College Athletics Pipedream: Revenue Sharing

In the past month two D1-AA football programs from the Colonial Athletic Conference closed operations, citing costs – Hofstra and Northeastern. Both schools have a long gridiron history, and in Hofstra’s case, at least three fairly successful NFL players in the past 15 years. Within the same few weeks, Notre Dame paid more to fire its coach than the $4.5 million Hofstra says it costs to run the football program annually. The Irish also hired a coach, UConn extended basketball Coach Jim Calhoun’s contract to an annual salary above that $4.5m, and countless bowl games will make payouts to each school more than enough to cover those same expenses. Something is truly wrong with this picture.

It’s no secret that escalating costs related to facilities, coaches salaries, and general operations for each team combined with a growing chasm in revenue have created a well-defined class system in college athletics. The Knight Commission continues to study the topic and publish insightful research and editorials, but the problem is not going away. The impact on non-revenue sports has been seen or the past decade or so. Now the epidemic is spreading to major sports at low revenue schools. The next step is mid-major programs.

Hmm, increasing disparity in wealth leading to an increasing disparity in performance, and then feeding itself into a vicious, destructive cycle. Is this starting to sound familiar? Professional sports ring a bell, notably the uncapped world of baseball. One significant difference, colleges are supposedly not for profit organizations, and the goal of college athletics is to promote competition and academics, not improve the bottom line, yet the exact opposite is taking place.

I’m not naïve enough to think universities or athletic departments view themselves as not for profit, but if the NCAA and the conferences truly have a mission to serve student athletes they will create a more equitable distribution of finances. They mandate that athletes cannot benefit from money the school earns, similarly the school should only benefit to a certain extent from the athletes. The NCAA should centrally pool a portion of television contracts, sponsorships, bowl payouts, and other non-ticket revenue sources and reallocate to help fund the Hofstra’s of the world. Maybe small schools don’t receive the full cost of operations as a “stimulus package” and perhaps we have reached a time when students have to pay an annual fee to play, similar to youth athletics, rather than receive free tuition.

Big schools and big conferences would clearly never agree to this because they correctly argue they generate the money. However, if the NCAA truly supports its mission it will start to force its hand. Sponsorships and donations should go toward NCAA sports or NCAA football, not to Ohio State, the Big East, or the Orange Bowl winner. The NCAA should also seek funding from its professional counterparts, the NFL, NBA, and various Olympic governing bodies. These leagues already support youth initiatives, so it’s not a significant leap to seek contributions to keep small programs alive.

If the NCAA deincentivizes big schools by taking away the potential windfall paydays that come from winning, it may implicitly put a cap on coaches salaries and absurd capital expenditures to add more luxury suites every year. In essence, it may help make college sports continue to look like college sports, rather than a younger version of the professionals.

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ESPN Should Apply Mid-Major B-Ball Approach to Football

Spurred by increased media coverage, some talent dilution at top programs from players leaving school, and a run of NCAA tournament upsets mid-major hype hit new levels in college basketball the past decade. It led to an increased national platform, more money, improved recruiting, and overall, a more level playing field with the big boys. Mid-majors will never be on equal standing with BCS conferences, but we have reached the point where it’s not unheard of for mid-majors to get 1, 2, or 3 seeds in the tournament, and never mind surprise, its sometimes expected to see them knock of middle tier teams from big conferences.

These leagues fought an uphill battle and come tournament time always faced with defending what amounts to an easier schedule relative to big conference teams. Never one to miss a made-for-TV opportunity during a lull in the annual sports schedule, in stepped ESPN earlier this decade with Bracket Buster weekend. The premise – match up the best mid-majors across the country to help them boost their profile with a strong non-conference game. ESPN clears out the schedule and showcases these games the entire weekend, brands them, posts attention on the website, dedicates the studio and road show to these games, and gives it the 360-degree ESPN white-glove treatment. It guarantees that as a group the mid-majors get an RPI boost to combat a weak conference schedule and a bunch of them get wins.

College football needs this same event now. Mid-majors have followed a similar trajectory the past five years or so, a few teams paving the way into national prominence, not only breaking through to major but winning. Critics continue to point at the weak schedule these teams play and the current BCS system is biased against these teams playing for the national championship and against having multiple non-BCS teams play in major bowls.

ESPN should pick a weekend around this time of year, preceding the conference championship games, and call it BCS Buster. Schedule 3-5 neutral sites (or at least pick the sites in advance of the season) in different regions and create match-ups among the top non-BCS teams. If only TCU or Boise legitimately has a chance, let them play each other to help the winner get a better shot at a top two spot. Besides the wins and losses, it raises the profile of the leagues and adds legitimacy to both teams. If ESPN applies its hype machine – Gameday crew, primetime audience, top story on Sportscenter, commercials and teasers on radio and TV all week, web integration, the whole nine yards, Boise would not need to hire a PR firm. If it’s better for the two best not to play, the likes of Houston, BYU, and Utah still create a formidable lineup. Outside of the primary matchup, it gives each team a chance to improve its bowl standing, helps recruiting, and starts to create momentum for the following season.

Clearly, the college basketball and football postseasons are two completely different animals, and the nature of scheduling a football differs from a basketball game. That said, the key point here is that football is at the point they need to apply this concept and who better than ESPN to make it happen. I can’t tolerate too many more Indiana-Iowa, Florida-Mississippi State Saturday doubleheaders now that baseball is over.

Versus Needs Big Football Splash

If any doubts remained, football’s booming start on television leaves no doubt that it is arguably the most dominant television franchise. The NFL was up across the board during its first week, even more telling it’s meaningless preseason games ranked near the top of the weekly primetime ratings. The buck doesn’t stop with the NFL though, college football has been on fire as well. Last week’s OSU-USC game was the most watched ever on ESPN (including bowl games), and this week’s UT-Florida game was one of the best on CBS in recent years. Notre Dame has posted solid ratings, as did ESPN’s other big games.

While the NFL’s TV deals are locked up and game packages static for now, college football is not – and it can have a significant impact for a network. We’ve spoke about the upcoming contract negotiations for the ACC, Pac-10, and Big 12. If Versus wants to become a significant player in sports television, it needs to make a big push on one or more of those properties for exclusive basketball and football coverage. Hockey is not and will never be a big enough television property to carry a network. Tour de France and MMA have boosted Versus, but the ratings and revenue will never be mistaken for a Florida State-Miami football game or UNC and Duke basketball games.

Versus tried to make a splash bidding on the NFL Thursday night package, losing out to NFL Network thanks to some extenuating circumstances. That made it clear they want to be a player. More importantly, with deep-pocketed Comcast running the show, Versus has the money it would take to lock up these rights. If Versus can partner with two of these conferences its subscriber fees immediately become more valuable, its distribution would reach the next level, and Ad Sales would receive a jolt.

The conferences also have a lot at stake, mainly they need revenues to match the SEC and Big 10 in order to compete, and they need the marketing machine that ESPN provides its properties. Without other sports to steal the spotlight (i.e. MLB, NBA, NFL, golf, tennis, etc.), Versus can put a conference like the Pac-10 front and center on a national stage, providing the exposure new commissioner Larry Scott seeks.

Down the road, if the plan succeeds Versus would position itself to make serious runs at the NBA, MLB, and maybe even NFL in the future. At some point, though, if Versus wants to be a serious player in ESPN’s world, Comcast needs to push the chips to the middle and go for it. The NHL and bike racing is hardly coveted sports programming. Big college football and basketball – Top 25 games and historically powerhouse schools can move the needle. Add a conference tournament, some bowl games, and suddenly the 1-2 ratings the NHL gets for playoff games move to 3-4 ratings for big college games.

Ancillary to television, additional content and presumably some sports personalities, would make the web property more valuable (though not a hard task given the lack of web presence the network currently has). Destination programming would also make the network more valuable in Comcast’s TV Everywhere push and network of online TV content, providing synergy value across the company. College sports programming also opens the door for content licensing in local markets – another revenue stream to cover programming costs.

It carries risk, but the ratings show football is about as steadfast as you can get with programming and college fans have shown they will find their teams on television. College can take the network to the next echelon, and possibly help get to the tipping point of national prominence where it can get better channel placement and better affiliate deals.

Are Pro Sports Ready to Embrace Gambling?

Without betting, the NFL would not be far and away the most popular US sport. The NCAA tournament would not register the same mainstream impact that causes a major productivity drop for two workdays in mid-March. And most college football bowl games would fail to register on the public radar. Gambling is integral to the success of sports business, like it or not. Not necessarily big money, tens of thousands at stake gambling, but “casual gambling”.

Is it a coincidence that the explosion in sports revenue over the past decade has coincided with the rise of online gambling and fantasy sports? Gaming – of which fantasy and betting are each derivatives of – has a way of making sports interesting to those who would otherwise not care, which in many respects is good for business.

Implicitly, we realize the NFL, MLB, NHL, and NBA don’t want any affiliation with gambling because of the corruption often associated with it. It opens the door for players and anyone associated with the leagues to get themselves into trouble, plus diminishes the on field focus. However, sports leagues must realize its now beyond control thanks to technology. People take sports betting for granted because online sports books are so accessible and easy to use. Further, sports betting is ever-present in Vegas casinos, so what’s so different about Delaware. Is the NFL concerned that Baltimore Raven players will drive up the turnpike to drop bets on their own games now that they have an outlet in Delaware?

Given the lack of regulation and lack of transparency with online betting, I’d argue that putting regulated, controlled sports books into Delaware and other states would help sports control the process more and potentially prevent it from ever getting out of control. As the theory goes, sometimes the hard you work to take something away the harder everyone works to break the rules. By embracing sports betting in controlled environments the leagues can impose control over the rules – a better situation than currently in place today. Plus, they would have a better sense of the amount of money in play, how many people are involved, and other critical data that can prove invaluable in many ways.

Besides online gambling, almost every major media outlet posts spreads for games and has its reporters and analysts pick winners. Why? Because fans want to see it, its good for business. Journalists even report on various exotic bets and numerous gambling related stories – not controversies or scandals, mind you, but outcomes and financial implications. The leagues can not choose to ignore this, then battle the states. To a point, it’s hypocritical.

Sports leagues should view this as an opportunity not a fight. Control the situation, dictate the terms and conditions of how this gets implemented, how many licenses are available, and what it takes to participate. View it as a chance to correct what is now an unruly situation that sports has mostly turned a blind eye to. Allowing regulated sports gambling will provide more insight and transparency to the leagues than the current anonymous, sometimes illegal online gambling. Plus, it moves the revenue to a more useful place.

High Schooler Not Sacrificing Education with Euro Venture

Brandon Jennings decision to skip college in favor of playing professionally in Europe until he becomes eligible for the NBA draft raises many issues and controversial topics. Len Elmore, the superb broadcaster, former All-American player, and lawyer, took a strong stance on why the Jennings decision is wrong on many levels in this week’s Sports Business Journal. However, his argument misses one major premise.

Elmore contends that Jennings fell prey to his so-called advisors, like Sonny Vaccaro, and is undervaluing education by going overseas. Jennings may go on to star in the NBA, making this an afterthought, but Elmore worries about the others who may follow but are not qualified for pro basketball. Without a solid education their future remains in doubt.

Nobody can argue the value of a college education, and even more so the college experience that teaches some of the most important life lessons a young adult will learn. The assumption Elmore makes is that these college athletes who decide to attend college, while pursuing a pro career, don’t take advantage of the system. Elmore seems to agree the “one and done” rule does not work. It simply prolongs the process. Look how many first-year players entered the draft unprepared for the NBA, and fell into the second round or went undrafted. It’s no different than the players who went straight from high school and failed in the league. Most of these one-year players attend minimal classes, schools do their best to kepp the eligible by bending rules at times, and they bail on school once the season ends. Explain how that is any better than playing professionally in Europe.

If anything, at least players earn a check in Europe to help take care of their families. Further, living overseas can potentially open their eyes to a new world, providing a cultural education that college players never receive. Case in point, Freddy Adu, the soccer prodigy, has excelled in Portugal after struggling in the US. Adu is a slightly different story, having grown up under the spotlight and signing a big contract with Nike before playing.

If a new labor agreement can enforce a three-year draft eligibility rule, as Elmore outlines, it will help college basketball and most important, help high school kids become men. One and done is hurting college basketball. It’s turned the college game into free agency. Players still enter the NBA draft unprepared as basketball players and unprepared for life – some, not all. Would three years in school hurt anyone? Perhaps a player’s draft stock would fall or someone would get injured. But if they are not good enough in college, the NBA would weed them out immediately anyway, and many players have shown you can recover from injuries and still make it to the NBA, Brandon Rush and Bill Walker for example.

Anyone that opts for Europe in today’s one and done era is better off, since they don’t value the education and would likely find ways to bypass the classroom anyway. At least they earn money, and are exposed to a new world. Clearly the best option for everyone involved is a rule to change to keep student-athletes in school.

Mayo Incident Raises Question of NCAA Rules

Unless you have your head stuck in the sand, it’s no surprise to hear OJ Mayo received benefits from agents and other “business associates” as far back as high school. He’s not the first, not the only, and not the last – to think otherwise is naive. College football and college basketball are big business, bigger even than some professional leagues. With more money involved, it’s becoming impossible to keep the athletes from reaping any benefits.

Who deserves the blame in this case: Mayo, the agents and runners, his parents, or USC? While each is at fault to an extent, the agents and runners are the brunt of the problem. They take advantage of kids, mostly from low to middle class backgrounds that need money. But the real culprit is the system. None of the parties involved will get punished severely enough to prevent it from happening again.

The NBA completely washes its hands of this issue, turning a blind eye. No agents get suspended, no players face ramifications. The NCAA will now conduct an investigation, and if they find wrongdoing, will remove the USC season from the record books, possibly take back the money the Trojans made for the NCAA appearance, and slap some sanctions on the school. Last season is over and done with, the players already played, the school received exposure, changing the record books is useless. Stripping the school of scholarships hurts future teams, but how much could Tim Floyd and the athletic department do to prevent this? The only option is pay Mayo themselves, an even worse violation, let him go elsewhere, probably lose more games, and eventually lose your job. It’s a losing proposition.

Jay Bilas did a fantastic job identifying the key stakeholders in the situation: agents, shoe companies, summer programs, the NBA, and the NCAA, and describing how each contributes to the problem and what they can do to help fix it. I agree with Bilas on many fronts, and suggest checking out the column. However, the key is repercussions. Governing bodies deliver punishment, in this case the NCAA and NBA must both assume responsibility.

As Bilas points out, the NBA needs to set ground rules for agent contact with amateur players, get involved with these investigations, and create stiff penalties for breaking the rules. Similar to baseball’s steroid policy, it started to work when the penalties became sever. If Bill Duffy Associates is guilty, decertify the entire agency for one year. Make all of its NBA clients find new representatives for a year. On the next offense, permanently ban the agency and any agents involved.

I don’t fully blame Mayo and his family because it’s so prevalent in the youth basketball culture. I’m sure many other players he rubbed shoulders with in high school received gifts. However, the argument that players are too young and naive is bogus. Rules are rules, high school students know the difference between right and wrong, parents and guardians certainly do. Players deserve punishment. In most cases, problems are not uncovered until after a player’s college career ends, leaving the NCAA powerless. Even so, suspending a player from school does not hurt that much since most athletes in this situation have their eyes on the NBA and the money. If player’s break the rules, they should face suspension from the NBA, or be withheld from the draft for a year. That costs the player and his family money. Right now, players don’t lose much from dealing with agents or shoe companies. They get money, maybe lose a few college records, see their school face punishment, and go off to the NBA to make millions. The only way to change that is to hit them where it hurts.

Another misconception is that the NBA’s one-year rule is at fault. This practice has gone on for years, before any rule existed – case in point the Fab 5 at Michigan. Stephen A. Smith penned a great piece in ESPN Magazine describing how its gone on in the playgrounds forever. If the NBA mimicked the NFL rule of three years out of high school, nothing would change. Players would still go pro, agents would still want a piece of the pie, they would just have to wait longer to reap the rewards.

Not to open Pandora’s box, but the age-old argument of whether to pay college players creeps up. If schools compensated athletes for the money they bring in, then players become less inclined to accept outside gifts. First, that is probably not true. People always want more, if players could collect money from the school AND an agent, they would. However, combined with harsher sanctions, compensation gives athletes another reason not to associate with runners. College athletics, even with these issues, has a certain purity and charm that would disappear by paying players. Having been a college student, the time commitment these athletes give the school is immense, more than any part-time student job. Compensating student-athletes on a work-study type of system, with a set amount per semester – similar to your average student – is fair. Take that a step further, tie the dollar amount students qualify for to GPA and seniority to help solve the classroom problem. Any payment beyond spending money in a work-study setup risks corrupting the sport further.

Finally, the NCAA needs to loosen its rules on colleges interaction with athletes. Preventing coaches that actually care about the players, not the money, from meeting high school athletes, while allowing corrupt agents and shoe companies to run a muck makes no sense. Bilas begins to lay out a good argument on how the NCAA should be more involved in grassroots summer programs, and help put regulations around them. If it’s a choice between having college’s chase high school stars earlier and make recruiting calls (Kelvin Sampson), or high school athletes accepting payments from the BDA’s of the world, which is the lesser of two evils.

The solution starts with the NBA and NCAA coming together and taking the issue head on, rather than pointing fingers and looking the other way. Everyone’s to blame to an extent, everyone deserves to be penalized to an extent. Until the governing bodies take action though, they are at fault, similar to baseball looking the other way on steroids until recently.

CBS Tourney Success Glimpse at Multi-Platform Future

To steal the title line from the signature song of the NCAA tournament’s closing ceremony, CBS’s “one shining moment” of its coverage was the immense success of March Madness On Demand (MMOD). Plagued by uncompetitive games until the finale, and a growing fragmented audience, TV ratings fell to historic lows, yet online viewership grew by 164%.

Coverage averaged a 5.6 TV rating for the three weeks, drawing only 5.6% of households on average, slightly higher than the war interrupted 2003 tournament, notching particularly poor ratings over the first two weekends of play. Prior to the tournament, which CBS pays an average of $545 million to broadcast each year as part of its 11 year $6 billion contract, ad sales expected to sell out and generate between $450-500 million.

MMOD, again using a free, ad-supported model, notched 4.76 million unique visitors, up from 1.8 million last year, and generated an estimated $25 million in ad revenue, up from $10 million.

Before anointing streaming Internet the future platform of choice, put the numbers in perspective. CBS drew an average of 19.5M viewers for the Kansas-Memphis championship game, almost five times more than MMOD had for the entire 63 games. The $25M is nice, but it’s a blip compared to the half-billion dollar TV revenue.

Internet will probably never replace broadcast and cable television, who wants to watch a game on their laptop with a big HD screen at their disposal. However, CBS confirmed digital media has a role in supplementing major sports coverage today, something MLB already knew with the recent success of the MLB.tv product and the NBA is preparing for by including digital rights in its most recent television contract. No single event suits the Internet model better than the NCAA tournament thanks to multiple simultaneous games, games played at all hours of the day, and enormous hype, not to mention the gambling numbers.

Questions remain on monetizing the digital world. CBS only reached the tip of the iceberg this year, though they are the most successful live sports event up to this point. Networks seem to be finished worrying that online broadcasts will cannibalize television audiences. In fact, digital media targets a different market. Die-hard sports fans are more likely to supplement TV viewing with online consumption, expanding depth of viewership rather than focusing on vertical growth by grabbing casual fans. That die-hard fan sits in the coveted 18-49 group advertisers love.

Leagues and networks can reel in two important demographics by leveraging digital media, the younger generation and growing international market. Many countries live more advanced digital lives than in the US, making live sports accessible online, or via mobile, will generate interest overseas leading to far more penetration than traditional media ever realized. Teenagers in the US are similar, living and breathing the digital world. As fewer kids watch traditional television, networks must fight for their attention online to capitalize on another valuable advertising group.

No league or media company can say its figured out social networking yet. CBS partnered with Facebook for an NCAA bracket game, but no profitable model for social networking exists. Capitalizing on that space is the million-dollar question not limited to sports media.

As digital becomes more prevalent, expect viewership online and on traditional television to continue to converge, but never reach a point where more viewers watch a big event online. Will advertising dollars follow the same path? Next year will tell the story for CBS and the NCAA tournament.

Meanwhile, sports must learn from this success and build on the momentum. Opportunities are abound, both to supplement coverage of currently televised events, and to leverage the digital experience to cover new events. The key will be how to turn it into new revenue streams.