Tuesday, March 31, 2009

The "Real" March Madness

The term “March Madness” was first coined by Henry V. Porter in 1939 to describe the excitement surrounding the Illinois state high school basketball tournament. The words are currently used in reference to the college tournament, as fans focus on the players and the games for three weeks in March and April. But the real madness associated with college basketball is how much money is being made and how little of it goes to those who make it all happen – the players.

Of course, players are considered “amateurs,” if nowhere else but in the eyes of the NCAA. This convenient un-truth allows the governing body and its member institutions to profit from cheap labor, not unlike what U.S. corporations do when they outsource jobs to foreign soil. Not content to avail themselves of the cheap labor in this country, colleges and universities also import cheap labor from foreign countries, as a number of top programs recruit players from abroad.

And everyone but the so-called student-athlete is getting a piece of the action. The NCAA defends the current system by pointing out that players receive a scholarship, worth as much as $40,000-50,000 per year at some private schools. But students at those same schools – some of which operate athletic budgets in excess of $100 million annually - are getting a free education for playing in the band or running track, activities that don’t bring in enough revenue at most schools to purchase a music book or a pair of running shorts.

Not so with men’s basketball. The NCAA is in the midst of an 11-year, $6 billion contract with CBS to broadcast a number of championships; but virtually all of the money is related to men’s basketball, specifically the March/April tournament. The New York Times recently reported that the NCAA can opt out of the contract with CBS after the 2010 season. By opting out, the NCAA would forfeit three guaranteed years for the opportunity to sign a more lucrative deal with another suitor, most likely ESPN. Although the economic climate is dismal, ESPN’s dual revenue model – subscription fees along with advertising – gives it a huge bidding advantage over traditional networks.

The NCAA distributes approximately 90% of its revenues to member institutions, and the lion’s share of that amount goes to schools and conferences that participate in the tournament. And the further a team goes in the tournament, the more revenue it receives. Participating schools also benefit from increased merchandise sales. According to the Collegiate Licensing Company, the University of Memphis’ merchandise sales increased by 82% in the most recent fiscal year after the Tigers played in last year’s championship game.

Coaches also share in the gravy train. At $3.5 million per year, Billy Donovan of the University of Florida was, until recently, acknowledged as the highest paid college basketball coach on the planet. His team didn’t make the tournament this year, but he did win back-to-back championships in 2006 and 2007.

The tournament also serves as an audition for coaches seeking higher paying jobs at other institutions. After his Rams were eliminated from this year’s tournament, Virginia Commonwealth University coach Anthony Grant doubled his salary by signing on with Alabama for $2 million-a-year. ESPN.com reported that John Calipari, who was hauling down $2.5 million per year at Memphis, has agreed to an 8-year, $35 million deal at the University of Kentucky, bouncing Donovan out of the top earning spot.

Most schools – Boston College and West Virginia are recent exceptions - are afraid to enforce contracts for fear of discouraging applicants for future coaching positions, leaving coaches free to flee their current schools without penalty, contract law be damned. Not so for players, who generally must sit out a year if they want to transfer to another D-1 institution. And if they are deemed expendable by their coach, a player’s scholarship can be revoked with little recourse.

The system is overwhelmingly weighted against the athletes, but don’t hold your breath waiting for the current environment to change. Players only have four years of eligibility and any challenge to the status quo would take longer than that to wind its way through our legal system.

Madness is definitely the operative word associated with college basketball. Just not in the way most fans think.

Jordan Kobritz is a former attorney, CPA, and Minor League Baseball team owner. He is an Assistant Professor of Sport Management at Eastern New Mexico University, teaches the Business of Sports at the University of Wyoming, and is a contributing author to the Business of Sports Network. Jordan can be reached at jkobritz@mindspring.com.

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