March Madness Losses Mean Long-Term Budget Hits for Basketball Schools

As the Power 5 and the other FBS conferences pushed ahead with a fall football season, top of mind was the necessity of securing the tens of millions of dollars each earns from its television deals and the approximate $500 million College Football Playoff distribution. Amid a year already riddled with financial losses, playing some […]

March Madness Losses Mean Long-Term Budget Hits for Basketball Schools

As the Power 5 and the other FBS conferences pushed ahead with a fall football season, top of mind was the necessity of securing the tens of millions of dollars each earns from its television deals and the approximate $500 million College Football Playoff distribution. Amid a year already riddled with financial losses, playing some semblance of a football season gave programs the ability to salvage what they could.

For many FCS and non-football conferences and schools, the upcoming college basketball season, slated to tip off on Nov. 25, carries the same urgency, and making it to the end is almost more important than getting things off the ground. The March Madness tournament is the NCAA’s biggest revenue driver by a landslide, yielding a six-year financial fallout for participants, with payments made to the parent conferences in annual installments.

The conferences’ own postseason tournaments are tremendous sources of revenue, too. At the Big East (which unlike other conferences was able to cash in on an insurance policy to recoup some of this spring’s losses), almost 20% of league revenue comes from its basketball tournament, and millions more come from the NCAA. America East commissioner Amy Huchthausen told Sportico that her conference doesn’t even start generating revenue from basketball games until its postseason conference championship playoffs—and much of that money comes from ticket sales, already an anticipated loss for this season.

The cancelation of all conference basketball tournaments this spring was followed by the reduction of the NCAA’s annual distributions to a third of a typical year’s—slashed by 62.5% to $225 million. The one-two punch hit conferences across the country. While they, and their member institutions, face steep short-term losses in many cases, there is also already long-term fallout. A second straight disrupted postseason this coming spring could be even more costly.

“It’s critical the season [reaches the end] because the Big East tournament is our biggest event as a league. It’s an important component in our budget,” said Big East commissioner Val Ackerman, citing revenue from ticket sales, sponsorship and activations as well as its Fox broadcast deal for the nine-game tournament–which is set to expand to ten next year. “And we took a huge hit with the [NCAA] distribution. Everyone hopes and expects the tournament will be played in March or April, but if it has to get pushed back, if that’s what it takes to preserve the tournament and the payout, I think there would be flexibility there just so we make it to the end.”

March Madness distributions are based on what the NCAA calls “units,” paid out to conferences in six annual installments. One bid to the tournament banks one unit for the parent conference, as does a win. This year, each of the 32 basketball-playing Division I conferences still earned one automatic qualifier unit for the conference champion it would have sent to the tournament, but payouts were reduced from pre-pandemic projections. But no at-large units were awarded this year for additional bids or wins—because, obviously, there were none. Each unit awarded in 2020 was set to be valued at $1.7 million, paid out over six annual installments.

The distribution from these at-large units are, as Ackerman describes, “just gone forever,” paving the way for a long-term financial loss at the conference level, even if an entire March Madness tournament is completed this upcoming spring. For example, the Big East was expected to earn between six to seven tournament bids, with additional units likely coming for wins. Estimating one tournament win per team (the league’s existing average), the Big East could have earned upwards of 12 units—$20 million-plus paid out in six annual installments. That’s a loss of more than $3 million per year for the next six years.

That money alone, not counting the other eight buckets that fill out the conference’s NCAA distribution, would have accounted for more than what the Big East brings in from corporate sponsorships, according to its most recently available tax filings from 2017. The NCAA’s total distribution to the Big East that year was $14.7 million, good for 25% of the conference’s operating budget.

“We expect this year’s units to simply be reflected as a zero for this past tournament in the tabulations going forward. That money is gone,” Ackerman said. “The NCAA does have the ability to adjust the value of each unit. If you have fewer units because you’ve lost the year, you could increase the value of the unit a bit to help conferences recoup some of that, but that’s really in the hands of NCAA finance based on what the ultimate payout will be next year from TV based on, again, the ability to conduct the tournament as envisioned, et cetera. Otherwise, you can’t assign units when the tournament didn’t happen. That right there is your long-term effect. It’s not just a one-year problem.”

The Missouri Valley Conference is similarly dependent on the tournament’s long-term payouts. The conference is accustomed to spurts of extra earned units every few years, like 2016, when Wichita State earned an at-large bid in addition to Northern Iowa’s automatic entry and proceeded to a third unit to the conference’s payday with a win. The Shockers’ extra unit the next year helped too, but the five units Loyola Chicago earned with its 2018 Final Four Cinderella run take the cake. At almost $1.7 million per unit, that brought almost $10 million to the conference—paid out over a six-year span and divvied up among members equally, per MVC policy—in addition to the units earned over the previous six years. With nine of its ten institutions operating on budgets of less than $20 million annually, according to the U.S. Department of Education’s Equity in Athletics data from 2019, the near-$1 million that each school will ultimately receive from the Ramblers’ 2018 performance is substantial revenue.

Without any additional bids in 2019 or 2020 (the latter by default), the longevity of those payouts diminishes more quickly.

“What we won for the Valley is not done in one year,” Loyola Chicago athletic director Steve Watson said. “The hope is that during this window we have now, somebody else could stack and make an extra run in the tournament. That obviously couldn’t happen this year. The Valley, historically, has been a multi-bid league. That hasn’t been the case the past few years. So it’s important for whoever represents us—and hopefully it’s more than one team in the NCAA Tournament this year to make up some ground—to advance. The results from those tournaments can be really impactful revenue-wise.”

Men’s basketball is the football-less Missouri Valley Conference’s primary revenue generator, drawing funds from ticket sales, the “Arch Madness” conference tournament earnings, NCAA payout and its hoops-contingent television deal. As Watson emphasizes, “all of those revenue streams are based on playing a basketball season through.”

But not all are confident the sport will be back to 100% this year, especially as the NCAA considers a single-site tournament for 2021.

“The TV revenue from CBS [and] Turner is a very big number, but if they can’t have fans in not just Final Four but all the different rounds, or if it’s substantially reduced, that’s still a big chunk of [lost] revenue,” said America East’s Huchthausen. “Then you think about sponsors potentially reducing what they offer. It all keeps adding up.”

The March Madness distribution for America East, which like many other mid-majors typically only earns one unit per year from its automatic qualifier (it had one additional at-large unit in its payout this year, which was accordingly reduced by the NCAA), goes directly to funding Huchthausen’s conference office.

“If [the tournament] doesn’t happen this [season], or the revenue distribution is much less than what the NCAA was even able to distribute for this past year, I think many conference offices will be impacted,” she said. While Huchthausen’s team is still working on actual projections, she did say another year of a one-third payout from the NCAA would not be enough to operate on. “I don’t know how we make up for this year. If we get to our conference championship playoffs, but there are not going to be fans there, that’s more lost revenue. It’s certainly adding up—and that’s just basketball. I haven’t even gotten to the other sports.”

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