NCAA left as much as $9 billion on table with its men’s tournament TV deal

This week’s lineup of highly anticipated college basketball games serves as the latest reminder of why the sport, when at its best, remains captivating. And its best inventory of games, of course, comes in March, with the NCAA tournament long entrenched as perhaps the most valued sports property that doesn’t involve a football.

Nearly six years ago, while weighing the event’s media rights value, NCAA officials encountered a pivotal moment. Do they move early to extend the original 14-year deal for the men’s tournament with partners CBS Sports and Turner Sports? Or do they hold off and take the event to the open market when the contract expired in 2024?

At the time, industry conditions were uncertain, with the cord-cutting trend under way and the streaming movement coming into focus on the horizon. Ultimately, after beginning discussions with CBS and Turner late in 2015, the NCAA decided in April 2016 to extend its deal through 2032 for what, on the surface, looked like an impressive figure: $8.8 billion. 

But for years, sources have described that decision as a costly mistake. They believe the NCAA severely undersold its marquee event. And now Navigate, which specializes in college and pro sports rights evaluations, has provided On3 with a detailed breakdown of exactly how costly a move it may have been in 2016 for the NCAA to decide against taking the tournament to the open market in 2024. The Chicago-based firm projected that, between 2016 and 2032, the NCAA left $9.27 billion on the table. 

That means that the NCAA is projected to be shorting itself an average of some $546 million each year from 2016 through 2032. According to Navigate, the NCAA signed an extension with a relatively small 3 percent growth rate. But had it taken the event to market, based on the competitive environment for sports rights eight years later, it could have secured a deal with a 6 percent growth rate. 

“They undercut themselves,” Matt Balvanz, Navigate’s senior vice president for analytics and innovation, told On3. “An easy way to think about it is, in these later years of 2024 and on, it’s almost like they are getting half of what they are worth.”

The NCAA respectfully declined to discuss the figures.

The networks paid a combined $800 million-plus to carry the 2021 men’s tournament, a total that represents the vast majority of the NCAA’s total annual income of some $1.1 billion. At least 90 percent of the revenue from the tournament’s media rights deal flows back to athletic departments, many of whom rely on it to survive. In fact, following the 2016 rights deal announcement, NCAA president Mark Emmert said, “This revenue stream for many, many of our schools is the dominant revenue stream for them. It literally allows them to operate.”

Not everyone agreed with 2016 decision

Assessing today’s landscape, the need for more revenue never has been greater for athletic departments as they work to successfully emerge from the pandemic. Obviously, there was no way in 2016 that the NCAA, nor anyone, could have foreseen the 2020-21 global health and economic crisis. Revenue also is critical at a time when the NCAA has spent tens of millions of dollars in legal fees to try to fend off court challenges, including initially requiring conferences to foot the bill for 90 percent of the $37.9 million in legal fees stemming from the Alston case in the U.S. Supreme Court. 

When On3 told one conference commissioner how much Navigate projected that the NCAA had left on the table with its 2016 decision, the commissioner initially reacted with only laughter for a few seconds.

“Given the popularity of the NCAA tournament, given the significant impact sports betting continues to have and grow across the country and given the ratings the NCAA tournament generates, I do not doubt that,” the commissioner said. “That money could definitely have helped in many ways.”

The commissioner, who spoke on condition of anonymity to share candid perspective, believed that it was a mistake at the time for the NCAA tournament to extend the deal to 2032. The prevailing notion in 2016 from those whose expertise is deeply rooted in the media-rights industry was that negotiating that long of a contract was not in the best interest of the NCAA membership.

After the announcement, Emmert specifically applauded the efforts of Mark Lewis, then its executive vice president for championships and alliances. One factor in the NCAA’s decision to extend the deal, Sports Business Journal reported at the time, was that it gave the NCAA early access to roughly $400 million of the revenue from the extension.

Those familiar with the NCAA’s thinking during the process acknowledge that 2021 is a favorable marketplace, with remarkably high figures seen in several recent deals, but point out that having that vision amid industry volatility and uncertainty back in 2016 wasn’t quite as easy. The feeling at the time, sources said, was that the riskier play in 2016 would have been to take the event to market in 2024, and part of the calculus was that there was not a need to do that. The need was to continue to secure the financial underpinning of the organization and the membership.

Generally speaking, though, the smart play, said the commissioner and other media industry sources, is to go for a short-term deal, knowing that greater revenue will be there when you jump back into the market. Consider the plight of the ACC, which is handcuffed with a 20-year top-tier deal with ESPN that runs through 2036.

“It creates a much stronger broadcast situation for you in the mid-2020s than the 2030s, when some leagues are going to be going for rights deals realizing that they made a mistake,” the commissioner said. “The ACC deal was a great short-term play — but not a good long-term play.

“Same thing with the NCAA tournament. It was a good short-term strategy, and people saw the millions of dollars that were available at the time and said, ‘Hey, take it, get as much as you can.’ But now, in hindsight, boy, it’s a significant amount of money that was left on the table.”

Balvanz, the Navigate executive, said: “These calls are tough to make, right? If somebody is coming to you and saying, ‘We’ll pay you $10 billion to extend this to here [years down the road], it sounds like silly money, and you’re locking in something for a budgeting and revenue perspective. It’s risk averse. You know, anything collegiate is extremely risk averse. … They may end up being on the right end of it, locking something in. They may be the only property in 2032 locked in with a $1.1 billion reward. But I think everything we’re seeing today is saying that that train isn’t really stopping anytime soon.”

Legalized sports gambling increases tourney value

If anything, the commissioner said, the $9.27 billion gap in what the NCAA will receive versus what it potentially could be receiving may be an underestimate for one reason: the coming tsunami of legalized sports wagering. As sports gambling becomes legalized in more states — more than half the states now allow it — it should drive even more viewership for March Madness, whose broad allure is rooted on countless bracket pools, engaging everyone from kids to grandmas.

To gauge the popularity of sports gambling, look no further than New Jersey, which in September became the first state to take in more than $1 billion worth of bets in a single month. (Yes, $1 billion in a month.) And with 67 games spread over three weeks, attracting alumni from schools big and small, the NCAA tournament is ideally and uniquely positioned to benefit mightily in the sports gambling era.

The NCAA’s decision to extend the deal with CBS and Turner came two years before the U.S. Supreme Court struck down the federal sports wagering ban. It was a landmark ruling forever altering the viewing landscape, with much of the impact still down the road.

One source noted that the gaudy projection numbers for what the tournament could have garnered on the open market in 2024 assumes that there would be room for TV networks to charge more to corporate sponsors. 

“If you’re projecting revenue like that, and then figuring that media companies have to monetize, I would assume that the projections take into consideration that there’s more running room there to charge those corporate partners,” the source said. “As I think about how you monetize projections that would be so dramatically higher, that money’s got to come from somewhere.”

NCAA also undervalued women’s tourney

A closer look at the figures Navigate provided reveals that the disparity in revenue becomes more pronounced in the later years of the deal. Between 2010 (when the original deal was negotiated) and 2032, Navigate projects that the NCAA will bring in $19.6 billion in revenue from its men’s tournament deal. Had it opted to take the event to market in 2024, the firm projects that the NCAA, between 2010 and 2032, could have brought in $28.9 billion. That’s a difference of $9.27 billion or 47 percent.

What’s more, the annual revenue gap widens early in the next decade. Navigate projects that the NCAA will yield $1.08 billion (2030), $1.11 billion (2031) and $1.14 billion (2032) in the final three years of its deal. Had it taken the event to market, the firm projects that it could have reaped roughly double those amounts for those years: $2.12 billion (2030), $2.19 billion (2031) and $2.25 billion (2032).

When Navigate evaluates and projects TV deals, it looks at the payment from the previous deal compared to a payment in the next deal, finding a compound annual growth rate of right around 6 percent. Applying that 6 percent for a new NCAA men’s tournament deal in 2024, had the NCAA chosen to take it to market then, is how they landed on a total of $28.9 billion that would have been generated between 2010 and 2032. Thus, by extending the deal into the next decade prematurely, projections say the NCAA cost itself nearly $10 billion in much-needed revenue. 

“It’s like they signed a deal assuming that the rights would appreciate at 3 percent,” Balvanz said. “But these rights actually appreciated at twice that rate.”

The notion of undervaluing the event is not exclusive to the men’s tournament. The recent NCAA gender equity report found that the governing body “significantly” undervalued the women’s tournament, thus losing out on substantial revenue. Media expert Ed Desser projected that by 2025, the media rights for the women’s tournament will be worth between $81 million and $112 million, which equates to “multiples more than ESPN currently pays annually to broadcast 29 championships,” including the women’s tournament.

The men’s tournament is a marquee, circle-on-your-calendar event. The Super Bowl, clearly, is at the top of the live events hierarchy, followed by the College Football Playoff four-team tournament, which can draw upward of 20 million viewers for each semifinal. But Balvanz said the men’s tournament falls right behind those events, characterizing it as “top tier.”

One possible way for all parties to revisit the media rights deal is if the 68-team tournament expanded before 2032. There now are 350 Division I teams; less than 20 percent of them play in the NCAA tournament each March. Florida State coach Leonard Hamilton has told me several times that he endorses the tournament including every Division I team — yes, every team. Other coaches have advocated for a more manageable increase to 80 or so teams. But despite occasional industry murmurs about incremental expansion, sources said there has been no “substantive” expansion discussion in the past several years.