The Money to March Madness

The NCAA’s men basketball tournament attracts millions of viewers, many of whom gamble on the outcome. This year, 13 million brackets were filled out on ESPN. Of those, 99% were “busted” or “broken” after the first day – and only 17 people correctly picked all 16 teams of the Sweet 16 correctly. While the tournament provides a source of entertainment and competition for everyone interested, it provides quite a bit more to the NCAA, TV broadcasters, and a select few basketball programs.

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No. 2 Michigan State lost to No. 15 Middle Tennessee in the first round, ruining many brackets.

March Madness is the NCAA’s most profitable enterprise, bringing in about $900 million in revenue each year. Most of this comes from broadcasting rights, which were sold to CBS and Time Warner in 2006 for a 14-year/$10.8 billion deal. In turn, CBS and Time Warner profit from advertisements during the games – overall ad spending in 2014 topped $1.1 billion. The NCAA also offers marketing opportunities to businesses, which can pay roughly $10 million to be “corporate partners.”

Fans, meanwhile, are expected to collectively wager $9 billion on the tournament – twice the amount usually wagered on the Super Bowl. Someone, somewhere, profits from this – but generally, it isn’t you or me.

The NCAA uses a formula to determine how much money to dole out to basketball programs. As commonly known, college athletes cannot be paid, either in cash or in goods, or else risk losing their “amateur” status and ability to play in the NCAA or other college sports. And while schools also provide a budget for their sports teams, money from the NCAA Basketball Fund can be very useful. However, very few teams actually come out on top from this. Usually, around 3% of men’s college basketball programs generate surpluses – and no women’s teams do. Kentucky, Villanova, Wisconsin and Duke are generally the only teams to turn a profit.

Should the NCAA be giving more to the teams that it uses to profit from? Should the players receive some sort of compensation for their hard work? I would argue yes to both.

Sources:

cbs: march madness: follow the money/

washington post: your ncaa tournament bracket is probably busted

the nation: ncaa makes billions and student athletes get none it/

14 thoughts on “The Money to March Madness

  1. This is an interesting look at the NCAA and basketball programs. In order to not ramble, I will leave out my views on the NCAA and its money managing. I do however recommend that everyone watch John Oliver’s segment on the NCAA (https://www.youtube.com/watch?v=pX8BXH3SJn0). I do wish to comment on a point you made at the end about how it appears very few colleges turn a profit from their basketball programs. How exactly is this amount measured? Solely through ticket and merchandise sales? If so, I will elaborate why that is a faulty measure. The “winningness” of a team brings many benefits to a college, some more traceable than others. Immediate sales and revenues are the first measures, but there are various other revenue generating outcomes from this variable. First may be increased applications to a winning team. While I did not choose W&L because of their sporting teams, many (less official albeit) college rankings take this factor into consideration. More applications allows a school to be more selective which can lead to more successful alumni. On that note too, a winning team may generate more alumni donations, but because this is not an econometrics class it is hard to determine the exact relationship between the two. Either way, it would be interesting to further examine how championships and wins bring in revenues to a college, beyond traditional approaches of measurement.

    • I agree with Andrew here, as many revenues associated with sporting events at colleges are also closely tied to other parts of the college experience. One that comes to mind is school-specific apparel and merchandise. At the professional level, purchasing apparel of a club or franchise (often) denotes support for that franchise, and is an immediate measure of revenue for the organization. For colleges, I think the line is blurry – buying a school shirt at the bookstore is not necessarily direct revenue to the corresponding athletic department. I agree with Andrew that it may be difficult to use econometrics to determine relationships between winningness and things like alumni donations, but I do think economic analysis can be used as a tool to show a positive correlation between “winningness” and overall increased positive perceptions of a school that could be correlated with higher revenues.

    • It is important to note that many athletes are compensated in the form of a scholarship. A free college education is certainly a valuable commodity. Not to mention free food, living accommodations, access to the best athletic trainers in the industry, and countless other benefits. Granted, not all collegiate athletes have such extensive scholarships. But, I would argue that the majority of players who contribute most two a team’s ability to win (the one’s most people would argue deserve some form of monetary compensation) are on such scholarships.
      Additionally, it is important to note that all university’s are for profit institutions. Athletics, although they may be covered the most in the media, are only a facet of the entire “university brand.” Take the University of Alabama for example. The success of the Crimson Tide football program has generated hundreds of millions of dollars for the university. While it may be argued that some of this money should be given back to the athletes that contributed so much to its accruement, it’s important to note that every single member on the 85-man roster has a scholarship of some sort. So, where has all this revenue being hoarded by the evil university corporate machine gone? The recently built Capstone Honors College–that’s where. In just the last two decade, UA, the second largest public university in Alabama, has built and fostered a very successful honors program. How? By providing extensive academic scholarship packages. Where did this money come from? For the most part, revenue generated from the football program.
      Most critics of the NCAA’s regulations barring the compensation of athletes neglect to look at how the additional revenue is allocated. One can argue that it is in the best interest of the university and the social well-being of the people of Alabama to have an improved academic institution rather than paying athletes.

      • I agree with Chase in his above comment. 85 men play football for Alabama, but the university has 37,000 students. Should we pay .02 percent of the student body, or provide an Honor’s College for the one-third of the student body who qualify to apply for Honors? The rational – and economically sound – decision would be to build the college for the larger part of the student body. Those in the Honors College are also more likely to stay in school for a full four years, instead of the one-and-done mentality some athletes have when they’re more interested in playing pro than getting a degree. So the money raked into universities with enormously successful athletic programs should not be siphoned off to the players and the players only. They have their own benefits – both during college and down the road – that will pay in spades should they choose to continue.

        • The other aspect you have to consider here about the 85 man team roster, is that they are categorized as “student athletes.” They are a legal hybrid between a semi-professional athlete and a college student. This title has allowed the NCAA to avoid any legal responsibility to compensate the athletes that bring the NCAA millions each year. The economic question here is how revenue is brought in from “outside” buying of jerseys and athletic gear? Taking Villanova as an example, how many little Main Line kids are running around with an Arcidiacono jersey? Is selling his image and likeness creating an economic significant revenue stream for the university or the NCAA. If the answer is yes, the players have a more individual legal battle to win.

          • To extrapolate a little more about the student athlete side of things – the NCAA has had a lot of high profile incidents with student athletes over the years (Derrick Rose faking the SAT, and more recently the Louisville Mens’ Basketball hiring strippers for recruits and North Carolina faking an entire academic department of classes for athletes). What are the economic consequences to these problems?

            When the NCAA slaps a school with repercussions, they can sometimes be far reaching. Penn State’s football program was absolutely decimated by the Sandusky scandal. It in some way damaged the reputation of the school in the short run and maybe even the long run. Memphis basketball, which was peaking when Coach Cal was illegally recruiting players like Rose, is now nowhere near as big as it was, so I would assume it might be generating less revenue. What will happen to UNC when the NCAA undoubtedly gives them some kind of punishment for the fake African Studies classes that football players and (potentially, but not confirmed yet) basketball players were taking for years just to avoid school and focus on athletics?

      • This is a valid point, Chase, that I did not consider. However, you must know that this one example cannot be true for all institutions out there. It’s interesting how you pointed to the largest revenue generating college football program at, as you stated, a large state university. I think every college or university should be considered, not just the larger ones that arguably make more money through their football program alone than most yearly alumni donations. Would this same lens apply to say the University of North Dakota or a Division 1 school with under 5,000 students like Wake Forest? Also, these are not full profit schools like the University of Phoenix, most every public college or university is a non-profit so that mentality you referred to above should not necessarily apply. Yes there are some added values like increased funding for academic ventures, but this most certainly not the case for every school with a large college sports program and that their own scholarship programs may not be expansive as others.

    • You make a good point here about how revenue from having good sports teams trickles in from many different sources, making it hard to measure. Also, I particularly like John Oliver’s statement from the link posted: “there is something slightly troubling about a billion dollar sports enterprise where the athletes are not paid a penny”.

  2. It will be especially interesting to follow how money from this year’s NCAA tournament is doled out between various teams. Teams from the Atlantic Coast Conference (ACC) drastically outperformed teams from other conferences in this year’s tournament. These teams and other teams in the conference will likely be paid huge amounts of money for their performance. With a number of ACC teams still alive, there are only more money making opportunities for certain teams to benefit.

  3. 1. There’s a whole subfield of sports economics. One aspect relevant here is that the NCAA has a special legal exemption from antitrust laws that allows them to organize a cartel – that is, they do not face potential felony charges . Hence they can try to prevent student athletes from being paid. Obviously, the money involved means that there are many loopholes and lots of violations, plus students who turn pro before graduation. To my knowledge, this is almost entirely a Division I issue.

    2. Is there not a potential prisoner’s dilemma, where schools that (pardon) don’t play the athletics game lose out? They may prefer to play and lose a little than not play and lose a lot.

    • I think most schools are facing the issue of getting the best recruits to ensure wins consistently. Since nowadays “one and done” (basketball players who are eligible for draft leaving college after one year) has become common in NCAA, universities’ strategies to attract talented athletes have become much more important. Furthermore, in order to stay competitive in NCAA and attract better recruits, many athletes would consider the option of cheating. I think this is where the prisoner’s dilemma comes in. According to a study in 2011 by Wall Street Journal, only 17 schools with major athletic departments have never been found guilty of any major violation in any sport since 1953, and only 4 of them (Boston College, Northwestern, Penn State, and Stanford) are from major conferences. It is not difficult to imagine in order for most schools to stay competitive, they would have to choose cheating over playing by the rules. I wonder are there any effective plausible solutions to this dilemma such as implementing more severe punishments from the NCAA?

      Reference:
      http://www.wsj.com/articles/SB10001424052702303936704576400052122863390

      • You make an interesting point about the “one and done” mindset that has taken over college basketball. While it is certainly the individual player’s decision as to when they leave to go to NBA, it seems some programs embrace that more than others. At the University of Kentucky, Coach John Calipari embraces the fact that he is able to get so many players in and out. He recently stated that all of his players will be draft eligible and he will support them if they wish to go to the NBA. He even goes as far as to boast that you have a 51% chance of going pro if you come to Kentucky. Coach Cal seems to be appealing to the mindset of players who want to go pro as we all saw their incredible season a few years ago before they unloaded all of those freshmen into the league. Of course, more great players=more wins=more revenue to the school. At Kentucky, it seems they don’t mind filling their pockets for a year before they let their players fill their own pockets.

        Source:
        http://thebiglead.com/2016/04/01/john-calipari-come-to-kentucky-where-you-have-a-51-chance-of-going-pro/

  4. A college is a for profit institution of learning. While athletes may generate a large source of an university’s revenue, should they reap the benefits of these profits? I think no. Athletes are portion of a school’s student body. While athletics are a function of a number of institutions, they are not a school’s primary focus. If schools were to pay athletes that would further divide student athletes from the general student body, which is a problem at a number of Division I schools as athletes tend to live, study, and eat in different facilities. Additionally, it may affect the branding of schools because other students may feel that their school is prioritizing athletes above them. When it comes to universities their primary clientele is students and I believe that by paying athletes they could potentially hurt their academic branding.

  5. I wonder whether and how the investment in brackets affect ad money for the tournaments. Intuitively I would assume that the more money and people bet on a certain team, the more attention its games would get and therefore more valuable for ads. The question is, as blog mentions, only 17 percent of the fans didn’t get busted after the first day. To answer the question of whether the majority of people who bought a bracket but quickly lost hope, more information is needed on the demography of the people who invest in brackets – how many of them are not actually basketball fans but only invested to gamble and have some fun once a year?

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