Money Madness

Mar 26 2013 @ 8:00am

The New Yorker drafted a prediction “in which the biggest spender always wins” the NCAA basketball tournament:

Go here to interact with the brackets yourself. Meanwhile, a Freakonomics/Marketplace podcast crunched the ad numbers for the annual tourney:

[Kantar Media researcher Jon Swallen] tells us that two years ago, CBS and Turner may have lost money on March Madness, as they pay roughly $770 million a year for broadcast rights but took in only $728 million in TV ad revenue. But last year, Swallen says, CBS and Turner — which broadcast ever single game in the tourney — took in more than $1 billion. This makes March Madness “the most lucrative sports TV franchise in the country in terms of advertising revenue,” Swallen told us, “bigger than the Super Bowl, bigger than the entire NFL playoffs, and larger than the combined revenue that’s brought in from the Major League Baseball playoffs, plus the NBA, plus the National Hockey League.”

With that sort of windfall in mind, Dave Barri doesn’t think that giving scholarships to players is adequate compensation:

To illustrate, consider the Indiana Hoosiers this season. An examination of the player statistics reveals that Victor Oladipo produced 7.37 wins for Indiana (the Wins Produced calculation for college basketball was similar – in fact, amazingly similar — to what has been done for the NBA).   We are working on the economic value of a win in college basketball, but a conservative estimate is that a win is worth at least $100,000 for a program like Indiana.   Given the number of wins Oladipo produced and the conservative value of a win, Oladipo’s production was worth (i.e. his Marginal Revenue Product) about $737,000 (and again, this is a crude and conservative estimate).

A scholarship to Indiana is valued at less than $30,000.  So at least nine of these players were exploited (which simply means they were paid less than their Marginal Revenue Product).

He argues for a “free-market approach to college sports.” The Dish has debated the topic at length.