NCAA Bowl Finance: Something changed in 1995

By Richard W. Evans on July 6, 2009 1:21 PM | 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 top 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)