NCAA spent most of $500M it once had to cover costs of a canceled March Madness
The NCAA was far more financially prepared to cover the impact of canceled tournaments five years ago than it was in 2020.
Per reporting by the Washington Post and USA Today, the college athletics governing body once had a cash reserve of $500 million in case something unforeseen caused the NCAA men’s basketball tournament to not happen. But the NCAA spent most of that money over the past five years and didn’t increase the coverage of its cancellation insurance before the coronavirus pandemic caused the 2020 men’s and women’s tournaments to be canceled.
“It was a managerial error,” said one former NCAA employee who, like others interviewed for this story, spoke on the condition of anonymity to discuss private financial matters. “They made a decision to be exposed. … This didn’t have to happen.”
Donald Remy, the NCAA’s chief operating officer, said in a phone interview that the decision to spend down the cash savings was made by university presidents on the board of governors — not by NCAA executives in Indianapolis — and that increasing event cancellation insurance on the tournament would have been too expensive.
“To suggest that the management made an error, I think, misunderstands our structure,” Remy said. “It was a pretty prudent amount of insurance for an event that was likely never going to occur. … Clearly we got a pandemic, and it did occur.”
What the NCAA spent the cash on
The NCAA’s reserves were built up after 2003 after the SARS scare of the early 2000s. But instead of keeping those reserves intact, the NCAA gave schools each a portion of a $200 million payout in 2016 as schools started paying players cost-of-attendance stipends.
The NCAA’s members were also wary of the increasing unrest among college athletes and their supporters against the NCAA’s amateurism model. The O’Bannon lawsuit regarding name, image and likeness went to trial in 2014 and, per the Post, some high-ranking college athletic administrators were worried that the NCAA’s reserves would make it an easy target for lawsuits.
Notre Dame AD Jack Swarbrick was one of those who expressed that sentiment. He said in an email to the Post that the NCAA “made the right call at the time. No, the NCAA didn’t foresee COVID-19, nor 9/11 for that matter.”
Quite frankly, the NCAA’s outdated rules are an easier target. Anyway, the NCAA spent another $200-plus million of those reserves in 2017 to settle a class-action suit that claimed the NCAA was violating anti-trust laws by artificially capping the value of scholarships.
That’s over $400 million in two years.
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NCAA sending schools less money in 2020
Here’s why the lack of a healthy cash reserve is coming back to haunt the NCAA this year. The governing body was set to give its member schools a $600 million payout from the expected revenues from the 2020 tournaments. Instead, that payment is just $225 million to all member schools.
The NCAA said in its statement announcing the reduced payout that it had $270 million in cancellation insurance coverage. That number could be higher if the NCAA had upped its policy premiums.
The reduced payouts have significant financial implications for numerous schools, especially ones in Division II and Division III and those which don’t have popular sports that generate significant revenue. A savings account to help cover the possibility of reduced payments would go a long way in 2020. Instead, that money got spent years ago.
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Nick Bromberg is a writer for Yahoo Sports.
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