NCAA Bowl Finance: Something changed in 1995

| 15 Comments
With Senator Orrin Hatch's (R-UT) editorial in this week's Sports Illustrated and congressional hearings ready to get underway tomorrow, I couldn't wait any longer to put up this picture. The figure below shows total NCAA bowl payout revenues adjusted for inflation (2008 dollars, CPI) and divided into revenues that went to BCS conference teams and non-BCS conference teams.

TotBowlRevInfAdj2.png

The three red vertical lines represent the evolution of the BCS system. Some history about the evolution of the BCS system from 1992 to 1998, along with the revenue plot above, gives some insight into the incentives and objectives of the BCS organizers. In 1992, the Bowl Coalition was instituted which took teams from five conferences (SEC, Big 8, SWC, ACC, and Big East) and Notre Dame to play in six bowl games (Orange, Sugar, Cotton, Fiesta, Gator, and John Hancock/Sun Bowl).

The Bowl Alliance was instituted in 1995. It looked just like the current BCS except that the Big 10 and Pac 10 remained with their Rose Bowl contract. So the Bowl Alliance involved the SEC, ACC, Big East, and the newly formed Big 12. The Bowl Alliance only included the Orange Bowl, Sugar Bowl, and Fiesta Bowl.

Finally, the Bowl Championship Series (BCS) was instituted for the 1998 season. This consisted of six conferences (SEC, Big 12, Big 10, Pac 10, ACC, Big East) and Notre Dame, and originally only included four bowl games. The BCS now includes five bowl games. The top two teams play for the national title, and the conference champions from the six BCS conferences get automatic bids.

The remaining two slots are considered at-large berths. However, the selection rules are such that the probability of ever having more than one non-BCS team play in a BCS game are close to zero. In fact, before 2006, no non-BCS team could play in a BCS game unless they were in the top six in the final BCS rankings.

In the figure above, the spike in non-BCS revenues in the 2004 season represents the 6th-ranked undefeated University of Utah's (MWC) BCS berth in the Fiesta bowl to play the 21st-ranked Pittsburgh, who Utah defeated 35-7. No non-BCS team played in a BCS game in the 2005 season. In the 2006 season, undefeated Boise State (WAC) earned a BCS bid to play in the Fiesta Bowl and defeated Oklahoma 43-42. Hawaii (WAC) earned a chance to play Georgia in the 2007 season Sugar Bowl, and Georgia won 41-10. And in the 2008 season, the undefeated University of Utah earned it's second BCS bid and defeated Alabama 31-17 in the Sugar Bowl.

The following numbers put in perspective the degree to which NCAA bowl revenues have been concentrated over the last 10 years. In the 2008 bowl season, the SEC, Big 12, and Big 10 had bowl payout revenues of $110.8 million, which was 48% of all 2008 bowl revenue. Compare that to the $38.1 million earned in 2008 by all five non-BCS conferences and the independent teams (including Notre Dame) for a whopping 16.6% of 2008 bowl revenues. Note that 55 non-BCS teams took some part in that $38.1 million, while 35 SEC, Big 12, and Big 10 teams took part in the $110.8 million.

It is clear that the conferences leading the BCS system acted strategically in how it was structured. The dissolution of the Southwest Conference and the Big 8 in 1995 and the creation of the new Big 12 at the same time as the Bowl Coalition was clearly a market consolidation. The question that the congressional hearings starting this week will have to answer is whether this constitutes a violation of antitrust law.

I am currently in the process of estimating a model of NCAA football that fits the dynamics of the percentage of BCS and non-BCS teams playing in both BCS and non-BCS bowl games. I can then simulate how annual conference revenues would change over time for BCS and non-BCS conferences if the BCS system were changed. For example, how would revenues change if a playoff system were instituted? Antitrust or not, the figure above demonstrates the resources at stake. Both BCS and non-BCS conferences would do well to evaluate their options carefully.

(Thanks to Montana Thompson for excellent ongoing research assistance and to Cole Schutjer for help on BCS institutional detail.)

UPDATE: Due to many requests, I am including the figure below. It shows non-BCS conference revenues (5 non-BCS conferences and independents, minus Notre Dame). Note how well the non-BCS conferences did before the Bowl Coalition in 1992. The non-BCS conferences averaged 25.3% of total bowl revenues from 1987 to 1990. Also note that non-BCS conference earnings only increased to an average of 12% in the last five years after the 2003 congressional hearings on the antitrust merits of the BCS. The non-BCS conferences averaged 6.5% of total revenues in the first 6 years of the BCS (1998-2003)

NonBCSpct2.png

15 Comments

A second chart showing BCS and Non-BCS % of revenues would also be illuminating.

I have the data on conference revenues as a percentage of total revenues and could generate the picture, but you can eyeball it from the figure above. It looks like the height of non-BCS conference revenue as a percentage of total revenue was the four-year period from 1987 to 1990. It looks like non-BCS conference revenue was around 30% of total bowl revenue during that period. That is a stark contrast to 14.3% today. The steady decline began in 1992. Coincidentally, that is the year that the Bowl Coalition was instituted.

Since 1984 they have done everything they could to keep BYU out...and later other Non-BcS teams, they have BS'd excuses long enough, and now BYU professors are getting into it...when BYU econ professors get rolling, run away!

GO Y

Great analysis. I think one of the barriers to changing the B[S]CS system is that all proposals seem to promote a playoff as the only alternatve. There are lots of issues with playoffs, including season length, etc. It's a great idea, but why not fix the system incrementally, rather than trying to eat the whole cow at once? Let me suggest something else that is not as dramatic as an interim step to a playoff:

1) Expand from five games to seven by adding the Cotton Bowl in the new Texas stadium and one more, maybe the Holiday Bowl.

2) Admit ALL Div I-A teams and conferences into the system.

3) The logical follow-on to 2) is to change the ranking system that rewards the current B[S]CS teams with more points for playing other B[S]CS teams rather than what is now termed a "mid-major." obviously, when all conferences and 1-A teams are admitted, this most aggregious of all rules automatically goes away.

Someday, the system might change to accomodate a playoff. For now, I think this is a reasonable fix. It also eliminates the natural embarrassment that teams like Oklahoma and Alabama suffer when they are beaten by a "non BCS" team at their own party. (This is because Boise State is now part of the BCS and "mid-major" no longer describes the conferences that produce the second-rate teams that regulalry beat the current B[S]CS schools.) It also gives schools like Pitt a chance to play a more win-able post-season contest in a more apprpriate venue, like against Ball State in the Liberty Bowl.)

it is unfathomable that congress will not, or hasn't already seen this as one of the most profound cases of anti-trust in American history, maybe second only to John D. Rockafeller's Standard Oil Company. But, I think we need to watch the vote on this one to see how Congress votes based upon where they went to school. This may be one of few instances in which an abundance of Ivy Leaguers turns out to be a good thing.

In my opinion this is what needed to be brought up in the hearings, and not providing greater access to the BCS title game.

It is quite obvious that the Big 6 gain more money with the BCS, as they have in history, but the thing that is missing is the revenue for the non-BCS.

The BCS leagues do deserve more since they are the ones who bring in the cash, but the gap that is being created is the real crime.

I would like to second the motion for a % graph along side the graph shown. Sure, we can eyeball it, but it would be stunning to see the non-BCS decline. And it would be pretty easy to generate.

Seeing this article on ESPN made my day! Thanks for showing how economics is relevant even in football and thanks for having such a great class.

This is a very interesting discussion. It appears that there are other economic reasons that are not being considered.

For starters, the bowl games have to be economically viable to support itself through the years. This is why there have been bowls that have failed. The economic viability is probably directly related to economic impact that the two invited schools bring to the bowl game.

For instance, the Independence bowl in Shreveport, LA has a contract that brings the 8th selections from both the SEC and the Big 12 to Shreveport. Last year, the Independence bowl failed to receive a team from either conference and was forced to choose two eligible at-large teams. If I had to guess, the bowl's revenue was down from normal levels. The bowl's pay-out was unchanged but the money was distributed to non BCS conference schools.

Part of the reason that BCS schools receive so much money from the bowls is because these large BCS schools tend to sell 20,000+ tickets and have large TV followings.

Bowls are out there to make money. Some have even tried to bring together non BCS schools in the hope of making more money. The Liberty bowl in a prime example of this when they matched Tulsa and Fresno State a few years ago. (They had an even more attractive game the previous year!). In the end, the keep the bowl economically viable, the Liberty bowl signed contracts with the SEC and Conference USA to provide teams.

The moral is that producing money for the bowl game leads to bigger payouts by the bowl game. I think the next progression of this discussion needs to focus on some of the lesser bowls to see what factors contribute to their success and failures.

One bowl that would probably suprise most people is the Gator Bowl. The Gator Bowl thrived in the 80s with regional matchups including tie-ins to the ACC and SEC. In the early 90s, the Gator Bowl parted ways with the SEC and financially has never really recovered. The Liberty Bowl, Independence Bowl and the Peach (now Chick-fil-a) Bowl would be four good games to look and see how they have fared financially depending upon the types of teams invited (BCS vs. Non-BCS).

The reason that the BCS schools receive such a large percentage of the payout is because they are a large percentage of the participants.

Let's be truthful about bowl games. They are postseason exhibition games often times played in faraway places, too far for the average fan. Much money is raised, then spent to promote these meaningless games. Assuring good attendance for an exhibition game requires well-known programs with huge fan bases. Playoff games (in place of bowl exhibition games) would be well attended and would not require the participants to be traditional powers with a huge following. Playoff games would mean something and therefore have greater fan interest.

I actually think you might be very surprised about attendance at playoff games.

Both of my parents went to Western Carolina University who is a member of the Southern Conference.

Historically, members of the Southern Conference who have hosted games in the I-AA playoffs have drawn fewer fans for the playoff games than their regular season average attendance. This is especially true of Marshall and Appalachian State. But it is very interesting that this appears to be a trend across I-AA.

I have no idea for the reasoning. Some possible reasons include 1)Very short time between the announcing of the game and when the game is played (less than one week); 2)Fans have other holiday plans previously in place; 3)Fans have to choose what games they wish to attend because they can't attend all of them; 4)Why go watch the event live when the game is on television.

If Marshall and Appalachian State struggle to bring fans in for playoff games, why should we think that Oklahoma, Florida, Southern Cal and other very successful programs would not have the same problems.

The biggest thing about playoff attendence is that the visiting teams don't travel as well because of the timing and distance. There have been exceptions, usually when two regional teams meet for a second meeting (Western Carolina @ Furman 1983 - Stadium Attendance Record)

The key to a playoff would be television dollars not attendance figures.

I just added a figure with commentary to the BCS post that shows non-BCS conference revenues as a percentage of total NCAA bowl payout revenue. Enjoy.

The number of fans in the stands depends on the teams. The big name BCS schools (i.e., Texas, OU, Florida, Ohio State, etc.) bring the fan base. But consider these numbers for the last four Indy Bowls. These numbers are from the Indy Bowl's website (http://www.independencebowl.org/Bowl%20History.html).

Year Attendance Teams
2008 41,000+ La Tech vs N. Illinois
2007 n/a (hmm...) Alabama vs Colorado
2006 45,000+ Alabama vs Okla. State
2005 41,332 S. Carolina vs Missouri

The Indy Bowl benefits from La Tech because the game is in Tech's backyard. La Tech being in the bowl generated a lot of interest just as it did in 1990 when La Tech and Maryland had the second or third highest attended (the record at the time at 48,325) Indy Bowl. LSU has the record for it's match-up against Notre Dame in 1997. N. Illinois brought a lot of fans to the 2009 Indy Bowl and those two non-BCS schools put just as many butts in seats as the BCS schools in other years.

To me, the reason is clear, the big name, powerhouse BCS teams have the huge following. The lesser known BCS teams get big attendance numbers simply because they play the big name schools. Colorado and Iowa State aren't bringing the numbers like OU, LSU, Texas, etc. Alabama has a great following but in two Indy Bowls it wasn't enough to carry put significantly more people in the stands than La Tech vs some other lesser known team.

Clearly, I am a La Tech fan and I admit that the school would not have brought the same number of people to Boise Idaho for the Humanitarian Bowl as it did to the Indy Bowl.

The point is, the bowls can be successful with non-BCS teams if they get the right teams.

Your data suggests an alternate explanation. Perhaps the notion that participating in Division I-A football fails to offer the financial boon as promised by athletics directors and presidents? Your graph suggests that such revenue is illusionary at best and non-existent at worse. Indeed, your graph could provide an indictment of such people as a failure of leadership, a failure to understand the situation, and a failure to properly explain the desire to seek reclassification from either Division II to Division I or from I-AA football to I-A football.

Further, the attendance records for bowl games are misleading as hell, and the revenue figures are completely worthless. Most if not all non-BCS games require schools to purchase a certain allotment of tickets. Schools go about distributing these tickets in a variety of fashions. A few give the tickets away to political cronies who have helped the institution, as well as well-heeled money men.

Most try to sell the tickets at face value to ticket holders and the public at large, with many tickets getting discounted. All schools that discount must make up the revenue shortfall. That is, a school purchases a $95 ticket but sells it for $55 with the school not the bowl game making up the $40 difference.

Of course the purchase of tickets are tax deductible at the 80% education rate.

Schools that have bought but cannot sell tickets give away the tickets to a charity in the bowl's home town. For example, at the Independence Bowl, you will see a lot of military personnel in attendance because one or both schools could not sell their ticket allotment. The remainder of purchased but not resold tickets are donated to air base located in Shreveport.

The bowl games operate as a non-profit entity. However, based on tax reports, these non-profits distribute less than 15% of revenue to charities. Most of the revenue is used for golf tournaments, travel for bowl representatives, and other self-perpetuating activities.

Bowl games remain a parasite that survives because of its hosts unwillingness to get rid of the parasite. Further, these games also feast on the American public by taking advantage of several items in the tax code.

In short, we could eliminate the bowl system completely if we removed the veneer of non-profit status as well as removed bowl game ticket purchase from the education contribution rate of 80%.

Greg Anderson, did you really compare Marshall and Appalachian State football fans to Oklahoma, Florida, Southern Cal football fans? Did you really think this was a valid argument?

Greg,
Send me an email at brian.giroux@cfbfoundation.org I wanted to talk to you about some suggestions you might have for my CFB Foundation which is a non-profit that educates on the bowl system.