College sports is one of the largest industries in the nation and a hotly debated topic revolving around college sports is whether or not the athletes should be paid to play. The governing body for college sports in the United States is the National Collegiate Athletic Association (NCAA). Recently the NCAA has been under scrutiny regarding its policies and practices around paying their college athletes. Since amateur college sports is a big business, it brings in big money and many people have asked the NCAA why they don't pay their athletes. Last year the NCAA brought in $871.6 million in revenue, with the majority coming from TV and marketing rights fees (“Revenues”, NCAA Website). College football bowl games generate the largest amount of revenue, with $505.9 million distributed between the 39 bowl games to participating teams and conferences in 2015 (Rishe, 2016). Outside of this mega media deals for the NCAA that bring in millions in revenue annually, schools can profit from their athletic performances as well. Schools can convert their athletic programs and player's prestige into generous alumni donations and increases in enrollment at their respective schools. However, even after all of the money that college athletes bring in, the NCAA prohibits payments beyond scholarships for the very athletes that are producing these revenues. Because after all, without players to play the game, these schools would never be capable of making these revenues in the first place. The following paper will analyze the pros and cons of paying college athletes, an opinion on whether it should be done, and if so, the economic impact of the decision.
Cons of Paying College Athletes
The argument about college athletes should be paid or not is mostly split down the middle but the arguments on both sides have intensified in past years due to increased scrutiny on the NCAA. One of the factors may have to do with the difficult economic climate in past years as well which is increasing the hardships on students especially because the time allotted for students to work during school is minimal. This has magnified the fact that athletes don't see any of these profits and wonder where their share is. This has led to a healthy debate between parties on both sides and the “con” party have as valid of an argument as the “pro” side.
Education is Money
The first point that the “con” side argues is that education is money; in essence it prepares you for the future after college if you don't make it to the professional level of your respective sport. The reason education is money is because on average college graduates will make $48,500 a year which is significantly higher than the amount high school graduates make: $23,900 (“Highlights from the Condition of Education”). Figure 1 below shows the amount of money over a lifetime that each type of graduate will earn and it is clear that an education is in fact worth a lot of money when it comes to income earned over a lifetime.
This significant difference in earned income is one of the reasons that people believe an education is worth enough for an athlete that they don't need to be paid more on top of that.
Another sub-point that people add to this argument is that college athletes are usually given some sort of a scholarship for school, whether it is a partial or full ride which offers the students more than an education. A full ride scholarship is worth around $50,000 a year for most power conference athletes. this will cover tuition, room and board expenses, meal plans and some money for textbooks and classroom expenses (Dorfman, 2013). In addition to these monetary benefits, student athletes will also receive extra tutoring services at no cost, professional weight training and nutritional/dietary advice as well. All of these services are free of cost for student athletes (Dorfman, 2013). These are often overlooked by people on the outside and once these are taken into account, it shows that college athletes are already compensated in a way even if they are not receiving physical checks in the mail like professional players.
Problems with Payment
The second point in the “con” argument is that there are multiple logistical issues when it comes to actually paying college athletes. Whether it is the decision on how much to pay them or if only revenue generating sports should be paid, the overall process of figuring out a payment system that is fair to all would take expert planning and implementation.
It would also increase the need for NCAA oversight, which would be controversial in itself because many believe that the NCAA is already imposing too many regulations on athletes. At the end of the day, there are many questions that need to be asked when it comes to payment structures: How much should they be paid? Should athletes be paid even when they get injured? What if the athlete never plays a single minute in his or her college career but is still on the team? What happens if the school is generating a loss on their sports programs?
The last question is quite interesting because most college programs, unless you are in the top teams in the top conferences, will actually generate losses due to their sports programs. (“Rosner, Shropshire, 2004; “NCAA Why Student Athletes are not paid to play”; Huang, 2015). Paying athletes in the sports that generate revenue for the schools – specifically basketball and football – will lead to a disconnect with the sports that don't generate revenue for the school. Because after all, if a program is failing to make money then athletic departments would be forced to pay the players who are generating the revenues which would lead to the eventual elimination of the non-revenue generating sports. On the flip side, if you do pay all athletes then you would be using the money generated by the revenue sports to pay those that don't make money for the school. It would be redistributing the income across all players even though only a fraction of those players will actually generate the money. Another issue with setting up payments for college athletes would be figuring out what the cap on payments for a school as a whole and for individual players would be. All professional sports have salary caps which places a limit on the amount of money that a team can spend on player's salaries on a per player or aggregate basis. Obviously, there is no cap on college athlete pay (since they cannot be paid at all). If the NCAA does decide to pay college athletes and not set a cap it would lead to bidding wars between the top financially able schools to attract the highly touted recruits from all around the nation. This would be illogical because the schools with the top financial resources would attract the best athlete's year after year and destroy the competitive balance of the sport.
The final issue with a payment structure is regarding the Title IX policy implemented in 1972 (“Overview of Title IX of the Education Amendments of 1972”). Title IX is a law regarding the equality of athletes in college sports. If this is taken into account when figuring out a payment structure, it would be impossible to pay college athletes in only revenue sports because there are many more revenue generating male athletes than women athletes. All of these issues make it quite clear that a payment plan for athletes would be a logistical nightmare at first. This would be a very complex exercise which is why proponents of the “con” side of paying college athletes frequently use this point to argue their case.
Athletes Know What They Are Signing Up For
If an athlete is going through the recruitment process to play college sports, they already know what they are signing up for. The full scholarship papers dictate the rules and stipulations of the scholarship and each party knows what their role will be. The school will pay the student's tuition, housing, and provide the athlete with the opportunity to earn a degree and play in their respective sport in an organized fashion (Johnson, Acquaviva, 2015). The student on the other hand has a list of rules and regulations they must follow in order to stay eligible to play their sport whether it is the rules regarding acceptance of gifts from third parties or rules regarding academic eligibility. If the athlete fails to honor these rules, they also know that their scholarship may be taken away from them along with their right to play on the team. However, even after knowing what they are signing up for, athletes never have a problem signing on the dotted line because they know they are receiving the opportunity of a lifetime. Since there is no pushback at that point in time, theoretically there shouldn't be pushback later in the college athlete's career.
Lately there are more and more athletes standing up for this issue and protesting the fact that they aren't paid. Even at my own school, there is a nationally well-known college basketball player that is a strong advocate for paying college athletes and has done many interviews and public demonstrations to express his viewpoint. The point that the “con” side makes is that these athletes knew what they were getting into so there should be no reason for them to protest later.
Con Argument Conclusion
In essence the people who are against paying college athletes boil down their argument to a few key points. The athletes are already getting paid with scholarships and receiving great benefits at school even outside of an education. These should be enough for the athlete to sustain a great college experience while they are on campus. Also, the logistics behind paying athletes is highly complex and will require years of work to make a fair system for all athletes. The effort it would take to come up with a system may not even be worth the man hours it would take to find a practical solution. Finally, athletes are already aware of what they are signing up for when they are being recruited by colleges so there should be limited argument from their side. Next, I will discuss the pros of paying college athletes and the benefits of the implementation of this argument.
Pros of Paying College Athletes
The point that is often made when people argue that college athletes should be paid is that they believe the athletes in the revenue generating sports should be paid if anyone is to receive compensation for their athletic efforts. As mentioned, the opposing view believes that a college athletic scholarship is equal to a college education. However, a full athletic scholarship may not actually provide a free education because it doesn't include every single cost from entering college to the day an athlete graduates or leaves college (Johnson, Acquaviva, 2015). Many people believe that once an athlete is on scholarship, he or she is paid for the rest of their tenure in college. This is not true, in fact, athletic scholarships are renewable on a yearly basis and may be taken away at any point by the school or the coach.
False Notion that Athletic Scholarships Provide a Free Education
The argument that scholarships will provide a fully free education for students is often times invalid. The full ride is only allowed to include fees, tuition, room, board and books. But depending on the school that college athletes are attending, the scholarship are worth about $2000 less than the cost of attending a university because it does not take into account money to travel home, miscellaneous expenses, or extra student fees that the athlete may incur for certain classes (Parent, 2004). This means that over the course of a four-year period an athlete will have around $8000-12,000 that will not be covered by scholarship. The issue that comes into play is how the athlete will make up for this cost of living gap that is incurred by the value of the scholarship and the actual expenses for the athlete. Athletes have full time jobs when it comes to their sports so most of them will have no time to work to make extra money. Up until a season starts, the workload for football athletes are around 50-60 hours a week which trails off to around 40 hours a week once the season ad classes begin (Isidore, 2014). Even when the season is over, a student athlete will work at their sport more in a week than a typical student who works a part time job. Even in the offseason, there can be anywhere from 10-20 hours a week worked by student athletes on weight training, practice, and skill enhancement (Isidore, 2014). With this type of workload, it is near impossible to handle school, sports, and a job to cover that cost of living gap.
Many opponents also argue that students are receiving a free degree that will help them after college if their sports careers don't take them to professional levels. However, this degree may not be as valuable as student athletes hoped for coming into school. Northwestern University student-athletes filed a lawsuit to fight the fact that they are in fact employees of the university and have the right to be represented by a union. The National Labor Relations Board sided with the athletes and stated that the players are putting in longer hours than paid workers in most other fields. The report dictated that an athlete averages about 36 hours of work dedicated to their sport which effects their degree plans for their future careers (Isidore, 2014).
Academic advisers for these athletes will often recommend taking lighter course loads and pursuing easier majors because the workload for their sport will not allow them to perform well in tougher majors and the upper level courses in those majors. This affected one of the Northwestern football players as he was advised against going on his pre-medicine track due to the time consuming nature of that degree path (Isidore, 2014). This shows that the sport is affecting degree plans of students all over the country and that “free” education that the university is supposedly offering may not be of much value at all in the long run. Another example that is similar to this comes from the University of North Carolina – Chapel Hill. 45% of the male student athletes at UNC are clustered into three social science majors, which earn significantly less money post-graduation than many majors on campus as you can see in Figure 2. Along with less future economic benefit, 7-18% of the football players on that campus are unable to read well (Ganim, 2014). Even after this free education, students are not learning enough to become successful future citizens because they are not developing the very skills they need to have a non-athletic career. Therefore, proponents believe that the athletes should be compensated for some of the value of their degree that they lose out on due to strenuous sports schedules.
Proportion of Revenue Generated by School vs. Athlete Compensation
Earlier, the point was made that many athletic programs fail to break even or may even be losing money from these programs. This would lead to many people thinking that sports programs couldn't pay their athletes even if they wanted to because of their unprofitable programs. However, sports economists disagree. Rodney Fort, sports economist and professor at the University of Michigan state in an interview with the Huffington Post that “the money is already there [to pay athletes].” (Strachan, 2015). What he means by this is that the governing body of college sports, the NCAA, brought in near $1 billion in revenue and most of the top programs that are in Division 1 sports bring in millions of dollars of revenue each year as well (Strachan, 2015). Since these schools are nonprofits, they are spending almost everything that they are earning which doesn't mean that they aren't making any money.
Due to their nonprofit status, the money has to be spent somewhere to show that the school isn't making a profit. For this reason, many schools throw the money back into their sporting programs but instead of paying athletes they will improve their weight facilities, improve their stadium, or buy new gear for all of their athletes. For example, Duke University brought in $60.5 million from just the men's programs along with $15 million from the women's programs, in the 2014 fiscal year but only ended up with $146,196 of profit (Oleniacz, 2015). This money will also go towards paying coaches, which shows why Duke's basketball coach was paid $10 million in that same year. So if programs can afford to pay their coaches exorbitant sums of money, upgrade facilities on a yearly basis and buy new gear as well, why shouldn't they use some of that money to pay the very athletes that are generating those profits? This spending system also shows why in many states the highest paid public employee is a university football or basketball coach, seen below in Figure 3.
39 out of the 50 states highest paid public employees are coaches of some sort, which is almost 80%. Paying players would just require a reallocation of resources from the coaches and facilities, to the athletes. Currently, the proportion of revenue generated to athlete compensation is 100:0, but this can be changed by a simple reallocation of resources. The money is available to do so, which means that it is possible for universities to pay their athletes even if most of them are not making profits on a yearly basis.
Along similar lines, the scholarships that are paid to student athletes is not nearly equal to the revenue that the athletes bring in for the universities (Gilleran, 2013; Wertheimer, 2007). In NBA there is a calculation used called “Wins Produced,” which is a model for estimating individual player's contribution to winning. This calculation can be used for college athletes as well. A study done by a professor at Southern Utah University, Dave Berri, used this model to calculate how much marginal revenue was brought in by college athletes at Indiana University in 2013 (Berri, 2013). From his study it can be seen
that scholarships may not be adequate compensation for many of the student athletes on campus. Using the Wins Produced calculation, Berri came up with the following table that illustrated the wins produced by a player and what the marginal revenue would be if one win was worth $100,000 in revenue for a university (Berri, 2013). This number comes from a conservative estimate determined by the professor that estimates the amount of money one win generates for a school due to ticket revenue, concessions sales, etc. From this table (Figure 4), one can see that if a player earns around $50,000 in financial value for a scholarship per year, at least 8 players would not be compensated appropriately for the amount of wins they generated for the university. Clearly it is seen that many players generated more revenue for the university than their scholarship is worth which brings the argument of paying college athletes using an equity model. This would pay the players based on the amount of revenue that they are bringing in for the university which is just one of the ways paying college athletes may be structured.
Competitive Balance of Sports Would Not Be Affected
The NCAA strongly believes that paying athletes would be detrimental to the competitive balance and landscape of college sports. A professor of economics at New Mexico State offered an analysis on the competitive balance of college sports in NCAA Men's Basketball. He looked at the teams that advanced to the Final Four over the years and found that only 13 schools accounted for 50% of the Final Four appearances between 1950 and 2006. (Berri, 2012 Peach, 2007). In football he also saw similar distributions between the top schools and how they fared during the season. Only five teams accounted for the top 25% of top 8 finishes in the ranking polls, 10 teams accounted for half of the top 8 rankings, and 22 teams accounted for 75% of the top 8 rankings (Peach, 2007). This shows that there is not much of a competitive balance in college sports currently because there are only a few teams in each sport that are doing well year in and year out and accounting for top tier finishes on a yearly basis.
A lot of this is due to the NCAA and how it's regulations are causing harm to the competition in college sports. The NCAA imposes many regulations that affect the competition: first, it transfers wealth from the student athletes to the college which can be seen by the study addressed above. It raises the net price of student athletes to attend college because college basketball and football players may leave school early due to financial pressures if they can make money playing professional sports. Since, the NCAA is restrictive on paying athletes, they don't allow for a wide variety of licensed products to be sold which would be valuable to consumers; one example is using the names and likeness of players in the video game market (Jung, 2013). All of these examples show that there is a hit to competition in the market and the competitive balance of sports so paying athletes would not harm the competitive balance, rather it may increase the competitive balance.
From the research I have presented and my own personal opinion on the topic through personal experiences, I have come to the conclusion that there should be a pay for play structure for college athletes. This, as stated before, will have a financial impact on the landscape of college sports which I will discuss next.
Methodology of Determining Financial Impact of Paying Athletes
Before diving into the financial impact of paying student athletes, I would like to present the two scenarios on how paying college athletes may be possible. The first revolves around a lawsuit that was filed by a formed NCAA college basketball player Ed O'Bannon. O'Bannon was a player at UCLA and won a national championship while he was on campus. His likeness was used in a video game after he graduated and he sued the NCAA for using his likeness in the game (Jung, 2013). This is one of the ground breaking lawsuits surrounding this issue that has surfaced in the past few years. His lawsuit suggests that the players should receive a proportion of the TV revenue generated by the athletes and spread it out amongst themselves (Staples, 2013). Another way I will present the financial impact of paying athletes is through what is known as the Olympic Model which is where athletes may be entitled to payment through boosters and sponsorship methods.
As mentioned, the lawsuit filed by O'Bannon was retaliation for using his likeness to generate more revenue for the NCAA without his permission. The distribution plan that is intended through this lawsuit is that the money would be placed in a trust and given to the athletes once they have achieved their degree (Staples, 2013). This would allow students not only to stay in school and work at their degree, but receive compensation to do so that is proportional to their impact on the revenues generated for the school. Using the O'Bannon model, I have examined the impact on the athletic departments revenue and profit for the University of Wisconsin-Madison.
Under the O'Bannon Model, it is predicted that if the lawsuit were to be won by the plaintiffs that there would be a set amount of revenue set aside to pay the players. According to an article in Sports Illustrated Magazine, it is predicted that schools would set aside around $2 million to distribute to their athletes if the lawsuit was won. This would increase the school expenses by $2 million (Staples, 2013). In this case illustrated above, an increase of $2 million in expense would result in a net income loss for the University of Wisconsin. This loss means that there would not be enough money to cover for the athlete salaries but that is where the above data comes into play. Clearly, if there are some proportional budget cuts made, one can see that there would more than enough money to pay the college athletes even with the financial impact of their salaries. For example, Bo Ryan, the former head coach of Wisconsin Basketball made 37% of his sports revenue in his salary. If this is reduced by even 25%, that is already an extra $600,403.81 that can be distributed to athletes. This is just one member of the athletic department, if all coaches took a minimal budget cut it would be more than enough to pay student athletes under this method. Therefore, the financial impact on colleges would be minimal because it would be a redistribution of income from those who make a higher proportion in salary compared to the revenue their sport is generating.
In an interview done, University of New Haven business professor Allen Sack, determines that there is a way that students may be compensated for playing college sports without forcing the actual school to pay them (Cohen, 2011). The Olympic Model, as briefly described above, is where student athletes would be able to control their marketing rights, hire agents, sign deals and participate in commercials or advertisements to generate revenue for themselves. This would allow colleges to avoid the stipends needed to pay college athletes and save that revenue for their own use as they do currently. This would ease the financial burden of these schools and put it on the companies who are well versed in these types of situations due to professional sports: Nike, Adidas, etc. along with local business that want to use athletes as endorsement material. Drexel University professor Ellen Staurowsky stated that this “would help protect schools from the underground economy that gives star athletes benefits under the table” (Cohen, 2011). These benefits are against NCAA rules and if found out, may lead to sanctions imposed on the schools so this method would be beneficial for the school as well because they would avoid any potential scandals or sanctions regarding “illegal” payments to students through outside sources.
An example of this scandal surrounds the University of Michigan. Michigan basketball team booster Ed Martin, was indicted for giving players payments by laundering money from an illegal gambling operation. It is one of the largest incidents in NCAA history regarding payments to college athletes. It was found that Martin gave a total of $616,000 in payments to a total of 4 Michigan basketball players. This led to many sanctions imposed upon the team including a forfeiture of all victories in which those players paid were involved within, repayment of $450,000 of postseason revenue received due to ineligible players, ineligibility to play in postseason tournaments, and placing the basketball program on probation for two years (“Michigan erases ‘Fab Five' era with Self Imposed Sanctions”, 2002). This occurred in the late 90's and early 2000's but it is a clear example of how these under the table payments can lead to economic harm to the University even if they didn't know about the activities.
If the Olympic Model is put into place, individuals can legally start paying through booster payments, endorsement deals or however they choose. This would help to rid the black market of under the table payments and instead add a free market aspect to paying college athletes along with reducing the financial impact seen for colleges because they would not have to pay their athletes with the revenues they have generated.
While the debate of paying college athletes will be prevalent in the sporting world for years to come, there is a great deal of research that supports both sides of the argument. On one hand, the opponents of the argument state that the education is payment in itself, there would be a logistical issue with paying these athletes as far as payment structures, and the athletes already know what they are signing up for. Proponents of the argument state that the education and degree received is not as valuable as many think, there is too large of a gap between the proportion of revenue that goes to school vs. athletes, and that the competitive balance that many think would be affected, would in fact stay unchanged for the most part.
In my opinion, after looking through the research, I believe that the NCAA should allow student athletes to be paid. There is a lot to be said about the amount of money that the NCAA makes off of the athletes in college and on a purely numbers perspective, the schools are making exorbitant amounts of money and not allocating any of it to those who were essential in generating that revenue: the players themselves. Yes, there will be logistical issues when it comes to implementing a payment plan, however, these can be worked around through careful planning and execution. For example, one of the proposed methods, the Olympic Model, is a great start because it will help reduce the amount of black market transactions made by third party sources and players while also reducing the financial impact of paying the players for the schools themselves.
This would be the basis for a plan that would limit logistical nightmares as well because the NCAA wouldn't have to determine what percentage of revenue should go to players and how much each player should receive in payments during a given year, instead it would all be determined by the outside sources that are looking to endorse and pay players on their own dime. This is a win-win situation for all parties: the players get compensated, the schools don't incur extra expenses due to the payment of players, the NCAA doesn't impose as many sanctions because the black market for payments will be drastically reduced, and the sponsors themselves will be able to advertise their businesses or brands and generate extra revenues because of it. The financial impact would be limited for the schools, which is a large case of worry for them. Since they want to use the revenues they make from athletic events to improve their facilities and pay their coaches large salaries to stay on campus, they will be able to continue these practices even under an Olympic Method style payment plan for their athletes. While the complexity of this style is still slightly high, it is the stepping stone to implementing a plan that would benefit all of the parties involved in intercollegiate athletics. Hopefully we see some changes soon in the landscape of college sports, however, for the time being college sports will be known for being pure and fun with athletes that are out there playing for the love of the game rather than monetary compensation.
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