NCAA Final four: For the love of money

Sometime soon — probably within four years — the NCAA will surpass a billion dollars in annual revenue, mainly because of lucrative television rights for its men’s basketball tournament.
Apr 5, 2014



DALLAS — In sports and business, there are very few sure things. Here is one:

Sometime soon — probably within four years — the NCAA will surpass a billion dollars in annual revenue, mainly because of lucrative television rights for its men’s basketball tournament.

For March Madness and the Final Four, each a trademarked phrase, ever-growing fan excitement has meant an explosion of money.

As recently as 1973, TV rights for the NCAA tournament generated only about $1 million. Last year, tournament multimedia rights accounted for more than $680 million of the NCAA’s nearly $913 million in total revenue.

In 1986, the last time the Final Four came to North Texas, the entire tournament totaled $41 million from television rights, ticket sales and other revenue. This year, it’s more than $700 million from TV alone.

The NCAA doesn’t break out ticket revenue from just the Final Four, but The Dallas Morning News estimates that the games here will generate roughly $20 million. Some 80,000 fans or so are expected Saturday and again Monday at AT&T Stadium.

With long-term agreements that dictate ever larger rights payments over the next decade, the tournament should continue to be a major financial success.

Yet, the NCAA remains cautious, precisely because so much of its revenue comes from a single source. In one of the organization’s financial filings, it states that a long-term goal is building its investment holdings so that they can support a year of operations and maintain a substantial portion of the NCAA’s distributions to its largest members.

Dallas Mavericks owner Mark Cuban recently warned that the NFL, the most valuable pro sports league in the United States, was 10 years from imploding, in part because of potential oversaturation that can lead to declining fan and advertiser interest.

Could the NCAA tournament ever reach that point?

“No on NCAA,” Cuban wrote in an email. “A few weeks of winner take all is fine.”

Craig Depken, a sports business expert at the University of North Carolina at Charlotte, said there is always the chance that the TV contracts might outpace interest. “However, at the moment I think the contracts are fairly well valued,” he said.

The financial windfall for the NCAA, a governing body for collegiate athletics that traces its beginning to 1906, has magnified a decades-long debate over the role of athletics in higher education. The association finds itself increasingly challenged on several fronts, including an antitrust lawsuit filed in March and a National Labor Relations Board decision last week that said football players at Northwestern University have the right to unionize.

Legal expenses appear to be mounting. In the fiscal year that ended Aug. 31, 2012, the most recent numbers available, the association paid $9.45 million in legal fees. That’s more than the previous two years combined.

Through the men’s tournament, the NCAA accounts for much of the big money in big-time college sports, but not nearly all. Major conferences make their own TV deals for regular-season football and basketball games. Postseason football has a separate structure, also worth billions.

NCAA president Mark Emmert was not available for an interview. He has defended the association’s approach and said there is no interest in turning college sports into pro sports. His association has more than 1,000 member institutions. Most of them do not play big-time football and basketball.

In 2010 in its Champion magazine, the NCAA wrote about its expanding revenue and quoted former president Myles Brand, who died in 2009, to illustrate the association’s mission.

“Amateur defines the participants, not the enterprise,” Brand said. While academics come first, Brand referred to the “necessary business of college sports” and the NCAA’s obligation to maximize revenue for its members.

According to that article, the NCAA’s philosophy about revenue changed on Nov. 22, 1989, when it announced a seven-year agreement with CBS for $1 billion that began two years later. The deal averaged about $143 million a year, nearly three times the average of the previous agreement. The story referred to the contract as the “game-changer” and to the amount of money as “stunning.”

Also, in 1991, the NCAA began a new system of compensating competitors, with one element based on tournament appearances, ultimately benefiting conferences and schools whose teams advance farther.

As it turns out, that was just the beginning of the big money for the NCAA.

In 1995, the association and CBS began a contract extension for $1.725 billion through the 2002 tournament, followed by an 11-year, $6 billion deal. In 2010, Turner Broadcasting System joined CBS on a 14-year, $10.8 billion agreement packaging TV, Internet and multimedia rights.

Later, ESPN and the NCAA expanded their relationship with a 14-year, $500 million deal for some other sports and international distribution of the men’s basketball tournament. ESPN paid nearly $24.5 million in the fiscal year ending Aug. 31, 2013.

Those latest agreements have built-in price escalators. From 2019 to 2024, according to NCAA financial reports, CBS and Turner will pay an average of $850 million a year. Over that span, ESPN will pay an average of nearly $43 million a year. That’s almost $900 million combined, not counting revenue from ticket sales, investments and contributions.

Most of the NCAA’s revenue goes back to its members, including $527.4 million distributed to the major schools — Division I — in fiscal 2013. Division II and III members also benefit, but to a lesser degree.

Since the 1970s, the NCAA said, about 60 percent of all its revenue has gone to Division I. After expenses, the association had a surplus of about $60 million in fiscal 2013.

This year, each appearance by a team — except in the final — is worth roughly $250,000 a year over a rolling six-year period to the team’s conference.

That adds up. In the first round, Stephen F. Austin State University of Nacogdoches tied Virginia Commonwealth at the end of regulation and then won in overtime.

Though it lost to UCLA in the second round, that extra appearance, a “unit” in NCAA terms, means an additional $1.5 million or so over six years to the Southland Conference, of which SFA is a member. The Southland gets one automatic bid to the NCAA tournament.

“The NCAA basketball tournament is really the lifeblood of our conference,” said Southland commissioner Tom Burnett. He said the conference didn’t have a central office until the tournament television money started to rapidly escalate in the late 1980s. The conference now has an office in Frisco.

The current system especially benefits power conferences like the Big Ten. The more teams and more appearances, the more money a conference receives and the more it can distribute to its members.

With all that money involved, it would be easy to lose perspective. Not Bob Cluck, mayor of Arlington, home of AT&T Stadium.

“We like the money,” he said of the tournament. “But we like the people and the excitement it brings, too.”



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