Transforming Big-Time College Sports

The front cover of the September 16 Time magazine issue features a picture of Johnny Manziel, Texas A&M’s Heisman Trophy-winning quarterback and arguably college football’s most controversial player. 

The headline, “It’s Time to Pay College Athletes,” raises a long-standing controversy that has been heating up. 

Manziel had been—and continues to be—one of the sports world’s prime fascinations. His skill set befits a superstar; his on- and off-field antics befit an enfant terrible. So after it was reported that he had allegedly accepted cash for signing autographs, a decades-long debate grew louder: should college athletes who play popular, revenue-generating sports like football and basketball be directly compensated, or should the sanctity of amateurism with its prohibition against monetary compensation be upheld?

Four years ago, this question was touched upon by an antitrust class action filed against the NCAA and its licensing arm, the Collegiate Licensing Company (CLC). Ed O’Bannon, a mid-1990s basketball standout at UCLA and the lead plaintiff in the case, argued that the NCAA and CLC hindered his and ex-intercollegiate athletes’ ability to profit from the use of their images and likenesses in video games and TV programs.

According to O’Bannon, the NCAA’s “Student Athlete Statement” (a form that all entering freshman student-athletes are required to sign) precludes players from negotiating licensing agreements and earning just compensation upon graduation. That creates a windfall for the NCAA and its cohorts, who are free to enter into contracts that capitalize on the athletes’ names and likenesses.

Soon after the complaint was filed in federal court in California, it was consolidated with other cases brought by similarly situated plaintiffs who, in addition to the NCAA and CLC, made claims against the video game company Electronic Arts (EA). 

O’Bannon then filed a motion to add current student-athletes to the case, which the NCAA vehemently opposed because of the dramatic increase in potential liability it presented. After intense legal wrangling, the judge allowed the current players to be added to the case, although she has not yet certified the class (current and former football/basketball players), which is a decision that will be made in the coming weeks (the class certification hearing formally recognizes the plaintiff’s proposed class members). 

The plaintiffs achieved a partial victory last month when they reached a $40 million settlement with the CLC and EA. While the settlement’s details haven’t been worked out yet, it will affect more than 200,000 current and former student-athletes who have appeared in EA’s games since 2003. 

With that settlement, the sole defendant in the O’Bannon case is the NCAA. According to Andy Staples, a columnist for Sports Illustrated, if the class gets certified and the case goes to trial, the outcome could be disastrous for the association:

The NCAA could lose a jury trial, and the jurors could award the plaintiffs everything they want. If this held up on appeal—remember, damages in antitrust cases are tripled—it likely would bankrupt the NCAA and force schools to form a new governing body. It also would force schools to negotiate a better deal for athletes, who would now be legally entitled to a share of television revenue. This would result in more money for the players, less money for coaches and administrators and less spending on stadium additions and fancy weight rooms.

In addition to damages, the plaintiffs ultimately want student-athletes to have access to a trust fund financed by 50 percent of the NCAA’s broadcasting revenue and one-third of licensing revenue from video games. Student-athletes would be able to access the fund upon the conclusion of their playing days. Since the NCAA’s broadcasting contracts are worth billions, it, along with conferences and individual schools, would be significantly affected by a pro-O’Bannon ruling, although as this Wall Street Journal article points out, some institutions would be hit much harder than others. 

The main attorney for the plaintiffs has signaled a willingness to negotiate a settlement with the NCAA, but the terms of any deal would, in addition to creating a trust fund, need to provide student-athletes with fringe benefits like “cost of attendance” funding above and beyond their current scholarships, improved health care, and higher safety standards. 

The NCAA is not alone in its opposition to player compensation. As I have written before, there are two major competing camps in this debate: one favors some form of player compensation and the other seeks a return to amateurism. 

Smith College economics professor Andrew Zimbalist advocates the latter approach. Zimbalist, an expert on college athletics governance and a frequent consultant to the sports industry who has written numerous books about sports culture, told the Pope Center in a recent interview that he’d prefer to “put the cat back in the bag” and turn college athletics into an extracurricular affair that “complements the educational process.”

Zimbalist believes that coaches’ salaries are “ethically obscene,” and that the intercollegiate athletics environment is a “hypocritical charade” in which students who don’t belong in college, and don’t want to be in college, are encouraged to “live a lie” and assimilate under false pretenses and with dubious motives. He’d like the NCAA to have antitrust exemptions to limit coaches’ salaries, and he’d like players to receive full cost-of-attendance scholarships that would be maintained in the event of injury, as long as the players are academically eligible. He thinks taking these steps would give the system more integrity. Despite his desire to see these reform measures implemented, he thinks the most likely result of the O’Bannon case and others’ calls for reform is that the system “will just be tweaked.” 

Other opponents of paying student-athletes argue that the scholarships and fringe benefits the players receive are more than satisfactory compensation. They point out that student-athletes, especially those at more competitive institutions, have access to a publicity machine and the best training and coaching staffs—substantial benefits.

However, whether that is “more than satisfactory” is a matter of opinion. Paul Haagen, a law professor and co-director of the Center for Sports Law and Policy at Duke University, said in an interview that, while the players benefit from this non-monetary compensation, “they don’t have access to a market to determine what they should get paid, and they don’t get to take their compensation in the form they might prefer.”

While players may not be able to receive compensation in the form they prefer, coaches, conferences and the NCAA certainly do. Richard Vedder, Ohio University economist and a distinguished higher education commentator, highlights some of this obvious hypocrisy in a recent See Thru Edu article

Where in America is there severe economic exploitation by older adults of young individuals engaged in physically demanding and dangerous work, where the government subsidizes the exploitation, allows the exploiters to derive large incomes from their behavior, and the public lionizes the most successful perpetrators? Intercollegiate football and basketball.

In the highly distorted marketplace of intercollegiate athletics, profits are channeled to TV stations, conferences, universities and athletics departments, and finally coaches and administrators. Players are shut out of that profit stream entirely because of rules that have, as North Carolina State economics professor Thomas Grennes described in a 2009 Pope Center article, created a “powerful cartel”:

Essentially, the NCAA is acting as a buyers’ cartel just as OPEC acts as a sellers’ cartel for oil-producing countries. It makes sure that the normal forces of supply and demand do not operate. If competition for outstanding athletes prevailed, outstanding athletes, like outstanding coaches, would be very well paid. Colleges don’t want to pay those high wages, and the NCAA is acting as their agent.

Economics teaches us that human beings act to improve their well-being and remove felt uneasiness. The institutions underlying our society create incentives that can channel this human action in either peaceful, productive ways or harmful, counterproductive ways. In other words, institutions and incentives matter. College sports are not exempt from these principles. 

Although the NCAA will probably not be shutting down its headquarters in the near future, the debate over its legitimacy is well under way. And with the pending O’Bannon case and high profile commentators pointing out its flaws, the NCAA may be forced to dramatically change the rules it imposes on students and member institutions.