Posted by John Vrooman on Saturday, January 3, 2015 in NCAA Football.

Interview with Fiscal Times. 

Is Ohio State one of the few college sports programs that is profitable?   Also, are the benefits that schools see from events like the college football championship such as rising applications fleeting?

No all of the Power 5 programs are in the black, it is the bottom half of the 128-team FBS that is bleeding red. The economics of  the new sports industrial complex: ESPN, Nike and Power 5 is polarizing Division 1 College football above and below the $20 million revenue divide. (see attachment).

The marginal gains to economic powerhouse football factories like Ohio State and Oregon are minimal. Most of the direct gains of the CFP accrue to the power five conferences whose payout have more than doubled under the new ESPN CFP format.

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Interview with CBS News/Fiscal Times: 1/13/2015

The economic impact of the College Football Championship Final on each of the schools playing in the game is relatively insignificant and caught up in a chicken-egg circular causation between the athletic and academic improvements at both Ohio State and Oregon. The CFP final is like the eye in an economic hurricane that has evolved in the stark professionalization of college football. All of the financial gains have already accrued to the new sports industrial complex and this final game seems to be refreshingly about a simple matchup between two competing football philosophies.

 Seventy-five percent of the $610 million payout from ESPN’s mammoth CFP for 2015 was distributed to the Power Five Conferences for 7 bowl games, and $6 million bonuses were concentrated in the semi- final playoff bowls and $4 million in the other 3 of the “New Year’s Six” bowl games already played.  The payouts are roughly equal within the Power 5 Conferences but vastly different and polarizing between Power 5 and the rest of non-bowl contract FBS .

 There is no added bonus for reaching the finals (except in the SEC where it would have paid $2.1 million for Alabama to make the finals) and the two CFP finalists will receive only another $2 million each to cover travel expenses.  So it is safe to say that the winning the actual College Football Championship is not about the prize money and there is minimal direct payout.

 Also, both coaches have already earned most of their performance bonuses for the post-season.  Urban Meyer has maxed out $400,000 in performance bonuses, including $250,000 for getting to the final, and Mark Helfrich has already earned $400,000 in bonuses including $200,000 for making it to the final game.  Helfrich still can get a  $250,000 bonus if he can beat the Bucks and win the College Football Championship. (See chart)

 Although playing in the championship game increases the visibility of both schools and in turn increases the quantity and quality of prospective student applications for admissions, it is more likely that the on-field success of both teams is more a result of hefty booster donations rather than the cause. 

 Over the last decade Nike CEO Phil Knight has given his alma mater (Oregon Class of 1959) over $300 million and Victoria’s Secret (Limited) CEO Les Wexner has signed over about $200 million to his alma mater (OSU Class of 1959).  Both mega-donors have had a significant impact on the academics but also the football facilities and programs at their respective schools.

 Spinoff economic benefits will largely accrue to the new college sports industrial complex that has now evolved among the Power Five FBS Conferences, ESPN and NIKE. Most (over 80 percent) of the ESPN bowl money is going to the power 5 conferences, ESPN is getting up to $1 million per 30 second spot (compared to $1.5 for NCAA Final Four and $4 million for the Super Bowl) and the sponsorships will almost double.

 All four of the teams that played in the CFP are sponsored by NIKE.  NIKE has sponsored the University of NIKE (Oregon) for 40 years and the evolution of Ducks football parallels the technological evolution of NIKE.  Ohio State was one of NIKE’s first shoe contacts in 1981, and NIKE has been the apparel provider for the Bucks since 1995.

 Both College Football Finals programs have been heavily influenced by NIKE since 1995, Oregon has never worn the same uniform twice (grey and visitors’ white with no green and gold for the finals) and the Buckeyes use modern interpretations of the classic Buckeye look (home scarlet of 1968 Championship team for the finals).

 Nike is currently paying Oregon $600,000 and $2.2 million in an equipment allowance this year. Ohio State’s gets $1.5 million cash and $2.5 million in equipment from Nike. There is a dynamic, positive-sum synergy within the Power 5, ESPN and Nike sports industrial complex. The current FBS is caught in a continental drift and the dividing line lies between football programs with budgets above and below $20 million.

College Football Payoff (CFP) ad rates are already higher than the previous BCS spot rates of $800,000 and approaching $1 million per spot, but so are the ratings with 28+ million viewers. The CFP semi-finals attracted 7 million more viewers than NCAA Basketball Final 4 which has drawn $1.5 million per spot.

This is why something has to give and it will be the continued explosion in ad rates for CFP, because of the dramatic jump in expected hits during a prime-time live CFP broadcast for which ESPN is paying triple rights fees compared to the BCS.

 By comparison the spot rates for NBC Sunday Night Football are about $600,000; CBS Thursday Night Football $500,000 and ESPN Monday Night Football $400,000. ESPN’s Monday Night Football averaged around 13.3 million viewers, which is about 15 million fewer viewers than expected for the CFP final in roughly the same time slot (For the male demographic 18-34, 18-49 and 25-54).

Realistically CFP spot rates could exceed $1 million compared to BCS spot rates in the $800,000 range. Also, sponsorship fees have doubled for the CFP from the BCS, and the advertising value for college bowl games is usually triple the amount paid for sponsorship value.

There is currently a major opening for the CFP to be competitive for a bigger piece of 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 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 (basketball) 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 $6.58 billion per season in their new TV deal for 9 years 2014-22; NBA rights have tripled to $2.6 billion per season for 9 years 2016-25; MLB rights have doubled to $1.55 billion per season for 8 years 2014-21; and NHL rights have quadrupled to $633 million per season for 10 years 2012-21.

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. Also in the evolutionary process, the Power 5 Conferences (top half of FBS) will become separate from the current lower division programs with football budgets below $20 million.

Championship TV Viewers pre-CFP
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

The killer fact is that while the 2011 BCS final was the most watched show in the history of cable TV, it is now being replaced by both of the CFP semi-final games in the Rose Bowl and Sugar Bowl. Both semi-final games attracted 28+million viewers. Sugar Bowl was up 130 percent and the Rose was up 45 percent from last year. The comparison between CFP and Final 4 is even more remarkable because it is comparing cable with broadcast TV.

 Again something has got to give. With these record high ratings the CFP ad rates (currently $1 million per spot) will approach the $1.5 million per 30 second spot rates for the NCAA Final 4 in the not too distant future, but they are still a long shot from the $4 million rate for the NFL’s SB. There are two factors holding the CFP rates back. First ESPN is still cable TV with a rapidly growing (albeit subsidized by cable fee bundling) but restricted viewership compared to broadcast TV. Second, the CFP window is competitive to some degree with the NFL playoffs themselves. The final game on January 12 could possibly approach 29 million-30 million viewers but that is still a long shot from 111.5 million viewers for the last Super Bowl XLVIII.

 The line between the profit driven motive of the NFL and the Power 5 conference is now being blurred by the massive deals with Nike and ESPN it what is fast becoming the new college football industrial complex: Power 5, ESPN and Nike.

In the process the top “Power “  college conferences (about half of current 128 BCS football programs) are dramatically separating form the bottom half of FBS, and the divide for this continental drift is a budget line of about $20 million.

 The key that opened Pandora’s box for the CFP was when ESPN assumed all rights for the post-season bowl games in 2011. Before that FOX was blocking ESPN’s power play. Now CFP TV will explode at the same rate as all other live sports on TV. 

The Power 5, Nike and ESPN sports industrial complex will take off and land with maybe as many as 50 million viewers by the end of the contract in 2026. This could put the squeaky almost clean CFP in direct competition with the scandal ridden but still amazingly popular NFL and its soon to be expanded playoffs.

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