April 4 (Bloomberg) -- Before Zach Bohannon of the Wisconsin Badgers suits up for the Final Four tomorrow, he knows arena security will be checking the label on his bottled water.
The graduate student working toward a master’s in business administration knew that the Nestle Pure Life water he took from his hotel to practice conflicted with the National Collegiate Athletic Association’s official sponsor, Coca-Cola Co.’s Dasani. He still brought it to warmups before last week’s regional semifinal, and security ordered him to remove the label.
While the 6-foot-6 forward removed one label, he attached another -- “ridiculous” -- to an NCAA system in which one shot by a 19-year-old University of Kentucky freshman who isn’t paid and who can’t benefit from his athletic notoriety can result in almost three-quarters of a million dollars in bonus money for his coaches.
“The NCAA likes to hide behind its student-athlete model,” said Bohannon, whose Badgers will oppose John Calipari’s Kentucky Wildcats in the national basketball semifinal tomorrow at AT&T Stadium in Arlington, Texas. “Well, they can’t hide anymore.”
A handful of lawsuits and an effort by Northwestern University football players to unionize has led to unprecedented scrutiny of not only the NCAA, but university administrators and coaches. In current broadcast contracts alone, the governing body for college sports and the five power conferences are guaranteed more than $31 billion. That doesn’t include other sources of revenue such as sponsorship, merchandise sales, ticket sales and booster donations.
A couple of numbers: The NCAA reaps $11 billion from its 14-year contract with CBS and Turner Sports to broadcast the Division I men’s basketball tournament. In football, Walt Disney Co.’s ESPN in 2012 agreed to pay $5.64 billion over 12 years just for the right to show a playoff featuring two semifinals and a title game that’ll rotate among venues bidding to serve as host, according to an antitrust lawsuit filed last month by attorney Jeff Kessler, who helped to bring free agency to the National Football League.
The NCAA “is crumbling under the weight of its own hypocrisy,” said Allen Sack, a professor of sports management at the University of New Haven in Connecticut. Sack, who played football on Notre Dame’s 1966 championship team, is president of the Drake Group, a collection of faculty members who since 1999 have called for reform of an athletic system that they say prioritizes money over academics.
Collectively, the schools in the NCAA’s five power conferences -- the Atlantic Coast, Southeastern, Big 12, Big Ten and Pac-12 -- reported more than $5 billion in revenue in 2011-12, Kessler’s lawsuit said.
“It’s very simple,” said Ramogi Huma, a former UCLA football player who is now president of the College Athletes Players Association, or CAPA, which is the Northwestern group that won the right to unionize in a decision by Peter Ohr, the National Labor Relations Board’s regional director in Chicago. “The NCAA’s No. 1 priority is to monopolize every last penny.”
NCAA President Mark Emmert wasn’t available to comment because of his Final Four schedule, NCAA spokeswoman Stacey Osburn said. He’s scheduled to address, among other things, reform issues at a press conference on Sunday.
The NCAA says 23 of the more than 1,100 member colleges and universities make more money than they spend on sports each year. The nonprofit organization funds $2.7 billion in athletic scholarships every year, the NCAA said.
Northwestern in the fiscal year ended Aug. 31, 2013, posted a combined profit of more than $15 million in its basketball and football programs, according to data schools report to the U.S. Department of Education. Northwestern says it will appeal the ruling that allowed its players to unionize.
The current model of teams switching conferences in a chase for television dollars has its underpinnings in a 1984 antitrust case in which the U.S. Supreme Court ruled that the NCAA couldn’t restrict the number of TV appearances schools made each year, said Warren Zola, executive director of the office of corporate and government affairs at Boston College’s Carroll School of Management. The ruling came five years after the launch of ESPN, which was thirsty for content, especially live events.
The NCAA men’s basketball tournament has already been a windfall for Calipari, who coached Kentucky to the 2011-12 national title, as well as his assistants.
Calipari’s base salary, including broadcast and sponsorship guarantees, is $4.2 million, according to his contract. He had already collected $200,000 in tournament bonuses before Aaron Harrison’s 3-point shot in the closing seconds beat Michigan. That triggered a $150,000 bonus for reaching the Final Four, and he gets another $350,000 if the Wildcats beat Wisconsin and then either the University of Connecticut or the University of Florida in the title game scheduled for April 7.
Calipari’s three assistants, meantime, will pocket $236,000 in bonuses that kick in from the Final Four if Kentucky wins the tournament. Added to the head coach’s possible $500,000, the staff’s total bonus possibility is $736,000.
Calipari’s agreement, which isn’t out of whack with what other top-tier coaches receive -- also provides for the use of two cars, 20 lower-level basketball seats to home, away and postseason games, eight football tickets for home games and membership, dues and the initiation fee for a country club.
Compensation for his players, meantime, is limited to their scholarship, room and board and certain fees. For an athlete like Texas resident Harrison, a year of out-of-state tuition, room and board at Kentucky would cost $33,300, according to the school’s website. Over four years that’s about $133,000.
College athletics are comparable to their professional counterparts when measured by the sale of T-shirts and hats.
Licensed merchandise of college sports accounted for a record $4.62 billion in retail sales in 2012, greater than any other sport except for Major League Baseball, according to the International Licensing Industry Merchandiser’s Association and CLC, the licensing affiliate of IMG College that represents more than 200 universities, including all of the Final Four teams, conferences and bowl games, as well as the NCAA.
Ohr’s NLRB decision, which applies to scholarship athletes at private institutions, will eventually be decided by the Supreme Court, said NCAA chief Emmert, who in the fiscal year ended 2012 received almost $1.7 million in total compensation, according to the organization’s tax filing.
“It completely changes the relationship from a student who’s there to get an education and enjoy all the benefits of being a student at a place like Northwestern to being an employee,” Emmert said in a March 30 interview on CBS’s “Face the Nation.”
The NCAA, school presidents and athletic directors have proposed changes in governance, including a $2,000 stipend that would potentially fill any shortfall between the scholarship and the actual cost of attending school. The power conferences are also proposing separate rules, enabling schools with more revenue to offer greater benefits to the athletes, including better health care and lifetime educational needs, said Larry Scott, commissioner of the Pac-12, which according to the Kessler suit gets a combined $3 billion from ESPN and Fox, or almost $21 million a year per school, through 2023-24.
“Reform is needed,” Scott said, adding that he’s opposed to unionization because it would only benefit lawyers, agents and some star players. “Not everyone can afford to do the kinds of things we’re talking about. The higher-resource conferences can, and want to, and will.”
The proliferation of sports-only cable networks like NBC Sports Network and Fox Sports 1 has made DVR-proof content such as live events even more valuable. To that end, the five power conferences have negotiated more than $15 billion in existing TV deals, according to the Kessler lawsuit. Notre Dame football, which operates as an independent, has its own broadcast contract with NBC, which last year extended the agreement through the 2025 season. The network pays the South Bend, Indiana, school about $15 million a year, some of which, according to Notre Dame, is used to fund the financial-aid endowment for the general student body.
“Major college programs generate more programming per institution than any other sports entity out there,” said Lee Berke, chief executive officer of LHB Sports, Entertainment & Media Inc., a consultancy based in Scarsdale, New York, whose clients include the University of Oklahoma, Pittsburgh and Texas Christian University.
Besides TV, coaches and players decades ago became walking, talking billboards for the sneaker and apparel companies. At the Final Four, for instance, Kentucky, Florida and Connecticut have contracts with Nike Inc., while Wisconsin has an agreement with Adidas AG.
Using prominent coaches and teams for brand promotion was the brainchild of Sonny Vaccaro, who in 1979 while working for Nike paid former University of Nevada-Las Vegas coach Jerry Tarkanian to have his players wear the company’s Swoosh logo. Two years later, Vaccaro said, he had 83 schools under contract, with more coaches calling with a request to become a part of it.
“They were lining up and nobody stopped them,” Vaccaro said in a telephone interview. “They were always ready to take the money.”
Former UCLA basketball player Ed O’Bannon is among the plaintiffs in a 2009 lawsuit alleging the NCAA violates antitrust and publicity-rights laws by preventing students from being compensated for the use of their images. Electronic Arts Inc., the second-largest U.S. video-game publisher, agreed to pay $40 million to resolve the case, leaving the NCAA as the lone defendant. The judge has ordered settlement talks.
Vaccaro and Jay Bilas, a former Duke University basketball player and current ESPN analyst, bemoaned terms set forth in the contract of Ohio State University Athletic Director Gene Smith, who received a bonus of $18,086 -- one week of his $940,000 base salary -- when wrestler Logan Stieber won his weight class at the NCAA championship. Stieber, through a university spokeswoman, declined to comment on Smith’s bonus or terms of his contract.
“That’s an absurd system,” Bilas said. “Clearly this is a multimillion-dollar business. It operates as such in every fashion except the athletes aren’t getting a cut.”
Smith’s contract pays a bonus for what is identified as exceptional athletic achievements, including appearances in the Final Four and football postseason, and titles won by individuals in any of 20 sports. Ohio State’s wrestling team lost more than $1 million in fiscal year 2012, according to the school.
“It has gotten way out of whack,” former Florida State University football coach Bobby Bowden said in a telephone interview, adding that he never made more than $2.4 million in any year. “Now they’re all making double.”
All of this has made a lasting impression on Wisconsin’s Bohannon, who is more than just an interested bystander in the movement for change in college athletics. He’s participated in several of the conference calls with CAPA, the would-be Northwestern union, which has only emboldened his opposition to the NCAA’s system.
A day after being made to peel off the label, Bohannon said he sneaked a non-NCAA sponsor bottle of water into the Honda Center in Anaheim, California. Once inside, he and his teammates shared a chuckle at the NCAA’s expense.
“I’ll make sure to thank my corporate sponsors when we get to the Final Four,” Bohannon said. “Oh, we’ll have the last laugh.”
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