NCAA
Do or Die
I have a number of friends who are employed by a school that participates in NCAA sports and a few who work in the pick and shovel businesses surrounding them. Recently I had a conversation with one who told me that he is doubtful there will be college basketball for the 2020-21 season. I told him I truly believe that NCAA basketball will occur, however I think we'll see a very condensed non conference schedule of games. He vehemently disagreed.
There's plenty of reason to believe that given the recent information surrounding college football. Conferences are left to decide their own fate, in a direct parallel to how our country is run from a decentralized standpoint. This particular friend is a basketball coach, and in his eyes, the non conference games are what kept his program afloat financially. He's absolutely right- for non-power 5 schools, the way many fund their programs are through “guaranteed” no-conference games. The arrangement goes like this: a capital heavy program paying a smaller, lesser funded program to play them. Many in the industry call this “buying wins". If you look at Syracuse’s schedule last year, you'll see what I mean:
Seattle W 89-67
Cornell W 72-53
Bucknell W 97-46
Iowa L 68-54
Bucknell, Cornell, Colgate and Seattle were are “guaranteed” games and they won each of those games. Bucknell, Cornell and Colgate all received a check for those games as well. In essence, they received compensation in return for those losses. Those checks range depending on how desperately the capital heavy team needs the win. The same practice occurs in football, whose checks are much larger. Sometimes as high as $1 million.
And you would think that this is big money until you realized what some schools make for playing games in the NCAA basketball tournament. And it's because of this financial incentive, conference games are king in college basketball.
Do you remember when the Loyola Ramblers made it to the final four in 2018? I do because it was close to my house during my childhood. Loyola profited from those games but their conference, the Missouri Valley Conference (MVC) benefited even more. All 10 MVC teams benefitted by receiving a $140,000 check for the next six years from the NCAA. That math totals out to $8.4 million. The only other true revenue stream for the MVC is through TV deals that has been sparked by their marketing partner Learfield-IMG. These figures are dwarfed by NCAA basketball tournament games. It's been reported that TV deals for small conferences are merely break even deals because it's the schools responsibility to cover production costs.
If the NCAA is paying out all this money, they must be benefiting from this financially at a high margin right?
Compensation revolves around what the NCAA calls a unit. Each NCAA basketball tournament game earns a team one unit. That game is worth roughly $480,000. However the unit earns you money for the next six years. Play in one game, earn one unit per year for your conference for the next six years. That's about $1.5 million. Teams earn their conference six units for every tournament game besides the championship, for which no units are distributed.
$225,955,488 is roughly what is generated from the whole tournament through units. This will be paid out to the conferences and amortized over a six year period. Equalling about $37,659,248 per year. Doing some napkin math will bring you to roughly a quarter billion that is paid out each year. The NCAA, however generates roughly $1 billion each year from ticket sales, rights holding, and bad Capital One commercials. In other words, a quarter billion is a small cost of goods sold if you are bringing in a full billion.
Deloitte tax LLP last audit reported the NCAA revenue from 2018 to be $1,062,709,385. $844,267,484 of that was in TV rights. Their balance sheet only has $13,727,897 in liquid assets and over $700 million in real estate holdings, receivables, and investments. They paid $49,731,722 in wages that year and that wasn't half of their total expense line. Needless to say, the NCAA is cash poor. They desperately need the NCAA tournament to stay afloat. Unless there is a loss of value policy they have in the case of a force majeure instance to cover their unrealized financial gains OR since they are credit-worthy enough to get a loan the motivation to have some semblance of a tournament is very high. They have no rights over college football. Which is why they have no real say in the fate of a college football season.
But basketball, is oddly different. The NCAA has created such a monopoly on basketball. They can't tell conferences what to do, but they can determine who they let in their tournament. And it just so happens that their tournament is the TAJ MAHAL of all tournaments. Which is why my friend should realize that, no matter what… There will be an NCAA tournament in 2021.
Another reason why I feel so strongly about this opinion is because the NCAA has over six months to prepare for the logistics of the college basketball tournament. They don't really have rights over the other games that occur during a basketball season. But every conference knows what's at stake financially.
32 teams earn automatic bids to the tournament. The other 36 or chosen by the selection committee. In order to lawfully get teams from smaller conferences into the tournament, there MUST be conference games.
Quick side note: this further validates another belief of mine that there's no better investment a D1 university can make greater than investing in college basketball team. Not because basketball is a better sport than any other sport or any other type of investment. Purely because basketball is a game in which power laws distribution are in play. Basketball is a sport where you only need one (sometimes), but generally two or three talented players and the team becomes exponentially better and more competitive. The beauty behind this is that basketball talent is equally distributed across the globe. This is why a UMBC can take the floor against a Virginia, a Davidson against Georgetown, a Bucknell against Kansas. All other things be equal (coaching, facilities etc...), this abundance in talent is what generates dollars in college budgets.
An investment in 13 scholarships ( $1.5M on average) over the course of 4 years could get you $1.5M right back in your pocket for just getting to the tournament for one unit/game, and if you win a game or two (or more), the investment pays for itself compounding with each additional win.
Needless to say, there's no doubt in my mind we'll have brackets to fill out. And hopefully more upsets.