March Madness: The Cash Flow

We’re told that March Madness—the annual college basketball tournament—is about the stories. You know, the perseverance, the elation, the heartbreak, and all that stuff. But let’s be real—we’re talking about the US. And that means March Madness is really about something else—cold hard cash. Here’s how it works.

 

A Reminder

As outlined by Investopedia, of the $1.28 billion in revenue earned by the NCAA in 2022-2023, about $1 billion came from the men’s basketball tournament (aka March Madness). The vast majority of that $1 billion was attributable to selling media rights, and the rest came from merchandise licensing, ticket sales, corporate sponsorships, etc.

In other words, without this tournament, executives at the NCAA would be eating at Golden Corral and playing the slot machines (in the smoking section).

The NCAA distributes its revenue to member conferences via a variety of funds. One such entity is the Basketball Performance Fund.

 

The Basketball Performance Fund

I’m not a salesman (as evidenced by the paltry revenue generated by this blog), but if you’re into sports, I highly recommend a subscription to The Athletic, the source of what follows and all sorts of next-level perspective not found on standard sports sites.

Anyway, the NCAA breaks down its revenue distribution for the men’s basketball tournament into units. Participating in a game earns a team one unit.

The first four games obviously have eight participating teams, meaning eight units. The next round has 64 teams (64 units), followed by 32 teams (32 units), and so on, with the exception of the final game which isn’t included. If you do the math, 8 + 64 + 32 + 16 + 8 + 4 = 132 units.

Each unit is worth in the ballpark of $2 million, which is distributed to the team’s conference over six years, amounting to around $333,000 per unit per year.

Conferences then redistribute that amount to their member schools based on their own formulas.

 

What This All Means

Knowing the above, a few things become obvious:

Bubble teams are worth more than just pride. In 2023-2024, the Big East had three bubble teams (St. John’s, Seton Hall, and Providence), none of which were invited to the tournament. That cost the conference $6 million and possibly more if any of those teams had won even one game.

A deep tournament run is lucrative. Assuming a team is not in the first four games, it can earn its conference $10 million.

Schools destined for a 16 seed actually hope for a First Four game, as this provides a winnable game prior to the typical thrashing at the hands of a one seed. (At least this is the mindset of the conference commissioners of such schools, who see the possibility of $4 million as opposed to $2 million.)

Conference realignment has resulted in many awkward scenarios in which a team earns money for one conference, only to leave that conference and see none of the revenue it helped earn.

The NCAA tournament can be a lifeline for small conferences. For larger basketball-centric conferences with media rights deals, the tournament provides a welcome bonus. And for the largest conferences whose major source of revenue includes media rights deals for football, income from March Madness is like piss in the ocean (but still welcome).

 

Okay, back to the fluff pieces.