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The Economics of March Madness

Spring is in the air, which means that the most-awaited annual NCAA event is near!  And there is no business quite like March Madness!  As always, I try to summarize the nuances of the frenzy by following the money.

March Madness is a basketball tournament amongst NCAA Men’s Division I teams.  It is comprised of 68 teams that compete in seven single elimination rounds to vie for the coveted national championship.  The whole event starts with Selection Sunday when the Selection Committee reveals the tournament bracket.  The tournament has been played every year since 1939 except in 2020, during the coronavirus pandemic.  The name “March Madness” was popularized by CBS broadcaster Brent Musburger during the 1982 tournament.  The name stuck and has been used by the NCAA since.

So think about it…68 teams multiplied by multitude of fans, plus spillover effects of TV coverage, hotel stays, flights all the way to kegs of beer and pizza deliveries.  The financial impact of March Madness is staggering.  For this section, I will be using snapshots of WalletHub’s comprehensive and informational infographic.  For the complete data and analysis, see WalletHub’s in depth coverage of March Madness.

First let’s talk about the (big) winners:

Division coaches total pay can be quite lucrative.  The highest paid coach, Bill Self from Kansas makes a hefty $10 million.  The other coaches are not too far behind especially those that have had a winning record.  Even NCAA Presidents make almost $3 million, which goes to show that NCAA can be a major profit-making engine.

Let’s not forget television coverage, where most of us follow our favored teams. CBS/Turner broadcasting paid almost $20 billion for the 2011-2032 rights which means that the potential viewership can be substantial.   

And that is often seen in TV ad revenues during the 2022 NCAA tournament amounting to more than $1 billion.

Let’s not forget one of the most important part of watching sports from home, or even in a restaurant or bar.  During March Madness, beer and pizza sales rise by 19%. Sales of chicken wings rise by 23% due to the 2.3 billion portions served!  It can be seen too that fans do take the tournaments seriously — dessert sales after losses versus wins increase by 9%.  Drown thy sorrows with sugar, right?

So now, let’s move onto the flip side.  Companies often lament the arrival of March Madness since data has shown that workers tend to spend 6 hours watching the tournaments instead of well, working.  A significant portion (about 37%) tend to even skip work or call in sick to watch.  This translates to $16.3 billion of corporate losses due to lost productivity during this time.  This value is basically the opportunity cost of watching March Madness versus working.

And the players, they get nothing.   

But that’s totally fine.  These players give it their all for a shot to hopefully make it to the NBA. It’s like a gamble really, which if you think about it, is the whole idea of March Madness.  After all, the odds of filling out a perfect bracket is 1 out of 9.2 Quintillion.  Much more difficult than winning the lottery which has the odds of 1 out of 292.2 million.

It is without a doubt March Madness infuses so much activity and money in the economy.  Moreover, it has become a big American tradition, along with the NFL season and the NBA season. It is also its own market economy, consisting of a governing body (NCAA), participants (players, school teams, coaches, and fans), as well as ancillary activities such as TV broadcasting, hotel stays, food deliveries, and many more.  So I guess, it’s safe to say that college basketball can truly be a lucrative, albeit, crazy business and what makes it even crazier? You got it, March Madness!

The Gist

  • March Madness is an annual tournament amongst Division I basketball teams, vying for that coveted spot in the finals.

  • It is a well-oiled market economy with a governing body and participants all of whom contribute so much to the economy.

  • There are opportunity costs involved in watching the tournaments and that is the loss productivity from employees working less and missing more work.

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