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. While the tournament’s cancellation last year due to the COVID-19 pandemic severely curtailed revenue, the NCAA typically pulls in about a billion dollars each year in revenue from media rights fees, ticket sales, corporate sponsorships, and a proliferation of television ads anchored around the three-week-long tournament.
- 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 tournament’s cancellation in 2020 due to the COVID-19 pandemic slashed the NCAA’s annual revenue by more than half.
- The money generated during the annual tournament is divided among the various conferences and is dependent upon the performance of schools in their division, 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.
- Increases in viewership equate to increased betting on the brackets and increased revenue for all involved except for the players.
And the games aren't just a big business within the collegiate ecosystem. In 2019, the year before the pandemic, nearly 50 million Americans wagered an estimated $8.5 billion on the tournament, according to the American Gaming Association.
Over 75 million employees tend to spend about a half hour of company time filling out and updating their brackets each day during the tournament, costing their employers more than $13 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. In 2019, college athletics’ governing body earned $1.05 billion in revenue from the tournament, representing more than 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 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 member schools. It’s the only system in place that assigns a monetary value based on athletic performance.
Fallout from the Pandemic
The NCAA’s decision to pull the plug on last year’s tournament just before it got underway—the first cancellation in its 81-year history—slashed revenue by more than half for the 2020 fiscal year to just below $520 million. But it could have been much worse. Save for some cost-cutting and a $270 million insurance policy the organization took out in case of such an unexpected event. So despite experiencing a yearly drop in ticket sales, TV right fees, and other tournament-related proceeds that topped $860 million, the NCAA ended up posting a net loss of just under $56 million for the fiscal year.
The tournament is on track to resume this year in Indiana, though attendance is limited to just 25% capacity. The NCAA’s cancellation insurance, which is also in place for this year’s tournament, covers ticket sales as well.
The gaming industry also took a big hit. Last March, when every casino in the country was shuttered, sports betting fell 40% from the previous year, according to the AGA, which hasn’t yet released its estimates for the 2021 tournament. With the number of states legalizing sports betting over the past couple years, to 25 states plus Washington, D.C., gambling revenue could see a sharp rebound.
How Tournament Money Gets 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 nearly $170 million in 2019, equating to about 20% 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 about $280,000 for the 2019 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 a 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 left over goes to member schools.
In fact, most schools don’t make money on their basketball programs. Only 25 Division 1 schools, or 7% of those with programs, turned a profit in 2019. The University of Kentucky’s basketball program has been the most profitable over the past three years, netting an average of $31.2 million a year. The University of Louisville is second, at $29.2 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 left over—about 4%, according to the NCAA’s financial disclosures—goes to its own operating expenses.