NCAA approaching $1 billion per year amid challenges by players

Every year since 2001 — through the aftermath of the dot-com bust, the Great Recession and the economic stimulus plan — the NCAA has made more money.

Every year, it has given more to the colleges it serves. Every year, it has set aside more money for investments, amassing $627 million. Now, it's poised to top the eye-popping mark of $1 billion in annual revenue.

And it's no secret that one big event, the Division I men's basketball tournament, accounts for 80 percent to 90 percent of that success. What is less clear is how much longer the winning streak will last.

Amid the maze of numbers and legalistic jargon in a recent NCAA bond prospectus, there's an ominous-sounding section on risk.

The Indianapolis-based National Collegiate Athletic Association describes a one-year "financial recovery plan" if anything happens to the money from the basketball tournament. The recovery plan includes drawing heavily from reserve funds, budget reductions, lowering the amount of money distributed to schools and event cancellation insurance.

It sounds extreme, a worst-case precaution bond holders expect, not to be taken as a prediction of doom so much as an insurance plan against loss. But as Indianapolis prepares to begin hosting the Midwest regional semifinals Friday, it's clear the NCAA is in uncharted territory.

The association — once seen as a fearsome monolith — is now the target of increasingly aggressive attacks by high-profile lawyers with deep pockets. On Wednesday, Northwestern University football players won the first round of their effort to become a union, and the NCAA faces a bevy of lawsuits by players who want more of the economic pie.

One high-profile case is scheduled for trial June 9 and, last week, heavyweight sports antitrust lawyer Jeffrey Kessler filed a lawsuit seeking to remove all restrictions on player compensation.

"It's undeniable that the pressure cooker is building," said University of New Haven Professor Allen Sack, a member of Notre Dame's 1966 national champion football team and a longtime critic of the NCAA. "It's a different ballgame. This is not like any other time."

Said Michael McCann, a law professor and legal analyst for SI.com: "This is a transformative era for the NCAA, and at the end, the student-athlete will have a different role. There will be changes to amateurism."

And changes to amateurism could mean changing uses for all that money.

Although he disagrees that pressure is building, even NCAA President Mark Emmert recognizes he's in a battle to preserve the current model of college sports.

In an interview with The Indianapolis Star, Emmert was asked if he's apprehensive.

"I'm apprehensive in that the system right now serves 450,000 student-athletes and provides remarkable opportunities for them," Emmert said. "Should that model be blown up, yeah, it would be a significant loss for America. So, of course we want to continue to support the collegiate model of athletics and think it's worth saving. Others disagree."

And, when it comes to the NCAA's future, no city has more at stake than Indianapolis.

Sweetening the deal

As part of a decades-long strategy to use sports to spur growth, Indianapolis invested heavily in the NCAA.

It took a reported $50 million in incentives for Indianapolis to lure the NCAA from its Overland Park, Kan., headquarters in 1999. Indy and Kansas City, Mo., were the finalists.

The Lilly Foundation kicked in $10 million and private individuals, businesses and organizations raised $15 million. State and city taxpayers picked up the remaining $25 million.

At the time, a member of the Kansas City contingent was quoted as saying Indy "may be a little beyond sane in what they have done."

Indy built the NCAA a 142,000-square-foot headquarters and a 35,000-square-foot "exhibition hall/museum" called the Hall of Champions. The deal included 500 free parking spaces and "first-class landscaping."

The rent: $1 per year.

In 2010, the NCAA and the White River State Park Commission extended the headquarters lease to 2060 with three 10-year options. It included free land for the NCAA to build, with its own money, an expansion of the headquarters.

Rent remains $1 per year for the life of the agreement.

In financial documents, the NCAA listed the true 50-year market value of the rent and land, as determined by outside experts, at $44.5 million.

Taxpayers pick up the tab.

In return, the NCAA's growth has benefited the city.

Since moving to Indianapolis in 1999, the NCAA has gone from about 350 employees to about 500, virtually all of whom live and pay taxes in the area.

NCAA salaries and benefits have jumped from $20 million to $49 million.

In every five-year period until 2060, the NCAA has agreed to stage in Indianapolis the men's Final Four, the women's Final Four, pre-Final Four men's and women's basketball tournament games and the NCAA Convention.

According to an NCAA-commissioned report by professors from Indiana University's Kelley School of Business, the association's headquarters, events and meetings accounted for $161.8 million to Indiana's economy in 2012.

University of West Virginia economics Professor Brad Humphreys had no issues with the report's impact attributed to the headquarters, but he said it "vastly overstates the actual impact of the NCAA sports events."

But there are other intangible benefits.

Allison Melangton, president of the Indiana Sports Corp, calls the NCAA "a perfect fit for Indianapolis."

"They bring a lot of sports leadership to town," she said. "They're a great community partner. … The national attention we get in Indy — we have more events here because they're here — elevates our presence nationally, that we're a sports town."

Said Emmert: "Everyone who's involved in NCAA athletics knows the headquarters are here and sees Indianapolis as the epicenter of college athletics."

As the NCAA has grown, so have the benefits to its executives, including Emmert, who makes about $1.6 million a year, according to the latest public records. Those records also note that 86 NCAA employees made more than $100,000.

The NCAA uses consultants to supply salary ranges from comparable organizations, said chief financial officer Kathleen McNeely. She wouldn't name the organizations used by the NCAA but said they are for-profit and nonprofit. A compensation committee of school presidents makes the decisions.

"First of all, we have to compete in the market we're in, which is sports management," McNeely said. "We have a lot of lawyers at the NCAA. A lot of our areas are legislative areas made up of bylaw interpretations and writing bylaws. We have a lot of lawyers in our enforcement division. Our legal counsel —we have lawyers in that area."

The NCAA also relies heavily on outside lawyers who specialize in areas such as antitrust. The NCAA spent $9 million on legal expenses in 2011-12.

It needs lawyers now, perhaps more than ever.

Playing defense

In 2005, the NCAA looked in the mirror, trying to identify its weaknesses.

A risk management consultant identified four main areas of concern. All seem to apply today: federal or state legislative intervention, court decisions, reputation and lack of revenue diversification.

Lack of revenue diversification shows in the NCAA's television money. This year, CBS/Turner will pay about $700 million for the Division I men's basketball tournament.

ESPN will pay $31 million for everything else.

Last year's basketball tournament brought in $81 million of non-television money. Baseball was next at $13.5 million, followed by women's basketball at $4.4 million.

Indianapolis plays a role in helping protect the big money-maker.

In 2004, the NCAA wanted a backup site for basketball tournament games and to extend its lease in Indy. The Indianapolis Colts wanted a taxpayer-financed new stadium. The NCAA also knew that staging events in a big, new hometown stadium would save money.

In exchange for the guarantee of prime NCAA events being staged in Indy, the city extended the dollar-a-year lease and agreed to serve as a contingency site for all men's and women's NCAA tournament games.

The deal was contingent on "substantial improvements to the (old RCA) Dome and/or a new facility."

Lucas Oil Stadium opened in 2008, financed mostly by taxpayers.

The NCAA has never needed to use the contingency agreement. The original "memorandum of understanding" in 2004 is still in effect. It says the Indiana Sports Corp will "use its best efforts" with the city, the Capital Improvement Board, the Pacers and area universities "in the event of an emergency which requires the use of Indianapolis as a backup Event site."

As for the other risk areas, congressional interest in the NCAA creeps up occasionally but isn't a factor now.

Reputation is a constant battle for the NCAA, trying to show it's more than a group that prints money for three weeks every March. It runs 89 national championships, in sports such as rifle and rowing, for more than 1,100 member schools.

The bond prospectus says the NCAA returned 58 percent of its money to members in cash over five years. In 2012-13, the NCAA says it returned more than 90 percent of revenue to members in cash and services.

Legal decisions are by far the biggest current concern, with the capability of radically changing the NCAA model of college sports.

With the basketball tournament bringing in billions over several years and coaches making millions, players have become increasingly bold about fighting for a bigger cut.

Scholarships are worth tens of thousands per year. But critics note that a real education is hard to obtain while working virtually full time as an athlete for coaches whose livelihoods depend on winning.

Star players in the NCAA tournament are worth far more than their scholarships. The latest study of their true value was in The Atlantic, which estimated that the true value of freshman star Andrew Wiggins to Kansas was $575,565.

If the NCAA doesn't increase athlete benefits — Emmert says change is coming — the courts might do it instead.

The lawsuit scheduled for trial June 9 was brought by former UCLA star basketball player Ed O'Bannon, who wants athletes, not the NCAA, to control use of their name, image and likeness. That would have implications for production and sales of advertising, DVDs and video games, as well as rebroadcasts of games.

The Kessler lawsuit seeks to remove all restrictions on player compensation.

Another lawsuit also filed this month, by former West Virginia football player Shawne Alston, alleges the NCAA and major conferences illegally cap the value of scholarships at less than the actual cost of attending school.

The players seeking a union have mentioned better insurance and guaranteed multiyear scholarships instead of annual renewals. Lifetime scholarships for players to finish degrees, and get advanced degrees, also has been mentioned.

"Pay for play" is anathema to many fans — two-thirds of the public is against it, according to a recent ABC poll. But Sack, the New Haven professor, contends they've been paid for decades through scholarships.

There used to be additional "laundry money." Athletes can now tap into funds for situations such as buying a suit, traveling home for a funeral, or buying a computer. Bowl games in football, conference tournaments in basketball and the NCAA basketball tournament give players hundreds of dollars in gifts.

"Amateurism is whatever the NCAA arbitrarily decides to call it," Sack said.

McCann sees the possibility of conferences gaining more power and autonomy to define "amateurism." That would mean more benefits to players that smaller schools can't afford. McCann does not foresee the demise of the NCAA.

"I just don't think the country wants that," McCann said.

Strange marriage

It's a strange, enduring marriage, higher education and high-stakes sports. An interview with Emmert ended with a question about whether the NCAA would be around at the end of its lease in 2060.

As he often does, Emmert turned the question around on the interviewer.

"Will the Indy Star be here in 2060?" he asks.

The reporter said the company is moving to a modern new office and evolving on different news platforms, adding, "We've been here 100 years and the brand name's pretty strong."

Emmert didn't hesitate.

"I'd say the same thing for the NCAA."

Call Star reporter Mark Alesia at (317) 444-6311. Follow him on Twitter: @markalesia.