Tuesday, May 15, 2012

Despite Six Million Reasons to Stay, VCU Leaves for the A-10

The news came quick through the CAA world today. First, there was the news that VCU was holding a news conference at 1:30 PM.  Then news came that the Atlantic 10 Commissioner was holding a press conference at 2:30 P.M.   What had been rumored for sometime - VCU heading to the A-10, was now coming true.

Then Mike Litos made the bombshell over Twitter.  VCU was heading to the A-10 immediately.  Not for the 2013-14.  Immediately, as in the 2012-13 season.

That was stunning news.

One of  three poster childs for CAA Basketball (along with George Mason and ODU), VCU looked to be staying for at least one more year, especially after outgoing AD Norwood Teague had recommended to the VCU president, Michael Rao, to stay in the CAA for the 2012-13 season.

But as someone noted on Twitter, Teague's last day was May 11.  Five days later, Rao announced the  decision at the news conference to move to the A-10. Somehow, Rao had no intention of listening to Teague.

However, the decision comes with a price.  As a result of leaving the CAA, VCU will forfeit $5 million in win shares from the NCAA Tournament over the next six years that it had earned with its Final Four run from 2011 and its first round win in the 2012 Tournament.

To that, President Rao replied "The expected returns are far greater that the short-term losses."

That was even more stunning news.

Not only did VCU forfeit the five million in NCAA Tournament win shares, they also had to pay a $250,000 exit fee, a  $700,000 entry fee to enter the Atlantic-10 and Rao noted that their travel expenses would increase by $150,000 per year by joining the A-10.

So you could say in the first year alone, VCU is losing more than $6 million in revenue from joining the A-10.  That's a significant short term loss for a public university.

As for expected returns, to break even from their initial $6 million short term loss, VCU not only needs to make the NCAA Tournament, but win several games in the NCAA Tournament to break even.

It's the kind of gamble you expect from JP Morgan/Chase investment executives.  We know the result of that gamble.

Notice I am not saying the A-10 isn't better than the CAA.  The fact that the Atlantic Ten has received twenty at large bids since 2000 to the CAA's four is clearly evidence that the A-10 is a superior conference.  So yes, you can certainly say VCU improves their stature by joining the A-10.

Here's the kicker though.   VCU doesn't need the A-10.  They made the NCAA Tournament the last two seasons.  They were at an large in 2011 and had they not won the CAA Tournament this season, they likely would hav received an at large bid again based on their non conference schedule.  In the last two seasons, the Rams have won six games in the NCAA Tournament.  That was done as a CAA team.   They were considered the favorites to win the CAA again in the 2012-13 season.

The A-10 needed VCU more than VCU needs the A-10.  After losing Temple and Charlotte, the A-10 clearly needed to restock their conference. The Atlantic 10 badly needed VCU to even out their conference.

Yes, by getting Butler and VCU, one could certainly say that the A-10 is actually even better than they were a year ago.  They have plucked the two best mid major basketball teams in the past three years.  It's a definite coup for them.

But as for VCU, their work to get to the NCAA Tournament  has got much harder now.  Had they stayed in the CAA, the Rams only significant challenger was the Dragons of Drexel.   Now VCU has to face Xavier, Saint Louis and Saint Bonaventure, three teams that made the NCAA Tournament last season.  Throw in four teams - UMass, LaSalle, St Joseph's and Dayton that made the NIT and you are looking at seven teams that made either the NCAA or NIT.  Compare that with just Drexel that made the NIT this past season.  

VCU is also giving up their huge advantage in the CAA - The Richmond Coliseum, host of the CAA Tournament.    It's a major plus to literally be in walking distance from your university to the arena that hosts your conference tournament.  

And having been at the CAA Tournament for nine of the past ten years, I can personally tell you what an advantage that is for the Rams.   When VCU went up 32-4 early on George Mason during this season's CAA Tournament Semifinals, from my press row courtside seat, I honestly thought the roof was going to cave in.  It was deafeningly loud.

The large VCU fan base has always been an intimidating factor for the Rams for the past several years and the CAA Tournament is being played at the Richmond Coliseum through 2014.   Had the Rams stayed, the CAA Tournament likely would have been at the Richmond Coliseum for the forseeable future.

That advantage is gone now.  The Rams will have to play true "neutral site" games in the A-10 Tournament.  I will be curious to see how this plays out for the Rams in the conference postseason.

The CAA is definitely on the losing end here, but it will survive.  Tom Yeager, in a terrific, timely interview by Defiantly Dutch, stated that as a result, they will have a three day tournament in March (Towson and UNCW are ineligible due to their APRs and Georgia State is ineligible since they are leaving for the Sun Belt).  He's going to look for the best fits to replace VCU and Georgia State.

Yeager has been through this scenario before in 2000.  After losing several members, including Richmond, he got the core of the America East - Towson, Delaware, Drexel and Hofstra to join the Colonial (and eventually Northeastern as well).  He still has Mason and ODU, the other two of the big three still in the fold.  The CAA will be fine.

However, the biggest loser in all this is the city of Richmond, which is ironic, since it's the home of VCU.  There was an option for the CAA Tournament to play in the Richmond Coliseum through 2016.  That likely won't happen now, because it will only be a reminder to the CAA folks that their two former members are in Richmond (the University of Richmond left the CAA for the A-10 several years ago).  There is no need for the CAA also to be headquartered in Richmond now that it doesn't have a member school there

In a couple of years, this will result in a loss of jobs, as the CAA likely moves away, and moreover, a significant loss in the Richmond economy come the first weekend of March.  The CAA Tournament has had record crowds the past few seasons.  But no more.  The loss of VCU will cut that in half for the next two years. Then in two years, no more CAA Tournament.

This is all due to what one university president believes is "expected returns" from their move to the Atlantic 10.  That's really great of Rao to look out for his university's home city in that way.

The fact is, VCU didn't need to leave.  They were one of the two favorites in the CAA for the 2012-13 season.  The Rams have a great coach in Shaka Smart, who has proven his VCU team can beat anybody, no matter what conference his team is in.  They already had five million dollars coming their way in the next six years.  The Rams already proved they could make the NCAA Tournament as an at large through smart non conference scheduling.  They proved that a CAA team can win in the NCAA Tournament in consecutive years.  Plus, they had the home court advantage in the CAA Tournament.

That's all gone now.  They are hedging their bets that they can have similar success in a tougher conference with a truly neutral site conference tournament,  If they don't make the NCAA Tournament in the next couple of seasons, those expected returns will look similar to the losses JP Morgan Chase just had.

Sometimes, the short term losses turnout to be quite long term.

9 comments:

  1. VCU will now get a share of the A10 NCAA tournament pot and it is likely the A10 is paying part of the 250K + 700K transfer fees - so the move is not costing VCU 6M. VCU is selling out every game and they are adding the corner sections to the season ticket allotment, so they are not far from selling out every game on season tickets alone. Finally in the grand scheme, in theory a few happy donors could make up 6M - VCU is a medical and dental school (a few business and engineering grads probably make a few dollars too)... 70+% of VCU grads stay in Richmond so the fan base is not going anywhere and there is not competition for the entertainment dollar in Richmond.

    I don't disagree that the move was not necessary to continue to reap the benefits they already enjoy, but the current VCU slogan is "Our Time, Right Now" - they are taking a risk, but I don't think the $6M is an issue at all - I think it is a calculated risk and will likely payoff - keep the coach a few more years, better recruiting, more alumni support, etc...

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  2. Rob, first, thanks for the thoughtful comments. If the A-10 is paying the exit fee and the entry fee, that's less of a blow.

    But still, even President Rao said there were short term losses, which he was likely referring to the five million in win shares they are losing by leaving the CAA.

    Yes, a few happy donors can make up that money, but this is a public university. But you would think someone on the board would have asked why are we leaving five million dollars on the table that could pay for various costs in the athletic budget.

    Also, as you note, VCU was already selling out every game being in the CAA. As I said, VCU didn't need to be in the A-10 to do that.

    As long as VCU makes several NCAA Tournaments in the next few years and wins a few games in those tournaments, then the risk pays off.

    But still, to have a public university turns it back on five million dollars in a tough economic climate on a risk that they really didn't need to take, it's bad business. I wonder if a Virginia state legislator will bring that issue up.

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  3. Nice article. However, VCU doesn't lose $6 million in the first year as you stated. The $5 million from NCAA Tourney success was to be paid over 6 years. Thus, let's assume that VCU pays both the A-10 entry fee and the CAA exit fee, plus an extra $150,000 in increased costs for athletics. When combined with the approximately $833,000 ($5 million divided by 6 years)in NCAA Tournament revenue forfeited this year, VCU stands to be out about a little less than $2 million in year 1. The five subsequent years will include the approximately $833,000 in forfeited revenue plus the $150,000 of increased expenses, or $983,000 per year from years 2-6.

    Lots of math I know. Sorry.

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  4. Harvey, thanks for the comments, much appreciated. I am fully aware that's it over five years. But one can definitely say right now that they will lose six million plus as a result of this move (based on your math as well).

    The only way they recoup the six million plus is if they make the NCAA Tournament (and win a few games as well) as an A-10 member. It's a calculated risk, but really one I don't think they had to make.

    And don't worry about the math. Had a 690 SAT score on math, so I gladly welcome it. Thanks again for the comments.

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    1. "But one can definitely say right now that they will lose six million plus as a result of this move"

      No, one cannot say that. You can't count future NCAA payout losses without knowing future NCAA payout gains. One could definitely say right now that "VCU *might* lose UP TO six million plus over six years." That of course would be holding all other revenue streams constant (TV and broadcast rights, program sales, advertising and endorsements, etc).

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  5. Fair enough, Harvey. But you would agree it's a risk if everything else remains constant.

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    1. I'll absolutely grant that it is a risk. At the same time, many (including myself)would argue that inaction carries its own risks.

      Personally, I'm glad that VCU is no longer in a conference that is buffeted by both football and basketball realignment crosswinds. I like that the A10 can focus on being a master of one sport as opposed to a jack in both.

      I am grateful to the CAA for the memories and opportunities, but the temporary pain of 6 years of annualized losses that are less than 4% of last year's AD budget aren't giving me a lot of heartburn considering the potential upsides.

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    2. Harvey (Richmond, VA)May 17, 2012 at 12:24 PM

      Thanks for the original reply Gary. However, the Anonymous comment was certainly not mine. I always put my name to comments. Otherwise, what is the point. :)

      That said, I do agree that VCU did NOT have to make this move. As a VCU alum, I can say with certainty that our Athletic department is trying to avoid the mistakes that we here in the CAA think that George Mason made by not capitalizing on their final 4 appearance. Much of their plans from that run fell through, like a dedicated practice facility. I think our administration has seen what happened in Fairfax and is trying to avoid a repeat. One way to do that is to move to a higher rated conference. I can say that our fan base is extremely excited by the move. Much like an NFL draft, only time will tell whether it was a good decision or not.

      Math was my best subject Gary, so I am happy that you clearly are not "intimidated by numbers. 690. Awesome. Peace.

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  6. Harvey, my apologies, I obviously didn't pay attention to the author of the comment and thought it was you.

    To answer both comments, yes, Harvey I think VCU is doing what Mason probably should have done, certainly as far as upgrading the facilities. Mason though may not have had the opportunity back then to join the A-10 though. And you're exactly right, it's like a NFL draft.

    To answer the anonymous reply, I don't think it would have been inaction to decline an invitation to the A-10. No one would have blamed VCU if they had said no because of the financial loss they would incur by losing a guaranteed $5 million over 6 years (plus the entry fee and exit fee). Or because the CAA Tournament is in Richmond and it best suits our fan base. Making a choice is not inaction.

    That being said, I understand fully why VCU made the decision to go to the A-10. Based on past history, the A-10 has had many more at large bids than the CAA. In the eyes of most, the A-10 is a more prestigious conference and I would concur with that.

    But with that move comes risk. The A-10 is a much tougher, deeper conference. And the A-10 tournament is a true neutral site conference tournament. VCU's road to the NCAA Tournament is now a lot tougher and no one can disagree about that.

    However, I love this VCU team and I had predicted it would go to the Sweet Sixteen in 2012-13. Hopefully I am still right. If so, then the move is immediately justified.

    Again, time will tell. Thanks to both of you again for the comments. Harvey, especially, peace to you as well.

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