How 'Cinderellas' cash in on March Madness

The NCAA men's basketball tournament is around the corner, and the stakes could not be higher, with a national title on the line. But there's a lot more at stake than wins and losses, and that's especially true for smaller schools that make the tourney.

Khyle Marshall #23 of the Butler Bulldogs holds the ball as Elias Harris #20 of the Gonzaga Bulldogs defends at Hinkle Fieldhouse on January 19, 2013 in Indianapolis, Indiana.
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Universities like Butler in Indiana, Florida Gulf Coast and Gonzaga in Washington state, all saw a rise in student application numbers following previous tournament runs.

After Butler reached the national championship game in 2010, its student applications rose about 40 percent, according to a university spokesman. Applications at Florida Gulf Coast increased by nearly 40 percent after that school reached the Sweet 16 in 2013, and applications at Gonzaga rose nearly 12 percent from fall of 1998 to fall of 1999 after the team reached the Elite Eight, school officials told CNBC.

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Those schools' endowments also increased significantly after their respective tournament runs. Gonzaga's endowment increased nearly 70 percent from 1998 to 1999. Florida Gulf Coast's endowment climbed about 15 percent from 2013 to 2014, according to the university's annual reports. Butler's endowment increased by about 13 percent from 2009 to 2010, according to data from the National Association of College and University Business Officers.

Meanwhile, Virginia Commonwealth University saw its endowment increase by nearly 25 percent following its 2011 Final Four run, according to data from the association. Donations to its athletics department also increased by 326 percent following the run, said Anne Buckley, a spokeswoman at VCU.

The 'Flutie effect'

Smaller, lesser-known "Cinderella" schools benefit from their positive runs because of the "Flutie Effect," said Victor Matheson, an economics professor at the College of the Holy Cross in Massachusetts. The phenomenon occurs when a university's profile rises after a strong performance by one of its sports teams, leading to a spike in admissions applications.

The Flutie Effect is named for former Boston College quarterback Doug Flutie, who led his team to a victory against the University of Miami in 1984, after which applications to the university spiked by 30 percent in two years.

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"There is no particular impact from just appearing in the tournament," Matheson said. Schools' basketball teams need to reach at least the Sweet 16 in order to see a real boost. "Teams get a whole week's worth of coverage" once they reach the round of 16, he said.

The effect may translate into only a short-term applications boost, Matheson added. And there's also a potential downside.

"While it's very clear the Flutie Effect impacts the number of applications, it does not necessarily impact the quality of the students applying," he said.