Huge financial eggs come from these NCAA baskets

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Huge financial eggs come from these NCAA baskets

Conferences score big with tourney's popularity, TV revenue

07:22 AM CST on Thursday, March 16, 2006

By GARY JACOBSON / The Dallas Morning News

It wasn't so long ago, says Southland Conference commissioner Tom Burnett, that a small NCAA Division I athletic league would operate with just a commissioner and a sports information director working out of their homes.

The booming popularity of the NCAA men's basketball tournament and its big television contracts helped change that.

The Southland Conference employs nine people in its Plano office. The conference and its schools will receive roughly $5 million from the NCAA this year, Mr. Burnett said, practically all of it attributable to the men's tournament.

The other Division I conferences headquartered in the Dallas area will get even more. Conference USA expects about $15 million, and the Big 12 Conference expects $24.5 million.

If you could buy shares in March Madness, Wall Street would consider it one of the great growth stocks in financial history.

"This is a very valuable sports product," said C-USA commissioner Britton Banowsky.

The University of Memphis, a member of C-USA, is the top seed in the Dallas subregional, which begins Friday at American Airlines Center.

As a group, the Dallas area's three Division I conferences will receive more NCAA money this year than the entire three-week men's tournament generated – $41 million – from television and ticket sales in 1986 when Dallas hosted the Final Four.

The tournament's TV revenue alone this year will be $453 million, more than 800 times the amount in 1970. In 2013, the final year of its $6 billion, 11-year deal with CBS, the NCAA is scheduled to receive $764 million from the network.

Money from television and marketing rights accounted for 86 percent of the NCAA's total revenue of $507.7 million last year, according to the association's 2005 report to members.

"You have an organization running an entire industry that is totally dependent upon one event in one men's sport," said Gary Roberts, a Tulane University law professor and sports business expert.

NCAA's distribution

A small amount of NCAA revenue ($13 million this year) comes from ESPN, which televises the women's basketball tournament. Much of the rest is from championship ticket sales, largely the men's tournament, NCAA reports show.

The NCAA distributes about 95 percent of the money it receives to its members for athletic and academic support, as well as for championship event expenses in its three divisions. Last year, $298.7 million went directly to 31 Division I conferences and independents, representing more than 320 schools. About 40 percent of that money was tied to success in the men's tournament.

Rod Fort, a sports business expert at Washington State University, says the powerhouse basketball conferences maximize revenues through March Madness just as the powerhouse football conferences maximize revenues through the Bowl Championship Series.

The BCS, however, isn't nearly as lucrative. This year's four biggest bowl games generated roughly $130 million for participants.

Some critics say all that money overemphasizes sports at the expense of the classroom.

"I think it is madness," Smith College economist Andrew Zimbalist said of the NCAA Tournament. "It is not what you would have if there was any reasonable balance between academics and athletics."

Maximizing revenue

The NCAA acknowledges the criticism. It recently administered the first penalties against schools whose athletes aren't making satisfactory academic progress. In January, during his state of the association address, NCAA president Myles Brand said big-time college sports and education can, and should, coexist.

"The business plan for the athletics department mirrors that of the university," he said. Their common goal: maximizing revenue and redistributing it throughout the organization.

As the larger debate continues, no one foresees any slowdown in the immense popularity of the NCAA men's tournament. And no one predicts any meaningful drop in the value of the television contracts, although some see a leveling off.

According to TNS Media Intelligence, more than $2.2 billion was spent on network advertising during the NCAA Tournament from 2000 to 2005. And the $467.7 million spent last year almost equaled the amount generated during the entire college football season. The research firm expects nearly $500 million to be spent on network advertising during this year's tournament.

CBS also benefits from local ad sales at stations that it owns and operates, says Jon Swallen, senior vice president of research for TNS. The network's contract includes Internet rights, which are expected to be increasingly important.

Bob Dekas, CBS' coordinating producer for NCAA basketball, links the tournament's popularity with a grass-roots wholesomeness that appeals to rural America as well as big cities.

"Nothing in life is pure," Mr. Dekas said. "But it's as pure as life gets."

While the NCAA has concern about being overly dependent upon one source of money, ballooning revenue from the men's basketball tournament has helped some conferences diversify from football.

The Big 12's expected cut this year from the NCAA will be nearly 22 percent of its total revenue of $112.3 million, according to projections the league provided to The Dallas Morning News. In fiscal 1997, the league's first year of existence, the NCAA provided $5.7 million, about 9 percent of the Big 12's total.

Big 12 commissioner Kevin Weiberg said the NCAA's share of his league's budget should continue to grow through the end of the current CBS contract. After 2013, he sees more potential growth from football bowl games and regular-season television.

"The NCAA contract is fully priced in the marketplace," he said.

CBS began its affiliation with the men's tournament in the early 1980s. Television rights fees increased steadily, taking a big leap in 1991 with a seven-year, $1 billion deal, and an even larger leap in 2003.

It pays to win

In the first three years of the current contract, NCAA revenue distributed to the Big 12 increased 80 percent from 2002, according to the NCAA. Conference USA's revenue from the NCAA increased 64 percent and Southland's 55 percent.

The part of the tournament's payout tied directly to winning favors traditional power conferences because it is based on total tournament appearances over rolling six-year periods. Consistently having more teams in the field and more wins means more money.

In the formula, each game appearance, leading up to the finals, equals one unit. Units earned one year don't begin to pay off until the following year.

This year, each unit accumulated over the previous six years is worth $163,981, up from about $100,000 in 2002.

So, just getting a berth in the tournament this year eventually will mean more than $1 million to a team's conference. And game-winning shots this year will be worth a million bucks, literally.

That frustrates Mr. Burnett of the Southland Conference. His league, which began in 1963 and opened its first office in 1987, gets one tournament berth, almost always a low seed. The last time a Southland team got past the first round was when Karl Malone played for Louisiana Tech in 1985.

So, when it's time to tally units, Southland has only six while the Big 12 can have 80 or more. The multiplier effect is powerful.

Mr. Burnett hopes his conference eventually will get more revenue opportunities by placing teams in the National Invitation Tournament, purchased by the NCAA last year as part of a settlement in an antitrust lawsuit.

Still, Mr. Burnett says, it's hard to imagine life without the NCAA windfall.

"If we did not have that payout, a lot of leagues would have problems," he said.

E-mail gjacobson@dallasnews.com