March Madness: the NCAA billion-dollar money-making machine
The economic impacts of March Madness, the annual Division 1 NCAA basketball tournament, add up to billions of dollars in costs and revenues. From the cost of TV advertising to the money bet in office pools, March Madness money has effects that permeate multiple levels of the economy. For the schools of college basketball teams that qualify for the NCAA tournament, much more is at stake than a championship trophy.
March Madness money
March Madness creates billions of dollars of economic impact in large part because it occupies a sweet spot on the American sports calendar. The NCAA basketball tournament is the only major sporting event in the U.S. that occurs after the Super Bowl and before opening day of the Major League Baseball season. March Madness money trails only the NFL playoffs in television advertising revenue, which is the motivation for CBS to pay the NCAA $10.8 billion for the rights to broadcast the tournament for the next 14 years. That works out to a $771 million check CBS has to write every year for the opportunity to lose money covering the games. Advertisers pay CBS about $100,000 for a 30-second spot in round one and up to $1.2 million per spot in the finals. In 2010, CBS cleared $651 million in advertising revenue on the tournament; the NFL playoffs generated $793.8 million.
Schools compete for NCAA credit units
While CBS loses money on March Madness, the NCAA rakes it in. In addition to selling the broadcast rights, the NCAA makes tens of millions more from ticket sales and sponsorships. In total, March Madness money accounts for 96 percent of NCAA revenue. For money-losing college basketball teams, being selected for the tournament is an opportunity to narrow the average operating deficit of $850,000. According to the NCAA, in 2005-06 the average Division 1 men’s basketball team generated $480,000 in revenue and had $1.33 million in expenses. For a team making the tournament, each game earns one NCAA credit unit. The NCAA doles out 126 credits units each year. An NCAA credit unit was worth $206,020 for the 2007-08 season. A team advancing to the finals earned five credits worth more than $1 million, which is divided among the schools in its conference. In 2007-08, the big winner was the Big East, where 16 schools collected about $1.2 million each.
March Madness and the workplace
The economics of March Madness extend far beyond the games. It has been estimated that millions of college basketball fans bet more than $7 billion on the NCAA tournament, $1 billion more than the Super Bowl. The obsession with March Madness also affects the workplace. About 8.4 million private sector work hours will be lost in the next three weeks to coverage of the tournament, according to Challenger, Gray & Christmas. Multiplied by the average hourly wage of $22.87, that’s $192 million in wages. The cost of the drain on Internet speed from workers streaming basketball games has not yet been calculated.