Money Talks: The Business of College Football

AAAA AAAACorrespondent IJanuary 20, 2008

Anyone following college football knows that the game has become big business. So big in fact, that major college football programs have begun taking pages for revenue generation from their counterparts in professional sports.

Over the past 25 years, college football’s popularity has mushroomed due in large to the love of the game in general, and the explosion of television coverage.

There has been a concerted effort among major college football programs to generate alternative revenue streams through massive stadium expansions, lucrative premium seating, corporate sponsorship, and broadcast contracts.

The days of gaining revenue through contributions and ticket sales alone have long since passed. The need to increase revenue is a direct reflection of the current state of college football.

During the 2007-2008 college football bowl season, over $240 million will be paid out to the participating teams. By generating additional revenues, football programs can improve facilities, gaining a competitive edge in recruiting. By recruiting better players your chances of fielding a winning team increase precipitously, providing a greater opportunity to appear in a bowl game.

Last year, 10 college football teams generated at least $45 million in revenues – among them, Notre Dame, Georgia, Ohio State and Auburn – compared to none five years ago. The revenue they generate is extremely valuable, in many cases funding the school’s other athletic programs or providing necessary support for academic facilities.

Notre Dame, worth $101 million, is the most valuable team in college football. Unlike other programs, Notre Dame's athletic department operates under the umbrella of the university and is not run as a separate entity. As a result, a much higher share of profits are retained by university for academic use.

The football team's contribution to academics totaled $21.1 million for the 2006-2007 season – that's as much as the next five most valuable teams contributed to their respective schools combined.

Having always been an independent football program, unlike the conference system, Notre Dame keeps the entire $9 million in annual television revenue it receives from its contract with NBC.

The University of Texas, valued at $92 million, was college football's most profitable program last season, netting $46.2 million.

University of Texas merchandise royalties doubled to $8 million after the Longhorns won the BCS championship in 2006. Premium and club seating at Darrell K. Royal-Texas Memorial Stadium generates $12 million a year. The athletic department even added an exclusive space, dubbed the Centennial Room, which is reserved for boosters who contribute the most money to the program.

In fact, 17 of the 20 most valuable teams have undergone major stadium expansions and renovations over the last 10 years, and two others have renovation plans in the works. Premium seating has proved to be a valuable source of revenue that was nonexistent at the time most aging college stadiums were constructed.

For example, Ohio State and Tennessee added 81 and 78 suites, respectively, in recent years. For programs like Michigan, Ohio State, and Tennessee whose stadiums were built decades ago, luxury suites are a much more cost effective means to increase stadium revenue than building another crowded upper deck. On average, the 31 largest college stadiums already have 11,000 more seats than a typical NFL stadium.

One of the strongest links tying the college and professional football in recent years has been corporate sponsorships. Gatorade sponsors five of the six major conferences, while sister company Pepsi Bottling Group is in its third year of a 10-year, $27 million deal with the University of Florida.

Moreover, companies are now taking a prominent role in naming rights of stadiums. The University of Louisville’s Papa John's Cardinal Stadium and TCF Bank Stadium, the future home of the University of Minnesota, are some examples.

Similar to the seat licensing and naming rights campaigns implemented by professional sports franchises, the University of Tennessee raised $16 million of the $21.2 million contributed to the Volunteer Athletic & Scholarship Fund in 2006 through reservation fees for football tickets. You can bet that other programs will implement a similar plan, if they haven’t already done so.

New television contracts will continue to increase college football team values in the future.

This past season, Fox began televising four BCS games as per the terms of a four year contract that pays the NCAA $320 million. That’s four games annually, at a cost of $20 million per game.

The Big Ten Conference launched its own network this year, the first cable outlet to reach 30 million homes in its first 30 days on air, despite charging carriers as much as $1 per subscriber.

Big 12 Conference institutions will see a $16 million boost in TV revenue next year from existing deals with Fox Sports Net and ESPN/ABC, with some schools projected to make as much as $10 million in 2008, based on their number of TV appearances and scheduling.

In 2006, the SEC distributed $43 million of football television money to its 12 member schools primarily as a result of its contract with CBS.

As the lists below will indicate, total attendance no longer results in greater revenue. For years the University of Michigan has led in total attendance for their home football games. However, while Michigan outdistances Notre Dame by an average of nearly 30,000 fans per home game, the Irish generated $9.6 million more in profit.

Granted, Notre Dame’s status as an independent gives the school an advantage over the conference affiliated programs. But the fact that you can draw nearly 30,000 more fans and earn less is truly indicative of where college football is headed.

With the advent of pay-per-view, and independent contracts being developed for the sole purpose of televising one conference’s sporting events, the day of free TV games, much like the NFL, may soon pass into history.