Wednesday, October 02, 2013

Compensating College Athletes?


A guest post from a reader, LAG. Please do respond in comments...

A Simple Solution for Compensating College Athletes 
By Leonard A. Giuliano

The question of paying college athletes has long been a favorite area of debate, but recent events have brought the issue into sharper focus. College football and basketball generate enormous sums of revenue and it seems only natural for the athletes to receive some of this windfall as compensation. But closer and informed analysis reveals the issue is not so simple. How much to pay the athletes? Should the fifth string left guard who rarely sees game action be paid the same as the star quarterback? Should swimmers, wrestlers and other athletes competing in non-revenue generating sports also be paid? Does Title IX require all female athletes to be paid if any male players are compensated? 

With the overwhelming number of schools losing money on athletics (only 23 out of 340 Division I athletic departments posted a profit in 2012), from where would the money come to pay the athletes? If only some schools could pay athletes, or could pay more than other schools, how would that affect competitive balance? Finally, with the cost of college education skyrocketing to upwards of $60k per year, is a free ride plus all the perks that come with college athletics not sufficient compensation? A simple solution could address all of these concerns and protect the value individual college athletes have accrued and risk each time they enter the playing field or arena: draft insurance. 

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At the end of each college season, every player with draft hopes (NFL, NBA, MLS, WNBA, etc) gets evaluated and projected for where they will be drafted. This evaluation could be done by a special committee of league personnel directors. If the athlete remains in school for the following year they get insured for the difference between that projected slot and where they actually get drafted. For example, Jadeveon Clowney is universally projected to be the top overall pick in next year's NFL draft (which earned over $22m guaranteed in the 2013 draft). If for any reason (injury, underperformance, closer scrutiny, etc) he drops to, say, the bottom of the first round when he is actually drafted (which earned nearly $7m guaranteed in the 2013 draft), the insurance policy would pay him the difference in projected vs actual value (roughly $15m using 2013 draft numbers). 

This would protect the stars like Clowney, Johnny Manziel and Matt Barkley (who potentially lost $10m dollars by forgoing the 2012 draft in which he was projected to be a top 10 pick and was eventually selected in the fourth round of the 2013 draft). Get drafted at the same (or better) slot and the policy would pay nothing. Just as stock traders use put options to lock in gains and protect against market declines, draft insurance would protect the relatively few stars who have something great to lose and compensates those that truly generate additional revenue for the universities (the Big House on the campus of the University of Michigan will be full regardless of whether Denard Robinson or Devin Gardner is taking the snaps, however Clowney and Manziel could be generating tens of millions of dollars that wouldn't exist otherwise).

This system would also resolve any Title IX issues, since it applies equally to female athletes. Insurance premiums would be paid for by the NCAA and/or the universities. Disability insurance has been available for elite athletes for decades, but these policies only protect against career-ending injuries and the athletes are required to pay the premiums (though loans against future earnings are available). With this proposed draft insurance system, policies would pay out for any reason and would cover the difference between projected and actual guaranteed compensation of the initial professional contract. Draft insurance would also provide incentive for athletes to remain in college longer. Each year, a number of underclassmen, often athletes who have just completed their freshman year, face a question of entering the NBA draft or remaining in school.

 The typical rule of thumb advice is to enter the draft if one is projected to be a lottery pick (top 14), as there is too much money to risk losing by remaining in college. But some athletes may want to remain and gain extra seasoning, extra coaching, enjoy campus life and even gain a degree. Instead, they are pushed into the draft for the huge payday, leaving the NBA with more raw, immature prospects. With draft insurance, everyone gains- colleges get another year of service from players, the players get an extra year of preparation, maturity and education, and the professional leagues get more refined products. For this reason, the professional leagues might even consider subsidizing some/all of the cost of the premiums. The horrific sight of Kevin Ware breaking his leg on national television prompted some to question the morality of college athletics, where participants potentially sacrifice health and well-being without monetary compensation. A draft insurance system could provide protection for player value while navigating the practical landmines that have made monetary compensation of college athletes such a challenge in the past.

7 comments:

Anonymous said...

The question isn't whether athletes should be paid, but should colleges even have these teams in the first place? They are supposed to be student-athletes, but somehow the student part ends up getting lost. IMO college sports teams shouldn't exist.

Yes, physical activity/education is important, but why not just have intramural teams for the students to compete amongst each other? If these athletes want a place to play, they can go to the minor leagues in baseball, hockey, etc. Football doesn't have a farm system simply because colleges provide one for free, but there is Arena Football, NFL Europe, CFL, UFL, etc. where these players can showcase their skills to get into the major leagues. See the championship UK basketball team a few years ago where it was one and done as a perfect example. It's a joke.

There is no reason an athlete should receive a scholarship to get an education based on their athletic abilities. It makes as much sense as assigning grades based on your favorite color.

AD said...

@ Anonymous.
I agree. But going from the current equilibrium to the one you suggest is never going to happen. College sports are an integral part to many of these university's brand name, which is integral to their ability to raise money through donations and enrollment. Plus, I can't imagine a future any time soon where college sports fans would let their colleges stop sponsoring their semi-pro sports teams.

This at least offers a second best solution.

Lenny Giuliano said...

And why do colleges have a band, symphony, theater or chess team? Sure extracurricular activities are a valuable part of the education experience, but more relevantly, they provide entertainment valued greatly by students and alumni. And the universities do benefit tremendously as well. Universities with basketball teams that reach the Final Four usually see applications for admissions surge dramatically in both quality and quantity the following year as a result of the notoriety and exposure. Duke saw it's academic stature and rankings increase as it's basketball program dominated in the late 80's. Even today, if you ask any student there why they chose to attend Duke, you're likely to hear that basketball was at the top of the list.

J Scheppers said...

As a former non-revenue sport student athlete at a clearly subsidy supported athletic program, I would like to put in a word for the farmer, I mean student athlete.

I considered it a great privilege to have been challenged to work as hard as I did. This applies in two-ways:

First, competing with people from around the globe and putting your toe next to the starting line with future world record holders and Olympic medalists is extraordinarily valuable. As an individual participant it is hard to blame anyone but yourself, your preparation and your willingness to endure and learn how to move forward or out.

Second, scholarships at most schools including mine were one year with the school holding the option to renew. Each scholarship athlete was racing to stay in the game. On weekend mornings when your we you were not racing you were volunteered to help at the local high school meet or open road race to raise money for the program, which also played into how many people stayed in the game. To conform with NCAA rules the school needed at least nine teams so each winter on five weekends 14 student-athletes and 1 coach climbed into a 15 passenger van and drove at least 400 miles to indoor track meet to get the team count up from 2 to 3 for track scholarships. Crowded vans and crowded cheap motel rooms were par for the course. Faculty informing you that you had to make a choice between athletics and academics was standard fare for anyone studying outside of Kinesiology.

I was paid a small scholarship that was peanuts compare to the work I put in, but I cannot think of closer friends. Many student athletes were only students of athletics and the constraints place athletic success. I believe this course work far more valuable than many other university level courses.

I believe, I was paid my market wage, including deductions for my alumni contributions back into the system, and do not begrudge payments direct or indirect to those athletes that bring home the bacon for the program they represent.

Gene Callahan said...

There is a much simpler solution that avoids all of the problems and only involves lifting a ban: just let these kids make money OUTSIDE the university on their sport. Let them make ads and get paid to host sports camps. The stars will do fine, and even some swimmers might make a few bucks advertising goggles.

JorgXMcKie said...

I have long suggested privatizing at least football and basketball at the college level. Sell the 'naming rights' to the team and in return give every athlete a full-tuition and fees scholarship.

Then let the new 'private' Michigan Wolverines make money however it can [donations from alums, selling stuff, etc {although they'd have to let the U continue selling merchandise *and* pay royalties], tv deal, whatever]. Then they can pay the athletes and the coaching staff, etc.

Let them sink or swim according to how well they manage their budget and sell their product. Otherwise, let the teams go back to intra-murals or whatever.

stan said...

The notion that athletic programs "lose" money is silly. Of course, all the non-revenue sports lose money. Just as most academic programs "lose" money. Most all of the revenue sports make money. That non-revenue sports and revenue sports should somehow be offset against each other, but not include e.g. club sports or intramurals is a silly distinction without merit.

Setting aside all of the many accounting problems (also including e.g. academic donations which secure athletic ticket priority and athletic facilities with numerous educational and recreational uses), the question has to be whether universities are so irrational as to routinely make stupid economic decisions about their sponsorship of sports programs.

While I am willing to accept the notion that universities are routinely irrational and that said irrationality might often extend to their economic decision-making, it seems unlikely that the percentage is as high as the one cited. I suspect that most schools get more in return for the money expended.