Accounting for March Madness

March 21, 2010
Posted by Jay Livingston

The powers at SUNY Binghamton tried to sell their academic soul to the devil. All they asked in return was a good basketball team. I wondered aloud (here) if, in these hard times of budget cutbacks, they might have thought a top team would bring in the big bucks, and I added my opinion that if that was their view, they were shooting from well beyond the three-point line.

But a story by Chris Isidore at CNN supports the idea that college hoops are a good investment.

it’s clear that men’s basketball is a major source of funding for many colleges, and that profits are still far more common than losses for the major teams in March Madness.

Isidore gives the basic accounting for 342 Division I teams.

• Total revenues $1.08 billion
• Total expenses $796 million.
• The bottom line: a profit of $281 million. (That’s either 26% of revenues, or a 35% return on the expenses.)

The CNN article has the complete list. In the graph below, I’ve grouped the schools according to net profit as reported in the article.

(Click on the graph for a larger view.)

Clearly, the winners outnumber the losers. Even SUNY Binghamton is in the black, with a profit of $29,000 on total revues of $1.6 million, about 1.8%.

But what’s up with that very large number of teams that broke exactly even? It suggests that we need to take a closer look at the Revenue column.

Victor Matheson of The Sports Economist and Holy Cross looked at the books at his own school, which had expenses of about $1.5 million and, miraculously, revenues of exactly the same amount. It turns out that $1 million of these “revenues”

came from direct institutional support. The team didn't break even. It lost about $1 million.

The same is probably true of many of these break-even teams. Their “revenues” are what the school shells out to cover their expenses. In this sense, the Sociology Department at Montclair State is a break-even unit.*  Our revenues (entirely in the form of money from the University) exactly matched out expenses.  We do not know just how far to the red-ink side of the graph those break-even schools really are, but it’s clear that the CNN reporter is wrong.  Losses are more common that profits.

Even some of the profitable schools may be using Enron-inspired accounting measures. UNC Chapel Hill, whose $12.3 million basketball profit is second only to Louisville,** counts only revenues from ticket sales, TV, and other legit sources. But on the expense side, as Matheson notes,

the University allocated exactly zero dollars in expenses to the basketball team for things like medical trainers, facilities and maintenence, promotion, or indirect institutional support. It’s pretty easy to have a profitable basketball team when all of your revenues count towards the bottom line but many of your expenses don’t.

* I’m going to suggest to our president that if the department could just sign a good power forward, we might actually turn a small profit.

** FWIW, UNC didn’t make it to the 65-team NCAA draw, and Louisville lost in the first round.