The NCAA is shooting to rebound after the country’s second-largest sporting event was canceled last year because of the COVID-19 pandemic.
The National Collegiate Athletic Association’s annual men’s basketball tournament, affectionately referred to as “March Madness,” is a cash cow. It brings in hundreds of millions of dollars each year that the NCAA uses to finance other college sporting events at schools across the country.
The tournament is set to tip off this week after it was canceled last year for the first time in its 81-year history, and although there will be a number of pandemic safeguards in place, including team testing, attendance restrictions, and mask policies, the NCAA is pushing hard for a successful competition that will once again restore a hefty revenue stream.
Last year, between losses from ticket sales and its multimedia agreements, the NCAA lost more than $800 million in revenue from the Division 1 basketball championship, according to an audited financial statement.
ENTIRE 2021 MARCH MADNESS TOURNAMENT TO BE PLAYED IN INDIANA
A saving grace for the NCAA was that it had a $270 million loss of revenue insurance policy in the event that something unexpected like the COVID-19 pandemic would occur. The nonprofit organization also introduced cost-cutting measures to recoup the losses, including reduction of spending, furloughing employees, and voluntary employee separations. In total, because the NCAA was able to cut its expenses nearly in half, it ended 2020 with only a $55.8 million loss of net assets.
The tournament’s ticket sale revenue will inevitably be down because of the pandemic. Usually, the tournament is spread out among 14 cities across the United States, but this year, the 19-day event has been condensed down to six venues in and around Indianapolis, Indiana, which is where the NCAA headquarters is located.
Stadium capacity at the Indiana venues is capped at a maximum of just 25%, with some locales having even lower thresholds, so the opportunity to haul in cash by packing stadiums is limited.
Ticket prices also vary by game — not just based on what team is playing but also venue size. A 25% capacity limit on the 70,000-person Lucas Oil Stadium means more supply of tickets than the 6,800-person Indiana Farmers Coliseum.
For example, resale tickets for Friday’s game between No. 16 seed Hartford and No. 2 seed Baylor, which is being played at the Lucas Oil Stadium, are going for $20 and up, while the Friday game between No. 12 seed Winthrop and No. 5 seed Villanova, which is being played at the Indiana Farmers Coliseum, begin at about $220 and are in short supply.
Broadcasting rights also represent a major source of revenue related to the March Madness tournament.
The NCAA entered into a 14-year multimedia agreement with CBS and Turner Broadcasting System in 2010 that gave exclusive television and internet broadcasting rights for the tournament to CBS and Turner in addition to marketing rights for all NCAA championships. The agreement, which goes until 2024, provides the NCAA with payments up to $10.8 billion over the agreement period. An eight-year extension on the agreement was signed in 2016 and will run from 2024 through 2035.
The NCAA took a hit when it came to disbursement of those funds last year. The nonprofit organization only received about $113 million in revenue from CBS and Turner last year, compared to $804 million in 2019, according to the audited financial statement.
Aside from just the NCAA, the 19-day tournament will have rippling economic effects on ancillary businesses and operations.
Dr. Brian Marks, executive director of the University of New Haven’s Entrepreneurship and Innovation Program, told the Washington Examiner on Thursday that he thinks in light of COVID-19 and last year’s cancellation, there is a chance that this year could be “particularly good” for the tournament’s viewership and noted that small businesses across the country could feel an impact from the games.
“The increase in advertising that could be driven by expected increase in viewership could help drive media revenue,” he said. “In addition, with the reopening of some restaurants and increases in capacity utilization, this could bode well for local businesses.”
Indiana, and host Indianapolis in particular, are also bracing for a positive economic impact from the tournament, which will bring with it an influx of travelers from out of state who will end up spending their money while in the Hoosier State.
Tourism officials there are hoping that the economic impact from the games will top $100 million, according to the Washington Post.
Another newer and still-burgeoning sector of the economy that will feel an impact from March Madness is the gambling industry. In 2018, the Supreme Court ruled that the Professional and Amateur Sports Protection Act of 1992, which prohibited legal sports betting, was unconstitutional. That opened the door to states legalizing sports betting.
As of Thursday, 25 states and the District of Columbia have legalized sports betting, a number that is 3 times what it was during the 2019 tournament. Even before the Supreme Court decision, March Madness was a hub for off-the-books betting and featured participants entering pools and crafting “brackets” to predict which team they thought will emerge victorious.
Marks, who also teaches a sports economics class at the university, pointed out that this year, the tournament coincides with the direct stimulus payments the government has started distributing as part of the Biden administration’s $1.9 trillion COVID-19 relief package.
He said that individuals “may treat such funds akin to ‘manna from heaven’ and use [them] for engaging in the stock market or, in this case, speculating and waging on tournament play.”
Some 47 million people in the U.S. are expected to bet on this year’s tournament, according to research by the American Gaming Association. Additionally, an estimated 17.8 million will place a bet online, a 206% increase from 2019.
Johnny Avello, director of sportsbook operations for sports betting giant DraftKings, told the Washington Examiner that his company, which has legal sportsbooks in 14 states, has been gearing up for the event.
Avello said there is “pent-up demand” for the tournament this year and that DraftKings has been running different promotions in an attempt to boost consumer participation, including free pools for the tournament.
He said that sports betting and viewership of the NCAA tournament have a naturally mutualistic relationship when asked whether wagering boosts viewer participation in the tournament.
“There’s no question about that,” Avello said during a phone interview. “No one would ever know what the number would be if you couldn’t bet on the games and you just watched them … but in my opinion, I always said that the market share increases significantly when you’re able to take a wager on it.”
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March Madness begins on Thursday with the First Four, which will determine which of the four lowest-seeded teams will make it into the first round. The first round starts shortly after noon on Friday. Gonzaga, Baylor, Illinois, and Michigan are the No. 1 seeds for this year’s tournament.
