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THE UNIVERSITY OF TEXAS: CONFERENCE REALIGNMENT FOR COLLEGE ATHLETICS1 Steve Swanson, Ram Mudambi and Aubrey Kent wrote this case solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. Richard Ivey School of Business Foundation prohibits any form of reproduction, storage or transmission without its written permission. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Richard Ivey School of Business Foundation, The University of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail [email protected]. Copyright © 2012, Richard Ivey School of Business Foundation Version: 2012-11-15

In the summer of 2010, the landscape of college athletics in the United States faced the potential for groundbreaking change. Rumours of conference realignment were suggesting a significant shift away from traditional conference membership and structure. With re-negotiations for a multi-year television contract looming, Pacific-10 Conference (Pac-10) commissioner Larry Scott announced plans for expansion; the organization was intent on entering discussions from a position of growth and strength. Scott and the Pac-10 were hoping to pursue membership in the Big 12 Conference (Big 12). The institutions that belonged to the Big 12 were geographically convenient in relation to the Pac-10, and also represented sound acquisitions that could parlay into a lucrative television agreement. In early June 2010, reports surfaced suggesting an aggressive Pac-10 plan that could involve a defection of half of the Big 12 to join a 16-team “super conference.”2 The first card was played by the University of Colorado when it announced on June 10, 2010, that it would be leaving the Big 12 and joining the Pac-10. The next day, the University of Nebraska also announced its decision to leave the Big 12 and join another conference. 3 The dissolution of one of the country’s most prominent athletic conferences seemed to be gathering momentum.4 After June 12, 2010, Big 12 commissioner Dan Beebe increased his efforts to keep the remaining architecture of the conference intact. In this critical period, the formation of key alliances was pivotal in determining the fate of the Big 12. Institutions and conferences considered factors such as resources, exposure, fit and tradition — all of which indicated the University of Texas (Texas) as a dominant player in the overall scenario. It became increasingly apparent that the decision made by Texas would carry the most significant ramifications. Would Texas also opt to leave the faltering Big 12 and bring about a 1 This case has been written on the basis of published sources only. Consequently, the interpretation and perspectives presented in this case are not necessarily those of The University of Texas or any of its employees. 2 Chip Brown, “Exclusive: Pac-10 set to invite six from Big 12,” texas.rivals.com, June 3, 2010, http://texas.rivals.com/content.asp?CID=1090747, accessed November 7, 2012. 3 “How it all happened: A Big 12 realignment timeline,” dallasnews.com, June 16, 2010, www.dallasnews.com/sports/college-sports/headlines/20100615-How-it-all-happened-A-443.ece, accessed April 5, 2012. 4 David Ubben, “Kansas, Baylor campaigning for status quo,” espn.com, June 8, 2010, http://espn.go.com/blog/big12/post/_/id/13160/kansas-baylor-campaigning-for-status-quo, accessed November 7, 2012. Do

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This document is authorized for educator review use only by Eric Schulz, Utah State University until February 2016. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860

Page 2 9B12M104 paradigm shift in college athletics? Or would it elect to stay and explore its options within the recently transformed landscape of the remaining membership? ORGANIZATIONS AND STRATEGIES Universities In the context of U.S. intercollegiate athletics, the concept of the firm or team was represented by the university. While there was no official organizational form for a university, most schools had a board of trustees responsible for major decisions and the selection and evaluation of the university president. The president served as chief executive officer (CEO) of the university with managers from various departments (such as budgeting and finance, student services and athletics, aside from the main academic branches) under his or her direction. The athletic director normally reported directly to the president and oversaw the coaching staffs of all intercollegiate sports programs; the largest of these in terms of size and complexity was the university football program (see Exhibit 1). Conferences An intercollegiate athletic conference served as an alliance between firms/universities. Similar to alliances in the corporate setting, conferences were a means for universities to achieve joint strategic goals and leverage collective resources while reducing risk and retaining their individual identities and control. Only in rare cases (e.g., University of Notre Dame), did a single university have the negotiation power to acquire multimillion-dollar television revenues on its own. Conferences, however, could leverage for lucrative broadcasting agreements due to the pooled resources of the collectivity. Upon the receipt of such monies, the conference members jointly decided how to divide the income between universities. Therefore, a university’s choice of conference affiliation ultimately determined the amount of broadcasting revenue it would receive. THE COLLEGE ATHLETICS STRUCTURE The governing body of major college athletics in the United States was the National Collegiate Athletic Association (NCAA). An initial driver in the formation of the NCAA was the rough nature of college football. In 1905, President Theodore Roosevelt invited leaders in college athletics to the White House and encouraged reform within the sport to ensure the safety of the players.5 As a consequence, the precursor of the NCAA was formed as a rules-making body.6 The establishment of the NCAA offered an economy of enforcement for member institutions. Since its initial conception in 1906, the NCAA flourished into a much larger entity. By the summer of 2010, the NCAA had more than 1,000 members and was segmented into three divisions representing differing levels of competition: D-I, D-II and D-III, with D-I being the highest. Further segmentation existed within these categories. D-I institutions that offered football were classified as either Football Bowl Subdivision (FBS) or Football Championship Subdivision (FCS). FCS universities were eligible to compete in the NCAA D-I Football Championship, which was a true play-off format. Alternatively, FBS

5 “History,” NCAA.org, August 13, 2012, www.ncaa.org/wps/wcm/connect/public/NCAA/About+the+NCAA/History, accessed November 7, 2012. 6 The NCAA was initially called the Intercollegiate Athletic Association of the United States (IAAUS). Do

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Page 3 9B12M104 institutions were eligible to compete in post-season bowl games that could be financially lucrative. The FBS was the only NCAA sport without a traditional tournament format to determine a champion. As the NCAA grew, the emergence of a hierarchical structure with a more regionalized management component was inevitable. Associations of various strengths and forms existed between institutions sharing similar characteristics and located in relatively close geographical proximity. The establishment of official conferences solidified these relationships by standardizing rules and developing leagues for competitive sport, with traditions and rivalries also materializing over time. The collaboration of conference affiliates minimized risk and offered a position of strength moving forward. Membership in conferences ultimately led to the ability for collective action in the negotiation of financial matters such as television contracts and post-season bowl arrangements. Conferences could therefore wield much greater leverage in negotiations with television stations than universities acting alone. The Bowl System The college bowl system began with the establishment of the Rose Bowl football game in the early 1900s. The Rose Bowl represented an opportunity for teams from distant regions of the country to compete against each other after regular season competition had been completed. The term “bowl” game originated from Rose Bowl Stadium in Pasadena, California, where the game was originally played, and gradually evolved to refer to many different post-season college football games. In the absence of a traditional tournament format, the opportunity to go to a bowl represented a culminating experience for competing teams, as well as an opportunity for institutions to garner additional revenues. Conference Championship Games In the interest of generating more revenue, conferences looked to expand the number of games played by their member schools. While the NCAA restricted this number to 11 games per institution, a provision in the NCAA by-laws made it possible to add one additional game if a conference had 12 teams. Conferences could then be divided into two groups with the divisional winners allowed to meet for a conference championship game, serving as a substantial revenue boost for the individual conferences. In 1991, this financial incentive motivated the Southeastern Conference (SEC) to be the first to exercise this option. Adding the University of Arkansas and the University of South Carolina to the SEC brought its membership up to the necessary requirement of 12 teams. As the only conference to have a conference championship game, this served as a competitive advantage when negotiating future contracts for television revenue. After significant conference realignment in 1996, the Big 12 was the next to achieve the distinction of having the 12 members and a conference championship game. Bowl Championship Series As the bowl system became more established, long-term agreements emerged between conferences and bowl games, with winners of designated conferences receiving invites from specific bowls; the first example of this kind of agreement was the Rose Bowl having standing invitations for the winners of the Pac-10 and the Big Ten. While these arrangements generated revenue both for the bowls and the university participants, the complexity of the agreements often pitted opponents against each other that were not evenly matched. To address this issue, the 1992 Bowl Coalition and the 1995 Bowl Alliance moved closer to providing for the ability to match the top two teams in the nation in the same bowl. In the Do

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Page 4 9B12M104 absence of traditional tournament format, this system provided more of a ‘true’ national champion while still incorporating the established bowl system. In 1998, the Bowl Alliance was reformed into the Bowl Championship Series (BCS). In this new format, there were four BCS bowl games and one national championship game. The BCS became a significant player in college athletics, both as a mechanism for determining a football national champion and (perhaps more so) as a source of post-season revenue. Television and College Football College football had been televised in the United States since the late 1930s. By the early 1950s, with an increasing number of Americans acquiring television sets, some of the more prominent universities negotiated individual contracts with broadcasters who aired their games on regional networks; for example, during the 1950 season the University of Pennsylvania’s home games were televised by the American Broadcasting Company (ABC) under an agreement that paid the university $150,000.7 Wary of the potential for live telecasts to reduce attendance at games, the NCAA prohibited live telecasts for the 1951 football season. In 1952, the NCAA limited televised games to one nationally broadcasted contest per week and brokered a $1.14 million deal with the National Broadcasting Company (NBC) for exclusive rights.8 The NCAA remained in control of negotiating broadcasting rights through the 1983 football season; however, two years into a four-year television deal with two major networks that totalled approximately $263.5 million,9 the NCAA television plan was deemed in violation of the Sherman Antitrust Act in the NCAA v. Board of Regents of University of Oklahoma ruling.10 This decentralization of television negotiating power gave individual institutions the ability to negotiate their own broadcasting rights. While Notre Dame was able to do this successfully, the general rule became that conferences served as the negotiators of broadcasting deals for college football programs. As universities looked to pool their resources and increase their bargaining power, fewer schools elected to remain independent and the potential for conference realignment increased. Conference Revenue Sharing University athletic programs received funds from a wide variety of sources, including ticket sales, conference distributions, broadcasting rights, sponsorships, student fees, royalties, concessions and private contributions; of these, the three most important revenue streams for major college athletics were ticket sales, private contributions and conference distributions. While ticket sales often produced the most direct income for BCS schools, the income received from conference distributions was either nearly as much or even greater.11

7 Keith Dunnavant, The fifty-year seduction: How television manipulated college football, from the birth of the modern NCAA to the creation of the BCS, Thomas Dunne Books, New York, 2004, p. 5; All currencies in US$ unless otherwise stated. 8 Gary T. Brown, “The Electronic Free Ticket,” The NCAA News, November 22, 1999, http://fs.ncaa.org/Docs/NCAANewsArchive/1999/19991122/active/3624n30.html, accessed April 5, 2012. 9 Arthur A. Fleisher III, Brian L. Goff and Robert D. Tollison, The National Collegiate Athletic Association: A study in cartel behavior, University of Chicago Press, Chicago, 1992, p. 55. 10 NCAA v. Board of Regents, 468 U.S. 85 (1984). 11 “NCAA college athletics department finances database,” USA Today, www.usatoday.com/sports/college/ncaa- finances.htm, accessed November 3, 2010. Do

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Page 5 9B12M104 The conferences themselves also had various revenue streams. The primary revenue sources for the BCS conferences were television agreements and the overall broadcasting rights for their intellectual properties. While commonly referred to as television deals, the broadcasting rights purchased by media companies included modes of delivery beyond television. Along with satellite radio, forms of online streaming had also become significant components in conference broadcasting deals. Additionally, conferences also received income from the ticket sales and sponsorship surrounding their championship events. A conference chose to divide its revenue according to a collective decision reached by its members. This process varied across conferences and was often a source of contention for universities that received less than other institutions in the same conference. The Big Ten chose to eliminate this issue by equally distributing revenue among its members. Conversely, the Pac-10 and the Big 12 elected to have revenue- sharing formulas that rewarded some universities more than others (see Exhibit 2). Since 1986, the Pac-10 had used a formula in which teams that participated in televised football games received 55 per cent of the revenue for that game, with the other conference schools splitting the remaining 45 per cent.12 Under this type of formula, a competitive advantage existed for those schools in larger media markets; for example, under this structure, the University of Southern California (USC) and the University of California, Los Angeles (UCLA) both benefitted from the media bias toward televising teams from the expansive Los Angeles market.13 While inequality existed with television distributions, other major sources of revenue for the Pac-10 — such as bowl revenue and NCAA basketball tournament proceeds — were split evenly among members.14 The Big 12 also divided its television revenues unequally, while distributing other income evenly among members. Under this model, 50 per cent of television revenue was allotted equally, while the remainder was distributed based on the number of television appearances in both football and basketball.15 From this pool, funds were then “distributed on the basis of units earned by each Member Institution for television appearances.”16 Therefore, teams that appeared on television more often earned the most money — similar to the units issued for NCAA basketball tournament appearances.17 While some Big 12 universities expressed frustration with this system, the Big 12 by-laws stipulated that a supermajority of nine votes was necessary to overturn any conference revenue distribution policy.18 Therefore, as long as at least four universities profited from such a by-law, there was unlikely to be any change in the distribution method. As former Big 12 commissioner Kevin Weiberg communicated upon his departure from the position, this could eventually prove to be a divisive issue, affecting the future of the conference.19

12 Scott Reid, “Pac-10 to discuss realignment Friday,” The Orange County Register, July 29, 2010, www.ocregister.com/articles/discuss-259857-friday-pac.html, accessed April 5, 2012. 13 Jon Solomon, “Auburn, Oregon far apart in revenues for football programs,” AL.com, January 9, 2011, www.al.com/sports/index.ssf/2011/01/auburn_oregon_far_apart_in_rev.html, accessed April 5, 2012. 14 Jon Wilner, “Pac-10 football: Conference revenue and per-school distribution figures,” MercuryNews.com, August 12, 2010, http://blogs.mercurynews.com/collegesports/2010/08/12/pac-10-football-conference-revenue-and-per-school- distribution-figures/, accessed April 5, 2012. 15 Tim Griffin, “How the Big 12 teams rank in revenue-sharing funds,” ESPN.com, May 26, 2009, http://espn.go.com/blog/big12/post/_/id/2094/how-the-big-12-teams-rank-in-revenue-sharing-funds, accessed April 5, 2012. 16 “Bylaw 2.7.1.2 Appearance Fee Pool,” Big 12 Conference Handbook 2009-10, http://grfx.cstv.com/photos/schools/ okla/genrel/auto_pdf/20100302_big12_handbook.pdf, accessed April 5, 2012. 17 Tim Griffin, “How the Big 12 teams rank in revenue-sharing funds,” ESPN.com, May 26, 2009, http://espn.go.com/blog/ big12/post/_/id/2094/how-the-big-12-teams-rank-in-revenue-sharing-funds, accessed April 5, 2012. 18 Tim Griffin, “Despite criticism, Big 12 will keep current revenue sharing model,” ESPN.com, May 23, 2008, http://sports.espn.go.com/ncf/news/story?id=3409420, accessed April 5, 2012. 19 Ibid. Do

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Page 6 9B12M104 University Athletics, Presidents and Brand Management The existence of high-revenue athletics within the educational system was unique to the United States. Throughout most of the world, there was a separation between school and sport, with major sporting enterprises operating as independent club-type organizations. The question of how athletics fit within the larger mission of the university was one of ongoing debate; however, with the majority of the large publicly funded state schools also having major athletic programs, such an alignment usually stemmed from the pursuits of education and service to the community. For example, athletic department mission statements often referred to athletics as a part of a broader commitment to excellence in education, as well as enhancing the sense of community within the university and beyond.20 The level of importance a university placed on athletics was a strategic decision made by top management. While most American universities chose to emphasize either academic or athletic excellence, a few highly regarded schools sought to maintain their elite academic reputations while also participating at the highest level of intercollegiate athletics; for example, Stanford University, Vanderbilt University, Northwestern University and Duke University all chose to be members of BCS conferences while also being consistently ranked in the top 20 academic institutions within the United States.21 Representation within the NCAA was historically comprised of the athletic directors from each of the member institutions; however, issues regarding academic integrity and athletic department financial responsibility led to university presidents taking control of the NCAA governance structure in 1997. This change in policy effectively dictated that presidents monitor athletic budgets as closely as those of other university departments. Since athletic departments operated under institutional auspices anyway, the presidents were ultimately responsible for the conduct of the programs.22 With the amount of money and exposure surrounding D-I college football, the oversight of athletics was a major priority for university presidents. While the procurement of revenue through television broadcasting agreements was a significant source of direct revenue to collegiate athletic programs, television also provided other valuable indirect resources such as exposure, image and brand development. Television and alternate modes of delivery allowed alumni and donors to follow their favourite teams and also provided an avenue to champion other university objectives through advertising and promotion. Additionally, the development of rivalries and traditions became even more valuable via television as it offered continued shared experiences for numerous stakeholders. A few elite programs at the highest levels of collegiate athletics channelled millions of dollars back into university academic programs; however, the majority of universities subsidized their athletic programs at a substantial level. This demonstrated that even though financial gain was a significant goal for universities, there were multiple objectives at play with regard to athletics; for example, while operating during periods of global financial crisis, universities and their leaders faced the difficult task of maintaining status and reputation while still being fiscally responsive to the economic environment. As a case in point, in the summer of 2009, the University of California-Berkeley faced a budget crisis that resulted in an $813 million reduction to its annual budget.23 In coordination with this effort, a committee 20 “Mission Statement for Athletics at Duke,” GoDuke.com, www.goduke.com/ViewArticle.dbml?DB_O EM_ID=4200&ATCLID=152723, accessed April 5, 2012. 21 “National University Rankings,” U.S. News, http://colleges.usnews.rankingsandreviews.com/best- colleges/rankings/national-universities, accessed April 5, 2012. 22 Knight Commission, “Keeping Faith with the Student-Athlete: A New Model for Intercollegiate Athletics,” Report of the Knight Foundation Commission on Intercollegiate Athletics, 1991, http://knightcommission.org/images/pdfs/1991- 93_kcia_report.pdf, accessed April 5, 2012. 23 Kevin O’Leary, “California Crisis Hits Its Prized Universities,” TIME, July 18, 2009, www.time.com/time/nation/article/0,8599,1911455,00.html, accessed April 5, 2012. Do

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Page 7 9B12M104 on intercollegiate athletics was formed to determine ways in which the level of financial support allocated by the university could be reduced. While this internal committee ultimately recommended a long-term goal for athletic department self-sufficiency, the task force acknowledged that the athletic program may also have a significant impact on the $250 million received in annual academic fundraising.24 In addition, the committee noted that the athletic program “provided other values to the campus — it added to campus spirit and unity, provided free advertising for the campus, helped in branding and provided a link and outreach to alumni.”25 While the acquisition of resources such as television revenue was highly significant, the university brand was of the utmost importance and was taken very seriously by management. TEXAS AND CONFERENCE AFFILIATION The University of Texas’ team had been playing football games since the late 1800s and had been one of the most successful programs of its kind. Since the program’s inception, it had been a member of three different athletic conferences: the Texas Intercollegiate Athletic Association (TIAA) from 1913 to 1915, the Southwest Conference (SWC) from 1915 to 1996 and the Big 12 from 1996 onwards. During the teams membership in the SWC, the conference experienced several financial setbacks. In the 1960s, professional football entered the market and competed for spectators and television revenue. By the 1980s, revenue was down throughout the conference and some of the larger schools started to feel constrained by the conference’s revenue-sharing plan. The conference also experienced image problems throughout the 1980s due to the majority of its members being hit with NCAA sanctions related to recruiting scandals. In 1990, University of Arkansas left the SWC in pursuit of increased revenue and joined the SEC. This departure was the first in almost 70 years and signaled a more dynamic landscape on the horizon. The Big 12 Conference While not a frequent occurrence, monumental changes to conference structure had taken place prior to 2010. In 1994, the four largest Texas institutions — University of Texas, Texas A&M University, Texas Tech University and Baylor University — accepted invitations to join the Big Eight.26 The Big 12 Conference was the result of this merger and in May 1996, the SWC was disbanded. The formation of the Big 12 was unique in that it was intended to maximize collective negotiating prowess rather than to merely unite universities with similar beliefs and locations.27 While negotiating television contracts later became a primary function of all conferences, the Big 12 was the first to establish itself primarily for that purpose.28

24 Steve Berkowitz, Jodi Upton, Michael McCarthy and Jack Gillum, “How student fees boost college sports amid rising budgets,” USA Today, October 6, 2010, www.usatoday.com/sports/college/2010-09-21-student-fees-boost-college- sports_N.htm, accessed April 5, 2012. 25 “Interim Report of the Berkeley Division of the Academic Senate Task Force on Intercollegiate Athletics,” UC Berkeley Academic Senate, June 12, 2010, http://academic-senate.berkeley.edu/sites/default/files/issues/intercollegiate- athletics/task_force_on_intercollegiate_athletics_interim_report.pdf, accessed April 5, 2012. 26 The Big Eight Conference was composed of the following universities: Oklahoma, Oklahoma State, Kansas, Kansas State, Nebraska, Missouri, Iowa State and Colorado. 27 Blair Kerkhoff, “Big 12 problems trace to league’s roots,” dallasnews.com, June 5, 2010, www.dallasnews.com/sports/college-sports/headlines/20100605-Big-12-problems-trace-to-league-5863.ece, accessed April 5, 2012. 28 Ibid. Do

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Page 8 9B12M104 After joining the Big 12, University of Texas experienced considerable success in athletics. Across all sports, the university won by far the most conference championships (55); by comparison, Texas A&M held second place with 30 wins. While not as dominant as its overall athletic department, the Texas football program was highly successful. In its first 14 seasons with the Big 12, Texas won five Southern Division Championships, three Big 12 Championships and one National Championship (2005). Three different members of the Big 12 won three national football titles, respectively. CHANGING LANDSCAPE In summer 2010, the potential wave of realignment was arguably first rooted in the Big Ten. In December 2009, Big Ten commissioner Jim Delany announced plans to explore options for expansion. There were two main reasons for this initiative. The first was the potential to expand the footprint of the conference’s television broadcasting outlet, the Big Ten Network. By bundling a new team into its package, the conference could increase its market power and make an additional $0.88 per month from each new subscriber.29 Furthermore, adding another team put the Big Ten at the 12-team mark, therefore making it eligible to reap the financial benefits from a conference championship game. The Big Ten’s announcement signalled to the other major conferences that some of their members could be vulnerable to acquisition by another conference. From Temple University athletic director Bill Bradshaw’s perspective, the position of a conference should be similar to that of a coach: “A coach will try to recruit talented players who bring value to the team. For a conference, it’s about getting schools that are attractive and provide value for negotiating a better television contract.”30 It was becoming clear that the dynamic environment of college sports was poised for another wave of change among conferences. Shortly after the Big Ten’s announcement in late 2009, the Pac-10 announced similar plans for expansion. At the forefront of this decision was the Pac-10’s television contract with Fox Sports Net, which was due to expire after the 2011-2012 season. With the goal of gaining as much leverage as possible to enter television contract negotiations, the Pac-10 was aiming high; however, these announcements created an increased level of instability in neighbouring conferences due to the potential for their members to be attracted elsewhere. Television as the Driver As the first-movers in this scenario, the Big Ten and Pac-10 were both being driven by the incentive for increased television revenue. Having its own network gave the Big Ten a competitive advantage with regard to football revenue and revenue distribution. This enabled the conference to distribute the most revenue to its members of any major conference; for example, in 2009-10, the Big Ten distributed $21 million to each of its member institutions while the Big 12’s average distribution for the same year was $11.6 million per member and the Pac-10’s $10 million. The prestige of the Big Ten was clearly a factor in these events. Despite the Big Ten’s lucrative equal revenue-sharing model, Jim Delany still seemed intent on expanding. The transparency of collegiate athletics meant that the Big Ten’s position in the NCAA was evident to other conferences, which made it easier to form alliances with prospective members.

29 Mark Schlabach, “Expansion 101: What’s at stake?” ESPN.com, June 9, 2010, http://sports.espn.go.com/ncf/columns/story?columnist=schlabach_mark&id=5268212, accessed April 5, 2012. 30 Bill Bradshaw, personal communication, November 10, 2011. Do

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Page 9 9B12M104 The Pac-10 faced a different set of circumstances as it had a major television contract approaching its end date. In light of recent lucrative television deals secured by both the SEC and the Atlantic Coast Conference (ACC), the Pac-10 wanted to aggressively ensure the best possible market value for its brand in its next contract. In looking to the Big 12, Pac-10 commissioner Larry Scott saw not only legitimate universities with athletic programs that would enhance their membership, but also valuable television markets; however, the University of Texas was the focal point of all expansion efforts. Texas represented the complete package: academic excellence, tradition, television market power, closer geographical proximity than many other institutions and unparalleled athletic resources. Texas-sized Resources The state of Texas had long been known for its abundant resources — particularly in land and oil. As the largest university in the state, the University of Texas was similarly endowed. Student enrollment was approximately 50,000 students, the largest among the Big 12 schools.31 Comparatively, this level of enrollment would rank a distant second in the Pac-10 behind Arizona State’s enrollment of approximately 68,000, and would be relatively equal to the largest Big Ten schools. The university athletic departments and football programs provided significant revenue. During the 2008- 2009 academic year, the athletic department at Texas reported over $138 million in total revenue (see Exhibit 3).32 Within the Big 12, the next highest-earning program was Oklahoma at around $81 million in total revenue. Within the Pac-10, the leading athletic department for the same year (USC) garnered approximately $80 million. Revenue exclusively from football was similarly impressive at Texas (see Exhibit 4). During the 2008- 2009 season, the Texas football team brought in over $87 million — more than $30 million ahead of the second highest-earning team, Nebraska. To put this in perspective, this meant that neither the combined football revenues from the top two earning universities in the Pac-10 nor the pooled sums from the bottom four universities in that conference came close to matching Texas’ football revenue. In an effort to take a broader perspective on the value of college football programs, Forbes Magazine ranked teams based on a variety of factors that viewed each team as its own brand (see Exhibit 5).33 By this method, it was estimated that the value of the Texas football team was $119 million (the highest- ranking, according to Forbes), with estimated profits of $59 million. Runner-up in total value was the University of Notre Dame at $108 million. The next Big 12 team on the list was Nebraska with a team value of $93 million. USC was the only Pac-10 school to make Forbes’ top 20 and was valued at $68 million.34 As another means of demonstrating the resources at the disposal of the Texas athletic program, a landmark sponsorship partnership with the Branded Retail Energy Program of Dallas, Texas was announced in July 2010. While not impossible to imitate, this unique arrangement was the first of its kind. 31 “National University Rankings,” U.S. News, http://colleges.usnews.rankingsandreviews.com/best-colleges/university-of- texas-3658, accessed November 3, 2012. 32 “The Equity in Athletics Data Cutting Tool,” U.S. Department of Education, http://ope.ed.gov/athletics/, accessed November 3, 2010. 33 Adam Rittenberg, “Penn State is Big Ten’s Most Valuable Team,” ESPN.com, December 23, 2009, http://espn.go.com/blog/bigten/post/_/ id/8496/penn-state-is-big-tens-most-valuable-team, accessed April 5, 2012. 34 Peter J. Swartz, “College Football’s Most Valuable Teams,” Forbes.com, December 22, 2009, www.forbes.com/2009/12/22/most-vaulable-college-football-teams-business-sports-college-football.html, accessed April 5, 2012. Do

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Page 10 9B12M104 Texas Longhorns Energy (TLE) aimed to provide renewable energy to alumni and fans in deregulated regions of Texas, with each customer account generating funds for sustainability initiatives for Texas athletics.35 JUNE 2010 When Delany, commissioner of the Big Ten, first announced the conference’s move towards expansion, the plan covered a time frame between 12 and 18 months. When Larry Scott of Pac-10 made a similar announcement soon after, Delany reacted and revealed the potential for an expedited timeline. While both officials wished to signal an appeal to potential members currently in other conferences, such signals did not come without a cost. For Delany, the initial timeline needed to be adjusted. For Scott, the aggressiveness of the Pac-10 seemed to have provoked the Big Ten to act in a more expeditious fashion. On June 1, 2010, at the start of the Big 12 summer meetings, Texas athletic director DeLoss Dodds alluded to changes by saying that Texas needed to be ready to respond if something were to happen to the conference membership.36 While the most widespread speculation was that all four of the Texas schools would move together to the Pac-10, some parties were considering other scenarios, such as Texas A&M considering a move to the SEC. As A&M athletic director Bill Byrne stated, “We knew that any time the moment seemed right to them [Texas], they would either go independent or look for another conference.”37 However, Byrne understood that each institution naturally sought to protect its business interests: “Remember what the job of an athletic director is. We are all very mercenary. We are all out there to protect our own institutions, so everybody has their own interests in mind.”38 With regard to considering alternatives, Byrne elaborated by saying, “It would be imprudent of us not to look at all the types of contingencies that are out there.”39 On June 3, 2010, the University of Texas’ football website broke the story that the Pac-10 was prepared to offer invitations to as many as six schools from the Big 12 conference. An outcome of the Big 12 meetings was to establish a deadline for a binding commitment from member institutions. On June 5, 2010, University of Nebraska and University of Missouri were given a two-week deadline to officially indicate their intentions to leave or remain in the Big 12. Also on June 5, during the Pac-10 summer meetings, Larry Scott officially gave authorization for the conference to actively pursue expansion. On the same day, he flew from Pac-10 headquarters to Oklahoma City to meet with officials from University of Oklahoma and Oklahoma State University.40 The following day, Scott headed back to Texas, making stops at Texas A&M, Texas Tech and, finally, University of Texas. This flurry of activity seemed to indicate that the players would soon be putting their cards on the table.

35 “Texas Athletics commits to landmark sponsorship to establish Texas Longhorns Energy,” TexasSports.com, July 26, 2010, www.texassports.com/genrel/072610aaa.html, accessed April 5, 2012. 36 “How it all happened: A Big 12 realignment timeline,” dallasnews.com, June 16, 2010, www.dallasnews.com/sports/college-sports/headlines/20100615-How-it-all-happened-A-443.ece, accessed April 5, 2012. 37 Bill Byrne, personal communication, November 3, 2011. 38 David Ubben, “A&M’s Byrne: ADs are ‘mercenary’,” ESPN.com, June 2, 2010, http://espn.go.com/blog/ncfnation/post/_/ id/22731/ams-byrne-ads-are-mercenary, accessed April 5, 2012. 39 Ibid. 40 John Canzano, “Larry Scott borrowing Pat Kilkenny’s jet,” The Oregonian, June 13, 2010, www.oregonlive.com/sports/oregonian/john_canzano/index.ssf/2010/06/as_larry_scott_delivers_pac-10.html, accessed April 5, 2012. Do

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Page 11 9B12M104 The End of the Big 12? On June 10, 2010, the Pac-10 announced that Colorado had agreed to join the conference. On the same day, reports surfaced that Texas A&M was considering membership in the SEC. Similarly, on June 11, Nebraska officially announced that it would be joining the Big Ten. In his comments on the move, Nebraska athletic director Tom Osborne indicated that a major factor in the decision was the knowledge of multiple teams considering options to leave. Osborne stated that it was disconcerting to learn that some of the schools asking Nebraska to stay in the Big 12 were at the same time in discussions with more than one alternate conference.41 It was apparent that Nebraska’s aversion to risk had helped propel its decision to change affiliation. Nebraska had also become increasingly disenchanted with the Texas-centric mentality of the Big 12. In the end, it opted for the more balanced power distribution of the Big Ten. On the same day that Nebraska heads east, Missouri affirmed its commitment to staying in the Big 12; however, multiple sources also indicated that Texas, Texas Tech, Oklahoma and Oklahoma State were all making final arrangements to join the Pac-10 and leave the Big 12 destined for relegation. The rumours of teams leaving the Big 12 seemed to be coming to fruition. Fighting Chance: Opposition Forms As things were looking increasingly grim for the Big 12, an undisclosed group of influential athletic officials came together to try to save the conference from dismantling,42 including “athletic directors, business leaders and television executives [who] all played a part in the league’s 11th-hour attempt to save itself from destruction.”43 A wide variety of interests fueled the mobilization of such a group. Some were concerned about the overall stability of college athletics. Others disliked the idea of a 16-team super conference and the competitive power that the Pac-10 could gain with such a membership. In the wake of Colorado and Nebraska leaving, Big 12 commissioner Dan Beebe orchestrated an intense weekend of phone calls, planning sessions and television revenue analyses and forecasts. On Sunday, June 13, 2010, Beebe made his final appeals to Texas, Texas A&M and Oklahoma to stay with the Big 12. Politics at Work As the result of a five-day public-notice law, a meeting with the higher education committee of the Texas State House of Representatives had been scheduled for June 16, 2010, following a meeting, of the Texas and Texas Tech boards of regents to discuss whether or not their respective institutions should remain in the Big 12. While some forecasted that the boards of the two schools would make decisions on their athletic future at that time, government officials had different ideas. State Representative Dan Branch, the chair of the higher education committee, had requested that top executives from the involved Texas schools, the commissioners of the conferences and a number of economists testify before the committee. Branch warned that, “to make a final decision before [June 16] would not be wise.”44 The state legislators wanted to know how the potential moves might affect other universities within the state.

41 John Henderson, “Big 12 hangs on desperately, waiting for Texas’ decision,” Denver Post, June 12, 2010, www.denverpost.com/sports/ci_15280375, accessed November 7, 2012. 42 Andy Katz, “Source: Influential group saved Big 12,” ESPN.com, June 15, 2010, http://sports.espn.go.com/ncaa/news/story?id=5286816, accessed April 5, 2012. 43 Dan Wetzel, “How the Big 12 was saved,” rivals.com, June 14, 2010, http://rivals.yahoo.com/ncaa/football/news?slug=dw-big12save061410, accessed April 5, 2012. 44 Andy Staples, “Conference realignment to get political in Texas this week,” SI.com, June 13, 2010, http://sportsillustrated.cnn.com/2010/writers/andy_staples/06/13/expansion.sunday/index.html, accessed April 5, 2012. Do

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Page 12 9B12M104 This nature of the government intervention with respect to conference realignment was not unprecedented in Texas. Before the transition of SWC schools to the Big 12 (which was newly created at the time), Governor Ann Richards was instrumental in making sure that her alma mater, Baylor, was included in the move. Similarly, when Arkansas left the SWC for the SEC, government influence assisted in keeping Texas and Texas A&M from considering similar exits. In the words of Texas A&M athletic director Bill Byrne, “Nothing surprises me when it comes to politics in Texas.”45 TEXAS HOLDS THE CARDS In the final days before a verdict, all of the involved parties were positioning to fall in the ‘in-group’ when the dust settled. While Texas obviously wanted to position itself in the best situation possible, the amount of risk involved was far less than it was for the other schools involved. All of the major players knew that Texas was wanted by every conference. With television profits and revenue sharing at the heart of the matter, Texas would bring that conference increased exposure and leverage in television negotiations, which would equate to greater future revenue and relevance. Association and tradition also tied many of the pivotal schools to Texas. Regardless of Texas’ muscle that it often flexed against teams in the Big 12, preserving an association with Texas by playing in the same conference was a critical factor. Part of the core product that the other schools provided to their customers was the experience of their teams competing with Texas; for example, while considering a departure from the Big 12, Texas A&M athletic director Bill Byrne indicated that traditional rivalry games served as the biggest barriers to leaving the conference.46 In a revealing interview with Texas Tech head football coach Tommy Tuberville, he said, “You can listen to A&M, and Oklahoma and all those folks, [but] whatever Texas says is what we’re [all] going to do.”47 A CRUCIAL DECISION Texas had been a dominant player in the Big 12 since its inception; however, with the departure of Colorado and Nebraska, it appeared as though the Big 12 could be headed toward irrelevance. Texas’ strategic objectives were to be a part of a viable conference, maximize its financial position and protect the interests of valuable stakeholders. Conference affiliation was at the forefront of meeting these objectives. Texas had to decide: should it move to the Pac-10 and potentially become a prominent member of the nation’s first super conference? Or should the team stay in the Big 12 in the interest of the financial rewards and overall stability of the league?

45 Brent Zwerneman, “Conference realignment may separate Texas, A&M,” Chron, June 3, 2010, www.chron.com/ sports/longhorns/article/Conference-realignment-may-separate-Texas-A-M-1703740.php, accessed April 5, 2012. 46 Bill Byrne, personal communication, November 3, 2011. 47 Tommy Tuberville, radio interview with Tommy Tuberville, rivalsradio.com, June 29, 2010, http://vmedia.rivals.com/ images/RivalsRadio/assigned/Tuberville062910RivalsRa.wma, accessed April 5, 2012. Do

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Page 13 9B12M104

Exhibit 1

TYPICAL ORGANIZATIONAL CHART FOR UNIVERSITY FOOTBALL PROGRAM

Source: Created by case authors.

Offensive Coordinator

Running Back Coach

Offensive Line Coach

Quarterback Coach

Tight End Coach

Wide Receiver Coach

Team Physician

Board of Trustees

Athletic Director

Head Football Coach

President

Recruiting Coordinator

Video Coordinator

Special Teams Coach

Graduate Assistant Coaches

Director of Football

Operations

Director of Player Development

Strength & Conditioning

Coach

Athletic Trainers

Defensive Coordinator

Defensive End Coach

Linebacker Coach

Defensive Line Coach

Defensive Back Coach

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Page 14 9B12M104

Exhibit 2

2008-2009 REVENUE SHARING DISTRIBUTIONS (IN MILLIONS)

Big 12 Oklahoma 12.2 Texas 11.8 Kansas 11.5 Missouri 10.4 Texas A&M 10.2 Oklahoma State 10.0 Colorado 9.8 Nebraska 9.7 Texas Tech 9.2 Baylor 9.1 Iowa State 8.9 Kansas State 8.4 Average: 10.1

Source: Lee Barfknecht, “Nebraska drops to eighth in Big 12 revenue,” Omaha.com, June 13, 2010, http://omaha.com/article/20100613/BIGRED/706139829/0, accessed April 5, 2012.

Source: Jon Wilner, “Pac-10 football: Conference revenue and per-school distribution figures,” MercuryNews.com, August 12, 2010, http://blogs.mercurynews.com/collegesports/2010/08/12/pac-10- football-conference-revenue-and-per-school-distribution-figures/, accessed April 5, 2012.

Pac-10 USC 11.5 Oregon State 9.9 Oregon 9.3 California 8.9 UCLA 8.8 Washington 8.4 Arizona 8.2 Arizona State 7.9 Stanford 7.2 Washington State 6.7

Average: 8.7

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Page 15 9B12M104

Exhibit 3

2008-2009 ATHLETIC DEPARTMENTS’ FINANCIAL INFORMATION

Big 12 Total Revenue Total Expense Net Revenue

Texas 138,459,149 112,935,132 25,524,017

Oklahoma 81,487,835 81,404,992 82,843

Nebraska 74,881,383 62,804,071 12,077,312

Texas A & M 72,886,100 69,955,181 2,930,919

Oklahoma State 71,805,825 68,816,645 2,989,180

Kansas 70,614,953 65,848,760 4,766,193

Missouri 57,778,668 55,619,509 2,159,159

Colorado 49,859,693 48,207,325 1,652,368

Baylor 48,545,254 48,545,254 -

Kansas State 47,399,903 46,101,279 1,298,624

Texas Tech 46,632,263 42,256,045 4,376,218

Iowa State 45,813,189 45,768,049 45,140

Average: 67,180,351 62,355,187 4,825,164

Pac-10 Total Revenue Total Expense Net Revenue

USC 80,151,282 80,151,282 -

Stanford 74,695,254 74,695,254 -

California 73,354,967 73,354,967 -

UCLA 66,177,866 66,177,866 -

Washington 60,575,780 60,575,780 -

Oregon 60,283,512 60,212,724 70,788

Arizona State 53,297,963 53,297,963 -

Arizona 51,822,629 51,627,538 195,091

Oregon State 50,211,404 50,211,404 -

Washington State 38,293,754 35,867,856 2,425,898

Average: 60,886,441 60,617,263 269,178

Source: “The Equity in Athletics Data Cutting Tool,” U.S. Department of Education, http://ope.ed.gov/athletics/, accessed November 3, 2010. Do

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Page 16 9B12M104

Exhibit 4

2008-2009 FOOTBALL PROGRAM FINANCIAL INFORMATION

Big 12 Total Revenue Total Expense Net Revenue

Texas 87,583,986 22,569,086 65,014,900

Nebraska 55,226,605 17,938,606 37,287,999

Oklahoma 42,638,431 20,799,933 21,838,498

Texas A & M 38,358,422 16,067,511 22,290,911

Colorado 27,827,286 13,040,024 14,787,262

Oklahoma State 26,536,625 12,498,599 14,038,026

Missouri 24,141,873 15,681,323 8,460,550

Texas Tech 23,581,188 13,966,304 9,614,884

Kansas State 21,378,813 14,019,452 7,359,361

Iowa State 21,261,439 14,404,274 6,857,165

Kansas 17,676,175 13,338,908 4,337,267

Baylor 11,896,723 10,908,725 987,998

Average: 33,175,631 15,436,062 17,739,568

Pac-10 Total Revenue Total Expense Net Revenue

USC 35,203,483 21,370,573 13,832,910

Washington 34,177,030 18,531,946 15,645,084

Oregon State 30,874,059 12,529,608 18,344,451

Arizona State 29,857,334 17,211,218 12,646,116

California 27,747,396 19,122,925 8,624,471

UCLA 26,640,759 18,390,148 8,250,611

Oregon 24,789,755 15,864,420 8,925,335

Arizona 20,927,253 12,612,710 8,314,543

Stanford 14,178,256 13,512,233 666,023

Washington State 11,415,496 8,933,696 2,481,800

Average: 25,581,082 15,807,948 9,773,134 Source: “The Equity in Athletics Data Cutting Tool,” U.S. Department of Education, http://ope.ed.gov/athletics/, accessed November 3, 2010.

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Page 17 9B12M104

Exhibit 5

MOST VALUABLE TEAMS IN COLLEGE FOOTBALL

Rank School Value

(millions) Profit

(millions) Metro

Population Conference 1 Texas 119 59 1,652,602 Big 12 2 Notre Dame 108 38 316,865 Independent 3 Penn State 99 50 144,779 Big Ten 4 Nebraska 93 49 295,486 Big 12 5 Alabama 92 38 206,765 SEC 6 Florida 88 41 258,555 SEC 7 LSU 86 39 774,327 SEC 8 Ohio State 85 36 1,773,120 Big Ten 9 Georgia 84 45 189,264 SEC 10 Oklahoma 83 40 239,760 Big 12 11 Michigan 81 34 347,376 Big Ten 12 South Carolina 80 37 728,063 SEC 13 Tennessee 78 29 691,152 SEC 14 Auburn 70 30 133,010 SEC 15 USC 68 33 9,862,049 Pac-10 16 Michigan State 57 28 454,035 Big Ten

Source: Peter J. Swartz, “College Football’s Most Valuable Teams,” Forbes.com, December 22, 2009, www.forbes.com/2009/12/22/most-vaulable-college-football-teams-business-sports-college-football.html, accessed April 5, 2012.

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