Thursday, December 18, 2014

College Football’s Annual Bonus Program

For a college football fan, it’s the most wonderful time of the year. Fresh off conference championships and the Heisman Trophy presentation, momentum is building to New Year’s Day and the shining star atop the tree—kickoff of the inaugural College Football Playoff (CFP). The bottom line: College football is big business. But how does the CFP make it even bigger?

It all starts with a Delaware LLC. CFP Administration, LLC, was organized to manage the administrative operations of the CFP. Its 11 members include the 10 Football Bowl Subdivision (FBS) conferences (American Athletic (f/k/a Big East), Atlantic Coast, Big Ten, Big 12, Conference USA, Mid-American, Mountain West, Pac-12, Southeastern and Sun Belt) and Notre Dame. The LLC is governed by a Board of Managers, consisting of a university president or chancellor nominated by each member, and its day-to-day operations are managed by a Management Committee of the FBS commissioners and the Notre Dame athletics director. The Management Committee appoints an Athletics Directors Advisory Group and the Selection Committee–the group with the real power.    

The Selection Committee consists of 13 individuals, each of whom fits in at least one of five categories: (i) coaches, (ii) student-athletes, (iii) administrators, (iv) journalists, and (v) athletics directors. The Selection Committee met regularly throughout the 2014 season, and on Dec. 7, using criteria such as strength of schedule, head-to-head results against common opponents, and championships won, determined the (supposed) top four teams in college football: #1 Alabama, #2 Oregon, #3 Florida State, and #4 Ohio State.  

The CFP is a four-team playoff. The two semifinal games will rotate annually among the Sugar, Rose, Orange, Cotton, Peach, and Fiesta Bowls. On Jan. 1, 2015, Oregon will take on Florida State in the Rose Bowl, and Alabama will take on Ohio State in the Sugar Bowl. On the line: a trip to the college football National Championship on Jan. 12, 2015 in Arlington, Texas.    

From a revenue standpoint, how does this compare to the final year of the Bowl Championship Series (BCS)? According to the CFP website, “all FBS conferences and independent institutions will receive significant increases in revenue from the CFP.” It’s anticipated that each of the 10 FBS conferences will at least double its annual revenue from the BCS arrangement, in which the baseline distribution in 2013-2014 to the Atlantic Coast, Big Ten, Big 12, Pac-12, Southeastern and American Athletic Conferences was $27.9 million. The CFP revenue distribution plan contains four components: (i) revenue to conferences based on the number of teams meeting the NCAA’s Academic Progress Rate (APR) for participation in a post-season football game, (ii) a base share, (iii) a share for participation in one of the CFP games, and (iv) expenses for participating institutions. The following are estimates from the CFP website of the 2014-2015 revenue distribution: 

  1. Each conference (or independent institution) receives $300,000 for each of its schools whose football team meets the APR. For example, if 10 teams in the Big Ten meet the requirement, the Big Ten receives $3 million.  
  2. Each of the 10 FBS conferences receives a base amount. For those conferences with contracts for their champions to participate in the Orange, Rose, or Sugar Bowl, the base share combined with the full APR is approximately $50 million per conference. Conferences without contracts for participation in these bowls will receive an aggregate of approximately $75 million. Notre Dame receives a payment of $2.3 million if it meets the APR, and the other three independent institutions (Army, Navy, and BYU) will share $922,658.
  3. A conference receives $6 million for each of its teams selected for a semifinal game (i.e., the Big Ten receives $6 million for Ohio State’s participation in the Sugar Bowl), and a conference receives $4 million for each of its teams playing in a non-playoff bowl (i.e., in 2015, the Cotton, Fiesta, and Peach Bowls), with no additional distribution for teams playing in the National Championship.
  4. Each conference with a team participating in a playoff semifinal, Cotton, Fiesta, or Peach Bowl, or National Championship, receives $2 million per game to cover expenses.

Those are some pretty astronomical numbers, especially when you consider they represent earnings almost exclusively for post-season play and fail to factor in each conference’s regular season football revenues or the post-season TV revenue, ticket and merchandising sales, and sponsorship deals. Now that’s a pretty generous annual bonus.

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