Tuesday, January 15, 2008

Reverend Johnson's Invocation

Propriety requires that this continuation of my seemingly futile attempt to douse the BCS/Playoff conflagration begins with the same invocation that preceded the seemingly futile attempt to build a second Rock Ridge in 8 hours.

"Oh Lord! Do we have the strength to carry out this mighty task in just one night?
Or are we just jerking off?"

A full understanding of the debate requires that we delve even deeper into the economics.

Let's start by examining football advertising revenue and comparing it with basketball. For 2005, regular season NCAA football games generated $328.5M in advertising revenue and the bowls $146.8M, a little more than a 2-1 ratio favoring the regular season. For basketball, the regular season generated 159.2M in advertising revenue while the NCAA Tournament generated $467.7M, nearly a 3-1 ratio favoring the post-season.

In basketball, the weighting of revenue in favor of the post-season doesn't bother the excluded, though the big and strong might be a bit annoyed, as ALL the Tournament money goes to the NCAA where 50% is doled out to the conferences pursuant to a point system based on tournament participation during the trailing 6 years. The system is relatively simple, each game played is a unit, and each conference's total units in the trailing 6 years are multiplied by $152K. 1/3 of the money is doled out to the conferences based on the number of scholarships they give out and 1/6 to the conferences based on the number of sports in which they participate. While it is not worth explaining completely, there is a sub-formula for each of these, also computed on the $152K per share valuation system. The NCAA then doles out the money to the conferences. The conferences, in turn, dole it out to the member schools. What was the impact?

In 2005, of the roughly $240M doled out through this formula, the Big 12 received $24.5M while the mid-major, Conference USA received $15M and the small, Southland Conference (who?) received $5M. As you can see, under this system, even the little bitty guys profit nicely.

But that's socialism! That's Big Government! What happened to States' Rights? Where's the Laffer Curve?

In football, not only is the advertising revenue heavily weighted towards the post-season, but the bowls have additional revenue streams stemming from various IRS rules. Remember, the bowls are organized as 501(c)(3) charities, thus the exorbitant sums paid by corporations such as Tostitos, Outback, Chic-fil-A, Capital One, etc. are characterized by the IRS as "qualified sponsor acknowledgements," not advertising, which would be taxable income for the 501(c)(3) as an Unrelated Business Income Tax or "UBIT." In the early 1990's, the IRS realized that the bowls were really selling advertising and attempted to crack down, but the bowls, and other entrenched "charities" mounted a successful lobbying effort that squelched this movement. As a result, not only do the charities have the TV money to spend, but the large sums paid for naming rights.

Mmmmmmm.........Doughnuts!!!!!!!!!!!!!!!





















In football, unlike basketball, the cash cow is not controlled by the NCAA, but by these large pseudo-charities and the major conferences through the BCS system and the "tie ins." So, recall yesterday's numbers, including the BCS NC game, there is about the same amount available for distribution. And, recall that the Big 12 is guaranteed, even with no BCS NC appearance $31.6M....far more than through the much more lucrative NCAA Hoops Tourney. Because they had 2, they will actually take home $53.1M since both Oklahoma and Kansas played BCS.

Ah, there's my Laffer Curve! Hooray enlightened self-interest! Let them eat cake!

And, let's not forget the BCS rules. If a mid-major is in the Top 12 one, and only one, is guaranteed a BCS appearance. Alternatively, in the unlikely event that a mid-major is in the top 16 AND a major conference champion with a guaranteed berth is not, one, and only one is guaranteed a berth. Like Sisyphus, the mid-majors are condemned to annually push their boulders up the season's hill, only to see them roll back down to the bottom.

Why in their right minds, would the major conferences let those greedy non-performers have a real opportunity for a place at the trough or lessen their own takes? They won't.

Implementing a playoff system would heavily weight interest in the playoff games to the detriment of the bowls. An 8 team playoff would, of necessity, require at least 3 weeks. So, if Conference Championship Weekend is the first weekend of December and taking the week off between Christmas and New Year's, you've just killed the bowl season. No TV network or corporation in their right mind would pay any amount of money for the rights to televise or have their brand name promoted when they're going against such goliaths. As a result, the secondary tier of bowls will die on the vine, thus decreasing revenues for the majors and eliminating it for the mid-majors, who could no longer have even the POSSIBILITY of a guaranteed berth in the playoff.

And, of course, an 8 team playoff retains the same sort of arbitrary exclusion that results in the constant BCS criticism. For example, this year, after including the major champions do you exclude Kansas, Missouri, Georgia, Hawaii....remember, we didn't know Hawaii was a pretender! Do you think voters wouldn't take into account BCS positioning when planning their vote for the team that would take the final spot? Look what happened to Georgia this year, they were legitimately excluded, in my mind; but if the voters had voted them the same as they had the week prior, a vote done with the knowledge that they wouldn't win the SEC East, they would have supplanted the NC LSU Tigers in the NC game. That sort of gerrymandering based on human judgment will continue.

So, you see, the interests of all are aligned in protecting the current system. The majors make more, the mid-majors have more of a chance at the BCS money than they would with a playoff, the networks make more, sponsoring companies get more exposure for their tax deductible buck and the secondary bowl pseudo-charities (read local economic councils) continue to bring the games with accompanying local economic boom! And, you can't eliminate the human factors that cause the criticism of the BCS.

9 comments:

Geno 44 said...

Gator KGB-

I linked to your latest post-

hope it's Ok with you.

Geno 44

Anonymous said...

I like your articles, but your comma splices make comprehension very difficult.

Anonymous said...

That argument is nonsense. Who cared about the Gaylord Hotels Music City bowl this year? Kentucky and FSU fans, with Gators smirking at the Semi's loss. Who would have cared about the Gaylord Hotels Music City bowl if we'd had a playoff system this year? Kentucky and FSU fans, with Gators smirking at the Semi's loss. The low-tier bowls are already irrelevant, and are already drawing revenue from a limited pool. A playoff system extends and season and creates more compelling, and thus more financially exploitable, match ups. With the right profit sharing system, everyone wins.

GUF said...

With all due respect, who didn't know that Hawaii was a pretender? I seem to recall that sentiment being extremely popular, especially on the part of all of us SEC homers

Gator Boys said...

Yea, the only people who care about the terrible bowls are the teams/fans in them. I dont see why we would have to take all that time off for bad bowls though. They could continue. 7-6 teams (who obviously arent in their conference championships) could start playing bowl games the day after Conference Championship weekend. If we had a game or 2 per day between the end of the season and the playoffs it'd be practically the same... I think

Gator KGB said...

In response to Anonymous #1, the people, other than the fans of each school, who care about the Gaylord Hotel Bowl are as follows:

1) Gaylord Hotels who paid the bowl committee substantial money for the naming rights and are locked into a multi-year contract for that money.

2) The participant conferences each of which received a certain sum of money based on their member's participation and are similarly locked in for a number of years.

3) The Bowl Committee. Read that as the city hosting the Bowl which will make many millions of dollars from thousands of people coming to town for a couple of days.

4) Whatever TV network has paid for the Bowl Committee for the right to televise the show.

As a truly secondary tier bowl, its very existence is threatened by having to compete with several weeks of tournament games. Advertisers will save their bucks which will devalue the TV and the the naming rights, thus reducing the payout or eliminating the financial viability, which equals less money to the participant conferences.

Are they irrelevant? Well they account for 36% of the total bowl money available. In the SEC's case, they account for 49.7% of our guaranteed bowl money due to Kramer's masterful job with the "tie ins."

Regarding Hawaii, yes, we were all suspicious, but we didn't know for sure until they were undressed by Georgia and they likely would have been excluded from an 8 team playoff, resulting in a large hue and cry. So, because of the hue and cry that would have gone along with the exclusion of the undefeated underdog, they had to be included in the paragraph.

In response to Anonymous #2, sorry, but I don't really have time to edit these things too much, as a result there is a risk of grammar errors and/or dodgy wordsmithing.

Andrew said...

You can't move the secondary tier games from the current dates to 1 week after the season, as someone suggested for a couple of reasons.

1) Holidays. People get time off work over the Christmas/New Years holidays and make the trip to these games. Not to mention students are out of school.

2) Layoff. Teams need time to game plan for an out of conference foe. You can't just spring it on them the week before. They also want time to rest guys and get healthy. If you don't space these games out, they become just another regular season game and then even less people care!

Gator Duck said...

Andrew, go back to an 11 game season and get rid of the bye week.

Andrew said...

gator duck,

The 11-game season adjusts to allow for a longer layoff, but you still miss the holidays. People travel around the holidays. Students are out of school. These bowls are strategically placed.

If we don't separate the secondary tier bowls from the regular season by some time, we might as well add a 12th game back in at a neutral location with little notice. That's all the bowls will become; an extra regular season game. And then no one outside of these teams fans will care. Bye bye advertising revenue and television contracts.