From the WSJ, Andrew Zimbalist on the economics of March madness.
… the schools themselves are usually the losers. According to the NCAA’s latest Revenues and Expenses report, in 2005-06 the median Division I men’s basketball team generated revenue of $480,000 and had operating costs of $1.33 million, yielding a net operating loss of $850,000. If capital expenses and full university overhead were included, these results would be even more dismal.
The most successful programs, of course, will do better (the top 10 basketball teams had revenues of more than $11 million), but even these programs frequently lose money when the accounting is done properly. Why?
Most of the 300-plus Division I schools aspire to make it to the March tournament. To do so, they have to spend big. Since they can’t go to a free-agent market to hire the best high-school players, they attempt to attract them in other ways…. they hire well-known coaches with a reputation for sending an occasional player to the NBA…. the head coaches of the 65 Division I teams in Madness had an average maximum compensation of $959,486, with the top paid coach earning a guaranteed salary of $2.1 million and a maximum salary of $3.4 million…. These guys are making almost as much as NBA coaches, even though their teams’ revenues generally are below one-tenth those in the senior circuit. The trick, of course, is that the players aren’t allowed to be paid, so the coaches, in essence, get the value produced by their recruits…. Equally startling, the average compensation of these 65 coaches is double or more that of the typical university president — a clear statement of the perverse priorities of these fine institutions of higher education.