Sworn statements explain how media giant didn’t realize it was paying Pac-12 Networks too much
The Pac-12’s future is dependent, in part, on the two remaining and ten departing schools determining the conference’s assets and liabilities.
One of these liabilities has recently come to light.
According to commissioner George Kliavkoff’s court declaration in a lawsuit filed against the conference by two former executives, the conference’s budget will be cut by $72 million as a result of the Comcast overpayment scandal.
It is the first on-the-record confirmation of the financial damage caused by Pac-12 mismanagement, and it far outweighs initial expectations.
When the conference fired CFO Brent Willman and Pac-12 Networks president Mark Shuken in January for failing to properly report the error, it stated that the amount of overpayments claimed by Comcast was “more than” $50 million.
The Hotline reviewed Kliavkoff’s declaration, which is one of dozens of filings in the wrongful termination lawsuit, which began in April in San Francisco Superior Court and is still ongoing.
Kliavkoff stated under penalty of perjury that “the Pac-12 will (have) distributed more than $72 million less than previously budgeted… to our member institutions.”
According to one source, the decrease takes two forms:
— Comcast withheld distributions to offset ten years of overpayments (2013-22) resulting from the company’s flawed tracking of Pac-12 Networks subscribers. This amounts to $58 million.
— Distribution cuts in the fiscal years 2023-24 to account for a correction in subscriber figures. The total amount is $14 million.
“It typifies 12 years of neglect,” said a source.
The withholding and reduction of $72 million (or $6 million per school) is already in progress and will be completed before the end of the current fiscal year.
In other words, if Washington State and Oregon State try to rebuild the conference after the other ten schools leave for their new conferences next summer, the liability should be gone.
To compensate for the decrease in revenue, the Pac-12 cut expenses and drew from its emergency reserve fund.
According to multiple sources, the emergency reserves — a potential asset for the Cougars and Beavers if they attempt to rebuild — have been depleted.
“There’s nothing left,” said one source.
Sworn statements from Shuken, Willman, and Kliavkoff shed light on the details of the fiasco that had previously been hidden from the public eye due to litigation and non-disclosure agreements with Comcast.
What was the source of the $72 million blunder?
Kliavkoff stated in his declaration that the company was “employing a calculation for license fees owed to the Pac-12 that double-counted certain subscribers.”
“Given the systemic nature of the error,” he said, “it was reasonably certain that Comcast had been making this error prior to 2016, and would continue to make this error after 2016 and through the life of the Comcast distribution agreement unless alerted to it or until Comcast discovered the error.”
Following an audit, the Pac-12 was made aware of the error in late 2017, but never informed Comcast. Following an internal audit, the media conglomerate discovered the overpayments years later, in the summer of 2022.
According to Shuken’s declaration to the court, Media Audits International conducted the Pac-12 audit, which “did not finalize or even publish its audit findings.” Pac-12 was left to further investigate or devote resources to completing the audit.”
The audit revealed that Comcast was overpaying the Pac-12 Networks by $5 million per year, but the conference was unable to confirm the findings due to a lack of access to Comcast’s proprietary subscriber data.
Willman, the former CFO, stated in his court declaration that “due to Comcast’s own ability to determine proper payment and its own sophisticated infrastructure and internal controls,” “this raised extreme skepticism within Pac-12 about the audit findings.”
Willman stated that the audit findings were shared with Shuken, commissioner Larry Scott, three executives (John Oliverius, Kim Sullivan, and Alden Budill), and possibly other finance team members.
“I had several discussions with each of these individuals in 2017 about the existence of the audit, and the purported audit results, and I believe they had conversations amongst each other,” Willman went on to say.
Shuken was named Pac-12 Networks president in August 2017, nine months after the conference commissioned the audit.
According to his declaration, Budill, the head of distribution, “summarized its findings, and expressed her view that the overpayment seemed surprising to say the least.”
What’s the deal with the skepticism?
Because Comcast had “complete control over the payments to cable programmers like Pac-12 Networks, as well as teams of legal and finance individuals to review and determine contract terms and proper payments,” Willman stated in his declaration.
He went on to say:
“In fact, one of the reasons the Pac-12 overpayment allegedly occurred in the first place was due to Comcast’s strict confidentiality of subscriber data, even from programmers like Pac-12.” Pac-12 and Comcast contracts generally provide a rate per subscriber and distribution tiers based on each subscriber’s geographic location, but only Comcast has information on subscriber counts and location.
“Because Comcast has complete insight into its subscriber obligations, Larry Scott and other individuals at Pac-12 assumed that Comcast regularly monitors the payments it is making.”
Shuken stated that he shared the findings with Scott “immediately following that summary from Budill,” but Scott responded, “that the audit findings were ‘preposterous,’ and that we’should ignore them,’ and not proceed with any further investigation or review.” As a result, there was no further discussion on this topic at his direction, as Mr. Scott chose to close the matter.”
When Comcast informed the Pac-12 of the overpayments in the fall of 2022, more than a year after Kliavkoff was hired, the conference hired Palo Alto-based Cooley LLP to conduct an investigation.
Kliavkoff stated that “while Plaintiffs alleged they verbally reported the Comcast overpayment issue to Scott, Cooley did not find that claim to be credible.”
The Pac-12 has declined to comment on the court documents’ revelations.