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Mark Coomes: UK, U of L could pay players $500k each, STILL make $13 million profit

by Mark Coomes

college-athletes-heavy-load(Editor’s note: This is the second of a three-part investigation into the issue of pay for play at universities.)

Pay For Play is the most controversial issue in college sports, and the issue is white hot right now.

g9510.20_Manziel.CoverIt was the cover story of a recent issue of Time magazine.

It was the burning subtext of investigations published two weeks ago by Sports Illustrated and Yahoo! Sports that allege improper payments to football players at Alabama, Tennessee, Mississippi State and Oklahoma State.

It was the heart of the summer’s No. 1 sports scandal: allegations that Heisman Trophy winner Johnny Manziel was paid $7,500 for autographing memorabilia.

NCAA rules forbid college athletes to receive any form of cash compensation based on their playing ability. An athlete can’t even sell his own likeness or signature.

 

Economists do not approve.

“It’s a pretty perverse set of rules,’’ said Steve Gohmann, BB&T Professor of Free Enterprise at the University of Louisville College of Business. “The kids don’t have the freedom to do much of anything. I think they should be paid.”

Here’s John Garen, professor of economics at the University of Kentucky’s Gatton School of Business:

“(NCAA amateurism rules) create a lot of economic loss. Basically, you’re not allowing people to fulfill their full earnings potential. I think it’s wrong to prevent people from doing that.

“My sense – and a lot of people’s sense – is that there are a lot of players whose value, in terms of generating revenue, is worth a heck of a lot more than the scholarship and the coaching they get.”

No one argues that a free education and expert coaching aren’t highly valuable. But fans and TV networks don’t pay big bucks to watch Rick Pitino stomp his Gucci loafers or to see Willie Cauley-Stein do long division.

College football and men’s basketball collectively generate more than $4 billion in annual revenue. Every nickel is spent to watch the players play.

So how do American universities, acting through the NCAA, get away with not paying the stars of the show?

Two words: cartel and collusion.

Nobel Prize winner Gary Becker and other economists say the NCAA is a classic cartel: Its members collude to fix the price of athletic labor. Compensation is limited to the cost of a full academic scholarship and certain non-cash perks, such as free apparel.

What’s more, the NCAA enforces the fix by punishing members whose athletes are caught accepting “improper benefits.”

The NCAA’s enforcement arm has grown weak and erratic in recent years, but the threat of crippling sanctions still exists. You can bet they’ve been losing sleep at Alabama and Oklahoma State, rattled by media reports alleging that football players accepted cash and other inducements.

Because permissible inducements are so spare, human nature has filled the void with an underground economy of under-the-table payments. It’s a black market that rarely sees the light of day. When it does, it’s usually the media who pull back the curtain, not the NCAA.

The chief goal of the NCAA’s price-fixing scheme is not to catch cheaters but to prevent the black market from becoming an open market. If there’s one thing rival athletics directors can agree on, it’s to keep a tight lid on Pandora’s cash box.

There has been increasing talk of paying players a modest stipend of, say, $2,000 a year, but no one is willing to consider paying what economists would call fair market value.

“It’s been a pretty effective collusion agreement,” Garen said. “The colleges benefit because they don’t have to pay high salaries to their players and yet they collect a lot of revenue on the other end.”

Elite college athletes are lionized as All-Americans. The NCAA’s economic restrictions are, ironically, anything but.

Other Americans, regardless of age, are permitted to sell their skills (and likenesses) to the highest bidder. For cash.

College sports are an entertainment product. Pay rates for young entertainers range from the Screen Actors Guild daily minimum ($859 per day) to the open-market rates commanded by Justin Bieber and Miley Cyrus (more than $50 million a year).

Between those extremes are the three adolescent actors on the popular sitcom “Modern Family.” They started at $20,000 per episode. After three successful seasons, the teen stars negotiated a raise to $70,000 per episode, or nearly $1.7 million a year.

“That’s how the free market works,” Gohmann said. “(If college football and basketball players had access to the same free market), what would happen is these guys would end up getting salaries similar to what they would get in the pros.”

If athletes could sell their services on the open market – as coaches, athletic directors and even stadium hot dog vendors do – most would receive offers well in excess of a full scholarship.

Picture 5

According to a recent study by Drexel University and the National College Players Association, a college athletic scholarship is worth, on average, about $26,000 a year. A basketball player’s fair market value, on the other hand, is roughly $266,000 a year – 10 times more than his scholarship.

Picture 6

Football players have an average market value of $114,000, even though football revenue dwarfs basketball revenue at most schools. It’s a bigger pie but it’s split more ways. Division I schools award 85 scholarships in football but only 13 in basketball.

The study contends that over a four-year career, the average football player loses $457,000 in fair- market wages. Basketball players lose $1.06 million.

Those numbers vary widely from school to school. At U of L, home to the nation’s most profitable basketball program, the average player has a market value of $1.6 million a year – or $6.5 million over four years.

For UK, the numbers are $811,000 and $3.2 million, respectively. At Indiana University, it’s $671,000 and $2.7 million.

These numbers were calculated using revenue figures that schools report to the Department of Education. The study authors then applied the revenue-sharing models currently used by the NBA and NFL.

In the NBA, roughly 50 percent of gross revenues go to player salaries. To get the average college player’s fair market value, the authors took half of each school’s reported revenue and divided by 13.

A true open market wouldn’t operate so simply. U of L quarterback Teddy Bridgewater, a Heisman Trophy candidate, clearly would command a higher salary than his backup, Will Gardner.

But precise numbers aren’t the point. The Drexel-NCPA study better serves as a general illustration. It shows the vast disparity between the value of a scholarship and the value of an athlete’s labor.

Plenty of people, including CBS broadcaster and former Oklahoma State point guard Doug Gottlieb, believe things are fine the way they are. It’s an affront to all that’s right and holy to even consider paying college athletes a fair-market wage based on their individual talents.

But why?

Because we’re not used to it?

Because the process might be messy? Because instead of recruits signing a simple Letter of Intent there might be salary negotiations involved?

Because it would spell the end of amateurism, an outmoded concept that Olympic organizers gave up on 30 years ago?

Fear of change is not sufficient reason to abridge a young American’s basic economic rights.

“In economics,” Garen said, “the right (compensation) package is determined by the buyers and sellers involved, not by some third party. It’s immoral to prevent people from negotiating a mutually agreeable deal.”

The current deal is not a genuinely mutual agreement. Athletes either accept the NCAA’s restrictive terms or forfeit the chance to play college sports.

Developmental and European leagues aren’t viable options.

“They are choices, yes, but they are less desirable choices forced upon athletes by NCAA rules,” Garen said. “Again, it comes back to, Why do we think we ought to restrict choice in this regard?”

We don’t restrict the bargaining power of young actors, singers or software developers. Miley Cyrus didn’t have to move to Europe to get paid. Why should Julius Randle?

Randle is a prized UK basketball recruit who would have been a first-round pick in the recent NBA draft – if the NBA didn’t have a relatively new rule against players turning pro straight out of high school.

The NBA and NFL draft restrictions are, as noted yesterday, an entirely separate subject. It’s irrelevant anyway.

Picture 4As ESPN basketball analyst Jay Bilas points out, college football and basketball players already play pro sports. They are just the only ones who don’t get paid.

Everyone else in college athletics earns a market wage. U of L’s Tom Jurich is the highest-paid athletics director in the nation at $1.4 million a year. Considering the phenomenal growth and achievement U of L has enjoyed under Jurich’s leadership, he is worth every penny.

Jurich is paid top dollar because if he wasn’t, another school might hire him away. The same rationale underlies the salaries of men’s basketball coach Rick Pitino ($4.97 million), football coach Charlie Strong ($3.7 million) and, to a lesser extent, most assistant coaches and senior administrators.

Jurich, Pitino and Strong earn more than 99.9 percent of Americans – and we are the richest country in the history of the world. Really now: Is it fair and proper that the overseers soak up the wealth created by their underlings while their underlings live at or under the federal poverty line.

By what self-deceiving construct do we tell ourselves that major college sports aren’t professional sports in every way – except that the performers aren’t paid?

Only three NBA coaches earn more than Pitino. There is no comprehensive list of NFL coaches’ salaries but at least five earn less than Strong.

Top college programs are comparable to NBA and NFL teams in terms of profit as well.

Picture 2In 2011-12, eight college football programs made more than $43 million in profit. Only 11 NFL teams made that much.

In 2011-12, the basketball teams at UK, U of L and North Carolina each earned a profit of at least $19.9 million. That’s more than 22 NBA teams earned the same year, including the Miami Heat, Boston Celtics and San Antonio Spurs.

That’s comparing apples and oranges a bit, but in a business sense, the two fruits are more alike than different. Top college programs and pro franchises both generate the same kinds of revenue – ticket sales, TV and radio rights, licensing, concessions and such. It’s their expenses that are different.

Either way, it illustrates that comparable amounts of surplus cash are sloshing through both businesses. And it shows that UK, U of L and North Carolina could pay their players $500,000 each and still show an annual profit of more than $13 million.

This is another reason why economists believe revenue-producing athletes shouldn’t have to wait to make the NBA or NFL to get paid.

“Here at U of L, for example, one or two players might go to the pros,” Gohmann said, “but the rest of them are also generating revenue, and you can make the argument that they should get some of that revenue.”

For many, it’s their only opportunity to cash in. They are denied that opportunity by a cartel that restricts player compensation while athletics departments, on the other hand, seize every opportunity to increase program revenues.

That’s good business. But in their hunt for every dollar, colleges go beyond marketing teams to implicitly selling individual stars.

U of L’s best-selling football jersey is emblazoned with Bridgewater’s number 5. Someone at U of L – or at its merchandising arm, Collegiate Licensing Co. – took it a step further and approved the sale of teddy bears clad in No. 5 jerseys.

Bridgewater can’t earn a dime from these sales. Many believe this kind of marketing crosses an important line.

“It’s a line where, before a decision is made to take that step, we need to ask ourselves some questions,” said Anita Moorman, a professor of sports administration at U of L. “Is this really consistent with our mission? Does this overcommercialize? Does this take advantage of the notoriety that Teddy has to an extreme?”

Bridgewater has repeatedly declined to discuss to pay-for-play issues, saying that he feels blessed just to have a full scholarship. It’s an admirably selfless attitude, and it supports those who argue that a scholarship is sufficient compensation for athletes of every stripe.

Few believe that football and basketball players are being abjectly exploited. Though the Drexel-NCPA study found that most revenue athletes live near the federal poverty line, players don’t lack for much. But it’s presumptuous to say that they are getting enough.

In a capitalist economy, the market determines what’s enough.

The societal value of pop singers, underwear models and TV jurists is questionable, but few Americans are troubled by the colossal amounts pocketed last year by Madonna ($125 million), Gisele Bundchen ($42 million) and “Judge Judy” Sheindlin ($47 million). They are paid what the market will bear.

Yet many are appalled by the idea of paying a college athlete whose team makes millions even $50,000 a year.

It’s an alarming disconnect.

Why does society approve of denying to young athletes economic freedoms that the rest of us take for granted?

“I don’t have the answer to that,” Gohmann said. “It goes back to the NCAA. Why is the NCAA allowed to set these restrictive rules?”

Force of habit, it seems.

The NCAA was founded in 1910, when college sports were a diversion, not a business. Playing football in return for a free education was a square deal back then.

Times have changed dramatically in the century since and the NCAA has changed with it, morphing into the overlord of an economy worth $4 billion a year. The only thing that hasn’t changed is the rules that limit the athletes’ share to room, board, books and tuition – same as it was in 1910.

“The NCAA and its members are pretending to be something they are not,” Garen said. “Their amateurism rules are pretty bizarre. They don’t fit the modern, big-business, money-making college athletic program at all.”

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  • https://twitter.com/MetroIssuesLou Metro Issues :: Louisville

    “And it shows that UK, U of L and North Carolina could pay their players $500,000 each and still show an annual profit of more than $13 million.”

    Alternatively, we could apply these proceeds to lowering student tuition, which continues to skyrocket from year to year.