Steve Young: An Example of a Paragon of GRIT

You cannot quit. You have the ability, so you need to go back and work this out.” - Steve Young’s Dad, (circa 1980s)
Drawing by Brian Nwokedi to explain the characteristics of a GRIT paragon
Steve Young: A Gridiron Paragon of Grit. From every touchdown to each hard-fought comeback, his relentless determination on the field defines the true essence of grit. A quarterback icon who faced challenges head-on, Young embodies the spirit of unwavering passion and perseverance.

Steve Young is the epitome of a GRIT Paragon. When he was a freshman at BYU, he was the 8th string quarterback and was barely even getting any practice time. Like most freshmen when things don’t go according to plan, Steve called his father (whose nickname was actually Grit). 

Steve’s dad basically said the following: “You can quit but you can’t come home because I’m not going to live with a quitter. You’ve known that since you were a kid. You’re not coming back here.”

With the words of his father ringing in his ears, Steve Young stepped up his game and put the work in. By all accounts, he threw over 10,000 spiral passes at a practice net the summer between his freshman and sophomore year. By his sophomore year, he had risen to QB2 and by his junior year he was BYU’s starting QB. In his final year with the Cougars, Steve Young won the Davey O’Brien award for the most outstanding college quarterback in the country.

Then … It happened all again when he got to the San Francisco 49ers. He spent 4 years on the bench as the backup to four-time Superbowl champion, Joe Montana. And because of his experience at BYU, Steve stayed, learned, and flourished under Montana’s apprenticeship. He eventually got his chance and the rest is history.

When Steve Young retired, he was the highest-rated quarterback in NFL history.

With Matt Campbell as coach, Iowa State will win a Big 12 Championship

"Iowa State's upward rise has been all about identifying and developing talent"
---  Blair Angulo & Steve Wiltfong of 247 Sports
Iowa State Football is heading in the right direction under Matt Campbell
The foundation is built for Iowa State Football heading into the 2022 season. Although they lose a lot of veteran starters like Brock Purdy and Charlie Kolar, recruiting has picked up substantially. Iowa State is slowly becoming a solid contender for the Big 12 year in and year out.

Is Nick Saban Worth $20 million a year?

"Texas was dead serious about trying to money-whip Saban," Finebaum and Wojchiechowski write. "Depending on whom you talk to -- Bama big hitters or Texas big hitters -- the Longhorns were prepared to give Saban somewhere between a $12 and $15 million signing bonus and a salary package worth $100 million (plus performances)."
Nick Saban is worth $20 million a year to the Texas Longhorns by Brian Nwokedi
To the Texas Longhorns, paying Nick Saban $20 million a year would be a drop in the bucket.
Nick Saban is a serial winner by Brian Nwokedi
All Nick Saban does is win. Texas should have upped their offer

Big XII Should Expand Only If Two New Schools Add An Additional $3.0 Million per year in TV Revenue

Word Count:                                    1,126
Estimated Reading Time:         5 to 10 minutes

Summary

  • Big XII expansion seems eminent with 12 candidates from the Group of Five currently being discussed
  • Current television revenue per school in the Big XII is $25.2 million vs. the SEC at $31.2 million
  • Texas and Oklahoma each make an estimated $40.2 million and $33.7 million respectively due to additional 3rd party television deals 
  • Adding two schools to the conference will need to help generate an additional $3.0 million per year per school in order to get the conference payout on par with the SEC ($31.2 million) and Big Ten ($30.9 million)
  • My Top Three Expansion Candidates: Houston, BYU, Cincinnati 
  • I didn’t discuss the complexities of 3rd party television deals (Tier III TV rights). That is for another blog post
 

Introduction

 
Between 2010 and 2013, the Big XII was destabilized when Texas A&M, Missouri, Colorado, and Nebraska all left for greener pastures. The big catalyst for fleeing was the perceived unequal power of Texas and Oklahoma which ultimately led to unequal distribution of TV revenue.  Six years later, it is safe to say that the Big XII is at another crossroads, and the topic of discussion once again is conference realignment/expansion. 
 
If recent news is to be believed, the Big XII conference has narrowed its list of potential candidates for expansion down to fittingly 12 Group of Five candidates. And given Houston’s performance against Oklahoma yesterday afternoon, the chatter is only going to intensify.
 
 

The 12 Hopefuls

 
The potential schools stretch as far west as BYU to as far south as UCF and South Florida. And given where current member school West Virginia is located, it is not surprising that Cincinnati and Temple are being considered due to geographical reasons. I have compiled “resumes” of the 12 potential candidates for expansion (see chart below):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The tentative plan is to access the viability of each of the 12 schools, and the representatives of each of the 10 Big XII schools will decide what to do at the board of directors meeting on October 17th of this year. 
 
In this high risk game of conference realignment and television contracts, I believe it is important for the Big XII to consider the longer term ramifications of expansion and not jump into a knee jerk reaction, adding two “subpar” schools just in an effort to get back to 12 teams. Specifically, the two schools that the Big XII adds will need to at minimum add an additional $3.0 million in incremental television revenue per school to be worth the trouble.

 

 

Why This Time is Different than 2012 

 
On July 1, 2012 out of necessity, TCU and West Virginia became official members of the Big XII Conference. Both schools joined the Big XII after winning their conference championships the year before in football, and from a stability standpoint, the addition of these two schools was absolutely necessary to keep the conference from complete disintegration.
 
After surviving near annihilation, the Big XII member schools (specifically Texas) learned its lesson and voted to equally distribute Tier 1 and Tier II television revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
It’s hard to pinpoint exactly how much tangible value TCU and West Virginia brought to the Big XII. Over the past 3 years, Big XII television revenue has grown at a compound annual growth rate of 10.5%. And although its conference revenue is 19.2% less on a per school basis than the SEC (due to SEC network), there is absolutely no denying that revenue per school in the Big XII has stabilized and steadily grown. 
 
On top of this, unlike other conferences, the Big XII allows schools to make additional television revenue through their 3rd party deals. At this point, Texas, Oklahoma, West Virginia, and Kansas each make an additional $8.5 to $15.0 million per year.
 
Given where the Big XII is currently, this time expansion talk feels a bit different. Rather than being about survival and necessity, the Big XII now can take its time and figure out which two schools will help them create the most incremental value to the current ten member schools.
 

 

Deregulated Conference Championship Game Doesn’t Necessitate the Big XII Expanding

 
Under the new NCAA rules which passed earlier this year, the Big XII will be able to hold a conference championship game in football while retaining its 10-member structure[1]. Previous rules stated that conferences needed a minimum of 12 members to play a championship game between two division winners. Given this, the Big XII doesn’t necessarily need to get to 12 members to reap the benefits of the conference championship game.
 
Research has shown that even at 10-members a Big XII championship would net an incremental $1.7 million to $2.4 million per year for each school[2]. Although going to 12 teams may help bolster the credibility of their conference championship game, from an incremental revenue standpoint, the Big XII can gain an additional $1.7 to $2.4 million for each of its members per year simply by adding a conference championship game without adding two new members:
 
 
 
 
So given where the Big XII is, the question it must ask it itself is will the addition of the two new schools net more than $3.0 million per year in incremental revenue?
 
 
 

Do Two New Schools = $3.0 million extra per school each year?

 
Given the geographical variety of the 12 potential candidates for expansion, I believe it is important to access the likelihood that the two additional schools in question will add at least $3.0 million in value per year.
Using the most recent update from Nielsen Year in Sports (pdf can be found here) you can see the density of college football fans by region:
 
Not surprising, when you overlay the 12 candidates for potential expansion (see map below), you will see that a majority of these candidates are in states that have high density college football footprints:
 
 
 
When it comes to capturing incremental television revenue, it’s imperative that the two schools that Big XII officials choose have locations that are highly saturated by college football fans and have an expansive alumni base that stretches from coast to coast. Both these reasons give the Big XII leverage in their discussions with ESPN and Fox, and ultimately drive up the value of their television deals.
 
As you can see from the above two maps, three schools standout to me as candidates that meet these two qualities: Houston, Cincinnati, and BYU.
 
Each of these three schools has footprints in high density locations. Specifically, the Nielsen TV market rankings of each of these locations are 10th, 35th, and 33rdrespectively. On top of this, these three schools on paper seem to meet the criteria of having alumni that expand from coast to coast in a similar fashion the alumni from the Big Ten schools (as an aside, the BIG Ten is absolutely killing it when it comes to TV deal negotiations. See article here.) 
 

 

Conclusion

On October 17th when the Big XII gets together to decide the fate of its conference, it must keep in mind that the two schools they decide to add, must add at least $3.0 million in incremental television revenue per school to be worth the trouble. As the SEC and Big Ten have shown, 12 to 14 team conferences with their own conference network should net at least $30 million in revenue per school each year. Given where they Big XII currently is, expansion should only move forward if they can identify two schools that help them catch these two.

[1] WOLKEN, DAN. “NCAA members OK football championship games for all conferences.” 14 Jan. 2016. Web Retrieved 3 Sep. 2016

[2] CRUPI, ANTHONY. “Fox Sports Signs Up Six Big Ten Title Games in 2011-16.” 18 Nov. 2010. Web Retrieved 3 Sep. 2016
 
 

A $7.3 billion investment by ESPN in college football ensures another decade of FORCED cable subscriptions for sports TV

Introduction

For the last five years, the percentage of households with cable subscriptions has been falling, and while cable television providers have known this, year-over-year growth has still been marginally positive. That was until 2015! For the first time in the history of cable subscriptions, year-over-year growth for the first half of 2015 trended negative[1].

 
 
 
The fact is traditional television viewing is unraveling, and big media conglomerates and their broadcast partners aren’t reacting quickly enough to changing consumer habits. 
 
 
Thanks to Netflix, Hulu, and Amazon Instant Video, consumers are watching more television content online, and on platforms that do not rely on having a cable subscription.
 
 
 
 
 
But in the face of declining subscribers to cable television, ESPN has defied logic yet again and invested $7.3 billion for the exclusive rights to broadcast the college football playoffs through 2025. This move coupled with ESPN’s utter dominance of sports content only serves to prove that even in the face of growing demand by sports fans for non-cable sports options, we sports fans aren’t any closer to being able to completely cut the cord.
 

How does the current system work?

The ESPN sports television ecosystem works as follows:
 
    1.  ESPN first secures compelling sports content preferably with exclusive broadcast rights by paying billions of dollars (i.e. $7.3 billion for the exclusive rights to the college football playoff)
    2. ESPN then convinces cable and satellite providers (The Comcast’s and DIRECTV’s of the world) that to carry ESPN in their cable packages.
    3. Cable and satellite providers shell out hefty monthly subscription fees for the “privilege” to carry ESPN and its network of channels[2]. ESPN costs $5.54 per subscriber per month while ESPN2 costs $0.70 per subscriber per month. ESPN News, ESPN Classic, ESPNU, and ESPN Deportes costs $0.20 per subscriber per month each
    4. Ultimately us sports fans are on the hook monthly for this expensive content through our monthly cable subscription bill. This is why most cable providers include ESPN in their premier or top tier cable packages.
 
At roughly 93 million pay-television subscribers[3], ESPN alone is pulling in a cool $6.18 billion yearly on just television subscriptions fees that it charges the cable and satellite providers. If you add in the fees it charges for its complete package (i.e. ESPN2 all the way to ESPN Deportes) and assume that a third of the subscriber base gets these channels (i.e. 31 million) total fees annually for ESPN total sports network jumps up to $6.73 billion!
 
 
As a point of comparison CNN and Fox News make $0.45 and $0.30 per subscriber per month.  Using the same pay-television subscriber base as ESPN, CNN and Fox News make a combined $836 million annually. Put another way, ESPN stand-alone makes +639% more than CNN and Fox News combined! With the current system, ESPN can practically cover the cost of their college football investment in just one year!
 
ESPN doesn’t stop at just subscription fees. Since it has exclusive rights to broadcast certain sporting events from Monday Night Football back to the College Football Playoffs, ESPN makes a boat load of money charging companies to air advertising spots during commercial breaks of games. This past college football playoff alone, ESPN charged $1.0 million per 30 seconds, and in 2014, ESPN made approximately $3.9 billion in ad revenues which was a +63% year over year growth.
 
Between growing subscription fees and advertising revenue, ESPN makes a ton of money in the current system and its primary motivation is to protect the pay-for-TV profits. There is zero incentive over the next decade for them to change this model … or is there?
 

Is ESPN actually in trouble of losing out in the digital age?

Estimates have stated that 94% of programming on sports channels is consumed live compared to 70% on network television[4]. To put this simply, there just aren’t too many truly live events that don’t allow you to skip ads.  So what in the world would make them consider changing the model? The short answers lies in the simple fact that even in the face of ESPN’s dominance over live sports, fans are still walking away.
 
Earlier this year, Disney reported that it was trimming its forecast for TV subscriber-fee profit growth through next year because of subscriber losses at its flagship ESPN sports network[5]. Since 2011, ESPN has lost -7.2% of its user base, second only to the Weather Channel. Using the assumption that cord cutting is going to continue its acceleration over the next decade, ESPN could be looking at a subscriber base in 2025 of roughly 72.8 million, down -21.6% from its 2015 high of 92.9 million. By 2025 given these rates of falling subscribers, ESPN’s subscription fee revenue in 2025 would stand at only $4.84 billion, down from its 2015 high of $6.18 billion. Needless to say, if ESPN continues to stay the course it is in danger of losing large sums of revenue. But more importantly as the other media juggernauts have all experience over the past 10 years it’s only a matter of time before some digital start up comes in to eat your lunch.
 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Enter ESPN partnership with Sling TV
Through Sling TV (owned by Dish Network) and $20 a month users can get online streaming access to ESPN and ESPN2. An additional $5 a month gets you access to the Sports Extra package which includes ESPNU, SEC Network, ESPN News and a bunch of other peripheral ESPN channels. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sling TV is perfect for the college football cord cutter! This package is more than sufficient to ensure that you will get all the games you need, and it’s much cheaper than the average $95.73 that cable and satellite companies typically charge[6]. If you happen to be like me and care about watching other sporting events like the Barclay’s Premier League or out of market NFL games, you’re still stuck in the current environment with a satellite or cable provider. This lack of consistent sport programming across all sporting events is often the most cited reason why consumers stick with traditional cable subscriptions.
 
 
Given ESPN’s $7.3 billion investment in college football, its partnership with Sling TV is a step in the right direction. But it’s still not enough to completely force ESPN’s hand or other sports broadcasters to drive into stand along stream services. So at best, if you take to heart what Disney CEO Bob Iger recently said, standalone sports services wont’s roll out for another five years (insert sad face)
 
 

 


 

[1]UDLAND, MYLES. “This is the scariest chart in the history of cable TV” Business Insider. 18 Aug. 2015. Web Retrieved 25 Aug. 2015
 
[2] BADENHAUSEN, KURT. “The Value of ESPN Surpasses $50 Billion.” Forbes Business. 29 Apr. 2014. Web Retrieved 14 Sep. 2015
[3] RAMACHARNDRAN, SHALINI. “ESPN Tightens Its Belk as Pressure on It Mounts.” The Wall Street Journal. 9 Jul. 2015. Web Retrieved 14 Sept. 2015 
[4] DISCOVERY COMMUNICATIONS. “Time-Shifted Viewing & Commercial Retention Analysis.” Discovery Communications. 7 Jul. 2012. Web Retrieved 14 Sep. 2015
[5] NAKASHIMA, RYAN. “Pay TV industry shows cracks in media earnings.” Phys.org. 6 Aug. 2015. Web Retrieved 15 Sep. 2015
 
[6] KANG, CECILLIA. “ESPN will be available through a streaming service, no cable required.” The Washington Post. 5, Jan. 2015. Web Retrieved 15 Sep. 2015
 

College Football Nouveau Riche, the Rise of the Oregon Ducks and the Oklahoma State Cowboys and the Correlation to Influential Benefactors

You have probably heard of the old financial axioms, “You have to spend money to make money,”, or “It takes money to make money.” Although we can find examples within our lives that counter this argument, nowhere do these axioms ring truer than in Big-Time college football. On December 30, 2008 in front of 59,106 fans, the 9-3 Oregon Ducks faced off against the 9-3 Oklahoma State Cowboys. In what would be a battle between two newer more financial wealthy programs (I’ll speak about this point shortly) and Oregon Coach Mike Bellotti’s final game, the Ducks beat the Cowboys in a thrilling 42-31 contest.

Fast forward to the present, as I sat watching the inaugural College Football Playoff final between Ohio State (old wealth) and Oregon (nouveau riche), I couldn’t help but smile as I watched the Oregon Ducks take the field. Just one week prior to the final, the Ducks played in their 3rd Rose Bowl in six years. And over the last decade, the Oregon Ducks boast a 106-26 record (80.3% win percentage) which is 4th best in college football; they have two national championship appearances, and four conference titles to boot.

There is absolutely no denying that Oregon’s meteoric rise to the top of college football directly correlates to their colossal increases in football specific spending. Since 2005, the University of Oregon’s Athletic Department’s spending on football specific activities averaged $16.7 million and has grown at a compound annual growth rate of +15.75%. And as mentioned before, during this same time period the Ducks have won four conference titles and have appeared in two national championships. For a school that captured a grand total of three conference titles from 1986 to 2004 this isn’t half bad! During the same time frame, the Oklahoma State University’s Athletic Department’s spending on football specific activities averaged $15.2 million and has grown at a compound annual growth rate of +9.93%. Over the last decade, the Cowboys boast an 83-44 record (65.4% win percentage) during which they also captured one Big XII championship and the 2012 Fiesta Bowl. For a school that captured a grand total of zero conference titles from 1986 to 2004 and boasted a very subpar 102-113 record (47.4% win percentage) things are definitely looking up.

No two nouveau riche programs in college football have had more influential benefactors that these two programs. Phil Knight and T. Boone Pickens have each donated roughly $300 and $400 million to their respective Universities, with $265 million specifically going to the OSU football program. And just last year alone, Phil Knight gifted nearly $100 million to the Ducks and a new training facility for the football team[1]Given these very large financial contributions, I want to take a look at the financial data and compare the investments to wins and losses on the field. My argument here is actually quite simple: Oklahoma State and Oregon’s success is due in large part to the funding received from T. Boone Pickens and Phil Knight. The excessive levels of cash have transformed both of these programs into perennial powers that are here to stay, and the data will show how much.

Using a regression based analysis and looking at the financial data for the Oklahoma State and Oregon athletic departments since 2008 I focused on comparing wins-losses to the following five crucial variables for each program:

(1) Football Specific Contributions: money contributed by donors/benefactors designated to be use only for the football program.

(2) Non-Program Specific Donations: money contributed by donors/benefactors designated to be used for any athletic program

(3) Football Specific Expenses: money spent by the athletic department specifically on football activities.

(4) Non-Sport Specific Expenses: money spent by the athletic department on activities across all sports at the universities

(5) Marketing and Fund Raising Expenses: money spent on marketing initiatives to raise brand awareness for the universities’ athletic programs.

When considering financial investments in football, it is my opinion that the above mentioned five variables are the most directly correlated to wins and losses on the gridiron, and the data proves this point to a tee.

Looking at the regression outputs for wins for Oregon and Oklahoma State (see bottom of page for output), the Ducks have an R-squared of 95.8% and the Cowboys have an R-squared of 89.5%. What this means is that the financial data I selected (the five variables above) explains 95.8% of the variation in Oregon’s wins and 89.5% of the variation in Oklahoma State’s wins. Looking at the regression outputs for losses for Oregon and Oklahoma (see bottom of page for output), the Ducks have an R-squared of 88.7% and the Cowboys have an R-squared of 86.1%. What this means is that the financial data I selected (the five variables above) explains 88.7% of the variation in Oregon’s losses and 86.1% of the variation in Oklahoma State’s losses. Put even simpler than all of the above … Oregon and Oklahoma State should thank Phil Knight and T. Boone Pickens and make sure to do whatever they need to do to make sure that the money doesn’t ever stop flowing in!

In closing, all data naturally contains an amount of variability that is in-explainable and this simple regression model is no different. Simply because I obtained a very high R-squared value for each of the regressions that I ran, doesn’t mean that the actual model in and of itself is adequate. As we know with Big-Time College Football, it is more than simply a money game. You need great talent and good coaching to give you a chance to be successful (both of which Oregon and Oklahoma State have had over the last decade). You also need a bit of luck … But having more money to invest and spend on your football program is definitely going to help!


Fun Fact: Since 2004, the Oregon Ducks have not worn the same exact uniform for two games in a row (see pictures below)[2]. I guess money can also buy very nice swag … especially if that money comes from an ex-Nike CEO!


Regression Outputs:

Oregon Ducks – 2008 to 2014 Wins vs. Five Variables of Investment

Oklahoma State Cowboys – 2008 to 2014 Wins vs. Five Variables of Investment

Oregon Ducks – 2008 to 2014 Losses vs. Five Variables of Investment

Oklahoma State Cowboys – 2008 to 2014 Losses vs. Five Variables of Investment


[1] Matthew Kish, Portland Business Journal. (January, 21, 2014). Thanks to Phil Knight gift, Oregon athletic department likely tops in 2014. Retried from <http://www.bizjournals.com/portland/blog/threads_and_laces/2015/01/phil-knight-gift-oregon-athletics-top-2014.html?page=all>
[2] CBS Interactive Inc. (April 23, 2012). A gridiron fashion statement. Retrieved from <http://www.cbsnews.com/news/a-gridiron-fashion-statement/>

The data shows that financially self-sufficient athletic departments are tough to come by for programs outside the Power 5 Conferences.

In December of 2014, the University of Alabama at Birmingham (UAB) made headlines by shutting down their football program for good. UAB President Ray Watts simply found it too costly from both an operating and a capital investment standpoint to run the football program. To quote him specifically, 

“As we look at the evolving landscape of NCAA football, we see expenses only continuing to increase. When considering a model that best protects the financial future and prominence of the athletic department, football is simply not sustainable.”  


The last program to shut down major college football was Pacific in 1995, but looking at financial data from USA Today Sports[1] UAB is not alone in its “financial difficulties.” 

The vast majority of athletic departments for programs from the Group of Five (otherwise known as universities from mid-major conferences) are running significant deficits (See complete listing below in Appendix A). 


And what makes this financial situation worse is the fact that a majority of these public universities receive subsidies from student fees, direct and indirect institutional support and state money to help offset their costs. 


But unfortunately even with their financial subsidies, the average deficit faced by 56 of the 63 mid-major athletic departments stood at $16.8 million for the 2012-13 financial years, and this year the figures are no different.

In May of 2012 as part of a research paper on the BCS (see my first blog post here), I argued that Division I Football needed to downsize and the Group of Five schools were the sacrificial lambs. My argument was based on the simple fact that television revenue is the only means to generate financially self-sufficient athletic departments, and the Power 5 Conferences and Notre Dame will continue to obtain the lion’s share of the television network revenue. Regardless of whether or not you feel this is fair or unfair, these are the facts as Power 5 Conference schools have significantly larger fan bases across more regions of the U.S. than Group of Five schools, and television networks are willing to pay for their viewership.

With the new College Football Playoff era, the television payouts have only gotten bigger and bigger. In 2011, the total payout across all the BCS bowls and non-BCS bowl games amounted to approximately $303 million. For the exclusive rights to broadcast the seven games of the College Football Playoff each year, ESPN is paying a reported $7.3 billion over 12 years. This package includes the four major bowl games, two semifinal New Year’s Day bowl games, and the national championship. ESPN is willing to pay an approximate $606.3 million annually for the right to broadcast seven games and this is on top of all the other large sums of money that they already shell out to the Power Five Conferences for the regular season games! After the CFP executives have taken their cut, the conference payouts break out as follows[2]:

With 14 members in Conference USA, 13 in the Mid-American conference, 12 in the American Athletic conference, 12 in the Mountain West, and 12 in the Sun Belt, the 63 member schools of the Group of Five split $60.0 million among themselves; And if they split it equally, this breaks down to roughly $953K per school. Given these measly contributions from television revenue, the question remains how in the world are the member schools of the Group of Five supposed to drive financially self-sufficient athletic departments and still support football programs?

Since 1999 no Group of Five football team has had more success than the Boise State Broncos.They have won three Fiesta Bowls during that time frame and they have finished in the Top 25 ten times with an average final ranking of 11.4 in the AP Poll and 10.6 in the Coaches Poll during this time frame. 

And this past year, Boise State continued its rise by defeating Pac-12 school Arizona 38-30 in the Fiesta Bowl. Given this unprecedented success, one would expect that of all the Group of Five schools, the Boise State athletic department would be the closest to financial self-sufficiency. Unfortunately as the chart in Appendix A below details, Boise State’s on the field success hasn’t led to financial self-sufficiency for the athletic department. So I return to this question of financial self-sufficiency … 

How does a member school of the Group of Five drive a financially self-sufficient athletic department while supporting football?

The short and simple answer is schools from the Group of Five simply can’t support collegiate football at the highest level, and athletic departments that strive to be financially self-sufficient will have to make the hard choice to sacrifice football. The long and complex answer lies around further conference expansion and inclusion of certain member schools from the Group of Five into the Power 5 Conferences. As expansion talks continue to heat up within the Big XII, mid-major football programs like Boise State, Cincinnati, Memphis, and University of Central Florida (UCF) to name a few will continue to be tossed around as potential candidates for inclusion. But the reality is without inclusion into one of the five power conferences, universities from the Group of Five have zero chance of closing the financial gap.

**One thing to note is that financial information for private institutions is very challenging to come by so my analysis for this post has focused on public universities only**



Appendix A – Significant Deficits run by Group of Five School for Financial Year 2012-13



[1]Jon Solomon. (November 25, 2014). UAB football isn’t alone in losing money for athletic departments. Retrieved from http://www.cbssports.com/collegefootball/writer/jon-solomon/24839675/uab-football-isnt-alone-in-losing-money-for-athletic-departments
[2]Kristi Dosh. (December 8, 2014). College Football Playoff: Conference Payouts. Retrieved from http://businessofcollegesports.com/2014/12/08/college-football-playoff-conference-payouts/

The 5-5 Plan (Five Years-Five Tiers) Payment of NCAA Football Players by Chris Brooks

“Twenty years ago, 50 years ago, athletes got full scholarships. Television income was what, maybe $50,000? Now everybody’s getting $14, $15 million bucks and they’re still getting a scholarship.”

-Steve Spurrier

Introduction

In 1949 the NCAA enacted the “Sanity Code” which prevented college athletes from receiving any direct or indirect benefits as compensation. At the time the rule made sense, but as Steve Spurrier mentions above NCAA Division 1A Football (or Football Bowl Subdivision “FBS”) was not the big business in 1949 as it is today and the time has come to revise the rules to reflect the change in times. Today the NCAA Football economy draws over $3 billion in revenue on a yearly basis, with many of its bigger programs earning over $50 million in profits; yet its players are compensated no differently than in 1949. The players who are responsible for generating such revenues are only compensated by receiving free tuition (non-guaranteed past one year) and a small monthly housing allowance. To make matters worse, student athletes are only guaranteed one year of free tuition when they sign a letter of intent, yet coaches can prevent an athlete from transferring to another institution to play football; the system takes advantage of the very people it claims to protect.

According to a report by the National College Players Association, “an advocacy group for college athletes found that the average full scholarship at a Football Bowl Series university lacks $3,222 in educational expenses, including everything from parking fees to utilities charges. Just paying players this much, the report says, could “reduce their vulnerability to breaking NCAA rules.”2 Coaches receive multi-million dollar contracts yet the people most responsible for the product on the field are left frustratingly uncompensated. In the words of 1991 Heisman Trophy Winner Desmond Howard, “You see everybody getting richer and richer, and you walk around and you can’t put gas in your car? You can’t even fly home to see your parents?”

These institutions and conferences are not the only ones getting richer; the NCAA and the
corporations involved make a great deal of money as well. What is most flabbergasting about this situation is that the NCAA claims that they are “protecting student athletes” by forcing them to maintain their amateurism. In order to be eligible to compete in the NCAA, every student athlete must sign a “Student Athlete Statement” which ensures their status as amateurs by waiving their right to benefit financially from their athletic performance. While the players “waive” their right to earn money from their accomplishments, the NCAA and member institutions continue to make money off of the players on and off the field, using players’ likeness for advertising and other purposes. Even more appalling is that many athletic departments do not allow their athletes to take classes that could get in the way of their athletics. This leaves athletes unchallenged in the classroom and unable to capitalize on the free education which they are receiving. It is laughable to believe that
any of this “protects” the student athlete? Last year the NFL paid their players over $35 million for using players’ likeness in an Electronic Arts video game while the NCAA did not compensate a single athlete for a similar game. How does a student athlete benefit when their likeness is used and they do not receive any compensation? The fact is that these 18-21 year-olds serve as free labor for a multi-billion dollar industry where powerful institutions take advantage of the young and less educated, and it is time for the NCAA to remedy its past discretions.

In order for the NCAA to rid itself of the corruption that exists and create a fair system where everyone prospers, it is necessary to pay the players and grant them the rights that they have not had to this point which will allow them to have a better chance for success in the future, both on and off of the field. We propose a plan that will force teams to pay their players and also implement a salary cap system. Creating a salary cap system will not only fairly compensate the athletes it will help enable parity in the recruiting process across all FBS programs. The plan also will ensure that every FBS college football player is guaranteed five years of education and that players are be covered medically for life for any injuries sustained while on the field of play.

Plan

The basis of the plan will be two sided. One side will discuss the salary cap system and the other will focus on the education and health guarantees in which the student-athletes are entitled to receive.

Risks

Before getting into the details of the 5-5 Plan, it is important to recognize that there are a number of risks in the NCAA allowing athletes to receive a salary. The United States judiciary system would become involved in labor issues and it is possible that the NCAA would face heavy legal battles once they have recognized the athletes as employees. Athletes could attempt to unionize and make certain demands which could jeopardize the goals of the 5-5 Plan. Despite the risks, we believe that this is the most appropriate way to compensate the athletes without compromising the integrity of College Football. These student athletes are unpaid labor and we believe that the NCAA needs to make drastic changes in order to live up to their commitment of doing what is best for the student athlete.

Five Years

Since 1973 the NCAA has prohibited member institutions from guaranteeing athletic scholarships for more than one year; as a result players are vulnerable each year to not having their scholarship renewed. Analysis of top Division I basketball teams show that 22% of scholarships were not renewed from 2008 – 2009. This decision falls on the shoulders of the coach, and in cases where players do not perform up to expectations; players will be released from their scholarship and be forced to pay for school if they want to remain enrolled. Considering the amount of money that these institutions make off of these players, we feel that it is irresponsible for the coaches to have the authority to discontinue a student-athlete’s education, unless the reason has to do with a clear
cut disciplinary action. The one-year rule effectively allows colleges to cut under-performing student athletes just as pro sports teams cut their players which is counter to the NCAA’s claim that its highest priority is protecting education.

We propose that each player be guaranteed five free years of education in exchange for signing a letter of intent. Unless the player is removed for disciplinary purposes or volunteers to quit the team, the player will receive the five year scholarship regardless of on field performance. We believe five years make more sense than four because of the rigorous schedule that football players undertake.

Recently there have been cases reported at UNC where players have been forced to enroll in easier courses because anything more difficult would conflict with their commitment to the football program.3 This situation is not unique to just UNC as players across the country deal with these same restrictions from their athletic department. Only 2% of NCAA Football players are drafted by NFL teams and these Universities need to give each player the opportunity to be in the best possible situation for the future. Not all players will take advantage of a fifth year, however given the demands on these players it is essential that these players have five years to complete their studies to prepare themselves for life after football.

Five Tiers

The NCAA would adopt a five-tier salary cap system which would be based on revenues from the previous season. For professional sports in North America the players receive on average about 50% of league revenues from TV contracts and ticket sales. Taking into account that the players are still in college, the student athletes will share 10% of all pre-bowl revenues. Each FBS school will have the same salary cap in which to pay the players, the sum of which across all schools will make up the 10% of league wide revenues. Tuition costs will not count against the 10% of revenues.

Under the new system, each team will be allowed to issue 85 scholarships, the 85 will be broken into five levels of scholarship; seventeen players will be allocated to each tier. Every player would be guaranteed five years of scholarship in addition to their salary. Players will earn a salary as long as they are on the team’s roster and still carry eligibility to compete. If a player has exhausted his eligibility after four year, he will still have a year of scholarship remaining however he will not receive a salary since he is ineligible to play football. The player’s salary is not guaranteed each year, however if a player from the “I Tier” is dismissed from the team, the team cannot re-allocate that tier to another player unless unique circumstances exist. The only way for a team to re-use one of the spots is if a player either transfers or turns professional. If a player transfers between institutions
they are not permitted to join another school at a higher salary level.

I Tier – 30% of salary cap (17 players)
II Tier – 25% of salary cap (17 players)
III Tier – 20% of salary cap (17 players)
IV Tier – 15% of salary cap (17 players)
V Tier – 10% of salary cap (17 players)

Tier Mobility

Any player has the ability to be moved up to a higher tier of salary; however no player can be unwillingly demoted to a lower tier. Coaches may dismiss a player from the team and end his salary; however that tier scholarship cannot be re-used on another player, existing or incoming unless special circumstances apply and it is approved by the NCAA. This will prevent coaches from shuffling players between levels and trying to manipulate the system. If a player chooses to transfer to another FBS school, they will still have to sit for a year and will not be able to join their new team at a higher tier than they had been previously. This will prevent coaches from having the ability to lure players at lower tier levels by offering them a better compensation package. If a player declares for the NFL Draft their scholarship will be vacated and eligible to use on another player. A walk-on
can be rewarded with a scholarship within a team at any tier, however if the walk-on chooses to transfer they may only enter at a “V Tier” scholarship.

Bowl Bonus

At the end of each year the players will share 5% of revenues from their University’s Bowl winnings. Unlike the salary cap system where each tier of players receives a different salary, each player on the roster will receive the same portion of the revenue, including non-scholarship players. The Bowl Bonus serves as a reward for the teams that perform better over the course of the year and incentivizes players to perform at the highest level regardless of which bowl their team participates.

Partial Lifetime Benefits

One of the most important tenants of this plan will be the partial lifetime benefits for which players will be eligible. This is clearly be a sticking point with many of the Universities; however we feel strongly that if a player is injured during his college football career the onus should fall on the University to make sure that player is covered financially for any future bills they might incur. The plan would leave each FBS team responsible for the insurance of each of their players and responsible for any long term injuries sustained on the field of play during their college career. When an injury occurs, team doctors will document the injury, the rehab as well as the long term prognosis. If it is proven that a player is suffering after the end of their career because of injuries sustained on the field during college practice or play, the responsible University and their insurance company will be responsible for paying the athlete’s benefits. Under the 5-5 plan, players will have
lifetime coverage for these injuries. It is unfortunate enough that players are not currently paid in the FBS, but it is simply tragic that players who experience devastating injuries do not receive continued medical coverage from the institutions that make millions off of them.

Endorsement Opportunities 

Under the new system players will not be able to receive individual endorsements and will not be compensated by the university for apparel endorsements. The reasoning behind this is that allowing players to be compensated in an unregulated fashion would detract from the salary cap system because boosters would be able to influence the system. The point of the salary cap is to keep all universities on an even playing field, if players are allowed to receive unregulated money than the scholarship tiers become useless because players would flock to the schools which have the most money.

Preventing Cheating 

One of the goals in paying players is that it would prevent the cheating which occurs today; in order to accomplish this goal the NCAA would have to increase severity of the penalties on cheating institutions. In 1986, Southern Methodist University was handed down the “Death Penalty” after proof surfaced that players had been paid by boosters; it was the harshest penalty in NCAA Football history. However since the SMU incident, infractions have continued yet punishments have become less severe. Over twenty NCAA Football programs have been eligible for the “Death Penalty” since 1986, but none have received it and most believe no program ever will again. A study by CBS Sports4 revealed that over the past 25 years the majority of NCAA teams that have been penalized have had a higher winning percentage in the five years after receiving punishment than in the five years before receiving the punishment. For the NCAA, an organization which prides themselves on fairness and preventing competitive advantages through the recruiting process, this is unacceptable. A team which continually breaks NCAA rules should receive harsh punishments and only on the rare occasion be able to return to a high level of competition in the years after the infraction was committed. The problem is that with all of the money on the line with TV deals and advertisements the NCAA would rather give a program a minor infraction than to cripple the program with a “Death Penalty.”

The way to solve this problem is to become far stricter on rule enforcement and notify teams that any infractions will not only result in harsh penalty, but players (the ones found innocent) will be allowed to transfer to another institution without sitting out or forfeiting a year of eligibility. The return of the “Death Penalty” with a transfer provision would change the way that teams operate and deter them from cheating in the future. If teams believe that they will lose future seasons and the current players will be allowed to jump ship without penalty more will do their best to run a clean program.

Downsizing of Division 1-A 

One of the most significant effects that a salary cap would have is the elimination of noncompetitive teams in Division 1-A. There are currently 120 FBS schools in the NCAA, each of these teams is eligible (in theory) to win the National Championship. The problem is that there is such a disparity in talent and money between the top 40 and the bottom 40 teams that rarely do the bottom 40 teams ever have a chance at post season play. There is very little mobility from the bottom part of the FBS because financially these teams are unable to compete with bigger schools and bigger budgets. For example, the bottom 40 schools in the FBS in 2010 averaged roughly a paltry 18,000 fans per game. Contrast this to the top 40 which averaged roughly 80,000 fans per game and the middle 40 which averaged a respectable 45,000 fans per game. Lower attendance in addition to the
smaller TV contracts which the lesser teams receive would force many of these bottom teams to move from the FBS to the FCS in order to remain affordable for their University. Downsizing the FBS to 64 schools would allow teams to drop the bottom-feeders and allow the better teams to play a more competitive schedule.

Creation of Parity = Increase in Quality 

Creation of a tiered salary cap system would create recruiting parity across Division 1-A football schools. With players only permitted to receive compensation through their tier of scholarship, the salary cap system would force each team to spend the same amount of money on the players, which in turn would create a level playing field for recruiting. A level playing field for recruiting would prevent the typical top schools from attracting all of the top talent because it would be financially beneficial for a player to go to a lesser program if they received a higher level of scholarship at that institution. In 2012 each of the top five schools had 15+ recruits that graded out at four-stars or better, including 15 of the 33 five-star players. Of the teams outside the top 20, none had more than 1 five-star recruit and all but five schools had less than 5 players ranked as four-star players. These rankings are not always indicative of the success that these players will achieve as college players, however with such inequality in the recruiting process it is no surprise that the same teams battle for the National Championship every year.

One side-affect to greater recruiting parity would be an increase in quality and player development in college football. One of the disadvantages for players with the current recruiting process is that when the best players go to the same schools, some great players have to sit on the bench because they are playing behind a better player. There are many cases where these players do not develop properly due to a lack of playing time and miss the opportunity to continue their football careers. If these players instead went to places where they would play right away, more of the top prospects would have the opportunity to receive playing time and develop rather than to sit on the bench and
wait for a star player in front of you to graduate. If the best players were spread across all FBS teams not only would the quality of play improve but with higher quality opponents on a weekly basis more players would likely reach their potential.

The above paper was written in May of 2012 by my friend and colleague, Christopher Brooks, during our final year at the Darden School of Business in conjunction with my paper on the BCS.

1.“BCS Must Change and TV Will Lead the Way” Nwokedi, Brian
2. http://online.wsj.com/article/SB10001424053111904060604576572752351110850.html
3. http://www.nytimes.com/2012/04/10/opinion/nocera-football-and-swahili.html
4. http://www.cbssports.com/collegefootball/story/15312728/major-ncaa-violations-yield-relatively-minorconsequences