Written by: Allison R.
It’s the week after Selection Sunday, and NCAA basketball fans are filling out brackets and choosing their picks for the title, even if some are still a little bitter about certain seed placements. In the coming weeks, those watching will be following the results of the games, but not necessarily the serious economic impact of the tournament. While there are losses in certain industries due to March Madness, overall it positively affects the economy.
Because the tournament only occurs once a year, scarcity is created, inflating demand higher than for the regular season. A factor of demand, tastes and preferences of the consumers, reinforces the high demand for March Madness games as the tournament is just as much a cultural event as an athletic one. Linked here is an NCAA trailer for the tournament, conveying the extent of its presence.
Even those who are not avid basketball fans often participate in creating and betting on brackets. There is an estimated 9.2 billion dollars wagered annually on the NCAA basketball tournament, with an estimated 8.9 billion spent on illegal bets (Kiernan). This is not restricted to an at-home hobby, as up to 20 percent, or 50.0 million American employees are projected to participate in workplace pools in 2017 (Golden). “The loss of productivity in the opening week of March Madness could cost employers nearly $4 billion in lost revenue” and “each hour of the workday wasted on building brackets or watching games will cost employers $1.3 billion” (Golden). The tournament is intensely followed, which results in major employer losses but “efforts to suppress the 'madness' would most likely result in long-term damage to employee morale, loyalty and engagement that would far outweigh any short-term benefit to productivity" (NBC). Opportunity cost must be considered from a company standpoint to determine if it is worth attempting to prevent March Madness distractions. These losses are the most prevalent an unavoidable drawbacks of the tournament economically.
Demand for tickets, along with prices for the games, increases exponentially from the First Four to the Final Four games. The obvious reason for this is that the games later in the tournament have greater stakes, closer scores, and higher-caliber matchups that draw more interest and attention that the initial games. However, there is also the underlying factor of supply decreasing throughout the tournament, as less and less games occur. This creates a shortage as more people want to watch less available games. This decrease in supply supports the increase in prices, shifting the equilibrium price even higher than if demand alone shifted. Retail prices for a single Final Four game average over $450, while an all-sessions pass typically ranges from $550 to $9600, depending on seat location. Many people are willing to pay significantly more for court-side seats, because the perceived benefits of being nearer to the game outweigh the opportunity cost -- the financial savings of sitting farther away. While retail prices are climbing each year, the prevalent secondary ticket market also should not be ignored. Last year, secondary ticket prices for the Final Four games averaged $800, a $200 increase from 2014 (Fortune). The trend continues this year as even regional semifinal (Sweet 16) secondary ticket prices are already reaching over $350 (Barrabi). As annual demand increases, so do ticket prices, raising profitability for both the NCAA and secondary ticket vendors.
Other industries, such as advertizing, see a sharp increase in prices due to the increased demand for March Madness airtime. In the 2015 title game, this resulted in an average cost of 1.5 million dollars for 30-second commercial. GM, AT&T, and Capital One alone spent 213.3 million dollars on advertising that year (Kiernan). In other aspects of TV broadcasting, CBS has spent a total of 19.8 billion dollars to secure the rights to air the Division I tournament (Brady). The annual value of the TV rights to the tournament have steadily increased since the mid 1980’s, which drives up the demand for these rights and results in the exorbitant amounts of money CBS is willing to spend to retain them. Similarly to how macroeconomic demand shifts to the right when there are positive future expectations for the economy, market demand for the March Madness TV rights shifts right because the growth indicates that the industry will continue to be profitable in the future. Because the profitability is growing, companies are willing to pay higher prices for a share of the market, increasing the profits of the tournament.
Overall, March Madness creates annual upsets in the economy while employers face serious losses, but the profits for broadcasting, the NCAA, and ticket vendors ultimately trumping the less significant loss.
Barrabi, Thomas. "NCAA Tournament: The Best (and Worst) Deals For March Madness Bargain Hunters." Fox Business. Fox Business, 13 Mar. 2017. Web. 13 Mar. 2017.
Brady, Erik. "NCAA Extends Tournament Deal with CBS, Turner through 2032 for $8.8 Billion." USA Today. Gannett Satellite Information Network, 12 Apr. 2016. Web. 13 Mar. 2017.
Chew, Jonathan. "Here's How You Can Score the Cheapest Tickets For March Madness."Here's Our Guide to Buying Cheap, Great Tickets for March Madness 2016 | Fortune.com. Fortune, 14 Mar. 2016. Web. 13 Mar. 2017.
Golden, Jessica. "March Madness Costs Companies Billions." CNBC. CNBC, 14 Mar. 2016. Web. 13 Mar. 2017.
Kiernan, John S. "March Madness Stats & Fun Facts." WalletHub. Evolution Finance, 6 Mar. 2017. Web. 13 Mar. 2017.