March Madness is big business for the National Collegiate Athletic Association (NCAA), where its biggest games tip-off and sports fanatics scramble to fill out tournament brackets and place bets in office pools. Viewership for the 2019 championship game surged 23% over the previous year. Last year the NCAA pulled in $933 million in revenue from media rights fees, ticket sales, corporate sponsorships, and a proliferation of television ads anchored around the three-week-long tournament. 

Key Takeaways

  • Despite a large amount of money generated by the NCAA and its member colleges during March Madness, the players receive zero compensation for their efforts.
  • The amount of money generated during the annual tournament is divided among the various conferences and is dependent upon the performance of schools in the said division and not directed by the NCAA.
  • The broadcast rights continue to be a good source of income for the NCAA, where CBS Sports and Turner Broadcasting found their returns profitable enough to extend their contract until 2032.
  • Annual increases in viewership equate to increased betting on the brackets and increased revenue for all involved except for the players.
  • The NCAA only receives about 4% of the cash it takes in to use for the organization's own operating expenditures. 

And the games aren't just a big business within the collegiate ecosystem. The American Gaming Association estimates that the number of brackets completed hit 149 million and $8.5 billion was gambled on the tournament. 

Over 50 million employees tend to spend at least an hour of company time filling out a bracket, costing their employers $4 billion, according to calculations by Challenger, Gray & Christmas. Big brands will also take their piece of the profits but the NCAA conference commissioners and execs will see the heftiest cash-out.

Despite the proliferation of bets associated with the March Madness tournament each year, the NCAA's official policy on sports gambling is that: "If you put something at risk, such as an entry fee, for an opportunity to win something in return, you violate the NCAA sports wagering bylaws."

The Size of the Pot

Basically, March Madness is the NCAA’s bread and butter. College athletics’ governing body will earn nearly a billion dollars in revenue from the tournament, representing more than 75% 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 contracts with CBS Sports and Turner Broadcasting, paid over the term. The deal was extended in April 2016 for an additional $8.8 billion that will keep the tournament on the networks until 2032.

According to the 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 pot of money known as the basketball fund. The basketball fund was $200 million in 2015 and equates to 30% of the TV ad money received by the NCAA.

For each game a team plays, its conference gets a payout, which is based on their performance over a six-year rolling period. Conferences get “units” for their tournament participation, which each unit equating to roughly $250,000—for the 2013 tournament. If a team makes it all the way to the final game, it can earn as many as five units. 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.

Conferences vs. 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 leftover 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 2014 school year. In 2016, the University of Louisville’s basketball program made $41.7 million in profit. Duke University was second, at $31.3 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 takes in. Only what's leftover—about 4%, according to the NCAA’s financial disclosures—goes to its own operating expenses.