The cost of March Madness bans for Louisville, SMU

As a flurry of college basketball games tip off Thursday and Friday, two top teams are notably absent.

The University of Louisville withheld itself from this year's NCAA Division I championship, also known as March Madness, amid allegations of recruiting misconduct. The NCAA, meanwhile, banned Southern Methodist University in Dallas from the tournament because of academic violations.

The financial blowback of their absences extends well beyond the teams themselves.

Head coach Rick Pitino of the Louisville Cardinals
Patrick McDermott | Getty Images

Louisville and SMU ended the year ranked 16th and 24th, respectively, in The Associated Press rankings. Both teams likely would have qualified for March Madness and might have made deep runs.

The NCAA distributes the roughly $200 million basketball fund to conferences partially based on their teams' postseason performances in a rolling six-year period. For every March Madness game played, excluding the championship game, the NCAA awards a "unit," which is worth about $260,000 this year.

"The biggest short-term impact is forgoing the revenue the conferences would have received if they played in the postseason," said Manish Tripathi, an Emory University marketing professor who studies sports.

Kentucky fans celebrate watching the NCAA tournament in a bar in Lexington, KY. (File photo).
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Conferences split the basketball fund revenue. Therefore, the other teams in Louisville's Atlantic Coast Conference and SMU's American Athletic Conference will lose cash from the bans, as well.

Here's how much money each team could have brought to its conference in a six-year period if it played in March Madness this year, according to estimates by Vanderbilt University sports economist John Vrooman:

A Sweet 16 appearance this year by either team would have sent roughly $5.2 million to its conference over six years. The payout would have climbed to about $6.9 million with an Elite Eight run, and to roughly $8.6 million with a Final Four appearance.

The loss per school would be greater for SMU's AAC, as it has 11 teams, compared with 15 in Louisville's ACC.

Long-term trouble?

Louisville's self-imposed postseason ban will potentially lead to a lighter NCAA punishment, experts said. Louisville is under NCAA investigation of allegations that a former basketball employee organized parties for recruits with dancers and prostitutes.

This week, Louisville head coach Rick Pitino told ESPN the situation remains "puzzling," saying he hopes the NCAA "comes up with the right answers."

If more severe punishment comes down on Louisville, it could damage college basketball's most financially successful program. Louisville basketball took in more than $45 million in 2015, the highest in Division I, according to Vrooman.

Louisville said it did not see an immediate financial effect from the ban. Five of the school's six-largest crowds this year came after the ban was announced, noted Kenny Klein, senior associate athletic director for media relations.

However, if the NCAA levies additional punishment, it could hit the program's on-court and financial success over time, Tripathi said. Scholarship losses, weaker recruiting and worse performance may reduce ticket and merchandise revenue, he said.

"But if this scandal only has an impact on the team for this year, then I don't see much of a financial effect," he added.

Officials at SMU declined to comment on its finances.

Correction: This story has been updated to correct that the NCAA awards units based on tournament games played.