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Playoffs?! The Big, New Boon To College Football

CNBC, December 31, 2014

By Jacob Pramuk

In establishing a national championship playoff, college football's power players did more than take a step to allay long-standing concerns about competitive fairness. They crafted a system with an extended window for marketing and advertising interest, boosting the sport's ability to rake in revenue, experts told CNBC.

It will be a wildly successful commercial entity, in part because it will be perceived as a better product than the BCS system that preceded it," Randy Grant, a Linfield College economics professor who studies college sports, said in an email.

Four schools—Alabama, Florida State, Oregon and Ohio State—will compete for the national championship in the first-ever College Football Playoff, which starts with two semifinal games on New Year's Day, followed by a championship game on Jan. 12. Since 1998, college football's Bowl Championship Series (BCS) has sent only the two highest-ranked teams to the national championship game, while other elite teams were knocked from championship contention to lesser bowls.

The playoff system effectively draws championship interest to three games instead of one. Playoff broadcaster ESPN and major college athletic conferences will likely enjoy a windfall tha t could potentially find a spot among America's most lucrative sports playoffs, experts said.

"The 12 days and three games opens the marketing window and increases the payout for ESPN's 'sports holiday,'" Vanderbilt University sports economist John Vrooman said via email.
Better than the BCS? More lucrative, at least

Years of furor over the BCS system's perceived unfairness prompted its dismantling in favor of a playoff. The College Football Playoff doesn't eliminate existing BCS bowls, and it retains some aspects of the previous system, such as sponsored naming rights.

In its inaugural year, the playoff will feature semifinalists in the Rose Bowl Game presented by Northwestern Mutual and the Allstate Sugar Bowl. Early indicators suggest that ESPN and athletic conferences will take in more cash than under the BCS, since the winners of those contests face off again about two weeks later.

"The new system should provide a boost," Grant said. "With the four-team playoff, there are now two more games that take on added significance."

ESPN's estimated $610 million annual commitment ($7.3 billion over 12 years) to secure broadcast rights reflects its confidence in the playoff's commercial allure. The rate more than triples the annual fee the network paid for the last four years of the BCS, according to Vrooman.

Sponsors sense the potential for increased exposure, as well. Fifteen national sponsors—ranging from automakers to banks and restaurant chains—have bought into the playoff, said Amy Phillips, senior director of communications at ESPN. Dr. Pepper, for example, paid an estimated $35 million to become a "championship partner" for the tournament, trumping buy-ins in the BCS era, which usually fell under $20 million, Vrooman said.

With the increased commercial interest, more money will trickle into large college athletic conferences than did under the BCS. The Atlantic Coast Conference, Big 12, Big Ten, Pac 12 and Southeastern Conference—collectively known as the "Power Five"—will increase their haul this year.

If those conferences meet NCAA academic standards, they will split a base sum of about $50 million, plus bonuses for teams that participate in playoff games, according to data from the College Football Playoff. Under the BCS, the base share before bonuses totaled about $28 million.

Though the playoff will make more money available, the appropriation system favors the "Power Five" conferences over the remaining five Football Bowl Subdivision conferences, Vrooman said. The remaining conferences, which work with roughly a fifth of the budget enjoyed by the largest programs, did not see a significant boost in revenue from the playoff system, he added.

"The major differences in revenue-sharing between the Power Five and [the remaining conferences] could adversely affect the balance between the top and bottom of current FBS football programs," Vrooman said.

Representatives from the College Football Playoff did not respond to CNBC's requests for comment on the playoff.

Most profitable college tournament?

The College Football Playoff "competes very well" with major professional and college sports as a commercial event, said Jim Andrews, senior vice president of IEG, a sponsorship and marketing consulting firm. Stretching the national championship over a longer period increases its haul, making it more competitive with other sports, he said.

"I'm not sure if we'll get to Super Bowl standards, but it will be similar to March Madness," Andrews said.

"March Madness," the nearly month-long college basketball tournament, gains more revenue because of its extended schedule. But recently, college football has maintained a notable viewership edge over basketball.

A viewership advantage has not translated to an ad revenue advantage, though. Ad rates for the College Football Playoff are hitting an estimated $1 million for 30 seconds, compared to $1.5 million for the same time slot in basketball, Vrooman said.

But the level of interest—from fans, advertisers and broadcasters—could increase as football's playoff establishes itself. College football's power players stand to make even more money if the tournament expands to eight teams and seven games in the future, Vrooman said.

Currently, ESPN's annual broadcast rights payment trails the $771 million annual sum CBS and Turner Broadcasting pay for March Madness. Football's revenue potential will continue to grow in the "explosive climate" for live sports rights, Vrooman said.

Annual TV rights fees for the four major American sports surged 61 to 400 percent from their previous to current deals, all of which stretch past 2020, according to Vrooman.

Under the new system, college football's advantage over other sports will lie in the relative brevity of its playoff, Linfield's Grant said. The NBA, MLB and NHL all suffer from what he called "season fatigue," where drawn-out playoffs follow already long regular seasons.

Even though it creates a "period of tremendous excitement," the College Football Playoff faces a few issues in becoming a commercial sports giant, IEG's Andrews said. One of the most glaring issues is that it doesn't hold an "isolated time period" that it has exclusively to itself.

The entirety of the playoff will take place during the NFL playoffs—when viewers flock to the United States' most popular sports league.