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Elite college athletes should be paid: Economists

by Feb. 5, 2015, 1:54 PM

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The NCAA recently voted to allow schools to begin compensating its student-athletes for their entire cost of attendance, but economists from Vanderbilt University and the University of Chicago say it’s not nearly enough.

In a new analysis for the Journal of Economic Perspectives, John Siegfried, professor emeritus of economics at Vanderbilt University, and Allen Sanderson, senior lecturer in economics at the University of Chicago, examine the economics of college athletics and argue that the current scholarship-only model is virtually unsustainable.

“The incentives to overuse players and the stark disparity between coaches and players will remain,” in spite of recent baby steps by the NCAA, Siegfried says. Instead, the researchers argue, schools should compensate student-athletes according to the value they provide the university.

ROI not as good as it seems

Siegfried and Sanderson found that college sports programs are almost never the financial boons they seem to be. Fewer than a fifth are even profitable to begin with, and there’s little evidence that a team’s popularity has much indirect effect on sources of revenue like private donors, public funding agencies or increased enrollment.

On the expense side of the balance sheet, the researchers point out a much more troubling reality. College athletics’ primary cost-control measure—limiting player compensation to grants-in-aid—is a form of wage-fixing that would violate the Sherman Antitrust Act in any other setting. Artificially high NBA and NFL age minimums that make it impossible for elite basketball and football players to go pro right out of high school have turned the NCAA into a de facto farm league, the researchers say, where schools train their prospective players at virtually no cost and prospective players have no other choice.

Unfair and inefficient

There are other reasons beyond the antitrust problem that should make us uneasy about the current system, the researchers say. These students work far more than the allotted 20 hours per week set by the NCAA—especially now that seasons are longer than ever. But the people who benefit most from these athletes’ labor are the coaches.

“As players work to get better and their team wins more games, already-highly-compensated coaches get larger and larger bonuses for team success, while the players continue to get nothing more than their grant in aid,” Siegfried says.

Court cases likely to upend the system

And, they say, the shift is likely inevitable anyway. Three high-profile cases centering on athlete compensation are working their way toward resolution, and any one of them could change the game forever.

One is O’Bannon vs. NCAA, which does away with wage fixing and allows schools to pay players up to $5,000 per year of eligibility. (It’s already been decided but is unlikely to take effect until all appeals have been exhausted.) Another is 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. The third and most potent is Jenkins vs. NCAA (usually abbreviated to the name of the lawyer, Jeffrey Kessler), which seeks to do away with compensation limits entirely. “An eventual victory by the plaintiffs in Kessler’s case probably ends business-as-usual,” the researchers write.

The future of college sports

The researchers envision an arrangement where student athletes receive labor law protections, competitive compensation and more thorough medical coverage. That doesn’t mean every player would earn a wage—it just means that their compensation would more fairly reflect their value on the open market. This will 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 its intercollegiate sports program. It will 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.”

“The Case for Paying College Athletes” appears in the Winter 2015 issue of the Journal of Economic Perspectives.

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