"We are not measured by the trials we meet -- only by those we overcome."
- - Spencer W. Kimball
April 10, 2014
College Athletes Unite
by Adam Smith

There was an announcement recently that a judge has declared the football players at Northwestern University employees of the school and as employees had the right to unionize. There are several appeals ahead and many years before this may actually happen.

No one knows the consequences of college athletes unionizing, but it certainly seems that it will include paying them some salary.

I have read several articles and listened to many talking heads about what everyone thinks about the unionization of college athletics, and I decided to write a column because this, in the end, will be about economics. It’s always about the money. This is a complicated issue, so this article will be long but hopefully interesting.

The Stances

For the most part, people fall into one of two camps on the issue.

First, you have the old school thinkers. The athletes get a scholarship for tuition and room and board; what else do they want? There are thousands of other youngsters that would love to be in their place with an opportunity to get a free education. This will open so many issues it may cause the whole system to collapse.

Then you have the outraged, offended group saying that there are these young people that are being exploited by NCAA. This is a first step towards the athletes getting what is rightly owed to them. We do not know what will happen but we are sure we will end up in a better place than where we are right now.

Priors

I want to be as transparent as possible so I am going to give you a much abbreviated version of my evolution as a sports fan.

I was a sports nut growing up. I watched every game possible and read the sports section of the newspaper every day. I thought I was going to die when the Orioles and Colts lost championships in 1969, and the Redskins’ defeat in the 1972 Super Bowl was just crushing. I had posters in my room of that 1972 Redskin team and a poster about the Green Bay Packers (everyone loved Lombardi).

Once when I had moved to Phoenix and the Suns lost a playoff basketball game to the Portland Trailblazers, I literally was not able to sleep for the entire night.

All of that changed in 1994. That was the year that baseball went on strike and the World Series got cancelled. It was then that I realized I was being played by both the players and sports management.

Somehow in my mind I still had an emotional and rational thinking of a 12-year-old when it came to sports. In 1994, that sports part of me grew up. I saw that the players and management, college and pros, cared about me, the fan, only to the extent they were able to take money out of my pocket.

I am good with people trying to maximize their income, but I was now going to act rationally. I still follow my favorite teams. I still watch them when they play an important game (which means it has been two decades since I have watched an Oriole game) but I now, instinctively, weigh the cost (time or money) of watching a game with how much enjoyment I get.

I now act rationally and have ended up still a sports fan but with a great deal of cynicism and a lot more free time.

I hope this lets me view sports issues objectively.

Current State of College Sports and College Athletes

What a mess.

What is going right is that athletic departments from most major conference schools generate enough revenue to pay for the scholarships, travel, and salaries, or essentially the costs of the programs. There are very few (a dozen or two) schools that generate enough revenue to pay for all cost including things like construction and renovation projects.

Some schools believe that giving a student a scholarship gives them the right to take up as much of the students’ time as they want. The guidelines provided by the NCAA state that the most time a student should be working on their sport is 20 hours in season and 8 hours out of season. These hours are “countable hours.”

There are additional hours like working out without a coach present that would be in addition to the “countable hours.”

If you listen to what many people say, most athletes at colleges spend more time working on their sport than on their degree. This includes their sports off-season. The reports saying athletes spend 50 to 60 hours a week on their sport in the off-season seems a little exaggerated.

However, it seems reasonable to assume the athletes are spending 20-30 hours a week in the off-season. (8 countable hours and 12 non-countable hours).

The schools do help with athletes’ medical costs when they get injured. The school helps pay for the fix of the knee, shoulder or whatever. What they do not do is help with the long-term effects of participating in the sport. Think of a football player that injures his knee a few time in college. When he is 40 he may need to get that knee replaced. The athlete bears that cost.

The schools push these athletes so hard because they need for them to win games. Winning means more people in the stands and even more important, there is an increase in the contribution to the school’s general fund from their alumni.

The NCAA rules are so convoluted that most large athletic departments have someone devoted to try and keep the department in compliance. In general, the rules try to make sure that the only benefit athletes get is from their scholarship. An athlete cannot make any money off his own name or picture, and even getting a part-time job needs to be approved.

Now there certainly are benefits associated with being an athlete. And those people that you hear from time to time saying that college athletes are similar to the slaves on the plantation are misguided. Nothing in current America should ever be compared to the evil practice of slavery in America. This statement does a great disservice to all those who endured that scourge.

However, given what I have said about the current state of the scholarship athlete, it is not hard to see why those athletes in a moneymaking sport would want to unionize.

Economics

The easiest way to think about an athletic department at a university is to think of the old Soviet Union. You had the members of the politburo that lived good, comfortable lives. And then you had the rest of the citizens that lived lives that were relatively equal to each other and miserable.

At a university, you have members of the athletic staff that make a good living. Coaches in major sports will make millions of dollars every year. This money comes from the school and from various endorsement deals. These are the politburo.

Then at the university you have the athletes who get the same benefit regardless of what sport they participate. An athlete that is a star quarterback gets the same legal monetary benefit as a bowler on full scholarship.

It is a communistic community.

A moment to consider who makes the rules for college athletics (academics) will help you understand why the system is constructed the way it is. The school is doing a balancing act. It needs to create a system where all the athletes (boy, girl, popular sport, fringe sport) all have the same experience. It is only “fair.” The school has to spend the same on the girl sports as on the boys.

This is the more progressive part of the equation.

The school is also trying to meet all the financial obligations of their athletic department and generate as much revenue from the alumni as possible for the general fund. This is the pragmatic side.

What you end up with is a system that treats the athletes unfairly to make the money; but that is okay because all the athletes are treated equally unfairly, which is always the best outcome.

What is amusing is who supports each of the two stances stated above.

Conservative, free market types are the ones that like the current communistic system.

Liberal, socialist leaning types are the ones supporting the athletes into a more market based system.

Potential Outcomes

First we have to make an assumption about what is going to happen. And the outcomes I am talking about are the long-term outcomes. It will not happen the second athletes unionize.

The first potential outcome is that each sport at each university creates its own union. So football would have a union at a school, as would men’s basketball, women’s basketball, and so on. What would be the outcome?

As much as we want to think that people are altruistic, it really is not the case. Football is a huge revenue generator and the football executives are going to want more money to go to the players in the form of benefits (such as long-term health benefits) and pay. This scenario will result in only those men’s sports that make money continuing to exist.

The union can always extract, under threat of strike, more money going to the non-revenue sports. The extraction ends when they have all the money available for men’s sports.

On the women’s side the story would be different, since it is rare that a women’s sport makes money. Few women’s teams will have the leverage to extract additional money and since the school is required to spend as much on men’s sports as women’s sports there would likely remain many of the current sport options for women.

Another possible outcome would be that all the athletes at a school form one union. In my opinion, this is the most likely outcome because it could maintain much of the current communistic system. Under this outcome, the athletes would extract all the benefit the school gets from alumni for having a successful sport programs. The union would then decide how to divide the spoils.

I just do not know how the football team will feel about sharing some money with the bowlers.

All competitive balance would be gone. There would have to be more divisions in college sports based on revenue potential. If football players can make $100,000k/year at Alabama, then how competitive would it be for them to play $5,000/year Vanderbilt?

And you want to see outrage. The athletes will be extracting the monetary benefit the school gets from alumni. But where is that money going right now? It will be priceless to see the seething outrage as tuition rates go up to compensate for this drain from the general fund to the athletic fund.

The student section at basketball games will be jumping up and down but now it will be with anger directed at the players on their own team.

Czar

What would I do if I were college sports czar? Here are four easy steps I would like to see implemented and that could end the unionization movement.

First, I would cover all medical costs from a former athlete from an injury incurred while playing in college. This seems like the right thing to do.

Second, I would reduce the time athletes are committed to their sport. The off-season should mean off-limits to coaches. If you want one week of spring drills for football, fine. But the off-season should be the time the student part of student/athlete gets a lot of coursework completed.

Third, let them make some money. Revise the rules so that scholarship athletes can get a job and make some money. And allow the athlete to make money off of their face, name on jersey, and so on. This is the easy way to compensate star athletes without having to make equal compensation for other athletes in non-revenue generating sports.

Fourth, a scholarship is for up to six years. This would allow the athlete to take fewer classes when playing and give them time to take classes after their eligibility is up and they realize they are not going to make millions. Also, the scholarship is for 6 years. No canceling the scholarship because a player is not as skilled as you thought when they were signed out of high school.

Contingent fourth, if the scholarship situation does not change, then athletes can move from team to team with no penalty such as having to sit out a year, etc.

Basically, I am saying treat the athletes like students, treat them fairly, and allow them to make money off the brand that is themselves.

Conclusion

College sports is a business that intersects with the higher education system. A major change like athletes unionizing will have long-term consequences that are not foreseeable.

I assume that the predictions I have stated in the article are incorrect, but I hope that the article will allow you to think about college sports from the business perspective and give you a new prism to view this interesting development.


Bookmark and Share    

Why Economics Matter
- - October 20, 2015
Profits
- - December 30, 2014
The Chance
- - November 18, 2014
Changing Perceptions
- - October 7, 2014
The Threat
- - August 26, 2014
The Danger of Inversions
- - August 12, 2014
The Wait
- - July 15, 2014
East vs. West
- - June 3, 2014
Let Them Eat Cake
- - May 20, 2014
Ridiculous Averaging
- - May 6, 2014
More by Adam Smith

About Adam Smith

Adam Smith is obviously not the actual name of the author of this column. The real author has worked for two Fortune 500 companies, one privately held company, and a public accounting firm. His undergraduate degree was in accounting, and he earned an MBA for his graduate degree. He also has completed coursework for a PhD. in finance. He continues to be employed by one of the Fortune 500 companies.

The author grew up in the Washington D.C. area but also lived for several years in Arizona. He currently resides with his family on the East Coast.

The author has held various callings in The Church of Jesus Christ of Latter-day Saints.

Copyright © Hatrack River Enterprise Inc. All Rights Reserved. Web Site Hosted and Designed by WebBoulevard.com