by John Walters
The NCAA men’s basketball tournament commences today in Indianapolis, which is also home to the NCAA (National Collegiate Athletic Association) itself. The NCAA’s stated mission is to be the governing body of intercollegiate athletics, which it is. But when it comes to the NCAA tourney, a.k.a. March Madness, the NCAA is a bank.
According to Forbes, “the current agreement between CBS and Turner Broadcasting with the NCAA averages $771 million a year, and then via an extension averages $1.1 billion a year from 2025 through 2032.”
Each year the NCAA distributes money to its 32 member Division I conferences, via its NCAA tournament revenue, through something it refers to as “the basketball fund.” In 2019, the last year the tournament was held (due to the pandemic), the basketball fund’s total value was $170 million. That’s about 20% of what the NCAA receives from its TV contract with CBS and Turner.
The basketball fund is the not-for-children’s-ears aspect of the NCAA tournament, something you’ll never hear Jim Nantz or Len Elmore or Bill Raftery discuss. Here is how it works. The fund is split into units. Just for making the tournament, a conference (not the school itself) earns one unit. Hence, since every conference earns an automatic berth the NCAA is able to guarantee that each conference will garner at minimum one unit from the basketball fund.
Beyond that, each win by a member school earns that school’s conference another unit (with the exception of the national championship game itself, where a unit is not awarded). For example, the West Coast Conference landed two schools, Gonzaga and BYU, in this year’s field of 68 schools. If BYU wins one game and is then eliminated while Gonzaga cuts down the nets, the WCC will earn eight units. Two units for each school qualifying, one unit for BYU’s one win, and five units for Gonzaga’s five units leading up to the NCAA title game. Two plus one plus five equals eight.
In 2019 the value of one unit equaled approximately $1.6 million. If we use that same figure for 2021, and imagine the above scenario, the WCC should earn, via the basketball fund, $12.8 million ($1.6 million x 8) for its appearance and performance in March Madness.
And it will. But not right away. And this is how the NCAA behaves exactly like a bank…with no justifiable reason other than it can. For every and all conferences, whose member schools constitute the NCAA (“We the people…yada yada yada”), the basketball fund is not paid out in full. Instead, those unit payments are doled out in 1/6 increments over six years. Hence, that imagined $12.8 million payout to the WCC would actually be $2.13 million next year. And the year after that through 2027.
And here is where the NCAA behaves even more like a bank. Take a look at the NCAA’s financial statement for fiscal year 2019-2020. There, on Page 6. “Investment Income, net….. $40,488, 047.”
Now do a little arithmetic. The NCAA’s “basketball fund” in 2019 was $170 million, but as stated above, it only pays out 1/6 of that fund per year. Hence, the actual payout from the 2019 tournament to its 32 Division I member conferences in 2020 was $28.3 million. That’s more than $12 million less than it actually made in investments during that fiscal year.
The NCAA never needed to touch the principle from its TV contract in order to fund its basketball fund. The investment earnings more than took care of that, yielding more money for the NCAA to invest the following year and hopefully generate an even greater return on investment. Thus, the NCAA not only does not touch its television contract revenue in order to meet its basketball fund obligations, but with each succeeding year (should investments perform at a stable rate of return) it takes a smaller percentage of its investment revenue in order to meet its basketball fund pledge.
The NCAA will loudly trumpet that, yes, it earns plenty of dollars from its March Madness TV contract, but that plenty of that money is returned to its schools. Via the basketball fund. But that’s simply not true. Because of the 1/6 payout plus its investment revenue the NCAA is able, annually, to never have to touch a dime from the check CBS and Turner sends its way.
And all of that is smart business. Except that you must remember that the performers in this grand show, the players, do not receive a penny of that money. And that the NCAA is, for tax purposes, a non-profit. As my friend Bomani Jones told me recently, “Beware the non-profit that does not have a cause.”
The NCAA’s cause may ostensibly be overseeing intercollegiate athletics. There exists, however, an underlying mission to enrich itself by taking in revenue on an immediate basis while paying out its costs on an annuity basis. And using those funds that it is able to keep in-house as investment capital, hence generating secondary revenue that allows it to meet its costs without ever touching its primary revenue stream. This is how a bank operates, no?
