has emerged as the pivotal player driving an unprecedented geographic and financial transformation of college athletics.
Last summer, Scott launched a bid to turn the Pac-10 into a 16-school superconference stretching from California to Texas. Although Scott’s push failed after the University of Texas at Austin refused to accept his terms, it set off a dizzying realignment of the conference landscape. The Big Ten is now twelve, the Big 12 has lost three teams but added two, and the Big East Conference has expanded its geographical footprint to include the entire continental U.S. The impetus for this mad scramble is the desire of university presidents and athletic directors to grab a share of the swelling television revenue that comes with major-conference college football, which generated a record $2.8 billion in 2010, according to the Sport Business Research Network, making it the second-most-popular televised sport in America after professional football.
It’s debatable whether all that money is benefiting or subverting the mission of U.S. universities. The scandal at Pennsylvania State University, in which administrators allegedly covered up reports of child sex-abuse to protect a revered coach, is the most damning example of the outsize influence of football programs in higher education. Many fans question whether the sport has grown too powerful.
Scott, who makes $1.5 million a year, not including incentive-based bonuses, rejects that view. He says his role is to optimize what the schools in the Pac-12 make through big-ticket sports such as football and basketball, so they can spend it in classrooms and laboratories. “The more money we bring in, the more these universities can do academically, [and] they can better fund the non-revenue sports,” he says. “This isn’t just about football.”
He goes on to say these are the first steps in the long, messy march toward what he sees as inevitable: a single football conference consisting of as many as 72 teams, possessing as much negotiating leverage and commercial potential as the National Football League. “The market right now is inefficient. We have too many sellers and limited buyers. Imagine the kind of value we could unleash if there were only one seller. All six power conferences negotiating one deal. That’s where this is going.”
The Pacific Coast Conference, as the Pac-12 was called when it was founded with four teams in 1915, is the second-oldest conference in college sports—only the Big Ten predates it. From the start it combined first-rate academics with excellent athletics: Its teams have won 444 non-football championships, more than any other conference, and 24 national football championships.
Yet over the last decade the conference’s profile declined. The Southeastern Conference, in 2009, and the Big Ten, in 2007, had both signed multibillion-dollar television deals that gave their schools regular national exposure, and even the Atlantic Coast Conference and Big 12 were getting their games into better national time slots. The Big Ten, in partnership with Fox Entertainment Group, had launched its own national TV network that generated $225 million in 2010. By 2009 the Pac-10 was fifth among the six major football conferences in revenue, taking in just $109 million, less than half what the SEC earned.
“You didn’t need to be a rocket scientist to know we weren’t doing well in terms of media contracts,” says Edward J. Ray, president of Oregon State University. “At the time we were slated to get about $60 million a year for media rights. The outside consultants were saying we should get at least double that. We knew we needed someone who was pretty media-savvy.”
When former Pac-10 President Thomas C. Hansen retired in 2009, the 10 university presidents and chancellors, who serve as the board of directors of the conference, all believed that what the conference needed was an executive who was better versed in negotiating television contracts, licensing fees, and marketing. “There was a feeling we were not being projected at the level we wanted to be projected at,” says Michael M. Crow, president of Arizona State University. “We needed someone a little more visionary.”
Larry Scott grew up on Long Island, the oldest of three siblings in an avid tennis-playing family. Scott went to Harvard University, where he was captain of the tennis team and a European history major. As a player, “Larry was smart,” says Harvard teammate Peter Palandjian. “There are a lot of ways to kill a person on the court, and Larry has this ability to figure out how to uncork someone, to find where their game is vulnerable.”
After graduation, Scott joined the Association of Tennis Professionals tour. He would never rank higher than 210th in the world and won only one main draw match, though that was at Wimbledon. “I never had a master plan for tennis,” Scott says. “I was just focused on getting to the next level and ended up playing professionally.”
Scott retired from professional tennis in his mid-20s and went to work for the ATP as an executive vice-president based in Australia, where he negotiated television and sponsorship deals from North Africa to Latin America. In this job and his next, as chief marketing officer for the ATP in London, he wrestled with the sport’s fragmentation. Each Grand Slam tournament cut its own TV deal, a situation that Scott felt was slicing up the product and driving down demand. “Fragmentation of rights is a value killer. Centralization of rights is a value driver,” Scott says.
In 2003 he became chairman and chief executive officer of the Women’s Tennis Assn. The WTA, Scott says, “had an image that the players were divas. Players were pulling out of tournaments, and they weren’t committed to supporting the sponsors.” He focused on two goals: securing for the women equal prize money in Grand Slam tournaments and building relationships with sponsors to give the sport some financial stability. By fighting for equal prize money, Scott was able to earn the loyalties of top female players. That made them more receptive to his appeals that they increase their tournament participation and availability, a precondition to securing larger sponsorship money. “Larry is a very good salesman,” says Billie Jean King, the founder of the women’s tour. “He has this way of listening, and then taking that information and going away and coming back and saying that same thing back to them. That way the stakeholders feel like they got what they want.”
In 2004, Scott negotiated an $88 million deal with Sony Ericsson Mobile Communications, the largest-ever sponsorship arrangement in professional tennis. He had also signed the richest television deal in WTA history, increasing overall revenue from $21 million in 2003 to $54 million in 2009. Soon the men’s tour approached Scott about becoming its new CEO. During his interviews with the ATP board in New York, he said he would take the job only if he could merge the men’s and women’s tours, centralizing television and sponsorship rights to drive better deals.
Sitting in the room was a corporate headhunter, Jed Hughes of Spencer Stuart. Hughes called Scott the next morning to tell him the ATP was not interested in a merger. Would he perhaps consider another position Hughes was looking to fill, at a college athletic conference out west?
“My first thought was, ‘What a sleazy headhunter, trying to sell me another job,’ ” Scott says, jokingly. “I told him I would think about it.”
Scott’s first act upon taking the helm at the Pac-10 was to travel to all 10 member schools, talking to the university presidents, athletic directors, coaches, and students to get a sense of what Scott calls “conference values.” At a meeting in October 2009, he gave a PowerPoint (MSFT) presentation that laid out the Pac-10’s dire situation—the second-to-last-place revenue figures, the poor national TV coverage, the “regressive” brand image. He said he believed that the gap between the Pac-10 and the SEC and Big Ten would only widen if drastic measures weren’t taken. “This conference didn’t look at itself as a league, they looked at themselves as this sort of governing body that was responsible for rulemaking,” Scott says. Marketing, advertising, even negotiating with TV partners had been outsourced or handled by the individual institutions themselves. “This was a conference that was very resistant to change,” he says.
Scott recognized the conference’s potential. These were successful academic institutions with gigantic fan bases and top-tier athletic programs. He believed the conference’s TV rights, which were due to be renegotiated in 2011, presented an opportunity not only to close the gap with the other power conferences but potentially to pass them. His three-step plan included evaluating expansion, renegotiating TV contracts, and starting a cable network devoted solely to conference sports. Richard W. Lariviere, president of the University of Oregon, describes Scott’s influence on the conference in almost emotional terms. “It was this unleashing of all our hunger for change, for innovation,” he says. “Larry came in and we talked for 10 minutes, and I got exactly where we were going.”
Scott knew that when it came to a new TV deal, the conference was in a favorable position. The Comcast-NBC merger had created a powerful cable and broadcast entity that would be eager for sports programming and would bid against Walt Disney (DIS), owner of ABC and ESPN, and News Corp. (NWS), owner of Fox Sports. The other major athletic conferences were effectively locked up for five years, making the Pac-10 the last major conference with both broadcast and cable rights for sale.
To unlock the value, Scott needed both to expand and to centralize. So began the whirlwind flying around the country in a borrowed private jet, from Austin, Tex., to Norman, Okla., to Boulder, Colo., as Scott attempted to assemble a superconference with a TV footprint of 75 million homes. Scott says it was no secret the conference thought the University of Texas was a good fit for the Pac-10, academically and athletically. However, in Scott’s negotiations with UT President Bill Powers, it was clear Texas was not committed to the idea of sharing revenue equally with 15 other schools. UT wanted to maintain the new Longhorn Network, all of whose profits flow to Texas. “I had a vision of a league-based, centralized brand, and Texas wanted to do their own thing,” Scott says. “It was about control. In the short term, Texas is successful enough that it might work going it alone. But in the long run, I don’t think so.” In June 2010, Texas informed Scott it would not join the Pac-10.
Without Texas, Scott scaled back his plans. Rather than try to bring in six new schools, the Pac-10 added two, the University of Utah and the University of Colorado. That pulled in the important Denver television market and allowed the conference to split into two divisions, paving the way for a lucrative championship game in football. (NCAA regulations require 12 teams in a conference for a championship game.)
Scott still had to persuade USC and UCLA to buy into the concept of equal revenue sharing. The two schools had disproportionately benefited from previous television deals. “The eyeballs are in L.A., and we have those,” says Pat Haden, USC’s athletic director. “In early negotiations, [UCLA Athletic Director] Dan Guerrero and I were insisting on a premium. We started from that basic place.”
Over the course of a month, Scott worked to persuade the Los Angeles schools to agree to split revenue equally with 10 other schools. Haden and Guerrero said that if Scott could deliver a package worth $175 million per year, they would triple their current TV revenue, in which case they could live with revenue sharing. With the blessing of the L.A. schools, Scott was able to sell the most lucrative television package in college sports history: $3 billion for 12 years to ESPN and Fox, which combined to make the deal in order to keep Comcast-NBC out of the college football business. In the first year the Pac-12 will take in about $180 million from the ESPN-Fox deal and at least $100 million from other sources, making it the richest conference in sports.
The deal reserved plenty of premium programming—namely, high-profile football and basketball games—for a future Pac-12 network. “You gotta have tonnage if you are starting your own network,” says Chris Bevilacqua, a sports media consultant and co-founder of the College Sports Television network, who worked closely with Scott. “The Pac-12 had 80 games of football inventory, and we’re only selling 40 [to the networks]. We held back a lot of high-quality content.”
No conference has ever owned and operated its own television network. (The Big Ten Network was launched in partnership with Fox, which owned 49 percent of it.) Scott’s team is responsible for everything from finding studios and facilities to packaging some Pac-12 sports—college fencing, anyone?—that may never have been televised before. “We’re going to have 850 live events a year,” says Gary Stevenson. “Now we have to figure out how to do that.” Although enthusiastic about owning their own network, the conference’s school presidents declined to give Scott the money to launch it. Instead, Scott has raised startup capital by preselling the rights to cable carriers throughout the West: Comcast, Time Warner (TWX), Cox Communications, and Bright House Networks agreed to $65 million in annual subscription fees. There will be millions more when the conference negotiates its satellite deals with DirecTV (DTV) or Dish Network (DISH).
Scott jokes that the Pac-12 network build-out should be called the “Pac-12 stimulus program,” as the conference plans to increase head count by 150 and build a 70,000-square-foot headquarters and broadcast studio in San Francisco. Once it goes live next year, the network should immediately have a valuation, according to Scott, of about $1 billion.
On a cold December night in Eugene, Ore., Scott is in a luxury suite at Autzen Stadium on the campus of the University of Oregon, waiting for the start of the inaugural Pac-12 championship game, between Oregon and UCLA. Scott, accompanied by his wife, Cybille—they have three children—is in shirtsleeves, eating tri-tip steak and potatoes, served up from silver trays at the back of the suite. Milling about are a few television executives and a half-dozen officials from the Sugar Bowl, the Rose Bowl, and the Holiday Bowl.
Scott has been relentlessly upbeat about this game and has said he feels vindicated by his decision to have the team with the better record host it, as opposed to playing it at a neutral site. “An empty stadium looks awful on TV,” he says. He has faced that problem with the conference’s postseason basketball tournament, which has been played at the Staples Center in Los Angeles to less than packed houses; the conference is strongly considering moving the tournament to the MGM Grand (MGM) in Las Vegas. “People will travel to Las Vegas,” Scott says. He is also eyeing the international market: In mid-December he took a four-day trip to China to explore the possibility of bringing Pac-12 basketball teams over to play against Chinese squads and holding a conference football game in Beijing in 2013.
Down the hall from Scott’s box, University of Oregon President Lariviere plays host to a few dozen revelers in a vast green and yellow suite, where a bartender is pouring free drinks and several serving stations are offering up plenty of steak and chicken. These are the spoils, in many ways, of those billions of dollars Scott has made for the conference. If the past few weeks are any indication of things to come, a good chunk of that money will go to pay high-profile coaches: Washington State, Arizona, and UCLA have all lured new football coaches with multiyear, seven-figure contracts.
How much bigger can college football get? Scott points out that there are a hundred million households in the U.S. with cable or satellite subscriptions, paying an average of $120 a month. “We are fishing in a $100 billion-a-year pond that is essentially held together by live sports,” says Bevilacqua. “Must-carry programming is largely live sports.”
Remember that argument about centralization vs. fragmentation? Scott has proved that centralization unleashes value at the conference level, and in future negotiations other conferences will take note. It is only a matter of time, Scott believes, before it happens throughout college football. The old multiconference structure will eventually collapse, giving rise to a single consortium, made up of America’s biggest football schools, that can negotiate collectively for the richest possible broadcasting deal. If Larry Scott has his way, college football one day will be as lucrative as the professional version, rivaling the $6 billion a year in TV revenue the NFL will make in 2014. Reflecting on what he has already accomplished at the Pac-12, Scott says: “This deal is the benchmark. Until the next one.”