As a non-profit organization, the NCAA has a very noble purpose: “To govern competition in a fair, safe, equitable and sportsmanlike manner, and to integrate intercollegiate athletics into higher education so that the educational experience of the student-athlete is paramount“.7,8 Furthermore, the NCAA seems to have an extremely successful business model. In 2014, the NCAA had $989 million in revenues, compared to $908.6 million in expenses, their fourth straight year with surplus over $60 Million.5 Most of this revenue is coming from a $10.8 billion, 14 year deal with Turner Sports to broadcast March Madness, bringing in over $700 million a year.1
Furthermore, the NCAA not only generates those revenues for themselves, they also enable individual athletic programs from within the NCAA to earn approximately $11.4 billion from their own ticket sales, alumni contributions, etc.6 However, despite the massive success of the NCAA, their performance is unsustainable due to the many inconsistencies that exist in their operating model. The NCAA has decided to maximize their economic returns in the name of amateurism, directly conflicting with their stated purpose.
Most notably, the NCAA is severely taking advantage of their most value-driving employees. Traditionally, NCAA student-athletes were considered true amateurs. However, two landmark rulings in the past two years have asserted that NCAA athletes should in fact be considered NCAA employees, rather than amateurs. First, it was ruled that the big money generated when the NCAA and its schools sell the images of their own athletes for television and videogames, but do not share any revenue with the student-athletes themselves, violates U.S. antitrust laws. This, along with an earlier ruling by the National Relations Hearing Board that Northwestern University’s football players are university employees who may unionize assert that we should evaluate student-athletes as NCAA employees in any business model evaluation.2 After accepting that NCAA athletes are employees, it becomes easy to see why the NCAA operating model is unsustainable. While the average athletic scholarship at these schools is worth $23,204 per year, the NCPA finds that football and basketball players would command salaries of $137,357 and $289,031 respectively. Furthermore, that scholarship value is over $3,000 less than the real cost of education, leaving 85% of athletes technically under the poverty line.4 To make matters worse, the NCAA is not liable for any injuries that occur in the workplace and only guarantee scholarships for 1 year at a time.3 While the NCAA claims that their goal is to integrate athletics with higher education, they only require 50% of team’s players to be on track to graduate.4 Also, the average athlete practices 50 hours a week, not including travel4, leaving very little time for the athletes to also study as full time students. This severe mistreatment of the NCAA’s core employees will blow up the NCAA business model if student-athletes join together and disrupt the existing operating model.
While the athletes act as employees and deliver value for the NCAA, the university athletic departments act as the vessel that showcases the value for the public. Therein lies the other major flaw with the NCAA operating model. For a university to participate in Division 1 sports, the NCAA requires them to field 15 Varsity teams.3 However, only 3-4 teams per university actually bring in any revenue. This has resulted in the median football playing Division 1 athletic department to operate at a $10 Million deficit.3 In fact, only 14 of 120 athletic departments were able to cover their costs last year.4
How could a business consistently operate when the employees are severely under-valued and the participating organizations are bleeding money? The answer lies in the fact that the NCAA essentially operates as a cartel of loosely organized universities that have agreed to band together for athletic participation. The people with power in this cartel are the coaches and athletic directors who are making the money that the athletes deserve. The NCAA also has a lot of power, with their business model that relies on the risk free revenue from media deals for their championship events, only giving a small fraction of these revenues to the athletic departments who take on all the operating costs of fielding teams that participate in these marquee events. The problem for the NCAA is that a cartel only works when everyone involved gains value. Therefore, while extremely successful in the past, the NCAA’s business model is at risk of imploding unless it is able to make some major changes to its operating model to allow everyone to reap rewards.
- Milford, Joseph. “It’s All Profit And No Pay: How The NCAA Is An Ingenious Business.” Elite Daily Its All Profit And No Pay How The NCAA Is An Ingenious Business Comments. N.p., 20 Mar. 2014. Web. 07 Dec. 2015. http://elitedaily.com/money/ncaa-ingenious-business-ever-created-tuesday/
- Davenport, David. “Legal Cases Are Blowing Up the NCAA Big Business Model — Why It Matters.” Forbes. Forbes Magazine, 11 Aug. 2014. Web. 07 Dec. 2015. http://www.forbes.com/sites/daviddavenport/2014/08/11/legal-cases-are-blowing-up-the-ncaa-big-business-model-why-it-matters/
“Interview Andrew Zimbalist.” Interview. PBS. PBS, 29 Jan. 2011. Web. 07 Dec. 2015. <http://www.pbs.org/wgbh/pages/frontline/money-and-march-madness/interviews/andrew-zimbalist.html>. http://www.pbs.org/wgbh/pages/frontline/money-and-march-madness/interviews/andrew-zimbalist.html
- Mayyasi, Alex. “The Pseudo-Business of the NCAA.” Priceonomics. N.p., 17 May 2013. Web. 07 Dec. 2015. http://priceonomics.com/post/50660332678/the-pseudo-business-of-the-ncaa
- Berkowitz, Steve. “NCAA Nearly Topped $1 Billion in Revenue in 2014.” USA Today. Gannett, 11 Mar. 2015. Web. 07 Dec. 2015. http://www.usatoday.com/story/sports/college/2015/03/11/ncaa-financial-statement-2014-1-billion-revenue/70161386/
- “Revenue.” NCAA.org. N.p., 22 Nov. 2013. Web. 07 Dec. 2015. http://www.ncaa.org/about/resources/finances/revenue
- “NCAA Mission Statement – The Citadel – Charleston, SC.” NCAA Mission Statement – The Citadel – Charleston, SC. N.p., n.d. Web. 07 Dec. 2015. http://www.citadel.edu/root/ncaa_mission
- “NCAA Commercial.” YouTube. YouTube, n.d. Web. 07 Dec. 2015. http://https//www.youtube.com/watch?v=6ltaRIJ0N2o