Posted by John Vrooman on Monday, December 29, 2014 in NCAA Football.

Interview with CNBC 12/23/2014

Working on a story about the economics of the College Football Playoff. I’m looking at sponsorship, ads, TV deals and other revenue sources to attempt to gauge how big of a commercial event it will be this year and in the future. I’m also trying to gauge where it stands in comparison to other major sporting events, including March Madness.

Already, the effects of the playoff can be seen in the ESPN TV deal for the event, which is reported to be about $7.3 billion over 12 years. Could this effect extend to other areas, such as ad or ticket sales?

The new CFP championship game itself will not be backed by a corporate sponsor, but Dr. Pepper has probably doubled the $17.5 million sponsorship rights for the BCS Championship by paying an estimated $35 million to be the first “championship partner” of the College Football Playoffs (CFP) in 2015. (Allstate paid $17.5 million for the Sugar Bowl Championship in 2012). 

 Ad rates are approaching an estimated $1 million per 30 second spot for the CFP, which is about one-fourth the going rate of $4 million for the NFL Super Bowl and slightly less than the $1.5 million for NCAAB Final Four.

What does the extended national championship schedule under the playoff system—stretched over 12 days and three games as opposed to one game only—do to the corporate landscape?

Because the entire ongoing 67 games over 6 rounds NCAAB tournament is broadcast nationally, total NCAAB ad revenue is now well over $1.2 billion, $50 million more than the NFL playoffs and $225 more than post-season NBA. The 12 days and 3 games opens the marketing window and increases the payout for ESPN’s “sports holiday”.

The College Football Playoff outlined the revenue sharing model, and the difference between the BCS and playoff systems are stark. For example, the six automatic qualifying conferences get to split $50 million each as opposed to $27.9 million last year. The aggregate that goes to the conferences without automatic qualifying is larger, as well. Based on you knowledge of how this money funnels down, how will this increase affect individual schools or athletes, if at all?

The effects of revenue sharing depend on the relative magnitudes of the football budgets of NCAA FBS programs. The football budgets for the smallest Power 5 conference programs is about $20 million compared to the largest programs with revenues of about $100 million. In the past for some smaller FBS schools going to bowl games has been a losing proposition.

 The revenue sharing is not sufficient to affect the competitive balance within the power five conferences but the major differences in revenue sharing between the power five and the rest of FBS (FBS2) could adversely affect the balance between the top and bottom of the current FBS football programs.

 In the not so distant future the power 5 schools will begin to clearly separate from the 65 or so FBS2 schools not in power five conferences with budgets less than $20 million. The doubling of the CFP payout has occurred only for the top power five conferences (FBS1). 

Would greater monetary growth and marketing opportunities have any effect on student-athletes, taking into account recent decisions like O’Bannon?

Probably not, the O’Bannon decision limited compensation to $5000 per player, or less than $500,000 for 85 scholarship athletes. This would not affect players in the power five conferences but given the inequities between FBS1 and FBS2 revenues, the added cost of player compensation would also increase the pressure on those football programs with revenues below $20 million (FBS2).

Some have speculated that the system will perpetuate the monetary and competitive advantage enjoyed by the “power” conferences under the BCS system. Are you familiar with the revenue distribution model under the playoff system and would you be able to comment on whether or not it could change the monetary balance in college football?

Estimated payouts for the two championship formats BCS and CFP are compared in the accompanying table. Distribution formulas vary among conferences. In the SEC for example the actual participating team collects about one third ($1.475 million or $2 million) of the appearance fee ($4 million or $6 million) plus travel costs, and $2.1 million for making the final game. The rest ($22.625 million) is split 15 ways (about $1.5 million) among the remaining teams in the SEC and the league office.

NCAAF FBS1 Conference Payouts
Conference	BCS 2013-14	CFP 2014-15
SEC	$30.2 million	$87.5 million
ACC	$30.2 million	$83.5 million
Pac12	$23.9 million	$60.0 million
Big10	$30.2 million	$60.0 million
Big12	$30.2 million	$58.0 million
Power 5 average	$28.9 million	$69.8 million

Under the former BCS the “group of five” or “lost five” conferences were each splitting $13.2 million, compared to $15 million under the new deal. Actually each of the lost five leagues now receives $12 million of $75 million and the remaining $15 million is apportioned to those schools appearing in bowls. This is less than one-half of the amount paid out to power five FBS1 and will serve to further aggravate on the ongoing polarization of 128 FBS schools into two subdivisions split along the threshold of $20 million football revenue.

Could you assess the College Football Playoff’s strength as a commercial entity? Does it stand a chance of competing with March Madness or any of the “Big 4” professional sports?

There is currently a major opening for the FBS1 to be competitive for a bigger piece the current sports rights fees action. ESPN’s new CFP deal is to pay $610 million annually ($7.3 billion over 12 years 2015-2026) for 7 bowl games.

 In the previous BCS deal ESPN was paying $155 million annually from 2011-14 for the 5 bowl games: the Championship game plus the Rose, Sugar, Orange and Fiesta Bowls. So FBS1 rights fees have at least tripled over the next 12 post-seasons.

 By comparison NCAAB Final 4 TV rights deals with CBS and Turner are $771 million annually through 2024. The advantage NCAAB has is of course the number of nationally televised games and the length of the tournament, but still the BCS Championship games have all outdrawn NCAAB final games by annual average of 4.5 million viewers over the length of ESPN’s last BCS deal 2011-14. (See attached table).

 In the current explosive climate for limited live sports entertainment, NFL rights fees have increased by 50 percent to $6.08 billion per season; NBA rights have tripled to $2.6 billion per season; MLB rights have doubled to $1.55 billion per season; and NHL rights have quadrupled to $633 million per season.

So FBS1 is already even in national revenue with the entire NHL season, and the FBS rights could easily re-triple and challenge NCAAB in the next rights auction, especially if the playoff format is expanded to 8 teams. In the evolutionary process, the Power 5 Conferences (FBS1) will become separate from the current lower division programs in FBS2.

Championship TV Viewers
Season	NCAAF BCS	NCAAB Final 4
2011	27.3 million	20.1 million
2012	24.2 million	20.9 million
2013	26.4 million	23.4 million
2014	25.6 million	21.2 million
Averages	25.9 million	21.4 million

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NFL TV rights fees went from $4.065 billion annually to $6.58 billion annually for 9 years 2014-2022 (from $127 million to $206 million per season per club);

 MLB national rights doubled from $800 million to $1.55 billion annually for 8 years 2014-21 (from $26.8 million to $51.7 million per season per club);

 NBA national rights will almost triple from $930 million to $2.6 billion annually for 9 years 2016-25 (from $31 million to $86.7 million per season per club);

 and NHL national TV package (US and Canada) has quadrupled from $150 million to $633 million for 10 years 2012-21 (from $5 million to $21.1 million per season per club).