The current compensation arrangement for big-time college athletics is inefficient, inequitable and very likely unsustainable, according to a new study by economists from the University of Chicago and Vanderbilt University. The article concludes that an evolution to a competitive labor market with fewer restrictions on pay for top athletes may be inevitable, though the transition will be difficult.
In their study released this week in the Winter 2015 issue of Journal of Economic Perspectives, Allen Sanderson, senior lecturer in economics at UChicago, and John Siegfried, professor emeritus of economics at Vanderbilt, write that the practice of setting a binding limit on remuneration for student-athletes – grant-in-aid restricted to room, board, tuition, fees, and books – may violate the Sherman Antitrust Act.
The authors argue that payment caps set by the NCAA are holding down benefits that otherwise would go to top-performing athletes, many of them African Americans from low-income families, while top coaches and athletic department personnel receive disproportionately high salaries.
Instead, the researchers recommend, schools should compensate student-athletes according to the value they provide, whether that value comes in the form of measurable revenue or more subjective benefits.
Sanderson said recent proposals by the NCAA to shift from single-year to multiyear scholarships, and to cover unrestricted meal plans and other incidental out-of-pocket costs for players, fall well short of a free competitive labor market.
Such proposals “are mainly an attempt by the NCAA to stay one town ahead of the sheriff," Sanderson said.
In addition to exploring the labor market for college athletes, the paper, entitled “The Case for Paying College Athletes” also examines why U.S colleges and universities operate large-scale commercial athletic programs, with a focus on men’s football and basketball. The authors question the rationale among many universities that such big-time programs subsidize their money-losing intercollegiate sporting ventures.
The Student-Athlete Debate
Since athletes have historically been considered students rather than employees, they have not been covered by general labor laws, says the study. Therefore, they cannot bargain collectively via union representation, nor can they apply for workers compensation.
As a result, university athletic departments can essentially dictate many aspects of a student-athlete’s routine and engage them in long hours of practices, something that might not be possible if they had to obey general labor laws. The study claims that the NCAA is allowed to maximize its profits by steadily expanding regular-season and playoff/bowl games since the marginal operating cost is minimal.
For example, the study notes that college football started a four-team playoff in January 2015 without reducing the number of regular-season games. There are already calls to expand the football playoffs to eight or even 16 teams. Television exposure has also led to an increased number of games played at neutral sites, where both teams must travel, as well as games played on weeknights during the academic year.
“The players have no voice in these decisions to expand the schedule, and no claim on the incremental revenues generated,” said Sanderson.
Additionally, minimum age requirements in the National Football League and the National Basketball Association restrict alternatives available to prospective college athletes, according to the study. Such restrictions give the NCAA virtually total control over the labor market for players. Moreover, the NCAA makes it difficult for student-athletes to transfer to another institution that might be a better fit.
Such labor practices have led to a series of legal challenges. The authors list several high-profile pending lawsuits, which they believe could result in “an evolution well beyond the incremental steps taken by the NCAA.”
One case, O’Bannon vs. NCAA, would do away with wage fixing, allowing schools to pay players up to $5,000 per year of eligibility. Another involves an appeal before the National Labor Relations Board by Northwestern University, which has petitioned the body to reconsider a regional director’s recognition of Northwestern football players as university employees.
“These lawsuits and pressures from the regulatory bodies could ultimately reduce, if not completely eliminate the monopoly power of the NCAA, the intercollegiate sports teams, and conferences,” says Sanderson.
Redirecting Scarce Academic Funding to Sports
Contrary to the popular belief that intercollegiate athletics is profitable, the study notes that according to NCAA data, only one out of every six of the Football Bowl Subdivision universities earned a profit in 2013, a typical year, and only a portion of those profits were transferred to the academic side of their universities.
A USA Today report in 2013 also found that over $1 billion of student tuition and fees was transferred annually to athletic departments in NCAA Division I to support intercollegiate sporting ventures.
None of those institutions’ charters mentions commercial entertainment activities in their mission statement, said Sanderson. But when they incur financial losses on athletics, officials spend more on “salaries for coaches and improving physical facilities rather than interpreting losses as a signal to redeploy assets elsewhere.”
The study notes that academic institutions subsidize athletics “with a combination of mandatory student fees, scarce general institutional funds, public monies from state governments, and contributions solicited from alumni and well-heeled donors that might have been directed to other academic purposes or toward reducing the seemingly perpetual escalation of tuition costs in higher education today.”
The authors dispute the rationale for such subsidies, that success in intercollegiate athletics attracts larger state appropriations and private donations from alumni who might view a university more favorably, and the presence of high-profile athletic programs attracts additional applicants. Citing numerous studies and data, the study says any such gains are "meager" and fleeting."
The future of college sports
The researchers envision an arrangement where student athletes receive labor law protections, competitive compensation and more thorough medical coverage. In most cases this would require more subsidies from the school’s general fund and force university leadership to have soul-searching conversations about how much the school is ultimately willing to charge its student body to subsidize an intercollegiate sports program. It would also create Title IX implications, as there are far fewer women in revenue-generating college sports than men. Whatever happens, the researchers write, “It seems unlikely that the landscape of big-time commercialized intercollegiate athletics 10 years from now will resemble today’s incarnation, or anything seen in the last half-century.”
Liz Entman at Vanderbilt University contributed to this article.