Paying College Players? The Proposal - Volume 1

When a collegiate sporting event takes place different people ask different questions.  The mother of the star play might ask, "is my Baby going to get hurt?"

The teacher of the star player might ask, I wonder, "did he get that homework done?"

The coach might ask, "is he going to come through?"

The local beer company that sponsors the telecast is asking, "did we get good media exposure from this game?"

The University Chancellor might ask, "How many prospective students are we going to get out of this telecast?"

The lowly Economist (yeah, that’s me) asks, "How much extra value did this star player earn for everyone involved?”

The truth is that when  NCAA college contracts were originally created, video games did not exist, videotaping was evolving from film and the internet was an imaginary concept.   Technology has allowed players to provide entertainment to a world wide audience so that athletic feats get played over and over on cable television, in video games, on laptops and PDAs across America.  The college player of 2015 will generate revenue for years and years to come with one performance.
 

If that same college player walks into a music studio and creates a hit song as a singer, he or she receives worldwide rights and revenues.   If that same college player walks into a movie studio and creates a hit film as an actor, he or she receives worldwide rights and revenues.   Similarly, once that same college player walks into the professional ranks of their sport, they receive revenues.  

In each of these instances, the economic concept that determines the price the singer, actor or professional athlete receives is what Economists term, “marginal revenue product.”   This is fancy economist’s lingo for the revenue that a worker generated.   When boiled down to its basics, it's no different that the value added by the grocery clerk who rings you up at the front counter, the kid that mows your yard or the fast food chef who makes your hamburger.   Each worker adds value to their employer’s final product.

Labor economists typically presume that most labor markets are competitive.   In other words, the supply of labor comes from a pool of workers that is so large that workers are willing to work at whatever the prevailing wage is.  Graphically, this means that the labor supply curve is upward sloping because extra workers (or existing workers on the clock) must be paid more to induce them to work more hours.

The demand for labor comes from what firms are willing to pay and that reflects the marginal revenue product of labor.  Graphically, this means the typical demand curve  is downward sloping because of the law of diminishing marginal  returns which states that as more labor is employed into a fixed amount of capital, that labor’s productivity diminishes and thus employers will pay more for these additional units of labor only if they are discounted to reflect this decline in productivity.

How does this apply to professional athletes or college athletes?   Well, it doesn’t and that is the problem. Most laymen and quite frankly, the NCAA view student athletes as laborers coming from a large pool.  In many cases that is true and if you look at all NCAA member schools and all the NCAA athletes for all the schools, that is true.   Because this perspective is fallacious just as putting Lebron James in the same pool of all people who play basketball is fallacious.   Thus, the NCAA views the back up catcher on the last place Division II women’s softball team having the same revenue production as the Heisman trophy winner.    While both people are student-athletes and both are probably hard working Americans, they do not produce revenue for their schools at the same rate. 

Valuing the worth of an athlete is a tough endeavor.   In professional sports, professional teams struggle with how much to pay players.   The periodic labor disputes in the NBA, MLB and NFL attest to this.   The elaborate tap dance that occurs after each NBA, MLB or NFL draft of new players also shows that teams are unsure on what the value of a new player is.  Obviously it is very difficult to measure future productivity because the prediction of the future is a sum of past experiences.

At the collegiate level this is even more pronounced.  After all, the players are often a few months out of high school.   Their performance on the field can be affected by a myriad of personal pressures such as girlfriends, boyfriends, family, classes, car problems, side jobs, peer pressure and the list goes on.   So how should a university value the performance of a player for a season or a game or a college career? 

Or for that matter, does it have any value?

If it is difficult to value, does that mean the player should receive nothing in return?

In the next few blogs, I will explain the Hamilton Plan which is a plan for NCAA athletes to be paid in the currency of scholarship vouchers which they may sell, transfer or trade as they please.   In many ways, this plan is a throwback to the old school notion that a student should be compensated with an education and that academia and sports should be woven closer together, not separated.

 

The end result of this plan is that not only would players receive monetary compensation, but those colleges and universities that provide the best academics will be rewarded for providing a superior education.   Thus, those smaller mid-major universities are elevated to the same level playing field as the big universities with mega donors in their alumni.