Analyzing ‘Death To The BCS’ : Chapter Seven

Our ‘Death To The BCS’ series continues, even though the college football season is in the rearview. Days back we focused on Chapter Six : Presidential Problem. Today’s entry, Chapter Seven : Myth Of The Dead Bowls.

– In an effort to create fear-mongering, The Cartel works to sell the lie that a playoff system would kill the current bowl game system. Both BCS executive director Bill Hancock and Big Ten commissioner Jim Delany have spread this myth for years.

– With a playoff system, the current bowl system could exist. It’s not an either / or scenario. There can be a playoff system and a bowl system. The proof is in the way bowls operate fiscally and the real impact of a playoff on college athletics.

– ‘Death To The BCS’ authors studied the available financial statements, tax filings and business plans of not-for-profit bowl games and spoke with numerous bowl execs, television deal makers, athletic directors and conference commissioners in effort to move part the Cartel’s hysteria.

– Take the Rose Bowl, as an example. Big game. Huge brand. Rich history. Coveted, late-afternoon New Year’s Day television spot. The game wouldn’t get two conference champions, but would still get two major schools with two huge fan bases. In 2010 that would’ve meant a Penn State vs. Oregon State match-up as opposed to Ohio State vs. Oregon.

– The Rose Bowl’s $30M a year TV contract may dip in value, but execs claim it’d still remain a $15-20M property, on top of selling a hundred thousand tickets, parking, title sponsorship, advertising and concessions. The Rose Bowl is currently a $51M event annually (according to tax records) and Mitch Dorger, who ran the Rose Bowl for the past decade agrees that the game would be just fine.

“The Rose Bowl would survive,” said Dorger.

– Take a lesser bowl like the Chick-Fil-A Bowl, which pits an ACC team against a SEC squad. Never any national championship implications and often inviting five-loss teams, it’s simply a football game played on New Year’s Eve in Atlanta, usually with regional teams pitted against each other (re: easy driving distance for fans).

It’s a foolproof business plan. Sell two big southern fan bases on the idea of watching some good football and partying a few days away in Buckhead. Not only does the game routinely sell out, but over the past few years it’s drawn better attendance than both the Atlanta Falcons and SEC Championship game, both hosted in the same building.

– Like most bowl games, four main revenue streams sustain the Chick-Fil-A Bowl: ticket sales, a TV contract, advertising / sponsorship and a catchall that includes fundraising, merchandise and government aid.

For its game in 2008, the Chick-Fil-A Bowl pitted Clemson against Auburn and produced $12.3M in revenue. Tickets raised $4.3M and sponsorship $2.6M. ESPN paid $2.5M to broadcast the game, while fundraising / merchandising was responsible for $2.3M. The bowl game receives no direct public money, unlike other games, so the rest came from interest on investments and assets.

Assuming there was a playoff system in place, ESPN wouldn’t drop a ratings winner and ticket sales wouldn’t change. Fundraising, a local endeavor, would stay the same and even if some sponsorship money dried up, it wouldn’t threaten the game’s existence.

– The 2008 Chick-Fil-A Bowl – a non-profit organization – turned a 16.9 percent profit and couldn’t waste its way to break even, ending the year $2,073,747 in the black. Rather than giving extra to colleges that could use it or offering more to charity, the bowl put the profits into reserves, ending the fiscal year with $15.7M in total assets, including $8.1M in cash.

– Delany stated that a playoff would suck money away from bowl games. “It’s a migratory dollar. And the dollar tends to follow those areas of those elements of a competitive season that are most attractive,” essentially admitting that a playoff system is more attractive than today’s bowl games.

Still, the migratory dollar might not be so nomadic. Sports economist Andrew Zimbalist argues that as bigger corporate sponsors drive up prices on what would be higher-rated playoff games, other companies will seek more-affordable options.

“As prices for sponsoring a playoff … rise, some corporations will return to the non-BCS bowls until the cost per thousand viewers (or some other metric) equalizes,” Zimbalist wrote in his paper The BCS, Antitrust and Public Policy.

“The proper output metric is not the number of games, but the number of fans consuming these games and the quantity of money spent in this consumption. There are very good reasons to believe that total bowl consumption and spending will increase under a playoff system.”

– The current bowl system is not subject to a free market, and this is where the future of the smaller bowls comes into play. If left alone, the minor bowls would collapse, and they would collapse spectacularly.

– The BCS operates much like a government, offering a form of welfare to ensure the survival of small bowls. Insiders estimate just fourteen of thirty-five bowls are self-sufficient. The rest profit from a system that takes money from universities and guides it into the pockets of bowl operators.

– In the 2008 Insight Bowl, Minnesota only sold 1,512 of it’s 10,500 full-price tickets and incurred a $434,340 loss on tickets alone. After spending an additional $1.2M on travel and other expenses, it cost Minnesota $1.7M to collect the bowl’s $1.2M payout.

Power conference teams are willing to lose money on smaller bowls because their league peers cover the losses by participating in BCS games with $19.8M payouts. In this case the Big Ten pooled its bowl payout money and cut Minnesota a check that covered nearly all its expenses.

Meanwhile the Insight Bowl enjoyed its guaranteed ticket revenue and despite close to 25,000 empty seats, turned nearly a $1M profit. In essence, the Rose Bowl funded the Insight Bowl. This is how the system works.

–  As long as the Big Ten agrees to an arrangement that cuts into big-game profits, small games will go on forever. If the Insight Bowl operated in a ‘real’ marketplace, Minnesota wouldn’t have played in a game that required it to pay its own way for nearly a week or would it have bought full-price tickets it never could’ve sold. In 2009 the bowl drew an 0.3 television rating and in the real world, the Insight Bowl would wither and die.

– The Cartel will always continue adding games that cannot stand on their own. The athletic directors receive bonuses for bowl appearances while coaches use bowl game berths to help fetch contract extensions. Conference commissioners also push salaries into the multi-millions by citing how many of their teams participated in bowls. There’s also the lavish dinners, drinks, golf outings and entertainment that the lavish bowl game lifestyle provide.

– The Cartel could pull the plug on 60 percent of the bowls immediately. Since it doesn’t, these games – fundamentally flawed businesses – end up like factories with a government contract.

– Currently the payout for the thirty-five bowl games are worth about $220M to college teams. This is the total gross revenue the post-season produces for the schools. About $80M of that is spent on travel, unsold tickets and bonuses. It’s the cost of doing business and it keeps the smaller bowls alive, which the Cartel wants.

– If the Cartel doesn’t mind spending $80M to subsidize bowl games when the gross revenue is $220M, it isn’t going to pull the plug when a playoff generates $750M. Even if bowl payouts dipped 50 percent and generated just $110M, the money would be a drop in the bucket as long as a playoff is around.

College football would be replacing a poor earner with a good one. Spending $80M of $860M in revenue is infinitely more palatable than $80M of $220M. The Cartel is currently allocating 36.4 percent to keep bottom-tier bowls alive and would have to be thrilled to only pay 9.3 percent if there were playoff money on the table.

– In January 2010 USA Today reported that Division I-A athletic departments collectively needed $826M in subsidies from taxpayers and student fees to balance their books. The NCAA says colleges dropped 227 teams between 2007 and 2009, mostly due to budget shortfalls.

The Knight Commission on Intercollegiate Athletics released a study in October 2009 that detained the concerns of university presidents on rising athletic costs. The report featured input from presidents representing 80 percent of Division I schools and the result; the commission concluded “university presidents at institutions with major college football programs agree that current spending trends on intercollegiate athletics cannot be sustained nationally and collective action is needed to address escalating costs.”

In other words, the current bowl system isn’t coming close to meeting the financial needs of its athletic departments. If the presidents were to take action, cutting some of the “Welfare Bowls” would be first and foremost. Cutting bottom-tier bowls would immediately improve profits, with extra money going towards scholarships, campus improvements and other sports.

– Bowls as a business stink, yet the football itself is wonderful due to players, coaches, action and excitement. The game doesn’t discriminate, which is why the Rose Bowl can have the most compelling drama one year and the Beef ‘O’ Brady’s St. Petersburg Bowl the next.

The game deserves the best system possible – one whose weekdays teem with bowls and weekends that sizzle with playoffs. A month-long cornucopia of college football madness.

– Next up; Chapter Eight : It’s Always Some Team Getting Screwed

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