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Large market, highly branded college teams win over time

The fundamental elements that increase franchise value in professional sports are already deeply engrained throughout college athletics.

(James Snook/USA TODAY Sports)
(James Snook/USA TODAY Sports)

The last couple of weeks have featured the customary upsets on the college basketball court, as well as the ongoing and heated debate off it regarding the commercialization of college athletics.  But all this hand-wringing about the state of college athletics and, more to the point, the commercialization surrounding it, is misguided.

The debate, which has historically centered on the differences between the so-called collegiate and professional models, has recently shifted to how best blend the two. The collegiate model has striven to balance academics and athletics, while optimizing the right amount of commercialization.  At its core, the professional model is about generating revenue and, over time, sports franchise value. On the surface it would appear that these are on a collision course; but the collision happened long ago, and the fundamental elements that increase franchise value in professional sports are already deeply engrained throughout college athletics, and drive collegiate franchise values. Look no further than the issue of competitive balance for evidence of this.

True competitive balance is not desirable if a primary goal is to increase franchise value. Consider how players are optimally distributed in pro sports. Over time, every team in a league, including small-market teams, is better off if the large market or highly branded teams sign the best players and perform well. Accomplishing this increases media and corporate revenue at both local and national levels; revenue that finds its way back to every team in the league, albeit at different amounts.

Essentially, the key to long-term asset appreciation is to allow small-market teams to win just enough to maintain fan interest, whether these fans are face painters or linked to corporate America.  This must be accomplished in a manner that softly guarantees that the large market or highly branded teams win over time.  When this happens, all those hoping to make money from sports benefit, ranging from athletes, agents and sports marketers, to the respective league, its franchise owners and their business partners, most notably the media and sponsors.

Consider how revenue is distributed in college sports. The vast majority of the NCAA’s budget comes from its 14-year, $10.8 billion agreement with CBS and Turner Sports to televise the men’s basketball tournament. Estimates suggest that this enables, on average, about $740 million annually to be distributed to conferences and schools. But how is this revenue allocated?  The core determinants by the NCAA are how well a conference performs over a rolling six-year period in the tournament; the number of scholarships the school offered the previous year; and the number of sports/teams the school fields.

Although these factors were rooted in helping stabilize the athletic department budgeting process and removing the immediate fiscal impacts associated with a specific loss in the tournament by broadening distribution criteria, additional consequences have proven even more impactful.

The rolling six-year average mitigates against too many “Cinderella’s” from small conferences and modest media markets upsetting the revenue apple cart over time, as this would suppress revenue generation. With regard to scholarships and the number of sports/teams offered, big market and well-branded athletics programs are far better positioned to excel because of their media market size, access and attractiveness to corporate America and athletic heritage, which routinely drives boosterism and scholarship funding. Each increases revenue while simultaneously positioning these individual schools to receive the lion’s share of NCAA distributions.

These distribution criteria all but guarantee that the top programs from the big conferences maintain their status as revenue generators and, by extension, increase their franchise value over time.  To this end, and as is the case in pro sports, college athletics is structured and fundamentally incented to ensure that its large market or highly branded teams win over time.

So, why all the misguided hand-wringing over the perceived over-commercialization of college athletics? After all, not only has this structure firmly taken hold over the last decade, but it’s also in the best interests of anyone that hopes to profit from sports.

Just something to think about as we prepare to watch a Final Four consisting of Florida, UConn, Kentucky, and Wisconsin – four ‘big market’ and/or well-branded teams.

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David Carter is the Executive Director of the USC Sports Business Institute and is an associate professor of sports business at USC’s Marshall School of Business. Bio

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