Big money and big-time college sports have been entwined for some time. But that connection may have grown even closer recently when California passed a first-of-its-kind law that allows student-athletes to hire agents and make money on endorsement deals, something the NCAA actively opposes.
California’s new law, along with discussions about paying college players, may lead to fiery debates among sports fans, but there’s no denying that sports are a profitable undertaking for many universities. In fact, one financial professional says that if college sports were a stock, a lot of people might add the NCAA to their portfolios. Some top college football programs bring in well over $100 million in revenue, with a 50 percent profit margin,” says Jason Lambert, President, and CEO of Northwest Financial & Tax Solution. "If that were a business, I would definitely invest in it. It’s a unique business model.”
Lambert attended Auburn University, which averages $117 million in annual revenue from its football program. He understands the appeal of college football strictly from a fan perspective, but as a financial planner, he says it’s also hard to miss just how big of a business college sports can be.
Some schools are making an insane amount of money on their sports teams, but not all schools. There’s a big disparity between the haves and the have nots.”
Enviable profit margins
Forbes recently released its annual list of the 25 most valuable teams in college football, which combined bring in $1.5 billion in profits on revenues of $2.7 billion. Topping the list is Texas A&M, which had revenue of $147 million and a profit of $94 million. Others in the top five were Texas, Michigan, Alabama and Ohio State.
Wins equal cash
This is especially true for football teams. A Harvard Business School study showed that a single win during the football season could mean as much as $3 million for some top schools. Even some college football programs that are not so well established saw a monetary increase as a result of invitations to postseason bowls, the study reported.
TV’s growing role
Television contracts have long been lucrative for college sports, but nothing like today when colleges and the NCAA don’t have to rely exclusively on the major networks. “Look at the top two teams on that Forbes list,” Lambert says. “The Texas Longhorns have their own TV network. Texas A&M is part of the SEC, which has its own TV network.”
Given these facts, Lambert says it shouldn’t be surprising that California wants to allow players to profit off their talents, or that others have pushed the idea that players should be paid by the universities that they churn profits for.
“Scholarships are valuable and great,” he says. “But something is going to have to change when you see the money that is coming into these programs.”
Jason Lambert, President, CEO and portfolio manager of Northwest Financial & Tax Solutions, has worked for some of the largest financial firms in the world, including as an Assistant Vice President with Merrill Lynch.