March Mad(ness) Money (esp. for coaches)

From Andrew Zimbalist in the WSJ...

...companies pay CBS roughly $100,000 for a 30-second spot of advertising in round one and more than $1 million per spot in the finals. CBS itself is paying the NCAA $6.1 billion over 11 years for the right to sell these ad spots and to broadcast the tournament....

Experts estimate that more than $7 billion is wagered on the March tournament, surpassing the $6 billion gambled on the Super Bowl....

The National Collegiate Athletic Association, for instance, makes out quite well. Last year, Madness brought in $548 million from TV rights and an additional $40 million from ticket sales and sponsorships, together representing an eye-popping 96% of all NCAA revenue.

Amid this cornucopia, the schools themselves are usually the losers. According to the NCAA's latest Revenues and Expenses report, in 2005-06 the median Division I men's basketball team generated revenue of $480,000 and had operating costs of $1.33 million, yielding a net operating loss of $850,000. If capital expenses and full university overhead were included, these results would be even more dismal.

The most successful programs, of course, will do better (the top 10 basketball teams had revenues of more than $11 million), but even these programs frequently lose money when the accounting is done properly. Why?

Most of the 300-plus Division I schools aspire to make it to the March tournament. To do so, they have to spend big. Since they can't go to a free-agent market to hire the best high-school players, they attempt to attract them in other ways. First, they spend lavishly to court the players during the recruitment process.

Next, they attempt to provide state-of-the-art arenas and training facilities, complete with luxury suites, Jumbotron scoreboards and spacious locker rooms. They invest in academic tutoring facilities, costing as much as $15 million, to help the athletes stay eligible for competition. Then they hire well-known coaches with a reputation for sending an occasional player to the NBA.

And the coaches don't fare too shabbily either. In 2005-06, the head coaches of the 65 Division I teams in Madness had an average maximum compensation of $959,486, with the top paid coach earning a guaranteed salary of $2.1 million and a maximum salary of $3.4 million. These figures exclude extensive perquisites...

These guys are making almost as much as NBA coaches, even though their teams' revenues generally are below one-tenth those in the senior circuit. The trick, of course, is that the players aren't allowed to be paid, so the coaches, in essence, get the value produced by their recruits. It doesn't hurt that college sports benefit from state subsidies and federal tax exemptions, and that they have no stockholders looking for quarterly profits....

If everything goes according to plan and the team makes it to Madness, here's the payoff. For each game that a team plays up to the finals, the team earns one credit unit from the NCAA. Every year there are 126 credit units awarded.

In 2007-08, each unit was worth $206,020. A school that goes to the finals earns five credits that year, worth just over $1 million, which is then divided among the universities in the conference.

The schools in the Atlantic 10 conference, for instance, earned 27 units last year (these units represent six years of accumulated tournament wins for conference schools) and the NCAA sent the conference a check for $5.56 million. This check was then divided up among the 14 schools in the conference, or $397,143 each....

A few successful schools will also experience a modest fillip in their sponsorship revenue. Some will find that their student applications go up and an even smaller number may see an increase in booster donations....

And the maddest part of it all is that the "student-athletes" are doing all this entertaining during their semester. But not to worry: Article I of the NCAA Bylaws stipulates that intercollegiate sports are to be subordinate to the academic mission of the college.