Jon Wilner's Pac-12 Hotline is brought to The Seattle Times through a partnership with the Bay Area News Group. Wilner has been covering college athletics for decades and is a voter in the basketball and football AP polls, as well as the Heisman trophy. He shares his expert analysis and opinions on the conference for the Pac-12 Hotline.

Pac-12 Networks president Mark Shuken recently told the SportsBusiness Journal that the primary objective of the networks is to “amplify student athletes and their experiences,” not necessary to serve as a revenue-generating machine.

Those priorities seem to mesh with the fiscal reality: While broadcasting 850 live events this year, the conference’s wholly-owned media company got smaller.

Internal budget projections for the Pac-12 Networks obtained by the Hotline show a 6% ($8.1 million) year-over-year decline in total revenue, a 22% drop in net advertising revenue and a 30% plunge in digital revenue. Net affiliate revenue, the largest bucket, by far, was expected to drop by 5%.

Perhaps most significantly, the Pac-12 Networks aren’t expected to increase the amount they distribute to the campuses: The $33.475 million projected for the schools in the current fiscal year — split 12 ways, that’s $2.8 million per campus — was the same amount pegged for FY18.

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All in all, the networks were budgeted to generate $127.4 million in revenue against $92.5 million in total operating expenses in FY19.

“It’s in line with expectations, but given its current structure, it has to figure out a way to cut costs,” said one of three media industry experts asked by the Hotline to analyze the budget.

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

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The budget was provided to the schools last year — for that reason, the figures should be considered approximations — and it includes budgeted figures for FY18 and FY19, plus a forecast/update for FY19.

It also provides an unprecedented look at the financial underpinnings of the seven-year-old media company, whose revenues and expenses have been closely guarded by the conference.

Since the networks were launched in 2012, the only official figure made available to the public has been the total income provided on the Schedule R portion of the Pac-12’s annual tax filings.

Line-item revenues and expenses have never been revealed.

“They basically wrote the business down by $8 million,” an industry analyst said.

The projected year-over-year flatline in distributions to the campuses indicates the Pac-12 Networks have yet to reach the lowest end of the original revenue projections.

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Prior to launch, commissioner Larry Scott, who serves as executive chairman of the Pac-12’s media company — his compensation is based on those dual roles — provided the schools with three ranges for annual payments (as previously reported by the Hotline):

High end: $7 million-to-$10 million per school per year

Middle range: $5 million-to-$7 million per school per year

Low end: $3 million-to-$5 million per school per year.

Based on information previously collected by the Hotline from campus sources and the FY18/FY19 data in the budget projections, the approximate annual payments to the campuses are as follows:

2013: None

2014: $862,000 per school

2015: $1,677,500 per school

2016: $1,980,250 per school

2017: $2,596,750 per school

2018: $2,789,593 per school

2019: $2,789,593 per school

Seven-year total (per school): $12,695,686

Average per year (per school): $1,813,669

(Note: On the budget below, the pool of money marked for distribution is listed as ‘net surplus,’ which is then divided by 12 to determine the school split.)

Those annual payouts, it should be noted, are effectively gross amounts.

To create the football and men’s basketball inventory for the Pac-12 Networks, the schools had to repurchase their local TV rights from multimedia partners like Learfield and IMG.

Over a four-year period, for example, UCLA had $5.6 million withheld from a larger sponsorship deal with IMG in order to compensate IMG for the loss of its TV rights. Back that figure out of the total amount sent to UCLA over seven years, and the Bruins have received an average of $1.01 million per year in net revenue from the networks.

“Given current distribution challenges,” an analyst said, referring to the networks’ limited reach, “meaningful cost reduction is the only way to increase payouts to the universities.”

The overall financial projections for 2019 show a company impacted by the loss of distribution on U-verse — a byproduct of the Pac-12 and AT&T ending their partnership after five years.

(Alden Budill, head of distribution for the Pac-12 Networks, told the Hotline in November that the company had anticipated the termination of carriage on U-verse “and we have planned accordingly.”)

Fueled by the U-verse situation, Pac-12 Networks total revenue was expected to drop from $135.5 million in the 2018 fiscal year to $127.4 million in FY19, a decline of 5.9 percent.

The networks generated just $13.6 million in net advertising revenue, which is approximately 10 percent of total revenue.

Total operating expenses were reduced accordingly, from $101.3 million to $92.5 million, based on major cuts to marketing, technical and production/programming.

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“Credit the leadership for managing the blow,’’ an analyst said. “They survived it, but the business is behind.”

(Shuken, Budill and Executive VP/Content Larry Meyers have all joined the networks in the past two-and-a-half years.)

The budget leaves a series of questions, including:

***** Total operating expenses were slashed by $8.8 million year-over-year, but compensation was reduced by less than $500,000.

In fact, the amount budgeted for compensation ($25.7 million) was higher than the initial forecast ($23.5 million).

What was the reasoning behind the forecast-to-budget increase and the limited year-over-year cuts in that expense bucket?

“The number of people that fall under that is what determines if ($25.7 million) makes sense or not,” a source said.

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***** The budget shows $98.8 million in net affiliate revenue.

What is the ‘net’ component? Are the networks paying a fee to collect affiliate revenue?

***** What is ‘other’ revenue, which grew by $1.1 million year-over-year?

Of the five revenue buckets, ‘other’ was the only one to show year-over-year growth. Although a small percentage of overall revenue, it more than doubled.

***** How is sponsorship revenue ($11.4 million) allocated?

And would any portion of that be coming into the conference regardless of the existence of the networks?

***** What accounts for the $11.5 million in G&A expenses (general and administrative)?

Typically, that category includes rent, travel and salaries — the cost of doing business.

However, the budget includes $25.7 million in compensation as a separate line item.

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“That (G&A) is a big number if it doesn’t include any compensation,’’ an analyst said.

***** Finally: What’s the plan to grow the business through 2024, when the Pac-12’s current media right deal expires?