This October, in a landmark decision, the National Collegiate Athletic Association (NCAA) allowed college athletes to be paid for their own name and image through endorsements. The impetus for this change came from a September bill passed in the California legislature, requiring all in-state schools to allow student-athletes to profit from their own likeness. NCAA schools nationwide must be fully compliant with these new regulations by January 2021. The prospect of college athlete compensation has been hotly debated for years, with a host of arguments both for and against. Now, a new era has dawned on the NCAA, and one thing is certain: the economics of college sports will be starkly different. This decision hasn’t come without backlash and doubts, but it is a step in the right direction.
The first thing to understand is that the NCAA is essentially a labor market for athletes. Before the rule change occurred, athletes would supply their time, skills, and effort, and in exchange receive full tuition, room and board scholarships, and a mere 2% chance to go pro. Prior to the change in rules, there was essentially a price ceiling on wages, or a maximum possible salary per player: the cost of tuition, room, and board. On average, athletes spend around 28 hours per week on athletics, with many reporting higher. If we take the average tuition of public schools as $25,620, and divide by 28 hours per week for 30 weeks, average student-athlete wages are roughly $30 per hour. The average pro football player, for comparison, gets paid roughly twice that, at $57 per hour. Even accounting for different revenue per capita at the college and pro levels, this implicit pay gap is still an eye-opening statistic. Luckily, now that players can receive unlimited outside compensation in “wages”, the “ceiling” is gone, which may encourage more prospective athletes to pursue college sports. In other words, participation in college athletics no longer necessitates four years of foregone income, and student-athletes will want to capitalize on this.
Because of this new incentive to enter the league, there will be a leveling of playing fields between higher and lower-tier schools within the NCAA. Currently, a few elite programs in each sport consistently draw top talent, such as Ohio State for football and Duke for basketball. Two economists, John Siegfried of Vanderbilt and Allen Sanderson of the University of Chicago, explain this phenomenon in a 2015 paper: school dominance arises because 1) the schools have a legacy of achievement and 2) they have spent large amounts of money on coaching and facilities. Because of the “wage ceiling” on athletes’ compensation, the elite schools have been in a virtual arms race to see who can build the biggest, most impressive athletic facilities to entice the top prospects. However, with the new rules, players will care more about endorsement money than athletic facilities. Therefore, athletes will have a large incentive to consider smaller, lesser-known (until now) schools, to increase the chance to be a big fish in a small pond–to monopolize a smaller market with their talents. Sanderson and Siegfried explain this as well:
Since there must be at least some highly talented players whose preferences favor cash, the introduction of pay-for-play is likely to divert some players to universities that had no chance to attract them when the recruiting currency was limited to program prestige and playing facilities. (131)
Another reason for this is the nature of sponsorships, compared to all-inclusive athletic facilities. Schools cannot exclude certain players from making use of the facilities, and some players will value facilities more than others. Endorsement deals, however, can specifically target star players, attracting and awarding them individually and personally.
Furthermore, choosing a smaller school will not entirely harm a player’s ability to pursue a professional sports career, for even before the rules were changed, players from smaller schools have still been known to go pro, albeit at a lower rate. With the rule change, sponsored players, even those at smaller schools, will be more visible to the public eye and to professional recruiters than they were in the past. In addition, the ability to get paid from endorsements will make the worst-case scenario–not going pro–more financially feasible.
Another noteworthy benefit will be cost-efficiency, helping to solve long-standing problems like cutbacks in taxpayer support for public colleges as well as tuition rising by an average of 37% over the past 10 years. Sanderson and Siegfried report that “only 20 of the 126 Football Bowl Subdivision universities earned an operating surplus on intercollegiate athletics, and only a portion of those profits were transferred to the academic side of their universities” in recent years. In their words, “the magnitude of resources redirected from academic to athletic purposes… is nothing short of remarkable.” Thankfully, this problem will likely be lessened due to the new rules. Since universities won’t be forced to spend huge sums of money on athletic facilities to attract players, they can instead attract players in more cost-effective ways, such as sponsorships, to compensate for the opportunity cost of playing elsewhere. If universities are chasing a highly sought-after player, they will be more willing and able to negotiate with sponsors to bring a deal that is beneficial for all parties. The university doesn’t necessarily receive funds from the sponsor, but it will nevertheless be a valuable arrangement because of the sponsored player’s presence on the team. And all of this foregone spending on athletic facilities in the future can instead be allocated to financial aid and educational facilities, which are benefits for students, players, and universities alike.
Some opponents to the new rules will argue that players will now care only about earning money, and not as much about having a competitive season; in other words, players would be putting their own success above that of the team as a whole. For example, the most high-profile players in basketball might shoot more shots and pass less, in order to boost their statistics and get noticed by sponsors. While this critique is not unfounded, the fact remains that the coach on the team has a large degree of power over the players. If he feels any player is acting against the interest of the team, he can bench them, and this fact alone will facilitate competition and unselfish play. Furthermore, player statistics are not the only criteria examined by sponsors. A player with a history of selfish or unsportsmanlike behavior will reflect poorly on his or her sponsor and thus will be less attractive to prospective sponsors. The most important considerations, along with performance statistics, are the player’s perceived image and character that he or she projects, and sponsors will recognize this.
At the end of the day, one can see that the NCAA’s past operations were critically flawed, allowing the league to profit in high margins from the full-time labor of college athletes who have a mere 2% chance to go professional. Based on the economic analysis above, we can see how 1) higher demand to enter the league will create more competition, 2) there will be greater equity of talent among the D1 colleges receiving star players, and 3) tuition costs and academic facilities will benefit from more efficient management of athletics budgets. Although the new rules are not immune from criticism, they will create a more equitable status quo within the NCAA.