With the NCAA Championship Set for Monday, NIL Is Tipping the Scales in Favor of Bigger, Wealthier Schools

If you want to find the real March madness, look no further than the backdrop of this year’s star-studded national college basketball finals: the relaxation of rules in the transfer portal, the spread of NIL, and a new system of revenue-sharing that is likely to take effect this summer. In the new “pay to play” paradigm of college sports, prime athletes from smaller schools are getting poached by bigger, wealthier schools that will offer them more playing time, better competition, and more money from their Name, Image, and Likeness. Proponents of NIL compensation argue that it’s bringing fairness to college sports by finally letting student-athletes reap the benefits of the millions of dollars in revenue many of them bring to their campuses. Yet it’s clear that the best schools are getting even better — and the lesser schools are losing out. Critics fear that NIL is skewing the playing field of college sports — and imposing financial demands on universities both large and small.“Athletic departments are under pressure to win in a market where top recruits can effectively shop their services,” an educator and consultant on NIL, Bill Carter, tells the Sun. “Schools now feel obligated to fund NIL efforts — directly or indirectly — while still covering scholarships, facilities, staffing, and Olympic/non-revenue sports.” He asserts: “The math doesn’t work.”On the one hand, the revenue potential for universities is as great as ever: NIL deals are bringing tangible value to schools and their athletic teams, even those that typically draw less attention. At Louisiana State University, it’s no coincidence that gymnastics competitions have sold out and undergraduate admissions have hit new records as gymnast Livvy Dunne has capitalized on her estimated $4.1 million image. “If you are a major player in the Big 10 or the SEC, NIL is an engine of alumni support and donations,” the director of education policy studies at the American Enterprise Institute, Frederick Hess, tells the Sun. Plus, the media and sponsorship opportunities in college sports have never looked more lucrative, with ESPN recently signing a $1.3 billion-per-year media rights deal for every College Football Playoff game until 2032.On the other hand, as new revenue streams emerge, associated costs are escalating. Before the 2021 Supreme Court ruling that opened the NIL floodgates, the cost of recruiting a premier player was no more than a scholarship. Today, in the absence of the NCAA regulating a salary cap for players, the price tag can be millions of dollars. That’s what a group of high net worth donors spent to lure Cooper Flagg to Duke’s basketball team. “Especially in these times when higher education might be facing cuts, schools really want to do everything they can to recruit students,” a sports economist at Harvard, Judd Cramer, tells the Sun. NIL boosters and fundraising collectives are helping attract premier talent, though the return on investment isn’t always clear: top players can now transfer after one year if they get a better offer, rather than stay three or four years.“As other teams try to bid more for those kinds of players, that’s going to take away from their overall bottom line,” Mr. Cramer says. While colleges face difficult decisions about what to prioritize with limited funds, “there’s going to be less money to redistribute to smaller sports at both big and small universities,” he says. Before NIL, universities with competitive football and basketball teams used the revenue surplus to subsidize less lucrative teams. At Division 1 NCAA schools, men’s football and basketball garnered 58 percent of total athletic department revenue and funded roughly 20 different men’s and women’s sports, according to a 2020 economics report from the University of Chicago. Under the current rules, NIL collectives outside schools are paying for talent. Yet under a new revenue-sharing model that is expected to begin in July, Division I universities will be allowed to share up to $20 million in revenue with players. That means schools can increasingly use their cash to build winning rosters in the money-making sports. The final hearing to approve the new rules is Monday — the same day as the NCAA basketball championship. If approved, the revenue-sharing model is set to only increase the distance between the “haves” and the “have-nots” within athletic departments. Across universities, the hierarchy of competition is also on track to become more dramatic. For top-tier schools, revenue-sharing is a major shift, but it’s manageable, Mr. Carter says. “For schools outside of the Power Four, $20 million is an existential threat. They’ll have to cut sports, reduce staff, or find new revenue streams.” The schools that have the most to lose are mid-tier — those that compete at a major level, but outside the Power 4 conferences, according to a professor of sport commerce at the University of Memphis, Michael Hutchinson. They might find themselves locked in vicious cycles where if they can’t get the best players, they can’t get the wins and the revenue boost, and then they’ll struggle to support, say, the wrestling team. “Some universities financially can’t cut it anymore,” Mr. Hutchinson says. He offers the example of East Tennessee State University, which reinstated its football program in 2015 despite the burden it brings to their balance sheet — “I don’t see how in the world they’re able to compete without dramatically impacting their core product in education.”Other smaller D1 universities have decided to de-escalate their commitment to college athletics. “In more extreme cases, D1 schools have reclassified to Division 2 or 3,” Mr. Hutchinson says, “because they really didn’t feel like they belonged.”Some fear that in the long term, the consolidation of competition among two or three dozen schools could threaten general interest in college sports. “It’s easy to see a situation before too long where you only really have 20, 30 programs that are competing for all the prime talent,” Mr. Hess says. “At that point, so much of what makes college sports kind of lucrative, dynamic and a marketing boon has fallen away.”Of course, fans love vicious rivalries between top athletes, such as the football teams of Ohio State versus Michigan, or Alabama versus Georgia. Yet this March Madness, ratings are dipping, as the mostly chalk bracket plays out without Cinderella stories: Despite a 32-year high after the men’s opening rounds, the Elite Eight games last weekend averaged 10 percent fewer television viewers compared to last year.“If March Madness is always the same 16 teams in the Sweet 16, suddenly it is a much less marketable, much less lucrative enterprise,” Mr. Hess says.Amid a shifting financial landscape, private equity and venture capital enterprises such as College Sports Tomorrow, Smash Capital, and Collegiate Athletics Solutions are looking to make inroads in college athletics. The idea is they would provide capital to help athletic departments stay competitive. In return, the firms would get a cut of revenue from media rights, ticket sales, and sponsorships to repay the loan — plus interest. Schools with the most valuable athletic programs sit in the best position to capitalize on private equity, while the middle class of college athletics could be at risk of elimination. “Private equity brings short-term capital — but at a long-term cost,” Mr. Carter says. “It may help with facility upgrades or shortfalls, but it introduces a profit motive into a space not built for it. That changes the mission of college athletics.”Yet college athletics have prevailed through many changes in history. Take the landmark 1984 Supreme Court case that allowed schools and conferences, rather than the NCAA, to negotiate directly with broadcasting companies over television rights for college football, which spawned the era of conference realignment. “We’ve seen so many changes that have occurred over time that were supposed to kill college athletics or change the fan experience,” Mr. Hutchinson says. “That wasn’t necessarily true.”

With the NCAA Championship Set for Monday, NIL Is Tipping the Scales in Favor of Bigger, Wealthier Schools

With the NCAA Championship Set for Monday, NIL Is Tipping the Scales in Favor of Bigger, Wealthier Schools

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