March Madness Moves To A Bubble

Friends,

Before we get into today’s email, let’s talk about New Year's resolutions.

To start the year off right, I’ve partnered with Athletic Brewing and won’t be drinking alcohol during January — only their non-alcoholic craft beer.

My goal is to sleep better, improve my energy levels, and kick off 2021 right.

Want to join me?

Use “SURVIVEJAN25” at www.athleticbrewing.com to get 25% off your order.

Even if you hate sleep and don’t want to be healthy, here’s an idea — buy some beer anyway :)

Why?

Athletic Brewing is the sole reason I could quit my job and start creating sports business content full-time. Simply put, they supported me — an aspiring entrepreneur — and deserve to be supported in return.

Now, let’s move onto the good stuff.

March Madness Moves To Indianapolis

After the NBA season came to a halt following Utah Jazz center Rudy Gobert testing positive for COVID-19 on March 11, 2020, Adam Silver and the NBA pivoted — finishing the season in a 3-month bubble at Walt Disney World in Orlando, Florida.

The result?

The NBA spent $180 million to operate the bubble for three months, but the Orlando investment allowed the league to stop bleeding revenue—$1.5 billion in total—mostly comprised of TV broadcast fees and league-wide advertising & sponsorship commitments (Source).

Simply put, the bubble worked.

Next up?

The NCAA, who announced yesterday that their entire postseason men’s basketball tournament would be held in Indianapolis and surrounding areas with a “bubble-like” format.

Here are the 6 venues which will host games:

Indianapolis

• Bankers Life Fieldhouse (Indiana Pacers)

• Lucas Oil Stadium (Indianapolis Colts)

• Hinkle Fieldhouse (Butler University)

• Indiana Farmers Coliseum (IUPUI)

Bloomington

• Simon Skjodt Assembly Hall (Indiana University)

West Lafayette

• Mackey Arena (Purdue University)

From a calendar standpoint, Selection Sunday is still scheduled for March 14 and the Final Four is still planned for April 3 and 5 in Indianapolis.

As with anything in today’s world though, that could obviously change.

Now that we’ve covered the logistics, let’s dig into the economics.

You’ve heard me say it before and you’ll probably hear me say it again:

After cancelling the NCAA Tournament last year due to COVID-19, the NCAA was never going to cancel March Madness for the second year in a row — regardless of the circumstances.

Why?

Money.

In a normal year, the NCAA makes more than 80% of their annual $1B+ in revenue from tournament related sources including broadcasting rights, ticket sales, merchandise, concessions and more.

Check this out…

Since 2000, the NCAAs broadcast deal with CBS & Turner has increased 300% — going from ~$200 million to ~$800 million annually.

The interesting part?

That’s before a single ticket, t-shirt, or hot dog is sold.

Broadcasting revenue aside, I uncovered some mind-blowing stats when researching the topic.

Here are a few…

• More than $1.3 billion is spent on national TV advertising during the NCAA tournament, which is more than the NBA/MLB playoffs and 3x what the college football playoff would see.

• Almost 50 million people — one in five American adults — typically bet a combined ~$10 billion on March Madness, which could increase drastically this year given the pandemic surge in sports betting.

• The NCAA will typically make more than $185 million from corporate sponsors during the tournament.

• In total, an estimated $12B+ is spent on everything from tickets and beer to sponsorships and gambling during the 20 days of competition.

In the simplest of terms, the NCAA tournament is one of the most financially rewarding sports competitions in the world.

The other component?

The local economic impact on regional host sites.

Think about this…

In a typical year, NCAA Tournament host cities like Minneapolis, Atlanta, and Kansas City, would see a major influx of economic activity from the tournament.

This year, they won’t see any.

Instead, Indianapolis will gain much of the benefit — even without knowing how many fans will be able to attend.

This is what Patrick Tamm, President and CEO of the Indiana Restaurant and Lodging Assoctiation, had to say:

The city has already put 3,000 hotel rooms on hold — whether fans are allowed or not — and believes they’ll see an increase in local economic activity north of $100 million.

But arent event-driven economic projections commonly wrong?

Yes, but it’s complicated.

Event-driven economic projections are typically considered wrong for one main reason — the budget constraint of potential visitors.

Economic projections tend to forget the fiscal budget most families have.

Attending an NCAA game typically means that I am spending less elsewhere, whether that is one less family dinner or a night out at the movies.

The key point being that other local businesses are going to lose a roughly equal amount in spending that I would have done with them instead. Both activities generate a similar amount in tax revenue, but the spending at sporting events isn’t necessarily “new” revenue.

The solution?

Out-of-town visitors, which the NCAA tournament provides plenty of.

My point?

Hosting the NCAA tournament is obviously a win for Indianapolis, but most of their financial upside will ultimately depend on how many fans are allowed to attend.

When it comes to that answer, only time will tell.

Have a great day and we’ll talk tomorrow.