Indianapolis' 'once-in-a-lifetime' March Madness will go on — because for NCAA, it has to
INDIANAPOLIS — Against a difficult financial backdrop, in the midst of a global pandemic, the NCAA is going to try something unprecedented.
The association announced Jan. 4 that it would host the entire Division I men's basketball tournament in central Indiana, even as the state reported 3,630 new cases of coronavirus and an additional 39 deaths, and as it saw a steady rise in the positivity rate from Dec. 23 through the early part of January. Those numbers have been trending better recently.
The NCAA is taking what it hopes will be a once-in-a-lifetime approach to the 2021 tournament after last year's tournament was shut down by COVID-19 before it could begin, costing the NCAA revenue approaching $1 billion.
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That is why, even given the unprecedented challenges, the wider public health situation and the fact that this has never been tried, there exists a firm belief that the NCAA will, come hell or high water, find a way to make it happen.
No one can afford the alternative.
Working to ensure a safe tournament
Everyone involved in the NCAA's announcement this month, from the governor to the mayor to NCAA President Mark Emmert, expressed supreme confidence not just in the feasibility of an all-Indy tournament but also in the safety of one.
Some of that is based on coordination with the city and the state. And some of the NCAA's confidence is based on its own safety protocols, which have been in place for months as a road map for schools to safely return to competition.
Those recommendations touch on a variety of issues, from testing and tracing to best quarantine practices to understanding risks of transmission and more.
"The NCAA medical advisory panel, well back in the summer, has presented guidelines for our membership for the safe return to sport," NCAA Senior Vice President of Basketball Dan Gavitt said.
Some procedures will be amended to fit the tournament. The NCAA will sequester teams on their hotel floors and provide tight security, according to Gavitt, around meeting and practice spaces.
The NCAA is also expected to put teams through rigorous testing during intake. Gavitt said the environment would not be a true bubble, but would be "very controlled."
There are also questions of wider public safety.
The NCAA hasn't decided whether spectators beyond a small number of team members' relatives will be allowed into games. Gavitt said that decision could come next month.
"We have certainly had plentiful and fruitful discussions with (Marion County Public Health Department Director) Dr. Virginia Caine, in particular, and the Marion County Department of Public Health, and have gotten preapproval of some of those protocols that we’re still working our way through," he said.
But fans won't be a deal breaker for the tournament to be played, as they aren't right now in the Big Ten, which allows only family members in arenas, spaced out for social distancing.
What matters most is playing the tournament. The NCAA can draw confidence (and lessons) from the variety of sports that have completed or are playing their seasons despite coronavirus-related challenges.
"We’ve learned so much," Gavitt said, "from the success of others about how to go about doing this."
March Madness drives NCAA
The show must go on because the NCAA Tournament is one of the country’s most recognizable and popular sporting events — and among its most lucrative. Annual revenue underwrites NCAA programs, funds disbursements to 1,200 member schools and, in effect, pays for the bulk of the association’s functional existence.
The cancellation of the 2020 tournament — amid the chaotic shutdown of the country in March to try to curb COVID-19’s spread — dealt the NCAA, its schools and its broadcast partners a painful financial blow. Deep cuts and furloughs were followed by a resolute determination to make sure the same thing did not happen in 2021.
It’s well-known that the Division I men’s basketball tournament is the financial lifeblood of the association. It generates the lion’s share of the NCAA’s annual revenue, which goes to everything from paying salaries to member distributions to staging championships and programs.
Everything the NCAA does or provides — rules oversight, eligibility certification, grants, scholarships, empowerment programs and more — is underwritten in large part by revenue from the men's basketball tournament.
In short, it is the engine that drives the NCAA’s mission.
According to financial statements, the NCAA reported total revenue in excess of $1.1 billion for the fiscal year ending Aug. 31, 2019. Of that, about $868 million was reported under television and marketing rights fees, plus nearly $178 million under revenue related to championships and NIT tournaments.
The bulk of that money, of course, comes from television and media rights deals, sponsorships and game-day revenue related to the men’s basketball tournament. In effect, the tournament pays the bills.
It was widely reported in the spring that the NCAA had business loss insurance, which would cover at least some of the gaping deficit created by the cancellation of the 2020 tournament. But it was simultaneously suggested that insurance would not cover the entire loss.
The NCAA responded by significantly cutting the salaries of its top executives and dramatically scaling back distributions to member schools. Later in the year, the association furloughed rank-and-file employees.
A year later, the NCAA still has business loss coverage, though it’s not clear to what extent. The overarching reality remains: Losing another men’s basketball tournament would be financially catastrophic.
Budget crunch hits hard
The NCAA’s financial outlook is laid bare by the dramatic measures the association has been forced to take over the past year.
Emmert took an announced 20% pay cut earlier this year, along with every member of his senior management team. Vice presidents took a 10% pay cut. Then, in early September, The Associated Press reported that the association would furlough approximately 600 employees for three to eight weeks.
The trickle-down effects reverberated across college athletics.
The association announced in late March that its annual distribution to member schools, estimated at $600 million before the COVID-19 crisis, would be reduced to approximately $225 million, a direct effect of the tournament's cancellation in March.
Those distributions are not the biggest piece of the pie being taken out of department budgets right now, but they aren't insignificant, either. For Power Five athletic departments, distributions can run annual revenue well into nine figures.
Big Ten athletic departments are facing revenue deficits running into the mid- and high-eight figures, with some departments fearing they could even push past $100 million. Even at Indiana — where football, the greatest driver of game-day revenue in the Power Five, is less financially robust than at peers such as Ohio State and Michigan — that deficit could reach $60 million for the current fiscal year.
NCAA distributions are determined by a variety of factors, including athletic and academic performance. Part of the formula is tied directly to performance in the basketball tournament, based on a rolling six-year average. Some is also distributed via the conferences.
Other sources of income, such as ticket sales, have accounted for bigger losses in the past year. But against the current financial backdrop — with sponsorship revenue down, gameday revenue virtually nonexistent and boosters probably more difficult to engage — a reduction or total loss of NCAA distributions for yet another year could be incredibly damaging.
“The reality is, it definitely would have a major impact on us,” Indiana athletic director Scott Dolson said. “It might not seem as significant, but given where we are with the pandemic and the loss of ticket revenue, it would be significant. It’s important.”
At a time when even some of the country's wealthiest athletic departments are enacting dramatic cost-cutting measures, and even discontinuing varsity sports, every dollar counts.
“When you’re analyzing every single expense,” Dolson said, “and you’re counting every single penny that comes in, no matter how big your budget is, it would be a major impact if we didn’t play the NCAA Tournament.”
That impact is felt even more sharply down the college athletics pyramid.
Distributions tend to decrease as they filter down, but their impact on departments remains profound, as overall budgets decrease as well.
For example, in fiscal year 2019, Indiana State reported athletic revenue at a fraction of IU’s, just $17.4 million. NCAA distributions were also lower, $653,823.
Yet, taken as a percentage of total revenue, the impact is virtually the same. In fact, in both budgets, NCAA distributions accounted for about 3.7% of revenue.
“It impacts my budget significantly,” Indiana State athletic director Sherard Clinkscales said.
And while the raw numbers might be larger for Big Ten and SEC institutions in terms of revenue lost, the safety net weakens farther down as well.
Why smaller schools can be hit harder
Many schools at the midmajor or FCS level athletically tend to be more broadly dependent on enrollment for funding that can be spread among various departments, including athletics. The ongoing pandemic has depressed that enrollment.
Within athletic departments specifically, key sources of income such as ticket sales or financial guarantees for taking on big football or men’s basketball opponents have disappeared, at a time when Clinkscales said COVID-19 testing for athletes and staff has added a significant line item to the budget.
The comparison is imperfect, given the size and scope of various athletic departments. But programs in moneyed conferences also enjoy league support. The Big Ten, for example, pays for athletes' daily testing now. Indiana State gets no such consideration from the Missouri Valley.
And unlike Power Five schools, programs such as Indiana State don’t come from conferences with rich television deals that can be offered as collateral to secure bridge loans that will see them to the other side of the pandemic.
Still, Clinkscales and Dolson see positives in the lessons learned from the pandemic.
Clinkscales pointed to ways in which his coaches and staff have learned to streamline certain tasks — such as elements of recruiting and collaborative meetings — and conduct remotely things they would otherwise have felt required in-person contact. These adjustments should make a variety of their previous protocols and processes more cost- and time-efficient.
"I think a lot of schools are reevaluating how they do things,” Clinkscales said. “There are going to be more efficient ways we can operate our business and still have the same results.”
And the news that the NCAA plans to hold all of its men’s basketball tournaments in Indiana — with Indianapolis set to host the Division I showpiece — also acts as a point of pride for a state so culturally entrenched in the sport.
“When you look at basketball and what basketball means to this school, to our community, to this state, it kind of exacerbates the whole thing,” Dolson said. “It’s a big deal.”
Prepare for interruptions
Beyond the increasingly detailed plans among the state, the city of Indianapolis and the NCAA, perhaps no relationship matters more to the execution of a successful tournament than the one with the association’s broadcast partners.
That includes a variety of parties: distributors, sponsors, advertisers and physical broadcasters. All those groups weathered a difficult blow when the 2020 tournament was canceled, and all will have spent the time since planning for contingencies and flexibility in 2021.
“I think there’s a reasonable contingency plan in place for the business partners if this doesn’t work,” said Patrick Crakes, a former vice president at Fox Sports who now runs his own media consulting firm. “And there’s a precedent for this year in some of this. It doesn’t mean it’s good. It just means it’s going to work smoother.”
For live sports, broadcast partnerships are multilayered relationships involving a variety of parties whose interests all generally align.
Sports provide popular live content. Broadcasters — for the NCAA Tournament, that’s primarily CBS and Turner — act as the conduit that funnels that content to distributors. Those distributors (think Comcast, DirecTV, DISH, etc.) physically disseminate the content to consumers. Advertisers and sponsors latch on to the content to bring their product to those same consumers.
Ultimately, everyone wants the same thing: live sports on TV. When that’s lost, everyone suffers, which makes it in everyone’s best interest to sustain them where possible and work together when they’re lost.
It’s not clear how much expected revenue was maintained when the 2020 tournament was canceled or where. But it was financially painful to all involved, parties whose relationships are both lucrative and interdependent.
There are likely to be contingencies in place, procedures in case of postponement or cancellation, and a plan including all partners in the event things go very wrong. This has all probably been laid out over the past few months — what happens to advertising dollars, how might a cancellation change relationships, what considerations would partners give to one another in the event of catastrophe, etc.?
These issues surprised everyone last March. That shouldn't happen again.
“You need to prepare as if you’re going to get interrupted, and I think the networks and advertisers are planning for that, and the distributors. I’m sure the NCAA is as well,” Crakes said. “I don’t think there will be any surprises."
‘Absolutely convinced they will play’
The risks and uncertainty are clear, but so is the uniform belief that the NCAA will not allow the tournament to be canceled a second straight year.
It might be flawed, inequitable, but it will happen. The stakes are too high for everyone involved.
“If you don’t play a lot of this stuff this year, it’s really going to impact some things for sure,” Crakes said. “Which is why I’m convinced they will absolutely play.”