EBS Payout Structure

Overview

The increased interest generated by the Enhanced Bowl Season (EBS) tournament is expected to generate a financial windfall for schools, conferences, bowls, media rights-holders, and other key parties. An estimate of this amount is difficult even for those with access to exact figures. This example uses the BCS bowl game payout revenues ($122.1m, via NCAA Institutional Expenses Report) from 2004-05 as a starting point. That value is multiplied by 3.5 in order to get an estimate of the total payout revenue from the EBS tournament games ($427.4m). This total is allocated in the form of guaranteed payouts to minor conferences, base pay for teams qualifying for the EBS tournament, travel and bonus pay for teams as they advance, and leftover money divided among BCS conferences. Of course, in reality all numbers would be the result of negotiations and more accurate revenue projections.

Details

Choosing the multiplier

The 3.5 multiplier is a very rough estimate taken from a comment by Mr. James Delany during his 2006 Congressional testimony. He said, "I am absolutely sure that an NFL-style football playoff would provide maybe three or four times as many dollars to the Big Ten than the present system does." Presuming that it would provide three to four times the revenue to other conferences as well, 3.5 was chosen as the estimating multiplier.

Several assumptions point to this being a safe estimate. First, because the tournament utilizes 11 games rather than only the four games that were part of the BCS in 2004-05, gate and television revenue can be expected to increase nearly three-fold, provided the tournament games can simply maintain their average attendance and ratings over the entire tournament. The very nature of the EBS ensures every tournament game is compelling. It is safe to assume that this would result in a ratings increase, allowing broadcasters to sell more air time, and in turn increase the value of broadcasting rights. Finally, the tournament format allows for new revenue streams including tournament-long, exclusive partnerships that would only further enhance EBS revenue.

Overall expenses are not expected to greatly exceed that of the current system. Because every games in the EBS tournament save one (the National Title Game) is an existing bowl, the cost of operating the bowls (both on-site and in regards to television production) is the same. Further, travel expenses for the teams are accounted for in the payout to the schools and should not, therefore, be considered an additional expense for the EBS tournament.

For these reason, the estimate of 3.5 times the total revenue seems reasonable, if not conservative.

Guaranteed money for non-BCS conferences

The current BCS agreement guarantees revenue for non-BCS conferences ($6.5m). This same revenue total, times 3.5, is used with the EBS ($22.8m). Once removed from the total payout revenue, the amount remaining to allocate to the EBS tournament teams is $404.6m.

Travel and bonus pay

Each team is compensated for every game in which it plays. This cost covers institutional travel expenses and provides a bonus reward for the conference coffers. Teams that earn byes are rewarded as well so earning a bye has extra incentive and these teams/ conferences will not miss out on money by not playing in a first round game. The total for each teams in every game is set at $3m, so $78m will be reserved for total travel and bonus pay and $326.6m remains as base qualifying pay. When predicting bonus pay in this example, the higher seeded team won each game (i.e., the #1 and #2 seeds reached the final game).

Base qualifying pay and shares

The base qualifying amount is determined by dividing the amount available by 12. This ensures that if 12 teams from 12 different conferences (or 11 conferences and 1 independent, as would be the case in the current conference alignment) are represented in the EBS tournament, each will receive the same base pay ($27.2m). This is highly unlikely, however, and thus shares are used to allocate payments. Shares can be set for any number of characteristics, but one most familiar from its use in the current system is for multiple teams from the same conference. The EBS example allocates 1/2 a share ($13.6m) to the second team from a conference to qualify, 1/4 ($6.8m) to the third team, and 1/8 ($3.4m) to the fourth team. The amount of money left from unallocated shares ($68.0m in the 2006 case study) is divided equally among the six BCS conferences ($11.3m each).

Conference payouts

The total amount of revenue going to a conference is the sum of the conference's guaranteed revenue, the amount earned by its teams in the EBS tournament, and the divided remainder from unallocated shares. The BCS conferences do not have a guaranteed payout specific for the conferences because each conference's champion has a guaranteed berth in the EBS tournament. The non-BCS conferences are guaranteed different totals depending on the conference, which is added to any amount received by qualifying in the EBS tournament. The manner in which conferences divide the money received from the EBS tournament is up to the individual conference. Independents receive only what was earned by the team that qualified (base pay plus travel & bonus pay).

Case study

The following case study is for the 2007 EBS tournament. See accompanying spreadsheet for detail.

Florida is the third highest-ranked SEC team in the EBS tournament, so it receives $6.8m in base pay. It always will play in one first round game (in which it is predicted to lose to Missouri because Florida is ranked lower), for which it receives $3m in travel and bonus pay. The total amount Florida earns from the EBS tournament is $9.8m ($6.8m + $3m).

Ohio State and LSU are the top qualifying teams from the Big Ten and SEC, respectively. Each will receive $27.2m in base pay (1 full share). Each received a bye ($3m), played in a quarterfinal game ($3m), played in a semifinal game ($3m), and played in the final game ($3m), which gives each $12m in travel and bonus pay. The total amount Ohio State and LUS each earn from the EBS tournament is $39.2m ($27.2m + $12m).

The ACC conference had one team (Virginia Tech) qualify for the EBS tournament, for which it received $27.2m. Virginia Tech received a bye ($3m), played in a quarterfinal game ($3m), and in a semifinal game ($3m), giving Virginia Tech a total of $36.2m ($27.2m + $9m). The ACC also received $13.6m from unallocated shares, giving it a total of $49.8m.