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March Madness: Follow The Money

CBS News, March 20, 2015

By Jonathan Berr

Playing ball in the NCAA Men's Basketball Tournament comes at a steep price for corporations, but it's a nice payday for broadcasters, the participating schools — and the NCAA.

For businesses, the NCAA offers a combination of commercial time and marketing opportunities such as the use of its logo for sponsorships called "corporate partners," which sell for about $10 million, and for "champions," which go for between $30 million and $35 million, according to Jim Andrew, a senior vice president at IEG, a corporate sponsorship consulting firm. These companies also get access to tickets for championship matches and in some cases are given category exclusivity, meaning their competitors will be shut out of the tournament.

The reason corporations are willing to pay big bucks to be part of March Madness: Sports is one of the few genres of programming left that viewers mostly watched live. The passionate fan base — expected to wager $9 billion on the tournament, roughly double the amount bet on the Super Bowl — is another attraction.

"It's a tremendous promotional platform," said Thompson in an interview. "They don't have to beat down doors and do a very hard sell."

For the NCAA, March Madness is its most profitable business, earning roughly $900 million in revenue, most of which comes from the broadcast rights paid by CBS (CBS), parent of, and Time Warner (TWX). The media companies signed a 14-year, $10.8 billon deal in 2006.

They get the money to pay for that deal from the lucrative advertising that goes along with all that dribbling. The average price of a 30-second ad unit in 2014's championship game was just under $1.5 million, a 5 percent increase over the prior year. Overall ad spending on the games has more than doubled to $1.13 billion in 2014 from $479 million in 2005, according to Kantar Media.

For the teams, the benefits vary widely. They can net $1.67 million just for appearing in tournament regardless of whether they win. They earn about $5 million making it to the round of 16 and $8.3 million if they reach the Final Four.

The biggest amount of money comes from the NCAA's Basketball Fund, which is distributed among athletic conferences using a formula based on how they performed in the tournament over the past six years. In turn, the conferences distribute the funds, which topped $193 million in the 2013-2014 season, to their member schools.

The University of Kentucky, Villanova University, the University of Wisconsin and Duke University have been skilled and lucky enough to land No. 1 seeds in the Round of 64 that began yesterday. They're also among the fortunate few that earn a profit. According to the NCAA, as of 2013, only 3 percent of men's basketball programs generated surpluses, which was in-line with previous years. No women's programs were profitable. The median loss for basketball programs during that time was $811,000.

Kentucky, which went undefeated in this year's regular season, earned $23.7 million during the last school year on expenses of $16.2 million. Villanova, this year's Big East champion, earned $10.5 million in revenue compared with $7.3 million in expenses. The University of Wisconsin, which won the Big 10 title, earned $19.4 million in revenue compared with $7.6 million in expenses. Duke, a perennial contender, netted $27 million in revenue on $14.2 million in expenses.

Why don't more teams turn a profit? "There is cost pressure that comes from the very top schools," said Andrew Zimblast, a sports economist at Smith College, referring to coach's salaries among other things. And he noted, "Basketball attendance seems to be falling of a little bit."