Paying College Players? The Proposal - Volume 2

A brief recap of the rules and decisions faced by the young men who leave high school and become college athletes is in order.

Current Rules

One and Done rule in basketball.  The NBA controls this, not the NCAA.  The NBA has a rule that a prospective player is required to be one year out of high school and at least 19 years of age to enter the NBA draft.   The National Hockey League and Major League Baseball allow a player to enter their league once they turn 18 years old.  However, MLB has a rule that once a player enrolls in a four year college they become ineligible to enter the MLB draft until their junior year or are at least 21 years old.  Junior college players, regardless of how many years of school remain eligible to enter the draft.   The National Football League (NFL) requires that a player be three years removed from high school before being eligible for the Rookie Draft.  This necessitates that a player show off their skills at the collegiate level.  This has made colleges a free minor league training ground for the NFL’s labor.

The point is that in all of these sports, the rules that determine player decisions are made by these professional leagues, not the NCAA.

 

Revenues Generated by College Athletes

On a typical February weekday evening, a sports fan has the option of watching an NBA game or a collegiate basketball game.  On a typical November Thursday, a sports fan has the option of watching the Thursday night NFL game or a collegiate football game.  In each of these situations fans pay to attend the games.  In each of these situations, sponsors pay big money to advertise.  In both of these situations, the network pays to broadcast the game.  In each of these situations, professional announcers analyze and provide commentary for the game.   Even sports apparel manufacturers pay to provide the uniforms so that their logos will be on display.  Additional revenues are generated from radio broadcasts.   The primary laborers that generate these massive amounts of revenue are of course, the players and coaches.   The coaches are seasoned adults who have negotiated their salary and signed a contract.   The players are students who have agreed to provide their athletic services to the school in exchange for a scholarship.  What these student athletes probably did not intend to agree to is to have their likenesses and images used to generate massive revenue for their school.  

Keep in mind that this proposal only relates to the high revenue generating sports of Football and Basketball.   After all, major television networks, beer companies, athletic apparel and other major advertisers as well as the alumni won’t pay huge sums of money to see the girls volleyball team or men’s tennis team.   The point is that few NCAA athletes add any amount of real value to their school.  This proposal examines those few.

 Why Paying Players Money is a Poor Idea

I enjoy watching baseball.  Much of my pleasure comes from the fact that there are 30 teams vying for the World Series trophy and another 200 teams in minor leagues in various towns across the United States.   Similarly the NFL has 32 teams lusting for the Super bowl each year.    I love watching the drama of competition.

In Division I College Football termed “Division I Football Bowl Subdivision (FBS)” there are 120 schools.  Each school is allowed to provide a scholarship to 85 student-athletes.   In Division I College Basketball there are 351 schools playing men's basketball in 32 conferences.   What would happen if the landscape changed so that only a dozen to twenty schools had a chance at winning the football championship or basketball championship?   the marketplace changes to what Economists refer to as an Oligopoly market.  That is, a few suppliers.   If colleges decide to pay players money, that is the type of market that would be formed.

Here's why.   If a school were to just pay money to an athlete they are bidding money to the highest athlete.   A labor market is opened up and each recent high school graduate becomes a free agent.    Clearly this favors those schools who have the resources to pay the higher salaries; that is, the schools that have the biggest donor budgets and alumni move to the top.   But that is not the end of the analysis.  In Economics we have a concept called opportunity cost.   So when a college decides to pay money to their star athlete, that takes away funds from some other opportunity.   Ultimately the moneys that an alumnus donates to their alma mater could go to buying microscopes for the biology lab or repairs to a building or salaries to faculty.   When that money gets directed instead to pay athletes, this creates a void.   The donation shortfall for the microscopes or repairs or faculty salaries must be made up by someone.  Most likely that will ultimately be the tax payer.  Similarly, the tuition costs charged by the school is a consequence of their costs after revenues.  Most of the students in the United States are on financial aid provided by the Federal Government.  Data from the Department of Education indicates 57 percent of students pursuing college degrees are relying on grants and loans.  One University I teach at indicates that 90 percent of their student body was on some form of Federal financial aid.   Moreover, if the state is a state funded institution, the taxpayer has an even more rigorous criticism that their tax dollars are being diverted in favor of paying a football or basketball player.

 

The taxpayer arguments aside, the real question is, how many institutions have the excess capital to pay money to star recruits?   Also, how many colleges will pay?   Will they pay all rostered players on their football team?  Only the top 10 or 5?   What about the basketball recruits?   This is the same question of why some cities have major league baseball teams and some have minor league teams.   The fan base has to be there to justify the investment.   In the case of colleges, the fan base is the alumni.  Tradition has dictated that some schools will pony up the cash to pay their star players.   Duke, Kentucky, UCLA, North Carolina, Indiana and Kansas will find the money to pay young basketball players.   But schools like Oklahoma, Florida State, Nebraska and Alabama will instead let their basketball programs slide and instead invest their player money in the game of football.   The consequence will be a realignment of haves and have nots.    The mid major schools like Davidson, Butler and Wichita State that used to have a competitive basketball program will drop in competitiveness (unless they can find a big donor).   Similarly, the Division I football schools that are in major conferences will find themselves perpetually attempting to compete with lesser players.

But all is not lost.  The free market has provided a wonderful solution that not only levels the playing field, it promotes education.