Welcome back to Crimson Cast, GAIL and Clavio joining you.
It is Saturday the 14th of June and hopefully all of you are
surviving what appears to be monsoon season here in Indiana
if you're living in almost any part of the state.
Way too much rain so far this late spring slash early summer.
Could just use some dry periods. That would be nice.
Dry, warm like anything remotely summer like would be welcome at
this point. But no, it's pouring here in
Bloomington today and looks like it's not going to let up for a
little bit. So great, that's just what we
needed. As I've promised many of you,
we're going to continue on talking about the situation
going on in college athletics with the house settlement and
with the changes to the system that are being proposed.
We're going to have some more present day items coming up here
relatively soon. We've got an interview with Ben
Portnoy from Sports Business Journal coming up here tomorrow.
We're also have some additional interviews.
And we're going to dive into the NIL Clearinghouse now that we're
starting to get a clearer sense of what the NCAA and its member
schools are planning on doing with it.
But I wanted to kind of take a little bit of a step back on
this particular podcast and talk through how we got to where we
are. This is a large topic.
Like this is a topic I could do an entire class on.
I got a whole course, like a full 16 week course just on the
development of college athletics from where we started in the
1800s to where we are today. We're not going to go that deep,
so it's a little bit surface level, but I wanted to just give
you some numbers and show you how we got to where we're at.
Talk through some of the items that I think are critical to
understanding the current environment and perhaps trying
to figure out where things are going.
So that's what this show is about.
If you're not interested in the topic, totally understand.
But for those of you who are interested in the topic, I
thought it would be helpful to just show you some
representations of why we are where we are.
Explain some of the systems that are going on in the background,
and maybe that'll help you to better understand why we're
having all of these issues at this point.
So we're going to dive into all that in just a second, but
first, couple of housekeeping items.
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All right, we're going to dive into talking about the college
sports landscape by taking a step back and talking about how
we got to where we are at. So I think, you know, one of the
things that we really need to establish, I guess first and
foremost is, is this idea of what we're doing here with
college sports. Yes, I'm going to use some
PowerPoints for this, but I'm going to talk through the
PowerPoints. So even if you're just listening
on Apple or listening on Spotify as opposed to watching, you're
not necessarily going to miss a huge amount.
But I would like to show you folks some graphics and some
charts to talk through what exactly we're looking at in the
college sports landscape and and why things change so
dramatically in the 21st century.
I do think it's important for people to understand that
college sports have always been a business.
And it's interesting to me because, you know, so much of
the rhetoric around college sports, often pushed by colleges
and universities themselves, has been around this idea that
somehow college sports, there might be money involved, but
it's not a business like it's education.
And yet these have been run as businesses for decades.
And, you know, I think it's important that we just be real
about what business everybody is in here.
College athletics have a lot of reasons for being a business.
I've gone into many of them on the show over the course of
time. And while there's certainly been
an effort to establish and maintain an educational element,
you know, the universities that engage in college sports are
doing so because they get a lot of knock on benefits in terms of
alumni service, in terms of drumming up donations, in terms
of marketing and advertising of their institutions.
And those are really important things to keep in mind.
And it's something we need to think about as we move forward
is that, you know, as we see this tug of war over the house
settlement over how players are going to get paid.
You know, what we've seen essentially is, you know, for
all of the talk and I and I think this is important to keep
in mind. You know, if you go back 10
years, maybe even less than that, you've got Jim Delaney of
the Big 10, you know, talking about how paying athletes would
be the effective end of college sports or some such quote.
You've got coaches saying, well, if players ever got paid
directly by our schools, I would I would retire.
I would go down to, you know, to or just stop coaching all
together or go down to the Division Three level.
And I'll note that none of those things actually happened.
Everybody's still in the game. You've seen one or two people
exit stage left. Tony Bennett on the basketball
side, haven't really seen any football coaches.
Nick Saban does not count Nick. Nick Saban was kind of at the
end of his effective career life anyway, I think as a football
coach. But all of these proclamations
that we heard throughout the 20 tens about how athletes just
couldn't be paid by by colleges and universities, and that was
just completely contrary to the model.
And yet with this house settlement, we've got schools
now willingly saying, OK, we're going to pay 20 and a half,
$1,000,000 a year to our athletes and we're going to
split it up along revenue lines. It, it, it essentially, as we
said at the time, me and those of us who were were talking
about college athletics paying athletes did not 'cause college
athletics to disappear. In fact, college athletics from
a financial perspective has never been stronger.
And that I think is really kind of a key element because while
college sports has always been a business, the inputs and outputs
from a revenue perspective were limited in scale.
You know, so much of it was basically tied to ticket revenue
and then occasionally media. And so you'd have schools who
would build these huge cathedrals of college basketball
or, or college football. And the ticket revenue largely
dictated how much money they were making.
And, you know, schools like Michigan and Tennessee and Ohio
State and a lot of schools in the South built really big
football stadiums and just made more money than schools like
Indiana and Northwestern, who, you know, didn't have the same
level of support at the football side of things.
And again, why are they doing this?
You know, and this, this to me is one of those things that
carries through still to today. It's this idea that if you're a
college or university, you're in competition with a bunch of
other colleges and universities. Well, what are you in
competition for? You're in competition for
enrollment. You're you're and, and even more
so now you're fighting over getting students, you're trying
to get higher caliber of students or you're just trying
to keep your enrollment at a high level.
Well, how do you mark at a university?
You can mark it through traditional means.
You can, you know, you could have rankings in U.S. news and
World Report. You could take out magazine ads
or television ads as you see on, you know, during college
sporting events, you know, touting your academic
achievements. But realistically, it's the
branding, It's the colors, it's the logos, it's the mascot.
And those are most present and most prevalent nationally during
the NCAA tournament, during bowl games, during the College
Football Playoff, during Saturdays, throughout the course
of the fall. When you've got college football
as the biggest driver of ratings, you know, other than
the NFL that you'll see out there in television.
These are all the things that factor into this idea of it's a
business. And here's why we engage in
college athletics. And here's why we need to keep
this going and why we need to continue to pour in resources
and continue to consolidate revenue and generate more
revenue. So you got all of that as a
baseline, and I think it's important to understand as I go
to this next chart, the value that advertisers find in college
sports. This isn't just colleges and
universities saying, oh, you know, we need to be prominent in
the national landscape, so we're going to have college athletics.
This is also television networks saying, you know what?
Advertisers love buying commercials and buying
sponsorships during college athletics tournaments, whether
that's the College Football Playoff or whether that's March
Madness. Why do they love doing that?
Well, it's because they get an audience that's very valuable to
advertisers. Sports audiences in general are
very valuable to advertisers because they're largely male.
Males tend to buy more things than females do, just from a
consumer perspective. Generally, it's right in the
sweet spot of the demographics. What you want in terms of age,
you're talking about people aged 18 to 49.
That's your prime purchasing demographic for consumer goods
and for a variety of services. You think about the companies
that advertise during sporting events in general, a lot of a
lot of beer companies, a lot of soft drinks, a lot of snack
foods, a lot of airlines. You know, that audience is very
valuable to advertisers and they tend to congregate around
sports. College sports has an even
greater item that goes along with that, which is that much
like as we saw in NASCAR 20 years ago, people who are fans
of teams when they're watching the games tend to get more
highly identified with the advertisers that are advertising
during the games of their favorite teams.
The effect is not as great with say the NFL or the NBA, but it
is pretty sizable with March Madness and with the college
football player. So you look at this chart that
I've got up here and you can see like back in 2018.
So we're talking about, you know, 7-8 years ago at this
point, March Madness was the second largest advertising spend
on a national level for post season sports in the United
States. The NFL was first, you know,
buying, you know, largely buying Super Bowl commercials, but just
buying inventory in general generated about $1.7 billion for
the NFL. But March Madness generated
about $1.3 billion more than the NBA postseason did during that
time period and significantly more than Major League Baseball.
And this was right after the College Football Playoff was
started. Even at that point, it had
grown. That was with three games, you
know, 300 and some $1,000,000. That's grown significantly since
then. All of this really ties into
this idea of growth in college sports in terms of overall
revenues. And there's this fascinating
quote that I found when I was doing research on this, and I'm
just going to read the quote that I've got up on the screen
right now. Football is the main reason top
tier college programs have increased the revenue over
recent decades at a rate that would make blue chip companies
blush. In constant dollars, meaning
adjusted for inflation, you know, So what would a dollar in,
you know the in 1970, if you do the math and, and try to
calculate what a dollar would be here, like maintaining that over
the course of 50 some years, you know, in constant dollars.
The median Division One athletic department revenue in 1970 was
6.5 million. In 2012 it was 56,000,000.
So you're talking about a really significant increase like, you
know, not quite 10 times, but 9 * 9 1/2 * a revenue increase
over what essentially was about a 40 year period.
And that's only continued to grow as we'll see here in a
little bit when we look at overall budgets and revenues in
college sports right now. So you're dealing with a college
athletic system, which if you'll recall was started in the late
19th century, between 1870 and 1900, and then kind of grew into
a form that we recognized as, you know, modern and present day
post World War 2 and, and really in the 1970s was when it
evolved. But the revenues have kept going
up. And so you've got a system that
was devised around amateurism and around, you know, not
compensating athletes and treating athletes as students.
And at the time that that was set up, it made sense because
there wasn't that much money in the mix.
You didn't have coaches making that much money.
A lot of your facilities were, you know, public works projects
or were things that were built very cheaply with very few
amenities. But that's all changed, and the
money has continued to rise. And the fundamental problem that
college sports has been facing for really the last 15 years is
a complete unwillingness to change the system that was
created in the immediate aftermath of World War 2, when
the financial structure was completely different.
So looking at this chart that I I've called up here, you can't
really see it too well. The grids got a little bit
smushed. But if you look at television
revenue from the NCAA college basketball tournament from 1980
to 2013, you can see just this almost exponential increase, you
know, almost a diagonal line that really kicks in and and
gets huge advances around the late 1990s, early 2000s as
revenues continue to climb, coming largely from media
entities. And, and this really I think, is
the key point. Like the starting point in this
chart was at a time when the NCAA Tournament was still on NBC
and NBC, it would carry select games.
They would broadcast it like pretty much any other of their
sports properties. CBS acquires the NCAA tournament
rights in 1982. And of course, famously, the
first year that they had it, that was the year that Michael
Jordan hits the shot to beat Georgetown to win the national
title. CBS and the NCAA partner to
essentially brand this as March Madness, and they build this
entire advertising and audience ecosystem around the NCAA men's
basketball tournament. And it starts to generate
significant revenues better than passed down not just to the
teams in the tournament, but college athletics in general.
What happens during this time period is that colleges,
universities in the NCAA are looking at all this money coming
in and they're saying, you know, wow, we now we have the capacity
to do a bunch of things we haven't done before, but it
requires us to maintain control of those revenues.
So, you know, rather than look at this and say, wow, we're
generating a lot of money, we should make sure that athletes
are taken care of equitably. You have decisions being made in
the 1980s saying, no, we need to keep those, you know, that money
for ourselves. The amateur system suddenly
becomes the most important thing for pretty cynical reasons.
Not oh, this is the best thing for athletes.
It's really there because it's the best thing for schools
because it allows them to essentially reap all the
benefits of this new money coming in from television
partners as the television partners are gradually learning
how valuable the property college sports can be.
You know, this had happened in other areas like the NFL to some
degree already gone through this process a few years earlier as
that became a a place where, you know, television companies
looked at it and said, gosh, people really love the NFL.
They really love these broadcasts.
We can charge more for these. And so that's really where the
cult of, you know, how much Super Bowl ads cost companies to
advertise on. That's where that comes from it.
It's not always been this way. And and this is something I
think we need to keep in mind just with sports in general.
Sports has not always been that popular on television.
Sports was often times relegated to the sidelines, no pun
intended, when it came to the way that television networks
tried to go about their business.
You know, because you would look at sports fans and they were
kind of this odd group of people.
It's just like combination of die hard fans and gamblers.
It wasn't necessarily a group of people that you looked at and
said that's the the primary audience we're looking at.
I mean, famously there were NBA Finals games that were on tape
delay in the early 1980s because, you know, CBS would get
better ratings and therefore better advertising dollars off
of showing Dallas or I forget if Dynasty or Knox Landing was the
other show on Cbsi think it was Knox Landing, but that was a
better option for the networks in the early 80s because they
hadn't really figured out that if you.
Took sports seriously and put it in prime time and, and took care
of it on the weekends and, and put it in good spots.
You could get not just great, you know, ratings numbers, but
you could get a demographic that you weren't getting showing
night time television dramas. And, and so this starts to
happen at the college sports level almost at the same time
that it happens at the professional sports level.
The difference being that at the professional sports level, there
are unions, there are players unions, labor unions who are
looking at this, looking at these revenues increasing and
saying, hey, wait a minute, we deserve some of that money.
There's nobody to speak out for college athletes during this
time period. In fact, not only are college
administrators refusing to speak out in favor of athletes because
they have a vested interest in keeping the money in house, but
media end up being very complicit in painting a picture
of athletes needing to be protected from money.
You know, this was the narrative that happens all throughout the
1980s about, you know, agents being the real evil and, you
know, players being talked into leaving school early and going
pro. If this was the real evil and
things. I mean, the whole plot of Blue
Chips is essentially college athletics used to be pure and
then money came in and destroyed it.
That's, that's the the subtext of the whole movie essentially.
And it's just a fundamentally different type of mentality than
what you get at the professional level where there's an
acknowledgement in some sports, a very begrudging
acknowledgement that, yes, we're going to have to probably share
these revenues in one form or another anyway as we move
forward. If you look at TV revenues in
the Big 10 just over a period from 2013 to 2018, as you can
see up here on the screen again, it is almost a direct diagonal
line, like almost an exponential growth of of television revenues
just coming into the Big 10 conference.
Same thing was happening with the SEC.
So what does all that lead to, You know, in this world where
you've got college administrators and coaches
saying no players shouldn't be paid.
That would destroy the system that we have.
Who is getting paid? Well, it's college coaches
because you got to put the money somewhere.
Because one of the things that I think is fundamentally
misunderstood about college athletics is that college
athletics departments, as I've said on the show before, are not
businesses. They're not profit centers, at
least not yet. They're some of them may become,
that's very soon. So as a result, if you make 50
million extra dollars over the course of a 10 year period of
time, you got to find a way to spend that money because you're
not going to be able to keep it in reserve.
That's not the way that the budget is set up.
So a lot of that money goes into coach's salaries.
You can see this quote. According to research by Charles
Klopfelter and The Economist at Duke, the average compensation
for head coaches at public universities, head football
coaches, which at the time was more than $2,000,000, has grown
750%, adjusted for inflation, since 1984.
That's more than 20 times the cumulative 32% raise for college
professors. So over the same time period,
college coaches salaries went up 750%.
And the average college professor who's theoretically in
the same business, if you take the schools at their word during
this time period that they're engaged in education, the
college professor salaries went up 32%.
That's an illustration of something amiss in the numbers
and something amiss in the, the economic evaluation of what's
going on. And really what it is, is we've
got all of this money, we have to keep it within, you know,
the, the, the non student ranks of college athletics.
What you end up with is coaches getting paid, facilities getting
paid for, assistant coaches getting paid for.
And that's the bubble, essentially that's occurred
within coach contracts over the course of the last 25 years.
That's where it comes from. All of this money is generally
coming from what we would, you know, essentially call media
revenues. And as I mentioned earlier,
college football's the second biggest audience draw in
television right now. In all of television, the NFL is
first. And the NFL ends up, you know,
comprising like 75 or 80 of the 100 most watched television
programs in the entirety of the United States in any given year.
But college football often times occupies the next 10 spots.
And then, you know, sometimes they'll be higher ranked.
You know, college football in general is a tremendous audience
draw and what you get out of that if you're a television
company is you get higher levels of brand search and activation,
which is what I was talking about earlier.
So not only are your advertisers getting a better demographic,
they're getting a more active demographic.
You've also got some different approaches that have been taken
by different conferences about what the best way is to go about
dealing with all of this money and, and how to handle the
television, you know, circumstances that are
generating the revenue in the 1st place.
So one of the things that I think it's important for people
to know about the Big 10 is that back in the mid 2000s, right of
2005, 2006, ESPN goes through this process where they're
trying to get the Big 10 to sign on to essentially become the
house conference, so to speak, for their new channel, for ESP
NS, new channel ESPNU. And they want to use the Big 10
essentially as cover for trying to get a bunch of cable
companies to add ESPNU to their packages.
And the idea is, oh, we'll put all of your games on the ESPNU.
People will be forced to subscribe because they're going
to want to get your games. Big 10 was like, well, that
doesn't seem like a great deal. That almost puts us at a
disadvantage in the marketplace. So the Big 10 ends up going and
partnering with Fox and they craft the Big 10 network.
And the Big 10 network very uniquely is actually part owned
by the schools in the conference.
So, you know, when you see numbers coming out about how
much money the Big 10 is making in media revenue, it's a little
bit of a different calculation because the Big 10 has actually
created something in partnership with Fox where the Big 10 is
part owner of the network rather than just being cut a check.
The SEC went the other direction.
The SEC partners with ESPN and Hearst.
Those are the partners for the parties that own the SEC
Network. And then ESPN cuts them checks
based upon the amount of money that ESPN has made.
And it's a guaranteed number every year.
But what we're starting to see now is that the Big 10s model,
where you combine the Big 10 Network with all of these
national broadcasting groups, Fox, CBSNBC, they're able to
generate more money now on a yearly basis than the SEC is.
This is actually one of the reasons why if you've been
following along with the College Football Playoff debate about
who is supposed to get into the College Football Playoff,
whether there's going to be auto bids.
There's been a lot of arguments back and forth about the SEC
wanting a 5 + 11 model and the Big 10 wanting automatic
qualifiers. A lot of it comes down to the
idea that the SEC only plays 8 conference games, whereas the
Big 10 plays 9, the Big 12 plays 9, the ACC plays nine, and the
Big 10 saying we are not going to agree to a fully at large
focused or largely at large focused College Football Playoff
set up unless the SEC moves to 9 conference games.
But the reason the SEC doesn't move to 9 conference games is
because they want ESPN to pay them more money for that extra
conference game and ESP NS. Like, no, we really don't want
to do that. And technically, according to
the contract, we don't have to. So there will likely be a
negotiation on that front. Or I think we're going to see
some problems in the College Football Playoff because I think
rightfully so, the Big 10 looks at this situation and says we're
not going to put ourselves in a position where we're supposedly
comparing apples to apples on playoff resumes when the SEC is
playing one weaker competition a year or at least one out of
conference competition a year more than the Big 10 is.
So, but all that really goes back to the financial models
that are set up and the way that these things are working.
Like the Big 10, when they added a 9th conference game, they
looked at it and said this is actually good for us because as
part owners of the Big 10 Network, where the bulk of that
inventory would go, we're actually going to make more
money off of that. Whereas the SEC to add a ninth
game would have to go back to ESPN and essentially renegotiate
the deal, something that ESPN is not really that excited about
doing. But one of the things that we're
also seeing in this mix is, as you know, realignment has
occurred. And I, I really should do a
whole podcast where I just talked through the entire
history of realignment because there's some surprising stuff in
there. But obviously we've been paying
attention to what's going on with the ACC.
You know, Florida State sues the ACC to try to get out of the
agreement that was signed between the ACC and ESPN.
Clemson does the same thing. There are arguments through that
whole process where essentially we can't financially compete at
the level that we feel we're at nationally because we are
handcuffed by this deal with ESPN that pays an artificially
low level of money because it was signed with a 20 year term
back in 2016. We feel like, you know, we,
we're going to have to sue to get out of this.
Now, what ended up happening was Florida State and Clemson both
dropped their lawsuits in exchange for differential
payouts, where they're going to get significantly more money
than other schools in the ACC. That'll keep them there in the
short term. Chances are they're still going
to find a way to get out of the ACC around 2030 or 2031 because
that's when the next negotiation of television rights comes in
for the Big 10 in the SEC. And again, a lot of this really
does come down to an idea of these schools are not just right
now fighting for money, they're also fighting for prominence.
And there's a couple of different ways that that is
weighing into this equation when it comes to player compensation
and nil and all of those items. Because you've got schools who
are, on the one hand, trying to control costs and trying to
regulate a market that really doesn't have a legal precedent
for being regulated. And I'm going to talk about that
in a little bit. But then you've also got schools
trying desperately to not get left out in the cold and willing
to take lesser deals in order in some cases to stay at least
somewhat in the limelight. And so, you know, there was a
lot of talk about, oh, we're going to just end up with a
super conference and a bunch of schools are going to get kicked
out. And, you know, we heard a bunch
about like, oh, Indiana's going to get kicked out in favor of,
you know, having a, a smaller conference that's just the Super
teams that's less likely to happen.
You know, and actually, I think Indiana's in much better shape
financially than most people give it credit for.
So they would not be first on the chopping block like Purdue,
Rutgers, Northwestern, they're in much bigger trouble with
these things. But the, the other aspect of
this that I think is worth noting is that there are going
to be some moments as we go through these next sets of
negotiations where the larger brands, as we're, as we've seen
in the ACC, as we saw in the Big 12 with Texas and Oklahoma,
where they're going to say we deserve more money than the
teams in the conference that are not generating the, the revenue,
the ratings, the things like that.
They if you're not bringing in money, you shouldn't be getting
as much money in return. And that could be the biggest
destabilizing force that we see in college athletics in general,
because they're going to be schools who are going to be
willing to take that deal because the alternative will be
getting, you know, removed from your conference.
But there's going to be schools that are kind of in the middle
of things who don't want to be a a second class citizen
financially in their own conference.
And I'm curious to see, you know, how that process goes.
You at this point really can't afford from a marketing
perspective and from a reputational perspective, if
you're a college or university, to be left out of a major
college athletics conference. That's why Stanford and Cal
moved heaven and earth behind the scenes to get admitted to
the ACC. It's why SMU was willing to
forgo media payouts for nine years or whatever the term was
to get into the ACC. You know, it was like, we have
to get on this boat because if we don't, we're going to end up
like what happened with Oregon State and Washington State, who
really did get out of left standing in the game of musical
chairs and now find themselves in a position where they don't
really have a great way of marketing themselves nationally.
Because I mean, realistically, if you, if you lived in Indiana,
if you lived in Tennessee, if you lived in Virginia, like what
occasion would you have other than occasionally throwing on
like a a basketball game or a baseball game to have heard of
or think about Washington State or Oregon State just doesn't
happen that that much. Like there's not a really good
reason for that to resonate. And yet most of these colleges
are competing at least at a regional level, if not a
national level for students, you know, for for all kinds of
different things that they they have to have that that
prominence in order to maintain a position in the national
conversation. Sports is the easiest way to do
that and the probably the most effective.
So anyway, that's going to be something worth keeping an eye
on. And that is how far the industry
of college sports has evolved and changed since just 2000, let
alone 1946 when, you know, we kind of restructured college
athletics into what we currently see now on the player payment
front. I've talked about this before on
the podcast. But I think what we're seeing
right now with essentially major college athletics capitulating
to the courts about paying athletes, you know, this was
something that we talked about for years prior to the NIL
situation unfolding in 2021. And it was this idea that his
revenues continue to rise. Eventually there was going to be
a break point where, you know, athletes and lawyers and
lawmakers, we're going to look at it and say this is not right.
Like this does not pass the the smell test in terms of how you
are claiming the money is going and what is needed for versus
what's actually occurring. Anytime you get this huge growth
in revenue, you start to get people who want the revenue
besides just the people who claim that it's theirs and they
should be able to keep it. And So what I look at within
this context is very similar to what happened with Major League
Baseball in World War, post World War Two.
You have this big expansion of interest in the game.
You get, you know, new markets being opened up.
You get the West Coast suddenly hosting Major League Baseball
teams. You, you've got a real
interesting development just in terms of like the growth of the
game and the growth of interest in the game, not just in person
but also increasingly via television.
Baseball during this time period.
And it and again, baseball by that point had been around
professionally for about 8090 years.
Had this thing called the reserve clause.
And the reserve clause essentially said that if you got
cut by a team, you could go and sign somewhere, but a team had
the right to essentially sign you to one year contracts in
perpetuity, whether you agree to it or not.
They also could trade you without any input.
Like you. There were no no trade clauses.
Like none of that actually ever. None of that existed during this
time period in baseball. And players started to agitate
against that because they're looking at the increasing amount
of revenue that their teams are making.
And they're like, why are we not being paid at a higher level?
And it's because they had no leverage.
So you start to see lawsuits around this idea of players
should have their own, more of their own determination about
where they go and what they do. Curt Flood's lawsuit happens
during this time period. And so this period from like
1968 to 1976, you've got this back and forth.
You've got the court's ruling in favor of Major League Baseball.
And then you've got the courts going back on it and saying, no,
actually what we're seeing here is a violation of, of Labor law
and a violation of, of, you know, what works from a
contractual perspective. And you end up with a situation
where baseball very arrogantly refused to ever sit down at the
negotiating table with players in any meaningful way.
And then the courts essentially forced baseball into
unrestricted free agency. And that caused them to have to
completely redo the rules on the fly.
And that ends up in a situation where by the 1980s, you've got
illegal activities, literally illegal activities happening
with Major League Baseball. You've got collusion.
You know, there was this one summer in the 1980s where Major
League Baseball owners essentially all got together and
said, don't offer money to free agents.
We're going to keep free agent levels low because, you know,
when a player decides they're going to become a free agent, we
don't want them to have anywhere else to sign with and they'll
have to go back and sign with their original team at a deep
discount from what their market value might have been.
This was discovered, went before a federal arbitrator, and the
arbitrator ruled that, yes, Major League Baseball was
colluding to keep salaries down. That process lasted about 15
years and ended up with the system we have now eventually
where, you know, baseball players are pretty well
compensated their their guaranteed contracts.
They get a certain percentage of overall revenues.
And teams are actually incentivized now to spend a
significant amount of money with, you know, a luxury tax
essentially on top of that. But if you're willing to pay the
luxury tax, these are the things that that happened organically
over time. But all of it goes back to Major
League Baseball being in a position where they would refuse
to deal with athletes, and they've ended up losing in court
and have had to scramble. And I think you can make an
argument that, you know, for the longest time, the Major League
Baseball players union was probably the most powerful union
in professional sports because they were able to force the
issue time and time again. And Major League Baseball owners
really weren't on the same page. That's kind of what you could
potentially see with college athletics, with the notable
exception that you're dealing with a much younger group of
athletes here at the collegiate level.
But a lot of the legal issues aren't that terribly different
from what we saw during this time period.
So I think this is a helpful example for most people to
understand. There's value, I think, in
coming to the the bargaining table, working out a reasonable
agreement versus having the courts force an agreement on
you. Because if you're the business
organization, in this case the NCAA or the OR the conferences,
or in the case of Major League Baseball, MLB itself, when
something's imposed upon you, the terms of the deal are almost
never as good as when you are able to sit down with the
parties that you're supposed to be dealing with and come up with
something worthwhile. A lot of this then goes down to
college athletics budgets and where they're at right now.
So I wanted to show you a couple of slides here.
The growth of revenue within college athletics has been
pretty intense over the course of just the last five or six
years. So if you go back to 2019.
And you look at the amount of money in college athletics
budgets, Ohio State at the time had the biggest athletic budget
in the country, 220.6 million. Texas was second at 204.
Those are the only two schools that it eclipsed the $200
million mark in revenues. Michigan was third at 190.9,
Alabama with $185 million budget, and then Texas Tech at
169 in 2023. Just four years later, Ohio
State goes up by over 25,000,000.
They're at 251.6. Texas is at 239.2 million,
Alabama's at 2.214, point 3, Michigan's at 210.6, Georgia's
at 203. Since then, we've seen even
greater growth. I mean, there was a story that I
was reading the other day that Tennessee who back in 2023, if
you go back and look at the numbers, Tennessee was 18th in
the country with athletics revenues of 154,000,000.
Tennessee just reported that for fiscal year 2024, Tennessee
athletics had $234 million in total operating revenue and that
was a $32 million increase over what they had reported the
previous fiscal year. So this is, you've seen just an
immense amount of growth and most of it is coming through
media deals. And you're starting to see a lot
of these athletic departments just kind of fully
professionalized what they're doing and how they're doing it.
And also going to their institutions and saying we need
to get some additional money to do what you need us to do to
market the university, to service alumni, to generate
donations, so on and so forth. So all of this is happening
simultaneously with now the requirement in the house
settlement that you need to come up with essentially 20 and a
half, $1,000,000 to pay athletes if you're going to compete at
the revenue share level. So in addition to needing more
money for coaches, needing more money for facilities, you now
need money to pay athletes. And that's where a lot of these
advances in revenue are going directly to.
And even with that $20 million extra is a lot of money.
I mean, that's 10% in some cases of just the top budgets.
And when you get down to even even like, you know, if you go
back to the 2023 numbers, I'm actually going to stop sharing
this and, and share these revenues and expenditures.
Let's see if I can get this up here.
There we go. So if you look at this was this,
this report was from 2024, but it's actually the 2023 budget
numbers. You know, if you look at the
numbers that you're dealing with right now, if you get down to
say the 20th ranked teams, you're talking about, like
Wisconsin's a great example, $150 million athletics revenues.
If you have to suddenly pay 20 and a half million dollars, I
mean, that's, that is what 15% of that revenue structure you
have to come up with again, or you have to cut a bunch of
things underneath the surface that like, I don't think people
understand the math involved here.
But you don't just generate 20 million extra dollars out of
thin air. It's got to come from somewhere.
And a lot of it is coming from a gradual pullback in certain
areas that college athletics has kind of prided itself on up to
this point. If you look at where the money's
going right now, if you go back to 2005, the a, a plurality, a
very small plurality of the money was going to athletic
scholarships. So about $736 million of college
sports money was going to scholarships, followed by
coach's compensation, which was about at the same number.
And then administration and support staff compensation was
in 3rd. By the time we get to fiscal
year 2018, coach compensation had shot up to $1.9 billion per
year. Athletic scholarships have
dropped below administration and support staff.
So you're dealing with the situation where yes, you're
still spending a lot of money on athletic scholarships, but
you're spending a significant amount of money more on coaches
and the administrative structure that you need to run this multi
billion dollar business. I'm going to stop here for a
second and and a couple other things I wanted to note before I
dive into the last part of this. It's important to understand
that college athletics has always rested on this idea that
there are rules, But most of the schools that are competing at
the highest levels are not paying attention to the rules,
knowing that there's not going to be a huge penalty delved out
to them in most cases. And that ultimately, if you know
what you're doing, it's very hard to police violators of the
rules. And this is where, you know, I
think it's easy to, you know, and I've done this myself on the
show before, get very frustrated with coaches and, you know,
reporters who are acting as the the mouthpieces of coaches
complaining about all the rule breaking and all the tampering
and all this and that. And then no names are actually
named. And, and it's, it's a very
frustrating system for fans. It's a very frustrating system
for outside observers because it's clear that people want to
complain and make excuses for when they're not winning because
other teams are cheating. But there's never any real
effort by the system or by the schools to do anything about the
cheating or to codify a system where the cheating would be
faced with like real, actual penalties.
And So what that ends up doing is creating, you know,
historically in college sports, an underground marketplace where
there's money being paid out to athletes and everybody knows it.
If, I mean, anybody that's around college athletics knows
that that's taking place. You know, and one of the things
that's been brought up here recently, for all the talk about
how a playoff would destroy competitive balance, again,
false. But that was the argument for
many years that you can't have a College Football Playoff because
that will that'll hurt competitive balance.
And, and this and that you can't pay athletes because that'll
hurt competitive balance. When the shackles came off of
the NIL payment structure and teams could suddenly start
paying players their market value, suddenly you started
seeing a lot of teams competing at high levels that were not
competing at those levels before.
You know, and in football, I think it's been a very
interesting thing to watch because the hegemony that the
SEC has had for years in college football, you know, the, the
marketing was like, oh, it just means more, which is crap.
That's that's, that's a ridiculous cover story for the
reality that, you know, schools in the SEC are generally willing
to pay a lot of money to get the best players to play for them.
And it wasn't just the SEC. Ohio State's thrived on this
very thing. Michigan's thrived on this very
thing. There, there was a essentially a
hegemony of schools that had figured out the system, knew I
was going to go and those schools jealously guard that
particular set up because they don't want anybody else
threatening their access to talent.
It's why when you see like Ole Miss going in and signing
players immediately, you're starting to see stories about,
oh, this guy got paid this amount of money by this school
or this booster. There's a it's, it's almost like
an allergen gets into the system if the money is threatened by an
outsider trying to come in. It's why to some degree there
was such a backlash against Indiana football.
Indiana football finally starts paying, you know, being able to
pay players, being able to, you know, to, to devote resources to
coaching and whatnot. And no one in the old guard
wants to see Indiana football in the mix.
That's the kind of thing that's going to be interesting to watch
as we move forward with all of this because it's not just about
finding money to pay athletes, but it's also about a power
struggle in college athletics where you've got this built in
hegemony of of schools that does not want to let other schools
have access to the competitive aspects of things.
And it's really one of the primary differences between
professional sports and college sports where at the professional
level, you know, you have varying levels of this.
You have small market teams and big market teams.
But the, the, the sports that are thriving the most right now,
the NBA, the NFL, like they have a system where it can be
equitable enough. And you see this in the NBA
Finals this year where you have two small market teams who used
different methodologies to take advantage of the current rule
set, were very smart with their money and are in the NBA Finals
in the NFL. You know, it's how smart can you
be with the salary cap? Yes, you've got some big market
teams that are playing, but you've also got smaller market
teams that have won Super Bowls or gone to Super Bowls because
everybody's essentially in the same business there.
And there's an acknowledgement that they're growing overall
revenues and that the competition aspects are more
about how good am I at doing XY and Z under the rules of
collective bargaining in the salary cap.
That's not really how colleges and universities think about it.
You know, everybody wants to market their schools.
Everybody wants to put themselves in a position where
they are, you know, getting thought of as a place for, you
know, a high schooler to go and attend college.
Everybody wants to get their alumni satisfied.
But there are also schools for whom winning at college sports
is very important from a cultural perspective, from a
pride perspective. And in many cases, it covers up
a lack of other accomplishments that that institution might
have. You know, a lot of what we see
in the SEC like there is a civic pride, but there's also the the
idea that a lot of the SEC schools are not great academic
institutions just by rankings. So how do you attract students
otherwise? Well, you attract them by
saying, hey, we win at football. We win increasingly now at
basketball. And whether or not you want to
acknowledge that those things should or shouldn't matter in
college choice, the reality is they do, you know, students want
to go someplace where it's fun. And college sports is about the
most fun thing that you can think of for a large number of
people that are going to college.
Not everybody, but a large number of people.
So that is the kind of thing that you have to factor into all
of this. And I think it's important to
keep in mind that the amount of money that you're generating and
the amount of money that you bring in is increasingly A proxy
for how important or not you are within the college sports
landscape. I want to go back to those
revenue numbers again because I think it's really interesting
looking at, let me get this up here.
There we go. Sorry, we need to let me remove
this for a second. There we go.
If you go back a couple of years ago and you look at the revenue
processes, you know what's interesting is you go down the
list of who's generating the most revenue, the top ten
schools in 2023, Ohio State, Texas, Alabama, Michigan,
Georgia, no surprises there, right?
LSU, Texas A&M, Florida, Penn State, Oklahoma, no surprises
there. You get down into that next 10
and it's a little surprising, at least to my eye.
You got Auburn, not a surprise. Michigan State and Indiana,
surprise. It is a bit of a surprise that
both of those schools are there, but that's a byproduct of A,
being in the Big 10 and B, in Indiana's case, having a, a
nationwide network of people who are very interested in watching
IU athletics. You know, the Virginia, a bit of
a surprise, but some of that with Virginia and Florida State
is a little bit misleading because there's a lot of
university appropriations coming in to help with their budgets
and their overall revenue streams.
Kentucky, Clemson, Tennessee, Oregon, Arkansas, and then Iowa
in 21st. You know, so what's interesting
is like a Nebraska or a Washington who you would expect
to maybe be a bit higher. They're a bit further down the
list. And as you continue to go down
the list, like North Carolina, a school that really feels like it
should be very prominent is actually in the 30s.
So the the reason I bring all of that up is if you're an Indiana
fan looking at the landscape, I think to some degree Indiana's
lack of success in football have made it look like a weak school
from a revenue perspective and a school that doesn't have a lot
of pull nationally. And yet the actual revenue
numbers paint a different picture all together.
Indiana's got a ton of money, Indiana's got a ton of of, of
resources available to it. It is just kind of now for the
first time maybe ever, truly taking football seriously.
And a lot of the things that you're seeing at IU are a
restructuring of the culture of the business of IU athletics
around that reality. And you see the dividends.
I mean, we know we as much as that first year with Kurt
Zignetti and the staff were was amazing.
You're seeing recruiting payouts above and beyond what we're
very, you know, what we're used to seeing with IU athletics in
football. And a lot of that is just simply
the shift in mentality that they went through first with, you
know, the the way that they handled the Tom Allen contracts
after they went to the Gator Bowl and after the 2020 year.
But continuing that on, not just shrinking into the background
once the Allen experiment failed, you know, in 2023 like
that, that's a really big difference.
And and it's important that Indiana's doing this at this
time. I think you could make an
argument that Indiana elevating itself into the upper echelons
revenue wise of college sports came like at just the right
moment. Because you can look at other
schools and you know, like Purdue's a great example.
In 2023, Purdue's revenues in athletics were $115 million,
Indiana's were $166 million. And if you go to what the report
was for 2024, Indiana's revenue in 2024 was 173.5 million in
athletics revenues. You know, and that included a
$3,000,000 increase in meteorites, a $4 million
increase in donor contributions. There was direct institutional
support. Certainly that was pretty
sizable. But that's kind of the norm, as
we're seeing now in a lot of college athletics.
So there's an acknowledgement here, even if you aren't reading
about it much or aren't noticing it.
IU has looked at this landscape and said like, this is
essentially A proxy war around revenue.
We can't afford to not be engaging in that war because
we're going to end up on the outside looking in and and
that's not something that anybody's looking for.
If you look at what Indiana's, you know, overall setup looks
like. Let me, I'm going to, I wanted
to just kind of show you how much this has changed over time.
Let me let me remove that and share something else because I
think this is again important for people to get a, a sense of,
you know, how exactly this is gone.
All right, let me present here. Let me go to this.
So if you look at Indiana's revenues and and how they've
changed over time and their expenses, if you go all the way
back to 2004, IU Athletics was bringing in $37 million, thirty,
almost $38 million. And you know, that was 8.3
million, 8.4 million in ticket sales, about 8.1 million in
contributions and then about 18 million in media rights and
other rights and licensing. And then at that time there was
still a student fee that IU Athletics was making.
If you look at where Indiana's gone since then, you know, they
had a gradual climb and then a big jump between 2016 and 2017
where they got up into the 120, two $123 million range in
revenue all the way up to the present day where it's now at
the 173,000,000 range. What is Indiana spending money
on? You know, total expenses have
been relatively, you know, around 132 million.
And this is not a complete accounting of everything,
obviously, because there's a large category here that says
other, but coaching staff salaries.
Now Indiana's paying about 4647 million in that, paying about
17.4 million in scholarships and then paying about $28 million in
facilities and overhead. I, I just find all of this
fascinating because if you, you know, you look at a school like
Michigan and what you find is a similar pattern where, you know,
back in 2004, Michigan was at about $78,000,000 in revenue.
So about double what Indiana was.
Michigan's now at 210 million. That's a flattening of the
curve. Instead of Michigan making
double the revenue that Indiana is making, Michigan's only
making about what, 3540%? I'm doing math off the top of my
head here, but it's not an overwhelming difference between
Indiana and the top of the Big 10, whereas it certainly was 20
years ago. So these are all things I think
that are important to remember and keep in mind as we go
through all of this. So anyway, the last thing I
wanted to talk about was basketball revenues and and
again, people get the wrong idea sometimes about basketball here
in Indiana because it's such a popular sport.
Indiana does make a significant amount of revenue compared to
other schools for basketball, but realistically speaking, the
amount of money being made off of basketball is just nowhere
close to the amount being made on college football on a week by
week basis. And if you look at the NCAA
basketball tournaments in 2019, the men's tournament made $917
million in revenue. The women's tournament made $15
million in revenue. Flash forward five years, you've
had about a $40 million increase in the men's tournament in
revenue. You've had a significant
increase, about a little over almost a four fold increase in
the women's tournament. So you're starting to see some
growth in terms of women's sports and, and how they
resonate on the national level. I think that revenue number is
going to go up to close to $100 million next year for the
women's tournament. This is where the men's
tournament is trying to add inventory so that they can
continue to generate more revenue there.
But the reality is, you know, over the course of a full
season, college football between ticket sales and the revenue
that you're generating off of television is just a much bigger
financial driver and it's a much bigger audience driver.
And then again, you got to go back to that basic idea of here,
like this is ultimately the goal.
You want to get things that attract the most number of
people get it on television because you're going to have
advertisers wanting to advertise there.
That makes the television networks money.
And in the case of the Big 10, makes them money because they're
a part owner of the network that those people are advertising on
In the SEC and others cases, that's giving you larger checks
because the networks are making more money off of your product,
which in this case is your games.
So the big question moving forward as we wrap this up is
going to be how on earth do college athletic departments
reconcile the need to have more money in their budgets because
they are voluntarily said now that they're going to pay
college athletes directly? And how successful are they
going to be in trying to limit outside payments knowing that
some schools don't actually want to limit outside payments?
And this is the big rub with this entire structure with the
house settlement, because it is supposed to be 20 and a half
million dollars Max coming out of athletic departments going
directly to athletes. And then NIL deals are supposed
to be legitimate NIL, and they're supposed to be an
arbiter that will ultimately decide whether or not an NIL
deal is legitimate or not. Why are colleges doing that?
Like, what is the purpose of that?
And that's really the set of questions that we're going to be
exploring on future episodes. But think about everything that
we've learned today. And so much of it really, in my
opinion, comes back to college athletics wants to consolidate
revenue back into athletic departments.
It's been, obviously, even with all these increases, it's been
uncomfortable for college athletic departments to
essentially feel like they're in financial competition with their
own athletes. And it's been difficult for
those athletic departments and those coaches to have to go in
and say you need to give to the NIL collective because that's
the money that athletes want. Mike Locksley has complained
like athletes don't want facilities or this or that.
They want, they just want to check.
And that's probably where we're headed.
It's going to be interesting though, because what college
athletics wants is control over all the money that's flowing in.
And again, going all the way back to what happened in the 70s
and 80s, they want to control as much of that and have as much of
that coming to them directly as possible.
And then they want to be in charge of metering the money out
to athletes. The fact that we've gotten to
the point where athletes will make any money at the college
level is clearly a big evolution and a much more equitable system
than what existed before. The flip side of it is there's a
significant amount of money in this system.
And as that continues to grow, colleges and universities want
to amass as much of that revenue going directly to them as
possible and limit as much as possible what's going to the
athletes outside of this sequential system that they've
tried to come up with this house settlement.
And The thing is, I don't know that the courts are going to
agree with college athletics because college athletics
doesn't really agree with itself on what the method's going to
be. And for all the proclamations
from these conference commissioners, as we've heard
over the course of the last week about how NIL GO is going to
regulate this system, and, you know, they're going to tie money
to enrollment, which it'll cut down on transfers.
They've got this clearly defined system in their head, but it's
not really legally enforceable. There's no antitrust exemptions
in play. They're relying on a bill from
Congress that will almost certainly not come, at least not
in this legislative cycle. And they fundamentally refused
to sit down and just kind of establish an actual business
involving a certain number of participants from across the
various conferences. So what I think is going to be
fascinating is whether or not college athletics find
themselves in a position where now they're out laying a bunch
of money in revenue share to athletes, but they're still
finding themselves in a position where significant amounts of
money is flowing to college athletes outside of the
distribution process. And as you seen with like Texas
Tech and with some of these other schools who SMU being
another one where the donors have said, we want to be great
in college athletics, we're willing to do whatever it takes.
We're just going to pay and people can sue us and we'll win
because there's nothing that says that we can't.
That's going to be the really interesting thing as we move
forward, you know, and I think it's important to have the whole
backdrop of what's happened financially over the last 25
years because that's where the seeds have been planted for the
direction that we seem to be going in right now.
So it's going to be a really fascinating next couple of years
as these things play out in court and as we see what the
market will actually bear when it comes to college athletics
and, and how it all meters itself out from a financial
perspective and where the money's flowing and then
ultimately who has access to it. So anyway, hope that this was
informative and useful. We'll be back.
We've got Ben Portnoy coming up. I think tomorrow we'll have more
podcast next week as I do a full breakdown of what's going on
with NIL go and how that's going to impact what IU is doing and
other schools across the country.
So thanks for paying attention and hopefully this wasn't too
dry for you, but some really interesting stuff and I think,
you know, popping the hood and actually getting a sense of
what's going on in college athletics really does help you
better understand what you're reading and hearing about on a
day by day basis. We'll be back with more here on
Crimson Cast. Thanks for listening.
Thanks for watching. Thanks for being a part of the
back home network. We'll catch you folks.
On the flip side, stay never daunted.
So on everybody.