SBJ/February 26 - March 4, 2007/SBJ In Depth

Banking on hoops

Like most schools, the University of Kentucky generates more of its men’s basketball revenue from ticket sales than any other category.

Lexington, Ky., bleeds blue with one of the most
passionate fan bases in college sports.

In its 2006-07 athletic budget, Kentucky expects to rake in $8.7 million in ticket sales, which represents the department’s second-largest revenue line, slightly behind football ticket sales. But that figure is just a ripple in the tidal wave of revenue generated by the men’s basketball program.

No school has won more games than the Wildcats, and few make as much money.

When Adolph Rupp was building Kentucky into a national powerhouse in the 1940s and ’50s, he never could have envisioned that men’s basketball would generate more than $22 million in revenue annually, more than a third of the school’s $61 million athletic budget.

That doesn’t include about $32 million in private fundraising to build a state-of-the-art basketball practice facility, which opened for the men’s and women’s teams last month.

The Wildcats’ seven national championships and rich tradition might be a source of immense pride for their fans throughout the commonwealth, but it’s also a source of sponsorship dollars, licensing revenue and one of the most lucrative multimedia rights deals ever negotiated.

“Kentucky is one of those rare programs that brings great value to a shareholder like us,” said Host Communications CEO Tom Stultz, who crafted the 10-year, $80 million multimedia rights deal with Kentucky in 2004.

Adding the numbers

Men's basketball attendance leaders
Last five seasons, average attendance
2005-06
1. Kentucky 22,763
2. Syracuse 21,587
3. North Carolina 20,239
4. Louisville 18,316
5. Tennessee 17,954
 
2004-05
1. Syracuse 22,978
2. Kentucky 22,520
3. North Carolina 20,522
4. Louisville 18,746
5. Wisconsin 17,142
 
2003-04
1. Kentucky 22,710
2. Syracuse 21,825
3. North Carolina 20,802
4. Louisville 19,443
5. Maryland 17,950
 
2002-03
1. Kentucky 22,271
2. Syracuse 20,921
3. Louisville 19,037
4. North Carolina 18,688
5. Maryland 17,566
 
2001-02
1. Kentucky 21,014
2. Louisville 18,929
3. Indiana 17,183
4. Syracuse 17,023
5. Ohio State 16,603

Source:
NCAA

Athletic departments categorize revenue in different ways, so crowning one school as the champion of men’s basketball revenue is problematic.

Each school annually files its revenue and expenses with the U.S. Department of Education as part of the Equity in Athletics Disclosure Act. Those reports show that the University of Louisville generated the most men’s basketball revenue in 2005-06 with $21.48 million, followed by the University of North Carolina and the University of Arizona.

Kentucky ranked ninth at $11.84 million, but the Wildcats file multimedia, licensing, sponsorship and signage revenue, among others, in separate categories.

Louisville’s accounting methods are different. The Cardinals put all concessions, parking, suite rental and fundraising monies under men’s basketball revenue to reach their total of $21.48 million.

Kentucky rents municipally owned Rupp Arena for about $1 million per year, including all related costs, ranging from fireworks for entertainment to labor costs, and the school doesn’t keep any of the concessions or parking revenue. Rupp Arena has no suites, so there’s no revenue stream there, either.

But men’s basketball is responsible for generating money in several other categories of the budget and when those figures are tallied (see chart, page 20), coach Tubby Smith’s program will bring in $22.215 million in 2006-07.

That number will increase in 2007-08. By charging an additional $100 in premiums per seat and another $6 for each ticket, the Wildcats expect to bring in nearly $3 million more next year, sending the revenue total to $25 million.

That’s roughly equivalent to or more than the entire athletic department budget at schools such as Mississippi State, Utah, East Carolina and Houston.

“Obviously, the basketball program gives us a lot of opportunities for national exposure,” said Rob Mullens, Kentucky’s deputy athletic director. “We were just on the cover of the Wheaties box. It also helps us that we have a fantastic relationship with Nike, a record multimedia rights deal and prime placement on TV.”

Television, radio exposure

When Kentucky signed its landmark $80 million multimedia rights deal with Host, which kicked in for the 2005-06 fiscal year, it was the largest of its kind. It guaranteed the Wildcats an average of $8 million per year in income for the athletic budget, at least half of which — conservatively speaking — is attributable to men’s basketball.

Kentucky can make more if Host hits certain revenue thresholds.

Ad sales on the basketball radio network of more than 80 stations account for about $3.5 million annually for Host, sources say.

The team’s rabid popularity also has allowed Host to create a third-tier TV network, which broadcasts those Kentucky games that aren’t picked up through the Southeastern Conference’s package on CBS, ESPN or Lincoln Financial Sports. The third-tier package typically amounts to about 10 games each season against the lesser opponents on the Wildcats’ schedule.

Fox Sports South broadcasts those games live, as do a handful of local network channels in markets throughout the commonwealth. Those TV games bring Host about $2.7 million in revenue from rights and ad sales, sources say.

The two largest stations, WAVE (NBC) in Louisville and WKYT (CBS) in Lexington, sometimes pre-empt prime-time programming to show these leftover games, including two exhibitions and two hours of Midnight Madness each October.

The deal assures that each Kentucky men’s basketball game is televised live.

Kentucky pays about $1 million a year to rent
municipally owned Rupp Arena, which lacks the
revenue-generating suites some schools enjoy.

Host also has created a radio sports talk show that it is currently trying to distribute statewide using Kentucky’s network.

“There are some interesting twists you can do at Kentucky,” Stultz said. “That translates into a lot of advertising opportunities that are not available at most schools. It’s great exposure for the school and extra revenue for us and that’s what went into making the program so valuable.”

Within Kentucky’s overall budget, the $8 million annually from Host and other corporate sponsorship-related income, such as Rupp Arena signage, go into an $11 million category called corporate and multimedia rights. At least $4 million of it is directly attributable to men’s basketball, Mullens said.

Action Sports Media sells the signage within and around Rupp Arena, which is attached to a mall in downtown Lexington. According to Kentucky’s agreement with Rupp, the Wildcats get 33 percent of the signage sales, minus Action’s commission, or a minimum of $250,000.

Also, a good portion of the $10.6 million K Fund category (Kentucky’s fundraising unit) in the overall budget counts heavily on men’s basketball. Monies from seat premiums of $200 to $1,250 on select seats in Rupp Arena — about $4 million — go into the K Fund.

Season-ticket prices for some of college basketball’s elite
Kentucky $396 to $486
Duke $500 to $1,200
Connecticut $660
Kansas $945
North Carolina $535
Indiana $476
UCLA $476 to $656
 
Annual premiums (per seat) for the right to buy season tickets
Kentucky $200 to $1,250
Duke $5,000 to $15,000
UCLA $850 to $25,000
North Carolina $200 to $2,500
 
Note: Figures based on an 18-game home schedule
Source: University of Kentucky

When ticket prices go up next season, it will mark the first ticket price increase in four years.

“We don’t charge a premium on most of our seats, so that’s where some opportunity exists” for additional revenue, Mullens said. UK charges a premium on just 6,700 of Rupp Arena’s 24,000 seats.

“We’ve made some modest ticket adjustments, but we want to maintain a friendly price,” he said.

Big expenses, too

While men’s basketball is responsible for a large chunk of the revenue in Kentucky athletics, it also will spend more than any other sport, including football, in 2006-07. Men’s basketball expenses are projected to be $7.2 million, about $1.2 million more than football.

Smith is among the nation’s highest-paid coaches at $2 million per year and he’ll receive a $1.5 million longevity bonus at the end of this season, meaning his $3.5 million in salary will account for nearly half of the men’s basketball expenses.

The $1 million Kentucky pays to Rupp Arena is the second-largest expense item after personnel/benefits. That fee includes the annual lease, plus labor and any other services, such as wireless Internet access and emergency personnel.

On a positive note, Kentucky isn’t responsible for capital improvements or facility maintenance and it won’t have a long-term debt. In comparison, North Carolina pays $1.25 million per year to maintain the Smith Center, its on-campus facility for men’s basketball. The state provides an additional $1.25 million.

Also, when Kentucky decided two years ago to move Midnight Madness from its on-campus facility, Memorial Coliseum, to Rupp Arena, it wasn’t charged for the one night’s usage.

But the men’s basketball team also doesn’t have complete access for practices, either, because Rupp Arena is used for minor league hockey, concerts and other events.

Last month Kentucky took the wraps off a new
state-of-the-art basketball practice facility for the
men’s and women’s teams.

“We are truly a tenant,” Mullens said. “I think it’s a fair deal, fair for both sides. They are very cooperative about scheduling games, but occasionally there’s a conflict.”

What’s not in conflict, though, is the meaning of men’s basketball to Kentucky’s bottom line. No team has drawn more fans over the past 11 years, during which the Wildcats have led the nation in attendance 10 times.

And few teams turn that fan avidity into revenue like the Wildcats.

Behind the deal: Wheaties

The money the University of Kentucky generated from having its “UK” logo on boxes of Wheaties won’t move the needle on a $61 million annual athletics budget. But the exposure the Wildcats receive from having their mark displayed on grocery store aisles throughout the region is the true value.

“We have some unique licensing opportunities come along that other schools don’t have,” said Rob Mullens, Kentucky’s deputy director of athletics.

Wheaties paid $15,000 to use Kentucky’s “UK”
logo on the special packaging.

To use Kentucky’s “UK” logo on cereal boxes, Wheaties paid $15,000 to Collegiate Licensing Co., the licensing agent for the Wildcats and most of the nation’s NCAA Division I schools.

Kentucky receives 85 percent of the licensing fee, which amounts to $12,750 of unbudgeted revenue, a portion of which the athletic department used to buy the side panel of the cereal box to promote the baseball team.

“That’s just one of the ways we leverage basketball to help other sports,” Mullens said.

Wheaties won’t say how many boxes it will produce with “UK” packaging. It also is producing cereal boxes featuring the University of North Carolina men’s and the University of Tennessee women’s teams.


College basketball’s top moneymakers
The following shows the 2005-06 highest revenue-producing men’s basketball programs, based on financial reports to the U.S. Department of Education. Accounting procedures are different from school to school. One school might include items such as concessions and fundraising in men’s basketball revenue, whereas another school might break it out as a separate category.

School
Basketball revenue (millions)
1. Louisville
$21.48
2. North Carolina
$17.22
3. Arizona
$14.89
4. Syracuse
$14.32
5. Texas
$12.24
6. Arkansas
$12.21
7. Duke
$12.20
8. Ohio State
$12.08
9. Kentucky
$11.84
10. Illinois
$11.81
11. Virginia
$11.60
12. Wisconsin
$11.54
13. Minnesota
$11.39
14. N.C. State
$11.28
15. Kansas
$11.22
16. Maryland
$11.02
17. Michigan State
$10.98
18. Marquette
$10.79
19. Iowa
$10.34
20. Indiana
$10.31
21. Oklahoma State
$10.20
22. Wake Forest
$8.83
23. Purdue
$8.68
24. UCLA
$8.53
25. Washington
$8.18

Note:
The Equity in Athletics Disclosure Act requires colleges that participate in a Title IV, federal student financial assistance program, and have an intercollegiate athletic program, to prepare an annual report to the Department of Education on athletic participation, staffing, revenue and expenses, by men’s and women’s teams.
Source: SportsBusiness Journal analysis of EADA reports

Kentucky men’s basketball revenue
The University of Kentucky budgets $11.79 million in men’s basketball revenue, which accounts for nearly 20 percent of the athletic department’s $61 million in revenue for the 2006-07 fiscal year. But revenue in other categories directly attributable to men’s basketball shows that the sport accounts for much more than that:

HOW KENTUCKY FIGURES MEN’S BASKETBALL REVENUE:
Ticket sales $8.7 million
SEC/NCAA distribution
(SEC and NCAA tournaments and conference TV deal)
$3 million
Guarantees $50,000
Miscellaneous $40,000
TOTAL $11.79 million
 
ADDITIONAL REVENUE GENERATED BY MEN’S BASKETBALL THAT IS BUDGETED IN OTHER CATEGORIES
Multimedia rights
(radio network, 3rd-tier TV network through Host Commications)
$4 million
Nike contract (equipment and cash) $1.25 million
Gatorade contract $125,000
Rupp signage (school receives 33 percent of signage sales, minus commission to Action Sports Media) $300,000
K Fund (seat premiums of $200 to $1,250 for 6,700 season tickets) $4 million
Licensing $750,000
OVERALL TOTAL $22.215 million

College basketball fans live here
Last year Scarborough Research surveyed more than 211,000 residents in 75 U.S. markets, measuring a variety of topics. Presented here is a ranking of markets whose residents claim to be fans of college basketball.
The composition shows the percent of the market that fits the specific measure. The index compares that market with the U.S. average. Par equals 100. To read: 72.6 percent of Louisville, Ky., residents claim to be fans of college basketball, a rate that is 104 percent higher than the national average.

Market
% composition
Index
Louisville, Ky.
72.6%
204
Lexington, Ky.
65.7%
185
Raleigh-Durham, N.C.
61.4%
172
Syracuse, N.Y.
57.8%
162
Oklahoma City, Okla.
55.5%
156
Indianapolis
55.5%
156
Greensboro-High Point-Winston-Salem, N.C.
55.3%
155
Hartford-New Haven, Conn.
54.7%
154
Des Moines-Ames, Iowa
54.2%
152
Cincinnati
53.7%
151
Wichita-Hutchinson, Kan.
52.4%
147
Knoxville, Tenn.
51.2%
144
Columbus, Ohio
50.9%
143
Tulsa, Okla.
50.1%
141
Kansas City
50.1%
141
Salt Lake City
48.7%
137
Memphis
48.0%
135
Charlotte
47.1%
132
Spokane, Wash.
46.4%
130
Tucson, Ariz.
44.8%
126
Flint-Saginaw-Bay City, Mich.
44.8%
126
Dayton, Ohio
44.6%
125
Charleston-Huntington, W.Va.
42.7%
120
Austin, Texas
42.7%
120
Milwaukee
42.1%
118
Norfolk-Portsmouth-Newport News, Va.
42.0%
118
Birmingham, N.Y.
41.0%
115
Washington, D.C.
40.7%
114
Baltimore
40.4%
113
Detroit
40.2%
113
Chicago
39.4%
111
Honolulu
38.6%
108
Grand Rapids-Kalamazoo-Battle Creek, Mich.
38.4%
108
Toledo, Ohio
38.3%
107
Richmond-Petersburg, Va.
38.3%
108
Nashville
37.9%
106
Roanoke-Lynchburg, Va.
37.8%
106
Greenville-Spartanburg-Asheville-Anderson
37.8%
106
El Paso, Texas
37.6%
106
Atlanta
37.0%
104
St. Louis
36.3%
102
Minneapolis-St. Paul
36.0%
101
Rochester, N.Y.
35.9%
101
Total
35.6%
100
Portland
35.1%
99
Dallas-Fort Worth
35.1%
99
Mobile-Pensacola, Fla.
34.8%
98
Albuquerque-Santa Fe, N.M.
34.5%
97
Cleveland-Akron
34.4%
97
Seattle-Tacoma
33.3%
93
Jacksonville
33.2%
93
Phoenix
32.5%
91
Philadelphia
32.4%
91
Pittsburgh
32.0%
90
Denver
31.8%
89
Las Vegas
31.2%
88
Harrisburg-Lancaster-Lebanon-York, Pa.
30.9%
87
Houston
30.3%
85
San Antonio
30.2%
85
Wilkes-Barre-Scranton, Pa.
30.1%
84
Fresno-Visalia, Calif.
30.0%
84
Orlando-Daytona Beach-Melbourne
28.8%
81
Fort Myers-Naples, Fla.
28.7%
81
San Francisco-Oakland-San Jose
27.9%
78
Buffalo
27.5%
77
Boston
27.2%
76
Tampa-St.Petersburg
27.0%
76
Albany-Schenectady-Troy, N.Y.
26.8%
75
Los Angeles
26.3%
74
Sacramento-Stockton-Modesto
26.2%
74
West Palm Beach-Fort Pierce, Fla.
25.9%
73
San Diego
25.9%
73
Miami-Fort Lauderdale
25.2%
71
New York
24.4%
69
Providence-New Bedford, R.I.
23.0%
65

Source:
Scarborough Research
 

 

Return to top

Related Topics:

In-Depth

Video Powered By - Castfire CMS Powered By - Sitecore

Report a Bug