“The Bowl Championship Series (BCS) was devised outside the structure of the NCAA. It was a creation not just of the big six leagues but of the free market, of television. Since television made the BCS possible, television will ultimately have the final say on whether a larger and more inclusive BCS will work financially.”
-Keith Dunnavant, The Fifty-Year Seduction
Introduction
The Bowl Championship Series (BCS) is currently at a crossroads. On one hand, the BCS faces increased pressure and threats from anti-trust lawsuits which claim that access to the BCS is not uniform for all schools, especially non-BCS football schools. Although this imbalance between BCS schools and non-BCS schools is tough to deny especially when you consider that over the last 14 years of this system, 96% of all bowl revenue has gone to BCS conference schools, the 15 years preceding the creation of the BCS were no different[1]. During this time period, there were 120 selections made for the four top-tier bowls and only once did a non-BCS school participate.
On the other hand, college football’s postseason continues to show signs of declining popularity amongst football fans, especially outside of the National Championship game which will continue to threaten the financial viability of the entire system. While 2011 regular season games like LSU vs. Alabama (Nielsen rating of 11.5), Oklahoma vs. Florida State (Nielsen rating of 8.56), and Stanford vs. USC (Nielsen rating of 6.72) continue to show the trends of ever-increasing levels of fan viewership during the regular season, television ratings from some of the biggest postseason games continue to remain mediocre and downright disappointing. Examination of the Nielsen ratings for the four 2011-12 season BCS bowl games and the national championship further prove this point:
Exhibit 1. Nielsen Ratings for 2011-12 BCS Bowl Games
Bowl Game
|
Matchup
|
Nielsen
Rating
|
Change from
2011
|
Orange Bowl
|
Clemson vs. West Virginia
|
4.56
|
↓ 32%
|
Sugar Bowl
|
Michigan vs. Virginia Tech
|
6.07
|
↓ 18%
|
Fiesta Bowl
|
Stanford vs. Oklahoma State[2]
|
9.60
|
↑ 56%
|
Rose Bowl
|
Wisconsin vs. Oregon
|
10.17
|
↓ 10%
|
BCS Title Game
|
Alabama vs. LSU
|
14.01
|
↓ 8%
|
Contrary to all the rhetoric spread by BCS supporters, college football’s postseason is actually getting less popular as the years go on. In fact, college football’s average 2011-12 bowl rating dropped below 2007 levels for the lowest average Nielsen rating since the controversial BCS began[3]. Furthermore, overall viewership in 2011 was down eight percent from 2010. And since the inception of the BCS, total viewership has actually dropped a total of 37 percent3. To further complicate matters for college football, the NFL’s postseason continues to outperform college football on a head-to-head basis. The Nielsen ratings for the 2011 NFL postseason ratings are as follows:
Exhibit 2. Nielsen Ratings for 2011 NFL Postseason
Playoff Game
|
Matchup
|
Nielsen
Rating
|
Change from
2010[4]
|
Fox Super Bowl XLV
|
Pittsburgh vs. Green Bay
|
37.7
|
↑ 3%
|
NFL Championship
|
Green Bay vs. Chicago
|
17.6
|
↓ 11%
|
AFC Championship
|
Pittsburgh vs. New York Jets
|
18.6
|
↑ 16%
|
AFC Divisional
|
New York Jets vs. New England
|
14.8
|
↑ 21%
|
NFC Wildcard
|
Green Bay vs. Philadelphia
|
13.3
|
↑ 13%
|
The current BCS postseason format simply doesn’t stack up to the NFL or even March Madness, and its television ratings are a direct indictment on the current system’s inability to consistently deliver compelling matchups across all facets of the postseason[5]. Left alone, the BCS runs the risk of having television executives finally decide to sell (show) something other than subpar football match ups. The time for a new postseason product is now. Significant modifications to the current BCS are necessary for the long-term financial viability and popularity of college football.
Overview of Paper
This paper will examine the financial implications of a variety of changes to the current college football regular season and postseason. It will then compare the projected financial impact of each of these changes with the financial performance of the current BCS. This paper will focus on finding solutions to the popularity issues that college football’s postseason faces and will stay away from discussions on the anti-trust and fairness issues faced by the BCS.
These proposed changes will significantly increase the popularity of college football’s postseason, which will drive increased viewership and television ratings. But more importantly, these changes will increase total revenue and profitability for college football without adversely impacting academics, making it a win-win for college administrators, television executives, and fans.
Revenue and Profitability of the Bowl Championship Series Bowl System
The current BCS bowl system, which is a consolidation of private business with no affiliation to the participating schools, generates revenue from four main sources: (1) Ticket sales revenue, (2) Title sponsorship revenue, (3) Advertising revenue, (4) Television right payouts.
(1) Ticket sales revenue is derived from payments received from fans or schools for admission to the bowl game. Typically, fans will purchase tickets directly through their participating school but they can also purchase tickets on secondary markets like StubHub! or FanTickets.com to name a few.
(2) Title sponsorship revenue is derived from payments received from a patron (usually a corporation or other type of businesses) of the bowl game that has provided money, goods, and services in exchange for the exclusive right to have the patron’s name appear prominently before the title of the event. For example, think Discover Orange Bowl, Tostitos Fiesta Bowl, or Allstate Sugar Bowl.
(3) Advertising revenue is derived from payments received from corporations or other types of businesses for the rights to advertise their products and services through commercials during the telecast of the bowl game.
(4) Television right payouts are lump sum payments received by the bowl game from television networks and syndicators for the rights to broadcast the bowl game.
For decades, ticket sales provided nearly 100 percent of the revenue generated by bowls games but through the years as college football popularity soared, television entered the picture. Corporate advertisers began to recognize the value in the large, demographically desirable audiences that were watching college football, and consequently the television networks began to pay increasingly generous rights fees to retain this valuable college football programing, and corporations began to increase their involvement within college football.
By the 1970s, television had surpassed ticket sales as the primary source of revenue for bowl games and it hasn’t looked back since[6]. And as bowl games continue to struggle to sell tickets in modern times, television’s share of overall bowl game revenue continues to surge, as the various networks and syndicators continue to pay inflated fees even for mediocre matchups with limited national appeal.
Since the 2005 postseason, the BCS bowl system has grown total profit & revenue for the participating schools at a CAGR of 5.68 percent, but this growth has been primarily driven by increasing television rights, title sponsorship, and advertising payouts[7]:
Although revenue growth has been steady each year since its inception, the BCS’s postseason product pales in comparison to the revenue generated by some of its nearest counterparts. For a sport as popular as college football (nearly one-quarter of the U.S. population or between 75 and 80 million people follow college football regularly[8]), this simply isn’t good enough.
This past year alone, March Madness generated $771.4 million in television contract revenue for its month long postseason collegiate basketball tournament which on its own is approximately four times the size of total combined revenue generated by the BCS postseason[9]. And an analysis of the profitability of the NFL television deal for the 2011-12 season and postseason shows total revenue of $1.93 billion per year. Future estimated projections show that the NFL’s total television contract revenue will grow to $3.09 billion by 2022[10]. From a revenue standpoint, college football’s postseason does not stack up to the NFL or even March Madness in its current format. Significant money is being left on the table and the current BCS postseason format is the primary reason for this.
The Proposal
Given the multiple levers that can be pulled in college football, the following significant modifications to both the regular season and the postseason must be made to significantly impact fan popularity and drive increased profitability:
1. Downsize Division I Football Bowl Subdivision (FBS) to 64 full members
2. Realign the remaining members into five BCS conferences each with a championship game
3. Eight-team playoff based on five BCS conference champions and three at-large births
4. Reduce the total number of regular season games from 12 to 10
5. Preserve the tradition of the non-BCS bowl games
Downsize Division I Football Bowl Subdivision (FBS) and Realign Conferences
Currently, in order to qualify for inclusion within Division I FBS, the NCAA primarily requires that its institutions average annually at least 15,000 in actual or paid attendance for all home football contests once every two years[11]. Consequently, because of this lackadaisical standard there are currently 120 full members of Division I FBS, which is far too many when you examine fan base followings and concentration of revenue generation. A comparison of 2010 average attendance records by conference show that BCS conference schools far and away outperform the majority of non-BCS schools on the basis of this primary FBS membership requirement, and this trend continues year over year (see Exhibit 4 below):
In this modern era of big time college football, attendance and ticket revenue represent only modest portions of overall revenue generated by college football (approximately 22%)7. Television has become the engine that drives college football revenue and because of this fact, television should be utilized in the determination of Division I FBS membership not year over year average attendance.
Although different college football programs around the country play into each of the large television media markets in different ways one theme is consistent across all markets: BCS conference schools have significantly larger fan bases and followings across more regions of the U.S. than non-BCS football schools. Exhibit 5 shows the estimated total fans by conference across numerous U.S. television and media markets:
Because of this fact, more fans in their respective markets want to see more BCS schools on television than non-BCS conference schools, and because of this demand, television executives continue to cut large checks to the 6 main BCS conferences, Notre Dame, and Texas for the rights to broadcast their regular season games. More fan viewership of certain conferences across the various television markets translates to potential opportunities for advertising revenue from the television networks’ perspective which translates to windfalls for most BCS schools.
In 2012, the Big Ten, SEC, ACC, Pac-12, Big 12, Texas, and Notre Dame are all expected to have record years in terms of regular season television revenue. Total payouts to each of the aforementioned parties per year will be as follows[12]:
Exhibit 6. Television Revenue by Conference and Team
Conference/Team
|
Revenue per Year
|
Expiration Date of Deal
|
Pac-12
|
$250 million
|
2023-24 (Fox and ESPN)
|
Big Ten
|
$212 million
|
2015-16 (ABC-ESPN); 2031-32 (Big Ten Network)
|
SEC
|
$205 million
|
2023-24 (CBS)
|
ACC
|
$185 million
|
2023-24 (ABC-ESPN)
|
Big 12
|
$150 million
|
2015-16 (ABC-ESPN); 2024-25 (Fox)
|
Texas Longhorns
|
$15 million
|
2031-32 (Longhorn Network)
|
Notre Dame
|
$15 million
|
2015-16 (NBC)
|
But while Notre Dame, Texas and the five BCS conferences mentioned above are all enjoying record windfalls, the Big East is floundering and the Mountain West, Conference USA, Sun Belt, WAC, and MAC all make less than $27.4 million per year combined. It’s a sellers’ market for college football content, and television executives aren’t buying the Big East and non-BCS product. To make matters worse, a majority of non-BCS schools are far from financially self-sufficient. A majority of these non-BCS football playing schools are only capable of “surviving” due to the large payouts they receive from their BCS counterparts for non-conference regular season games. Without these large payouts, which can often reach as high as $1.5 million per game, most non-BCS schools would be unable to cover the rising costs of Division I FBS membership. And current NCAA rules require each Division I football playing school to support a minimum of 16 other sports programs. So in essence, BCS conference schools subsidize the very existence of non-BCS conference schools. The fact simply is that non-BCS schools cannot support themselves and the cost of doing business within Division I FBS will force them to drop down to Division I FCS. It’s simply a matter of economics!
Realign the Remaining 64 Members into Five BCS Conferences
Unfortunately for the Big East, the preliminary rounds of conference realignments during the summers of 2010 and 2011 have left this conference on shaky grounds. The current television deal with ESPN for $200 million ($33.3 million per year) ended at the conclusion of the 2011-12 season, and the deal with CBS for $54 million ($9 million per year) is scheduled to end at the conclusion of the 2012-13 season.
With a depleted roster of Division I FBS football schools and no true major football powerhouses left in the Big East, the new television deal will not be enough it to keep this conference from dissolving. And because of these factors, the Big East will not survive as a football conference and its bell-weather programs like Rutgers, UConn, Boise State, USF, Cincinnati, and Louisville will have to find other conferences to join if possible.
Based on this new TV-driven realignment and television market focus, Division I FBS conferences will be best suited if realigned as follows: