On the economic impact of Texas and OU leaving the Big 12

In the aftermath of the whirlwind process that resulted in the Texas Longhorns and Oklahoma Sooners announcing their intentions to leave the Big 12 Conference and receiving and accepting invitations to the SEC, the future of the eight remaining Big 12 programs remains uncertain, especially economically.

Meanwhile, debates continue about the methods of departure and the morality of the decisions made by Texas and Oklahoma. At the risk of elevating an opinion from notorious dingus Doug Gottlieb, the former Oklahoma State basketball player turned analyst and sports talk radio host, he perfectly represents the motivated reasoning used by some fans to attack the decisions by the Big 12’s soon-to-be-former most valuable programs.

And Josh McCustion, the co-publisher of the Oklahoma Rivals site, succinctly lays bare why those arguments are ridiculous even as they remain ultimately motivated by some level of understanding regarding the looming economic downturns for Oklahoma State and the other seven schools.

More important for those schools now is what’s happening on the university level. Beyond questions about Texas and Oklahoma settling exit fees with the Big 12, the remaining eight are now quickly considering realignment options and beginning to make backchannel contact to gauge interest from other conferences. For the moment, it’s a strange balancing act between trying to express some public solidarity to keep the Big 12 together — in part to preserve a shot at those juicy exit fees — and also preparing attempted thirst traps for potential suitors.

You’re looking desperate, Big Jay. A new airport terminal in Kansas City? Really?

The bad news for those schools is that there still aren’t any known indications of interest from the Big Ten or the Pac-12 and even the potential move of West Virginia to the ACC, which arguably makes more sense than any other Power Five options for the entire group, hasn’t seemed to gain much momentum yet.

Against that emerging reality, the Perryman Group weighed in late last week. A think tank based in Waco and founded in 1984, the consulting firm was retained by an unidentified party to produce a report on the economic impact from Texas and Oklahoma leaving the conference. Perhaps the Big 12 itself.

The report begins with a clear-eyed summary of the massive changes happening in college athletics and spurring the decisions by Texas and Oklahoma before laying out two scenarios — the Big 12 remaining intact and expanding with revenue similar to the AAC and a dissolution of the conference resulting in outcomes similar to the top five programs in the MWC.

Both paint sobering economic futures for those schools and their communities:

For the communities across the Big 12 Conference, the realignment could be expected to cause losses of $938.9 million in annual gross product and 12,623 jobs under Scenario 1, with $1.3 billion in annual gross product and 18,063 jobs for Scenario 2.

The report also specifies the potential impact on the three Texas schools:

Looking specifically at the Texas universities (the Waco, Lubbock, and Fort Worth areas due to effects on Baylor University, Texas Tech University, and Texas Christian University), total annual losses were found to include $397.7 million in annual gross product and 5,322 jobs under Scenario 1 and $569.1 million in annual gross product and 7,615 jobs under Scenario 2 (including multiplier effects).

The Perryman Group concedes that these are conservative estimates that “likely understate the actual losses to the affected communities for a variety of reasons,” before setting up the conclusion:

College athletics is changing, and it is understandable and even inevitable that schools will respond. At the same time, the consequences for other universities and how those might be mitigated is worthy of consideration.

Two things are true. It is appropriate and the responsibility of university leaders to make decisions in the best interest of the universities that employ them — this should be self-evident, but somehow people are still struggling with the concept. And a lot of people are going to feel the economic impact, some of whom will lose their jobs.

Add unfortunate to understandable and inevitable.

Because strong and effective leadership may not make a difference in the realignment outcomes for the remaining eight — illustrated by the Perryman Group’s methodology using AAC and MWC schools to create the two scenarios — the presidents and athletic directors must now begin planning for significantly reduced budgets as they navigate all the rapid changes happening in college athletics.

Many if not all of the athletic departments may turn to layoffs to cover those budget deficits, an unfortunate but unavoidable side effect of the decisions made by Texas and Oklahoma.

Capital projects may be put on hold or forced to rely more heavily on fundraising, though the Perryman Group predicts the possibility of lower alumni and donor engagement, too.

Ticket sales will probably decline.

Any hopes of more direct payments from those schools to athletes took a hit as college athletics heads towards greater stratification, deregulation, and decentralization.

Recruiting, from athletes to students to faculty, will become more difficult.

At the university level, the bottom line is that strong, effective leadership has arguably never been more important for the remaining eight schools to manage the upcoming revenue losses. Certainly never more so in the modern era of conference realignment, defined here as since the seminal 1984 antitrust decision by the Supreme Court that contributed heavily, for instance, to the SWC’s demise and the skyrocketing value and importance of television rights.

At the risk of belaboring the point in this space — every iteration of conference alignment and realignment has always had winners and losers.

The Big Eight schools and former members of the SWC that combined to form the Big 12 Conference all benefited from the alliance, even the four schools that left a decade ago. Schools like Houston, SMU, and Rice all lost in the 1990s, haven’t fully recovered, and likely never will. Now the remaining eight Big 12 schools are all likely to land on the losing side in a conference with Houston and SMU.

Again, this reality surrounding conference realignment is not new nor is it the fault of Texas and Oklahoma in a world where ESPN is the single most powerful entity in determining a school’s television rights valuation and what conference they end up playing in.

A decade ago, Boston College leadership admitted that ESPN told them to block Connecticut’s inclusion in the ACC. So they did.

In 2016, Iowa State athletics director Jamie Pollard succinctly summarized the Big 12’s position without Texas and Oklahoma.

“The Big 12 exists because we have Texas and Oklahoma in the room. If we take Texas and Oklahoma out of the room, we’re the Mountain West Conference, and we’re getting $3 million [per year in TV revenue],” Pollard told iHeart Radio.

Pollard almost certainly undersold the television revenue, but as Scenario 2 from the Perryman Group indicated, he didn’t really miss on the MWC part.

The economic impact on communities like Fort Worth, Lubbock, and Waco, including potential job losses, fall under the category of public policy — again, not the purview of university leadership at Texas and Oklahoma. Instead, the responsibility to mitigate these upcoming economic losses falls on the elected leadership at the local, state, and federal levels of government. Those changes that may fundamentally alter what it’s like to work in the smaller college towns like Manhattan or Lawrence or Ames or whether that even remains a possibility for certain workers.

Under the guidance of UT Board of Regents chairman Kevin Eltife, Texas managed to avoid any political repercussions during the 87th Texas Legislature’s regular session. When the 88th convenes for regular session in 2023, it’s possible that members of the Texas House or Senate attempt to introduce legislation to mitigate some of those looming economic impacts working at the university or state level. Or they may just try to grandstand and look busy to score political points with their constituents.

The legislatures in other states are in similar positions with different potential timetables to take action, although perhaps less inclination to engage in the various lunacies more specific to politics in the state of Texas.

On the most micro economic level, the pandemic already proved that simply giving people money is projected to nearly halve the poverty rate in the United States in the shortest period of time the country has ever seen. Now that’s simple and effective public policy.

Relatedly, at the Atlantic, Annie Lowery also has a thoughtful piece on the “time tax” that addresses an important question:

How did the world’s wealthiest, most productive, and most powerful country end up with not just an ungenerous system of social policy but a convoluted, punitive, and technologically inept one? One that hurts the people it purports to help?

The answer, of course, is less “because the government is inept and any attempts at effective governance are doomed to fail” and more “because it’s designed that way.” Funny how that works.

People actually concerned about the livelihood of people who will bear the economic impact of these realignment decisions by Texas and Oklahoma may already believe in a functioning social safety net.

The level of cynicism required by the people using those livelihoods to vilify Texas and Oklahoma as a justification of their motivated reasoning? The Venn Diagram of that group and people who claim to believe in free market mythology might have a large overlap or might just be a big circle.

Regardless, depending on when Texas and Oklahoma actually manage to exist the Big 12, university leaders at the remaining eight schools and the elected representatives of people in those communities have between a year and four years to make plans to mitigate the upcoming economic impacts.

It’s going to be a challenge.