Magazine article University Business

Courting Ca$h: Maximizing Revenue for College Sports Programs

Magazine article University Business

Courting Ca$h: Maximizing Revenue for College Sports Programs

Article excerpt

The madness of March swirls around the excitement of collegiate sports. The most successful Division I teams are competing for tournament wins--and the large cash payouts associated with those high-profile victories.

"Some athletics departments, particularly those in the Power Five conferences, bring in revenue and are not overly reliant on the greater university budget," says Joel Maxcy, associate professor at Drexel University in Pennsylvania and president of the International Association of Sports Economists.

What's the source of that cash flow beyond championship revenue? Conference payouts for the best teams--$31.2 million was awarded to each of the Southeastern Conference's 14 member institutions for the 2014-15 fiscal year. The Big 12 divvied up $252 million. Distributions to these powerhouse institutions are funded by TV contracts, bowl games, tournaments, NCAA championships and conference surpluses.

"Beyond that, institutions can make money from paid attendance to men's basketball and football games and licensing relationships with companies like Under Armour and Nike," says Maxcy.

There is a lot of money to be had, but only a select group of elite athletic programs are reaping high financial rewards. Smaller institutions with less competitive athletics programs are left to scramble for what they can get--mere pennies in comparison. This begs the questions: What are the strategies behind this arms race? And is the quest for financial and prestige domination through sports a worthy goal for a higher education institution?

Big guns stick together

Home games are by far the most lucrative for institutions, so much so that teams often make mutually beneficial arrangements to play each other in back-to-back years, alternating the home-site locations. The University of Arizona, for example, has played these "home-and-home" games with New Mexico State University and The University of Texas at El Paso.

"The relatively close proximity of these campuses to ours means a lot of our fans will come and buy tickets," says Greg Byrne, athletics director for Arizona.

Home-and-home games against equally strong opponents have positive tournament implications. Teams hoping to reach end-of-season tournaments and bowls are helped by playing a certain number of games against opponents in competitive divisions and conferences.

"We need to build a strong schedule so we can get a high seed in tournaments," says Byrne.

Getting that desired seed in basketball comes down to a team's rating percentage index (RPI). RPI ranks teams based on the strength of their schedule, or on the number of wins against strong opponents. Seventeen to 20 victories per season is the goal for a highly competitive basketball team.

As Maxcy notes, "Wins in big-time sports are valuable because they give a lot of exposure to the institution."

Neutral territory

Athletic departments can also earn revenue by playing at a neutral site, such as a professional sports arena.

"Neutral site games are an opportunity to play on an NBA court," says DeWayne Peevy, deputy director of athletics for the University of Kentucky. "It prepares us for NCAA tournaments because you cannot replicate that atmosphere at a regular season home game."

Often, Kentucky and its opponent receive a flat fee from the arena, says Peevy. "We can get a guarantee because the arena knows we have the fans and will fill the seats."

In some cases, Kentucky negotiates to receive ticket revenue and a flat fee, such as when its men's basketball team plays at Barclays Center in Brooklyn. Alternatively, ticket revenue can be shared between the arena and both institutions. In arenas with 18,000 to 20,000 seats--such as Madison Square Garden in New York City or Philips Arena in Atlanta--the venue may sell 4,000 tickets itself and give the rest to the competing institutions to sell on their home campuses. …

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