Can Profit-Maximizing Enterprises Systematically Leave Money on the Table? The Curious Case of the BCS

Hal Singer —  11 January 2012

For years the public has been clamoring for a playoff system to crown a champion in college football. Yet the geniuses at the BCS stubbornly defended—at least until now—their computer-knows-best system for inviting the two most worthy teams. By injecting doubt over the legitimacy of its invitees, the current system diminishes the meaning of the BCS title game, as evidenced by the abysmal Nielsen ratings for Monday night’s Alabama-LSU game (only 13.8 percent of U.S. television households tuned in to watch the television equivalent of paint drying) and last year’s Auburn-Oregon title game (15.3 percent). By comparison, the title game between Alabama and Texas just two years ago drew 17.2 percent of U.S. households; if this were a publicly traded firm, its shares would be falling fast.

Even worse, the current system diminishes the importance of the other BCS games. Besides alumni, who wants to watch an exhibition game between Oregon and Wisconsin (this year’s Rose Bowl) if the winner cannot advance to the next round? This year’s Rose Bowl drew a meager 9.9 percent of U.S. television households, down 15 percent from last year’s Rose Bowl between TCU and Wisconsin. And last year’s Rose Bowl drew 11.3 percent, down 15 percent from the prior year. Can anyone spot a pattern?

In contrast, the first round of the NFL playoffs this year drew massive audiences. For example, NBC’s coverage of the Saints-Lions earned a 19.3 overnight rating, the third-best overnight for a Wild Card Saturday game since the 1999 playoff season. Along with 42.4 million of my closest friends, I found myself compelled to watch the Broncos-Steelers Wild Card game (25.9 rating), not because I care about either team, but because the investment of my time would pay off in even greater happiness next week.

It is a tragedy that the BCS would run these valuable assets into the ground. Imagine the excitement of a Cinderella team like Baylor, Boise State, or TCU sneaking into the championship. Organized as a playoff, the Rose Bowl (or any BCS non-title game) would experience a significant lift in ratings, along the lines of the lift enjoyed by NFL post-season games relative to NFL regular-season games. To be fair, the profit function of the BCS conferences is presumably much more complicated than “maximize the value of the television revenues for the BCS games.” But these television revenues must be a critical component of their joint profits. Which begs the question: Why would the BCS systematically err when so much money is at stake?

7 responses to Can Profit-Maximizing Enterprises Systematically Leave Money on the Table? The Curious Case of the BCS

  1. 

    I share Hal Singer’s puzzlement, but I think Antitrust guy makes a nice point that might explain the money on the table. Two observations. First, to Hal: the value of the other 30 bowl games cannot be zero as you say. These bowls exist, are shown on TV, and pay good money to the programs who compete. They therefore have value. We need to some up it and compare it with the gains from you system, which, I agree, would be large. I am a huge football fan, and I didn’t watch a single bowl game.

    Second, to Antitrust guy: for your explanation to be right, which I think it might be, we need a theory as to why these small bowls, which invite also-ran teams, would have so much power in the NCAA. This requires a theory of decision making within the NCAA, which I just don’t have.

  2. 

    I don’t think it’s obvious that exchanging the BCS for a playoff system (let’s say 8 teams, which would require 7 games instead of the BCS’s 5) would necessarily maximize revenues for the colleges involved, which are the profit maximizers, not “The BCS” (not to mention the agency problem with college presidents, athletic directors, and football coaches). In a playoff scenario, one could imagine other bowls would diminish even further in importance/interest to the point where they might disappear altogether. As such, the tradeoff is not 7 more profitable games for 5 less profitable games, but rather 7 more profitable games for ~33 less profitable games. The cumulative profit from those games (the bowl payouts plus other non-cash benefits) might well be higher.

    In addition, there may be a somewhat Rawlsian view from colleges–they are better off knowing that a winning season gets them into a bowl game (or, put differently, 1/2 the teams get to go to a bowl) than a system in which only 8 of them get to a bowl.

    • 

      Antitrustguy,

      I don’t see how elevating the importance of the Rose Bowl (which is now close to meaningless due to the lack of a playoff) threatens the non-BCS games (which are completely meaningless). You can’t get below zero.

      Hal

  3. 

    BTW, do you have any statistics on the net profitability of college football programs to the colleges themselves? The last time I looked, most big-time programs barely met their own costs, not including many key items (cost of sports scholarships, maintenance of huge football stadiums only used about six times a year, etc.) The justification, that football creates loyal alumni who contribute lots of money to their almae matres was belied by the fact that most of the biggest football programs were at state universities which receive very little in alumni funding, and the finding that most alumni contributions based upon support of sports teams tended to go for more sports facilities, rather than general university funds, or to increase endowments. I’m not sure that profit maximization has anything whatever to do with college football.

    • 

      I think it is reasonable to assume that profit-maximization is driving the choices of the BCS conferences. There is just too much at stake. If not profits, then what possibly motivates their choices? That the individual programs are not generating huge profits, as you suggest, is not evidence that profits are not the objective; they could just be lousy at making money.

      • 

        “If not profits, then what possibly motivates their choices?”
        —Mistaken beliefs regarding prestige? Prejudices regarding tradition? The false analogy between football and basketball, or between the college game and the pro game? I just don’t believe that everyone is a profit-maximizer, especially when it comes to sports.

  4. 

    Y’know, college ball is not professional—at least, it’s not supposed to be. At best, these are minor league teams providing training and screening for the NFL. The players are younger, less well-trained, less experienced, and many of them less talented than those who play pro ball. Aside from alumni of the various schools, the only reason that anyone else should care who wins a college game is historical: professional football was not taken seriously by the public or by the newspapers (the only serious media of the time) back in the first half of the last century, when spectator sports were first becoming important. So the local college team became a proxy for the NFL member each city or region now has. This process is now reversing itself, as it logically should.

    The nature of football is that a long series of playoffs is difficult to arrange given the physically punishing nature of the game which limits the frequency and number of games, the deteriorating weather in most of North America as fall progresses into winter, and the fact that colleges do—or should—have some other mission than to provide gladiatorial contests for an audience most of whom will be sitting in their warm houses, watching the games on television. The problems with over-emphasis on intercollegiate sports are too well known to have to repeat here, except to say that the controversy over the handling of Joe Paterno’s firing illustrate once again how cockeyed the perspective of a university community can become when it treats its varsity football team as if they were the school’s sole raison d’être.

    The real fallacy in the BCS system is that the country needs or wants a single, unambiguous college football champion. Fans were better served when a number of them could all claim “We were the best.” The sportswriters did better, by often disagreeing, than the computer, which cannot allow for any ambiguity, creates a pseudo-scientific measure of something the whole attraction of which is that it cannot be reduced to objectivity (the “best” team does not always win, which is the whole point of a sporting match), and instead of there being a bunch of traditional games on New Year’s Day, when no one had anything better to do anyway, which might or might not settle the question of who is better, and which had the advantage of almost never being re-matches of teams which had already met, we now have a special championship game on a weeknight when everyone should be headed back to school or work, which makes all those traditional New Year’s Day games irrelevant. It’s a pretense of objectivity that is unreal, and utterly unnecessary. A sequence of playoffs would only make it worse. And this nonsense is wasting our time on the floor of Congress, in the courts, and on blogs normally dedicated to more important issues, like politics or the economy. Enough already!!!