The NCAA tournament TV deal left billions of dollars on the table; would expanding the field make that up?

Since the NCAA men’s tournament bracket expanded to 64 teams in 1985, the structure of one of the jewels in the American sporting landscape has undergone only a nip and tuck here and there. 

Could it be destined for a head-to-toe makeover?

As the NCAA tournament’s Sweet 16 awaits later this week, one question hovering is whether its days as a 68-team event are numbered. The NCAA’s Division I Transformation Committee’s report in January recommended that sports with a high number of teams increase the number of participants in championships to 25 percent. With 363 Division I men’s basketball teams, that equates to expanding to 90 teams.

The Division I Men’s Basketball Committee will assess the recommendation this summer, weighing a variety of factors as part of a comprehensive analysis. (The Women’s Basketball Committee will do the same for the women’s tournament.) Over the next two days, On3 will look at two key considerations: the potential for more media rights revenue today and the risk of re-shaping a must-see event that many feel needs no alterations Thursday.

“A recommendation for expansion of the field has come before the basketball committees previously during my decade-long tenure here,” Dan Gavitt, the NCAA’s vice president for basketball, told On3. “However, there was not a great appetite, I would categorize, and as a result not a lot of deep consideration given. Quite differently this time, this is a formal recommendation from the Transformation Committee that spent a lot of time on making several important recommendations for Division I, and this will be given due consideration as requested by the Division I Board.”

Like anything in college sports, money drives decisions. In 2010, the NCAA signed a 14-year deal with CBS Sports and Turner Sports worth $10.8 billion. Six years later, the association signed an eight-year, $8.8 billion extension that runs through 2032. 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, then-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.”

CBS and Turner – now owned by Warner Bros. Discovery – are paying the NCAA some $900 million this year to broadcast the tournament. If the field were to be expanded by 22 teams, it is not at all certain that the NCAA would garner substantially more in rights revenue to offset the costs of staging more games. One veteran TV source who has been involved in several marquee rights deals told On3 that adding 22 games would amount to only “marginal” additional value for the property.

“A terrible idea,” said the source, speaking on condition of anonymity because of sensitive industry relationships. “If you think regular-season men’s basketball has limited media value now, expanding the tournament might just wipe it out completely. Why bother to watch the regular season if everyone is going to make the tournament? Why not make the entire season one giant triple-elimination tournament? Once a school is eliminated, it can drop down to the triple-elimination NIT tournament. Once eliminated from that, it can drop down to some other tournament.”

With the NCAA locked into its deal through 2032, interviews with nearly a dozen industry leaders suggest that expansion in the next few years wouldn’t necessarily translate into a financial boon. While contracts between CBS/Turner and the NCAA are private, the broadcast partners have exclusive rights to the tournament – or any expansion of it – through 2032. Therefore, the belief within the industry is that the NCAA would not be able to shop around any additional inventory to other interested media entities outside the CBS/Warner Bros. Discovery umbrella.

In addition, some media rights deals ­– specifically conference deals when impacted by realignment – open up and financial terms can be adjusted when circumstances warrant. But CBS and Turner are not believed to be under any obligation to open up the deal to financial adjustments if the tournament expands. If the tournament expanded, CBS/Turner have an obligation to broadcast the additional games but aren’t believed to be obligated to adjust financial terms. That said, because CBS/Turner and the NCAA have a deeply rooted and valued relationship, the contractual terms wouldn’t necessarily prevent all parties from returning to the table to make good-faith adjustments and discussions. 

Navigate specializes in college and pro sports rights valuations. It provided On3 with data that indicated, tabulated under normal industry circumstances, adding 22 games of inventory could significantly benefit the NCAA and therefore its member institutions. In its analysis, consider the NCAA’s annual rights revenue to be $1 billion, which it soon will reach because of escalators. If expansion enabled the NCAA to open up its rights deal with CBS and Turner – and if the new, adjusted deal were to reset to today’s market rates for TV rights – the existing 67 games would be worth around a 50% increase above the $1 billion, or $1.5 billion. From there, Navigate data indicated, adding 22 games would increase the amount of inventory by 33%, which increases the total value to $2 billion per year.

“If it is reset to market rates with the expectation that the additional games have similar TV viewership as the rest of the tournament, then the value essentially doubles from $1 billion per year to $2 billion per year,” Matt Balvanz, Navigate’s senior vice president for analytics and innovation, told On3. “But there is no guarantee” CBS/Turner would re-open the deal. 

Dan Butterly is the Big West commissioner and a member of the Men’s Basketball Oversight Committee, which is expected to receive the Men’s Basketball Committee’s recommendation early next year. He told On3 that “one of the reasons you would look to do it is to see if you can open up those contracts and see if there’s additional revenue sources that could be gained. I can speculate that generally, when you expand in a conference or lose membership, it opens up the contract. I would anticipate that there would be some re-look at a contract if the bracket were to expand or detract, but, again, I don’t have that contract.”

NCAA left billions on the table

Why would adjusting the deal to fair market value even be needed? 

Rewind to 2015, when NCAA officials faced a pivotal moment. Do they extend the original 14-year deal with valued partners CBS and Turner? Or do they hold off and take the event to the open market when the contract expired in 2024? Industry conditions were uncertain, with the cord-cutting trend under way and the streaming movement coming into focus. 

Ultimately, the NCAA signed the eight-year extension in 2016 and viewed the $8.8 billion figure as impressive. But upon further review, the decision is now widely viewed as a costly, ill-advised one. Just how much did the NCAA leave on the table? Navigate in 2021 provided On3 with a detailed breakdown of exactly how costly a move it may have been for the NCAA to decide against taking the tournament to the open market: Between 2016 and 2032, the Chicago-based firm projected that 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,” Balvanz said. “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.”

Referring to the NCAA undervaluing the property in 2016, Mike Aresco, the AAC commissioner and former CBS Sports executive, told On3, ”I think the NCAA would like to be negotiating their deal now because they went [out] a long way” with the extension. “The problem there is that the valuations of everything have gone through the roof. And this is a platinum property.”

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 [figure],” the commissioner said. “That money could definitely have helped in many ways.”

The NCAA respectfully declined to discuss the figures.

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).

“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,’ ” another conference commissioner said. “But now, in hindsight, boy, it’s a significant amount of money that was left on the table.”

‘First Four’ addition came in 2010

Unless expansion triggers CBS/Turner to re-open the deal – and the understanding is that even expansion wouldn’t re-open it – there may not be a mechanism that enables the NCAA to make up that financial ground, so to speak, in the wake of the 2016 decision. After all, there’s no push from the broadcast partners for the NCAA to expand the bracket and open up the long-term deal. TV sources said that while CBS and Turner are curious about expansion, they aren’t clamoring for it.

Circumstances were different in 2010, the last time significant tournament expansion was considered. At the 2010 Final Four, then-NCAA tournament czar Greg Shaheen advocated for a 96-team field during a news conference, an idea that was almost universally panned. What was notable then was that the NCAA was in the midst of negotiating a new rights deal with CBS and with a new partner in Turner.

“We were talking about 96 teams,” David Levy, the former Turner president, told On3 last year. “That deal never really came to fruition because, at the end, the board didn’t want to go to 96, but they were willing to expand to 68. That was the essence of the ‘First Four.’ What I loved about it and what we discussed – I didn’t want the word ‘play-in’ because that would not sell. What we had to design, obviously with the NCAA, was that there were going to be 11 and 12 seeds in it as well. We wanted to make this not just a play-in game. We really wanted it to be special, and special in Dayton.”

By all accounts, it has been special – four standalone First Four games on Tuesday and Wednesday before the tournament begins in earnest. And because of that 2016 decision, the NCAA appears all but locked in at an undervalued rate at a time when some media companies are signaling they are pumping the brakes on adding more inventory.

“You’re hearing words like ‘tonnage’ and networks coming out and saying just point-blank, ‘We have enough right now,’ ” Navigate’s Balvanz said. “We haven’t heard that before. It is just a different market. No guarantees there, either.”