Bowl Season: The Risk-Reward Trade-Off

By Tyson Slesnick, CFE, Forensic Data Analyst

Part of our “Following the Money in College Sports” series

 

 

 

 

 

 

 

 

 

 

 

 

As the final year of a four-team college football playoff unfolds, with a significant number of players opting out of bowl games, it’s timely to delve into the question of financial risk and reward value of bowl games.

Bowl games today have evolved compared to their historical counterparts, both in increased number and in some ways, lack of significance. Bowl games represent a nuanced balance of financial risks and rewards, significantly impacting star players and their universities.

 

The School Perspective

From the university’s perspective, the financial benefits are substantial and multifaceted. Participation in popular bowl games catapults universities into the national spotlight, enhancing their recruitment appeal and leading to significant financial benefits. As discussed in our previous article, post-season bowls and championship games boost industry revenue by an additional $621 million via TV broadcast rights that are passed through to participating schools.

 

The Athlete Perspective

From the athlete perspective, bowl games can be fraught with risk. Once the College Football Playoff teams are decided, the career value to a high-profile athlete of the remaining non-CFP bowl game diminishes. The specter of injury and related impact on NFL draft stock is a critical concern for those athletes looking to move to the next level. The scrutiny from NFL scouts is high during these games and an injury or poor performance can drastically alter an athlete’s draft prospects and, consequently, their financial future.

Slipping from the first round to the third round in the NFL Draft can dramatically reduce a player’s NFL compensation. The NFL’s rookie wage scale, which dictates the salaries for draft picks, is structured in a way that first-round picks earn more than their later-round counterparts. This wage scale impacts not only the initial contract but also the subsequent earning potential during the player’s early career.

The following table summarizes contract value estimates across the first three rounds of the 2023 NFL draft:

 

The most notable monetary difference between the rounds is the significant drop-off in guaranteed money. Falling from round 1 to round 3 can cost a player more than $14 million in guaranteed pay. Falling from round 2 to round 3 can cost over $3 million. The risk of losing such huge contract value due to injury presents the player with very little margin for error as a season winds up. Over a lifetime of (invested) earnings, the opportunity cost of an injury and subsequent slip in the draft is substantial. Such a cost begs the question whether insurance contracts can mitigate the substantial financial risk of injury.

Indeed, some athletes have secured “Loss of Value” of “LOV” insurance to offset some of the risk. Lloyd’s of London is one insurance provider that makes these contracts available. As of 2015, these contracts sold for $8,000 per $1 million of coverage⁵. Interestingly, universities have begun to cover these costs for players as recruitment benefit.

 

Balance of School Reward with Athlete Risk

Bowl games represent low risk and high reward for universities and high risk and lower reward for the student athlete. The emerging trend of universities stepping in to offer LOV insurance to their athletes highlights a significant shift in recognizing the financial value and risks associated with college sports. With institutions shouldering part of the financial burden, it creates a more balanced scenario where the financial interests of both the athletes and the universities are better aligned. This development underscores the evolving nature of college sports as a high-stakes arena where substantial investments are made in human talent.

 

 

¹ Data from 2023 NFL Draft

² Represents the total possible contract dollars (not adjusted to present value)

³ Contract signing bonus (not adjusted to present value)

⁴ Guaranteed portion of contract (not adjusted to present value)

⁵ Davison, Kavitha A. College Player Files $3M Claim with Lloyd’s for Drop in NFL Draft. https://www.insurancejournal.com/news/national/2015/10/06/383970.htm.

 

Author

 

Tyson Slesnick, CFE, Forensic Data Analyst
[email protected]

 

 

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See our article published in the Portland Business Journal on 11/17/2023:
Opinion: Following the money in college sports and the Pac-12 shakeup and our in-depth version here.