An Examination of Bowl Game Economics

[LRM]

A long but interesting read on the economics — and the commonly perpetuated misunderstandings of those economics — in relation to bowl game financials, with the example case being the ACC tie-in with the Orange Bowl (notably, Virginia Tech in 2011 and Clemson in 2012).

We often hear about how programs “lose” money on bowl games, but this examines how bowls are just one transaction of many that comprise conference financial arrangements (SportGeekonomics):

Summary: Virginia Tech gave 100% of its $22,515,095 Orange Bowl revenue to the ACC (the ACC splits all revenues equally); the ACC then used this revenue to reimburse A) $1,725,000 of VT’s bowl expenses and absorb B) $1,197,643 of VT’s unsold ticket allotment. After this, VT’s equal share of remaining revenue was C) $1,632,704.

So, after giving the ACC its $22,515,095 bowl revenue, the ACC in return paid VT $4,555,347 (A+B+C above). It looks like — and is often reported — that VT suffered a major financial loss.

In reality, after all these similar bowl transactions are repeated for all ACC members, VT ends up with a $2,396,313 profit just from the ACC bowl agreements.

For example, in 2011 Craig Harris of the Arizona Republic and USA Today wrote the following (and not to pick on Craig Harris – this is a common story that seems to run annually): “Virginia Tech lost big on the field – and financially – in the 2011 Orange Bowl.”[1] But while Harris’s depiction of Stanford’s on-field “drubbing” of Virginia Tech was accurate,[2] with respect to the supposed financial bath that the Hokies took, his analysis misses the mark.

…

When Virginia Tech goes to the Orange Bowl, there are really two economic transactions. The first is the basic, capitalist one – Virginia Tech goes to the Orange Bowl, receives a payment, incurs some expenses, and then receives some ancillary pecuniary and non-pecuniary benefits. The second transaction is the “socialist” one – Virginia Tech surrenders much, but not all, of the revenue it receives and in exchange gets much, but not all, of its expenses covered. And the problem with the economic analyses one typically sees is that they confuse the question of whether the Orange Bowl is profitable for Virginia Tech with the question of whether ACC membership is profitable for Virginia Tech (and more specifically, whether the revenue and expense sharing rules of the ACC as it relates to BCS bowls are profitable for Virginia Tech). Those are very different questions. This is why it is important to understand the economics, because if you don’t you end up getting the analysis backwards. Answering the second question (Is the ACC screwing Virginia Tech?) but thinking you are answering the first question (Is the Orange Bowl screwing Virginia Tech?) results in people thinking that going to bowls, even major ones like the Orange Bowl, is bad business, when in fact, as I show below, it is a massively profitable enterprise, even before all of the very lucrative intangible benefits are considered.

And in case you think I am focusing on ancient history, talking about the 2011 Orange Bowl with the 2014 edition looming, The same is true for the 2012 Orange Bowl where Clemson lost 70-33 to West Virginia, and where news reports focused on how they supposedly lost money on the trip (http://www.postandcourier.com/article/20111225/PC20/312259943).

[FergusWolf]

That was interesting, but from my perspective, obvious. It will also do little to thwart the myriad of articles that come out on the same subject this year. Stories about teams losing money on big bowl games sell better than stories about conferences making butt-loads of money on them.

[BJD95]

This also makes the schools’ bowl game guilt pitches less effective. Realistically, you don’t “cost” your school very much when you buy your ticket on Craigslist instead of through official channels (or decide not to go at all). Since the ACC covers it before distributing the funds…you are only “costing” the school 1/14 of face value of the ticket.

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