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March 10, 2009 - Colleges lose financially from March Madness

Economics professor Andrew Zimbalist of Smith College recently published a column in the Wall Street Journal relating to the incomes and expenses of men's college basketball teams with respect to the NCAA men's basketball tournament. Zimbalist notes that CBS is paying the NCAA $6.1 billion over 11 years to broadcast the tournament, and in turn, to sell advertising on television. The 64-team field includes six rounds of tournament games in which CBS earns roughly $100,000 for a 30-second spot of advertising in round one and more than $1 million per spot in the finals.

But, men's college basketball programs see only a fraction of the revenue.  Zimbalist refers to the NCAA's Revenues and Expenses report, in which 2005-06 data show the median Division I men's basketball team generated revenue of $480,000 and had operating costs of $1.33 million, yielding a net operating loss of $850,000. These costs don't include university overhead and capital expenses such as the construction of basketball stadiums, practice facilities, and athlete academic support centers.

To create and support an NCAA Division I men's basketball program that can be invited to compete in the elite tournament is expensive.  Costs include the aforementioned capital costs, but also coaching salaries and benefits, and expensive recruting budgets.  Zimbalist states that in 2005-6, the average salary for a coach invited to the tournament was $959,486, with a maximum salary of $3.4 million.  Academic tutoring centers for athletes can cost $15 million to build, and add to it the costs of support personnel.

Yet the payout from the NCAA tournament is meager.  Zimbalist calculated the amount of money earned by schools in the Atlantic 10 and Big East conferences from the 2005-6 tournament. The schools in the Atlantic 10 conference earned $5.56 million, or $397,143 per institution. Of the 32 Division I conferences, 23 earned less than the Atlantic 10, with most of these conferences earning below $1.5 million. Leading the pack with the most tournament revenue earned was the Big East Conference, which received $19 million, or $1.2 million for each of the 16 schools.