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Optimizing the Money Spent to Get to the Final Four

An exciting NCAA men’s basketball season is quickly coming to a close.  This past weekend, the Final Four was set, as Louisville, Michigan, Syracuse and Wichita State all won games to punch their ticket to Atlanta.  A look at these team’s finances provides an interesting glimpse at how probable or improbable each respective team’s journey to Final Four was.

Each year, athletic departments receiving federal funding are required to submit a financial data report to the Department of Education.  This report is required under Title IX.  The data submitted through these reports is the only publicly available data related to athletic department finances for both private and public schools.  This is because reports that the athletic departments make to the NCAA are not readily available to the public and private schools do not have to disclose their tax returns and other financial documents.  The information below was gleaned from the Department of Education reports.  It is important to note that the Department of Education has not created a streamlined method by which to account for revenues and expenses.  Therefore, large discrepancies between athletic departments’ budgets may be the result of them merely putting items in different columns.  Nonetheless, the numbers below provide some idea as to how much these four teams spent on their basketball programs.  The numbers below are for the most recent year for which data is available, 2011-12.

When it comes to basketball expenses, two of the four teams largely outspent the others.  In 2011-12, Louisville spent $15,489,954 on its men’s basketball program, while Syracuse spent $14,214,993.  Michigan on the other hand spent just over 1/3 of what Louisville did at $5,933,437.  Wichita State spent the least on its basketball program at $4,644,724.

Two factors play significantly into how much an athletics department spends on its men’s basketball program.  The first is how much revenue the team brings in.  The second is how large the athletics department’s total budget is.

Looking at basketball revenues, each team spent in proportion to the amount of money their program brings in.  In 2011-12, Louisville had the greatest amount of men’s basketball revenue at $42,434,684.  Syracuse followed at $25,888,761 and Michigan was the third-highest with $9,880,283.  Wichita State’s was the lowest at $5,071,471. While there is a large discrepancy between the amount of revenue each program generated, it is notable that each team operated in the black in 2011-12.

Things get interesting when you consider each team’s total athletic department expenses.  Expectedly, Wichita State’s were the lowest in 2011-12 at $19,551.408.  However, unlike the other categories, Louisville’s were not the greatest, as its athletics department’s expenses were $84,483,791.  Rather, Michigan’s athletics department had the highest expenses at $100,438,051.  Michigan’s athletics department annually has one of the largest budgets of athletics departments nationwide.  Syracuse’s athletics department’s expenditures reached $69,187,052 in 2011-12.

The notable thing to take away from all of this is more than Wichita State spent significantly less than the other three programs to win.  While that is an important factor to consider, what also must be taken into account, is that unlike with football bowls, teams are essentially competing for the same pool of money during March Madness.  The NCAA pays out “units” to conferences for their member teams’ wins throughout March Madness.  Each win throughout March Madness earns a team and its conference a unit that is worth the same monetary amount.  Each conference has its own agreement in place as to how these units are distributed to teams.  Some split them equally across the conference, regardless of whether a school’s basketball team has won any games to earn units.  Others distribute more money to programs who actually earned units.

The NCAA men’s basketball unit system differs from how programs earn compensation from football bowl games.  Football bowl games each have their own respective payout.  These payouts may be the same (say, for non-national championship BCS bowl games) or different (for non-BCS bowl games and the national championship game).  Under football’s model of payouts, teams who spend more on their program arguably have a better chance of participating in a bowl game with a higher payout.

Given the difference in payouts for basketball and football, it would behoove athletics departments to take a look at their basketball budgets and determine if there are any areas in which they can cut from.  Athletic department budgets could benefit from this analysis, given that a team like Wichita State, who spends significantly less than Louisville, stands to earn the same amount from the NCAA for March Madness play.  Yet, the possibility also remains that teams like Louisville who spend heavily on their basketball programs would find such an adjustment unnecessary, given the large amount of revenue that their program drives outside of its expenses.  Nonetheless, all things the staying the same, it is clear that there is parity in NCAA basketball as the David’s and Goliath’s of spending have all found their way into the Final Four.

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