College athletics — more specifically, college football — has become a media behemoth over the past two decades. Competition has always been fierce on the field, but with millions of dollars in broadcasting revenue in the balance, competition has intensified off the field for many programs as they look for avenues to increase their annual revenue through the sale of their media rights. One such avenue is swapping conferences in an attempt to get a slice of a larger, revenue-stuffed pie. This route has several hurdles, some of which schools cannot conquer unscathed.
Why Does the Money Matter?
There are several players in this arena — the interests of the schools, conferences, media companies, athletic directors, and coaches all come into play. Simply put, more revenue allows a program to compete in the perpetual arms race that is college athletics. Upgrades in facilities, amenities for student-athletes, behind-the-scenes support staff, and the overall product of a football program all play a part in recruiting, which (in addition to coaching) is essential to building a program with continual success. Although there are a slew of reasons why the best athletes pick the schools they do, the revenue a program can allocate to the areas mentioned above plays an immense role in luring them.
The Atlantic Coast Conference (the “ACC”) recently succeeded in quashing a potential mutiny when several of its member programs expressed interest in leaving the conference. The ACC, together with the Big Ten, Big 12, Pac-12 and SEC make up the “Power Five” college football conferences, representing the top conferences in the Football Bowl Subdivision (the top level of college football). While the ACC’s media deal with ESPN runs until 2036, newer, more-lucrative media deals involving competing Power Five conferences such as the Big Ten and SEC have ACC teams peeking over the fence at hypothetical greener pastures. In 2022, the Big Ten distributed around $60 million to its members while the SEC distributed around $50 million. In comparison the ACC, which has 13 years left on its media rights deal, distributed around $40 million to its member schools. In the coming years, the reported gap between Big Ten and SEC programs and the ACC teams is estimated to be around $30 million. That revenue disparity can have a meaningful impact on the viability of ACC programs as they look to compete at the highest level.
Grant of Rights: How Does It Work?
A Grant of Rights, as it sounds, is a document that essentially grants the collective media rights of member programs to their overarching conference, which then sells off this package to bidding media broadcasters in return for compensation. This money is then distributed annually, often pro rata, to member programs. The Grant of Rights serves two key purposes; it generates revenue for the member programs collectively, and (to the benefit of the conferences) also irrevocably binds those members to a media rights deal, making it difficult for a member to leave.
ACC’s ‘Ironclad’ Grant of Rights
Changing conferences is not a novel concept, considering that several programs will begin life in new conferences in the coming two academic years. For example, Texas and Oklahoma recently negotiated their exits from the Big 12 for the 2024 academic year with one year remaining on the Big 12’s current Grant of Rights deal. Why, then, have the top schools in the ACC not left already for those greener pastures and larger revenues?
The answer lies within the ACC’s Grant of Rights. The document is largely based on copyright law and would see any challenge to it be played out in an ACC-friendly federal court — rather than a state court that is partial to one of the member programs. Those who have analyzed the current Grant of Rights have reported it to be “ironclad.” In fact, the ACC’s Grant of Rights was based off the Big 12’s Grant of Rights which saw powerhouses Texas and Oklahoma come to the negotiation table.  Thus, with litigation being costly and unpredictable, a program has to come to the proverbial negotiation table with the ACC in order to make a move. The reported exit fee for an ACC program is estimated to be around $120 million, an amount equal to approximately three years’ worth of revenue. In comparison, the Big 12 exit of both Texas and Oklahoma cost a combined $100 million.
Although the strength of the ACC’s Grant of Rights provides the conference with a significant amount of leverage in a negotiation, if the ACC’s top programs were to pay the exit fee and leave, the existence of the conference itself would be left in question. As a result, the ACC recently announced a new merit-based compensation structure that would see more revenue find its way into programs that play in the College Football Playoff or the NCAA Tournament (for non-football athletic competitions). The new structure would benefit the top programs in the ACC and help reduce the revenue gap between those programs and those of the Big Ten and SEC, thus allowing the ACC programs to continue competing at a high level.
A well-drafted legal document is essentially keeping the ACC and the Power Five in existence. The ACC’s merit-based compensation plan may ameliorate the tension created by the revenue gap between its members and other conferences, but it is likely a temporary bandage rather than permanent solution. While this structure will benefit the ACC’s most successful schools, what happens to the others? Will they be giving up a piece of their pie just to keep the bigger programs within their conference happy? The strength, both on and off the field, of the Big Ten and SEC has college football slowly moving toward two super conferences. Yet, the ACC’s Grant of Rights, and its legal framework, has everyone staying put for the foreseeable future.
This DarrowEverett Insight should not be construed as legal advice or a legal opinion on any specific facts or circumstances. This Insight is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. The contents are intended for general informational purposes only, and you are urged to consult your attorney concerning any particular situation and any specific legal question you may have. We are working diligently to remain well informed and up to date on information and advisements as they become available. As such, please reach out to us if you need help addressing any of the issues discussed in this Insight, or any other issues or concerns you may have relating to your business. We are ready to help guide you through these challenging times.
Unless expressly provided, this Insight does not constitute written tax advice as described in 31 C.F.R. §10, et seq. and is not intended or written by us to be used and/or relied on as written tax advice for any purpose including, without limitation, the marketing of any transaction addressed herein. Any U.S. federal tax advice rendered by DarrowEverett LLP shall be conspicuously labeled as such, shall include a discussion of all relevant facts and circumstances, as well as of any representations, statements, findings, or agreements (including projections, financial forecasts, or appraisals) upon which we rely, applicable to transactions discussed therein in compliance with 31 C.F.R. §10.37, shall relate the applicable law and authorities to the facts, and shall set forth any applicable limits on the use of such advice.