It’s March and that means March Madness. With the NCAA's big games tipping off this week, sports fanatics are scrambling to fill out tournament brackets and place their hats in office pools. Despite a tank in viewership last year with a 37% percent drop of people tuning in for the championship game — producing its lowest rating in nearly 20 years— revenue for the all-classic sporting event continues to climb.
Last year the National Collegiate Athletic Association (NCAA) raked in a record $1 billion in revenue from media rights fees, ticket sales, corporate sponsorships and a proliferation of television ads anchored around the three week long tournament.
And the games aren't just a big business within the collegiate ecosystem.
The American Gaming Association estimates that the number of brackets completed is going to hit 70 million and about $9.2 billion will be gambled on the tournament. Meanwhile, 81.5 million employees are expected to spend at least an hour of company time filling out a bracket, costing their employers $2.1 billion, according to calculations by Challenger, Gray & Christmas. (For more, see Betting on March Madness? Watch Out for the Tax Man.) Big brands will also take their piece of the profits but the NCAA conference commissioners and execs will see the heftiest cash out.
The Size of the Pot
Basically, March Madness is the NCAA’s bread and butter. College athletics’ governing body will earn somewhere around $900 million in revenue from the tournament, representing about 90% of its annual revenue. On the surface that seems like cause for outrage, especially in light of how much the players earn: nothing.
One of the most lucrative contracts connected with the tournament is the one for the broadcast rights. In 2010 the NCAA signed a 14-year, $10.8 billion contract with CBS Sports and Turner Broadcasting, paid over the 14-year term. The deal was extended in April 2016 for a combined total rights fee of $8.8 billion that will keep the tournament on the networks until 2032.
According to th,e NCAA about 96% of the money it collects immediately flows out to the Division I membership. It’s the only system in place that assigns a monetary value based on athletic performance.
How It's Divided
This year, 68 teams got an invitation to play in the tournament. Each of those team’s conferences will get a piece of a $220 million pot of money. For each game a team plays, its conference gets a payout, spread over six years. For playing one game the team’s conference gets roughly $1.7 million. If a team makes it all the way to the final game, it can earn as many as five units, totaling $8.3 million. If a team makes the final game from the first-four bracket, it could earn a total of six units.
Of course, each conference wants to see as many of its member schools in the tournament as possible, to raise the payout it receives. For smaller, lesser-known conferences, the basketball fund money they receive can represent more than 70% of their annual income. For that surprise team that is virtually unknown and makes it through multiple rounds, the payout can represent a much-needed cash injection for its conference. For larger conferences, however, such as the ACC or the Big 10, the basketball fund is more like financial icing on the cake rather than a major source of revenue.
The Conferences vs. the Schools
The NCAA urges conferences to divide the money equally among their member schools. Larger conferences, which have multiple sources of income, routinely divide up most of the money and send it to their school’s athletics programs. Smaller conferences, however, count on that money to cover their own expenses. Only the money that's left over goes to member schools.
In fact, most schools don’t make money on their basketball programs. Only about one-third of schools made a profit or broke even in the 2013-2014 school year. At the top: the University of Louisville, which brought in more than $24.2 million in profit during the same school year; the University of Arizona was second, at $17.7 million.
The Bottom Line
There’s plenty of criticism of the funding model the NCAA uses. The colleges see very little while the players, who actually create the income, see none at all. Still, in the case of the NCAA, the organization isn't pocketing most of the cash it rakes in. Only what's left over– about 4%, according the NCAA’s financial disclosures –goes to its own operating expenses. (For more, see The March Madness Effect.)