The Washington PostDemocracy Dies in Darkness

The NCAA saved money in case of a canceled March Madness. Then it spent it.

The NCAA men’s basketball tournament generates nearly $870 million every year, but its event cancellation insurance policy covered just $270 million. (Darron Cummings/AP)

One month after the novel coronavirus pandemic forced the cancellation of the lucrative NCAA men’s basketball tournament, officials at athletic departments and college sports conferences across the country remain puzzled by one question: Why wasn’t the NCAA better prepared for this?

While the men’s tournament generates more than $800 million every year — more than 70 percent of the NCAA’s $1.1 billion in annual revenue, most of which flows to dozens of conferences and hundreds of colleges and universities across the country — the NCAA’s event cancellation insurance policy for the tournament covered just $270 million, the association revealed a few weeks ago.

As a result, a typical $600 million NCAA payout to conferences and schools was reduced to $225 million this year, the first coronavirus-related budgetary hit that has conferences and athletic departments imposing pay cuts and examining other cost-cutting measures.

“The [NCAA] has prepared for a financial catastrophic event like the one we face now,” Ohio State President Michael Drake, chair of the NCAA’s board of governors, said in a news release. “We would be in a far worse position had it not been for this long-standing, forward-focused planning.”

But according to several former NCAA employees, the organization was much better prepared for a canceled tournament several years ago, when it built up savings of nearly $500 million to help mitigate the financial impact of a lost tournament. Then, in 2015, new leadership decided to spend more than $400 million of those savings without increasing the NCAA’s insurance coverage by following a questionable theory about the risk of saving that much money.

“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.”

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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 for 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.”

Washington State President Kirk Schulz, who chaired the NCAA’s board of governors at the time of the payouts, declined an interview request. Some of the financial details of these decisions were first reported by USA Today.

In the early 2000s, during the tenure of late NCAA executive director Myles Brand, the association’s executives developed a plan to protect against the possibility of a canceled tournament through a combination of insurance and cash savings.

Though the severe acute respiratory syndrome epidemic had just occurred in 2002 and 2003, NCAA leaders were more concerned about rising unrest among college athletes over amateurism rules, according to one former employee.

“A pandemic wasn’t on our mind,” the former NCAA employee said. “It was more … might student-athletes at one point say, ‘We don’t want to play,’ and then what happens?”

With that in mind, the association built up nearly $500 million in reserves from 2004 to 2014. The NCAA also purchased insurance that would cover roughly one-third of the tournament’s annual revenue. With the insurance and the reserves, these employees said, NCAA leaders thought they could absorb the hit of a lost tournament with only minimal cuts to expenses.

But in 2015, as the NCAA and the wealthier football conferences felt rising pressure from antitrust lawsuits filed by thousands of current and former athletes, Notre Dame Athletic Director Jack Swarbrick was among some college sports power brokers who argued the cash reserves were enticing lawyers to sue, former NCAA employees said.

“Jack said: ‘You’re just inviting lawsuits. You create a pile of money; plaintiffs’ lawyers come after it,’ ” one former NCAA employee said.

Swarbrick declined an interview request. In an emailed statement, he said he didn’t recall making those remarks but agreed with them.

“I agree with the sentiment,” he wrote. “The decision was vetted by NCAA members and endorsed by the board. They made the right call at the time. No, the NCAA didn’t foresee covid-19, nor 9/11 for that matter.”

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Another former NCAA employee said this theory came from the association’s new legal team, headed by Remy.

“They thought it was bait. … My thought all along is that’s bulls---,” the former employee said. “Any organization that makes more than $1 billion every year is always going to be a target for lawsuits. … Another half a billion in reserves isn’t going to make a difference.”

Remy declined to answer whether he or NCAA lawyers agreed with Swarbrick’s theory.

“I agree it was a narrative that was out there,” Remy said. “The decision to draw down on the reserves was made for a variety of reasons.”

Two of the lead lawyers on several of those antitrust cases said the NCAA’s cash reserves had no influence on their decisions to sue.

“The word ‘absurd’ seems entirely appropriate,” said Jeffrey Kessler, co-executive chairman of international law firm Winston & Strawn. “This just sounds like frankly another NCAA fabrication to justify an action that didn’t make any sense and now exposes them in the face of this pandemic.”

“I never looked at the NCAA’s savings balance sheet in any of the cases that I’ve brought against them,” said Steve Berman, managing partner of Seattle-based Hagens Berman law firm. “When you have billions of dollars flowing into the NCAA and all of these conferences every year, we’re not worried about a collection problem.”

In 2016, the NCAA started getting rid of its savings. First, its board of governors approved a $200 million “special one-time distribution” to Division I athletic departments to be used for programs benefiting college athletes.

In 2017, the NCAA settled one of its class-action cases for $208.7 million. And while the NCAA was only one of 12 defendants in that case, along with 11 major conferences, it agreed to cover the entire settlement.

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L. Jay Lemons, a former member of the NCAA’s board of governors who served on a committee that oversaw financial planning in this time frame, said in a phone interview that he never understood why the NCAA didn’t force the conferences to share in the settlement.

“It was a bit of a mystery to me,” said Lemons, the former president of Susquehanna University, a Division III school. “It was really the influence of the Division I members who believed and perceived that, given the resources of the [NCAA], it was going to be the easiest solution.”

According to former NCAA employees, the reason the organization covered the entire settlement was simple: The Power Five conferences refused to pay, and the other football conferences followed suit.

“Their point is: ‘We’re the ones that are making you all this money anyway. And if you have a problem with that, we can just break off and go form our own NCAA and see how you fare,’ ” one former employee said.

Spokespeople for the ACC, Big Ten, Big 12, Pac-12 and SEC declined to comment or did not reply to requests to comment.

Event cancellation insurance is expensive but can be obtained, usually by seeking out special policies in international insurance marketplaces such as Lloyd’s of London. According to reports in British media, Wimbledon and the British Open, which also have been canceled because of coronavirus concerns, had insurance policies that covered a larger portion of their revenue. Both of those events, however, generate significantly less money than the NCAA tournament. Wimbledon’s insurance policy, according to reports, will pay the equivalent of about $141 million; its annual revenue is around $310 million.

Lemons said he did not recall whether he and his peers discussed increasing insurance on the tournament after depleting the organization’s savings. When told former NCAA employees thought the association should have paid for more insurance, Lemons and Remy had the same reply: “Hindsight is 20/20.”

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Guidance: CDC guidelines have been confusing — if you get covid, here’s how to tell when you’re no longer contagious. We’ve also created a guide to help you decide when to keep wearing face coverings.

Where do things stand? See the latest coronavirus numbers in the U.S. and across the world. In the U.S., pandemic trends have shifted and now White people are more likely to die from covid than Black people. Nearly nine out of 10 covid deaths are people over the age 65.

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