Spending at Pac-12 headquarters in San Francisco has been a source of frustration on the campuses in recent years. Internal budget projections obtained by the Hotline probably won’t temper the discontent.

Operating expenses are increasing at a higher rate than revenue.

Net revenue was expected to rise by approximately five percent year-over-year, based on the conference’s initial budget projections (shown below) for the 2018 and 2019 fiscal years.

However, operating expenses were expected to rise 15 percent over that same period.

Updated numbers for FY18, identified in the ‘forecast’ column in the document, indicate operating expenses would rise by six percent year-over-year, with net revenue increasing by just two percent.

In either case, expenses were expected to rise at three times the rate of the net revenue increase.

Moreover, the budget indicates payments to the campuses would climb by approximately three percent — half the increase in operating expenses. Each school is expected to receive $31.7 million from the conference in the 2019 fiscal year, compared to $30.8 million forecasted for FY18.

However, the total amount shipped to each campus could be slightly higher than $31.7 million based on allocations from the NCAA for sports sponsorships.

Those NCAA funds are typically included in the distributions listed on the Power Five tax filings often cited in media reports.

As with the Pac-12 Networks budget published by the Hotline on Tuesday, the conference budget shown below was provided to the schools last year and, for that reason, the figures should be considered estimates.

Total revenue for conference-side operations (i.e., excluding the Pac-12 Networks) was pegged at $387.3 million for the 2019 fiscal year. Broadcast rights from ESPN and Fox accounted for the largest bucket ($250 million) followed by college football postseason ($105.8 million).

Meanwhile, conference operating expenses were projected to total $23.5 million in the 2018 budget, then amended to $25.4 million in the updated (forecasted) projections. No other details on expenses are provided, but they likely include big-ticket items like compensation, travel costs and rent.

As a matter of policy, the conference doesn’t comment on financial matters.

Officials on numerous campuses have expressed frustration with spending by commissioner Larry Scott and the conference office.

One chancellor, Cal’s Carol Christ, went public with her concerns, telling the Hotline in Dec. ’17: “You tend to elaborate your own organization rather than understanding that it should be as small and efficient as possible for the benefit of the members.”

Through a spokesperson, Christ declined to comment for this article.

At a meeting in Orlando in January, Pac-12 athletic directors requested a budget review but, according to the Oregonian’s John Canzano, were told “we didn’t have the authority to request a budget review. Only the presidents and chancellors can do that.”

The budget projects conference operating expenses as 7.2 percent of net revenue, which would be in line with other Power Five conferences.

However, the Pac-12’s business model is more complicated because of the presence of a wholly-owned media company. Separate boards govern the conference and the networks, but they report financial data as a single entity for purposes of federal tax filings.

Combine the projected 2019 operating expenses for the conference ($27 million) with those of the networks ($92.5 million), and the total Pac-12 expenses are expected to be $119.5 million.

That translates to 23.2 percent of the total projected revenue ($514.7 million) for the conference and networks.

What’s more, the expenses represent only half the conference’s near- and intermediate-term financial picture.

Next month, the Pac-12 will release its tax filings for the 2018 fiscal year, which include distributions to the schools. The figures for FY19 won’t be made public until next spring, but the budget shown below provides a closer-to-real-time look at the situation and illuminates the Pac-12’s challenging revenue position compared to other Power Five conferences.

Projected distributions per school for FY18 and FY19 are as follows (with sources):

FY2018

Big Ten: $51.1 million (Michigan budget)

SEC: $43.7 million (announced)

Big 12: $38 million (announced)

Pac-12: $32.4 million (estimate)

ACC: $27 million (estimate)

(Note: Big 12 figure includes an average of $1.5 million for each school to account for local broadcast rights, which have not been sold to a media partner. Texas and Oklahoma collect millions more from their deals than the other members.)

FY2019

Big Ten: $52.1 (Michigan budget)

SEC: $45.5 million (estimated)

Big 12: $39.5 million (estimated)

Pac-12: $34 million (estimate)

ACC: $29.5 million (estimate)

For the moment, the Pac-12’s status relative to the competition could be considered challenging, if not harrowing.

However, three known or likely changes to the landscape sketch a far darker picture for the conference in the final years of the current media rights cycle (through 2024):

1) The ACC linear network is scheduled to launch this summer and has already secured carriage deals with Verizon and Altice (New York, New Jersey and Connecticut).

Using the midpoint of revenue projections for the network after its inaugural year, we could reasonably add $6.25 million to each school’s coffers.

2) The Big 12 recently expanded its partnership with ESPN. In exchange for broadcasts rights to three football championship games and the placement of content on the ESPN+ streaming service, the Big 12 will reportedly collect an additional $22 million annually from ESPN.

That revenue will likely materialize in the campus distributions in 2020, in the form of an additional $2.2 million per school.

3) The SEC and CBS are expected to extend their current agreement for the SEC Game of the Week, perhaps sometime this year.

Steve Dittmore, a professor of sports management for Arkansas, has estimated the CBS deal — it’s the No. 1 regular-season property in college sports and is grossly undervalued — could be worth $300 million annually to the SEC.

Even a more conservative estimate of $250 million annually would result in an additional $17.9 million per school per year.

All of which means …

If we add new revenue streams for the Big 12 (ESPN deal), the ACC (linear network) and the SEC (CBS deal), the campus payouts in FY20 or FY21 might look something like this:

SEC: $63.4 million per school

Big Ten: $52.1 million per school

Big 12: $41.7 million per school

ACC: $38.5 million per school

Pac-12: $36.5 million per school

The Hotline has been sounding the revenue alarm for the Pac-12 for years (and years … and years … and years).

But because of developments across the Power Five that hadn’t been previously accounted for, the gap could be larger than expected.

Pac-12 fans might recall the conference’s financial picture at the turn of the decade, when the presidents/chancellors were frustrated by the revenue gap and the schools were collecting half the amount of their peers in the SEC and Big Ten.

Yes, the raw dollars have soared. But on a relative basis, a return to that existence for the Pac-12 is closer that you might think.

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