Paying College Athletes: Take Two

HOUSTON, TX - MARCH 27:  Head coach Larry Krystkowiak speaks with Isaiah Wright #1 of the Utah Utes against the Duke Blue Dev
HOUSTON, TX - MARCH 27: Head coach Larry Krystkowiak speaks with Isaiah Wright #1 of the Utah Utes against the Duke Blue Devils during a South Regional Semifinal game of the 2015 NCAA Men's Basketball Tournament at NRG Stadium on March 27, 2015 in Houston, Texas. (Photo by Ronald Martinez/Getty Images)

Last week an article ran in the Huffington Post that cited several economists, all affirming that big-time football and basketball colleges had more than enough money in their athletics departments to pay student athletes. Mistakenly, I was lumped in with that group. I write this piece in an attempt to clarify what I believe is a complicated, yet important, issue.

First, college athletes have been paid since the 19th century. Some are paid cash under the table, some are paid in goods and services and the vast majority are paid in scholarships. When the NCAA was formed in December 1905, the clear policy was that the student athletes were to be amateurs -- that meant "any inducements" to attend a school based on their athletic skills were prohibited. There was no ambiguity that this policy did not allow scholarships based on athletic prowess. (Of course, the NCAA also had a policy of home rule, which meant that there was no enforcement of this principle.) The issue at hand, then, is not whether or not college athletes should be paid, but whether they should be paid a salary.

Second, let's get the numbers straight. Not all 350 athletic departments in Division I make money. In fact, only 20 do, and that's before considering millions of dollars a year in capital expenses. When capital expenses are included, there are fewer than 10 athletic departments a year that generate a true surplus. (Of course, it is true, as David Berri says, that if there were less waste and extravagance that more schools would have a surplus, but this is unavailing. A potential surplus does not pay any bills.)

It is also true that a little more than half of the 128 football teams in FBS and that a little less than half of the FBS men's basketball teams run an operating surplus (again, before capital and some administrative expenses are reckoned). It is further true that these operating surpluses, where they exist, eventually are transferred to support non-revenue sports in the department, to bloat artificially-inflated salaries for coaches and administrators, and to finance extravagant expenditures on stadiums, arenas, training facilities, recruiting, and team travel.

The mechanism of this transfer is manifest. Schools do not compete for players by offering higher salaries; rather, with salaries proscribed, they attempt to attract the desired recruits by having the most famous coaches, the best performance records, the fanciest facilities, the most lenient course requirements, and so on. In short, the coaches end up being paid for the economic value of the athletes they help to recruit.

So, the idea that there's plenty of money to pay the athletes a salary largely comes from the existing system of surrogate pay and superfluous expenditure that currently exists. If the athletes get salaries, then the coaches no longer get the proxy pay -- and one cost offsets the other. This is logical at first blush, but there are problems.

First, many coaches are on multimillion dollar long-term contracts that go as long as eight years. Even when these contracts end, there will be expectations and momentum that will prevent an immediate adjustment to much lower compensation levels. Hence, we can expect a transition period of a decade or longer during which the schools will be paying both high coaches' salaries and salaries to the student athletes. Along with athlete salaries comes the obligation to pay into social security and workmen's compensation. This transition period will further bleed academic budgets and/or put additional pressure on escalating student fees.

Second, many of the largest expenditures to attract students in lieu of offering market salaries to athletes entail major capital projects, such as new stadiums and arenas. The funds for these projects are already encumbered, as they come from long-term bonds and must be paid off over decades. Paying athletes a salary will again constitute a doubling of the financial burden and lead to large deficits over a long transition period.

There are other reasons why we should be cautious before paying athletes a salary besides the financial drain involved. It would be disruptive to academic culture. We don't use the market system to allocate resources within the university. I don't auction the right to be in my sports economics class to the students willing to pay the highest fee. The first violinist in the school orchestra does not get paid even though tickets are sold to the concert; nor do leading thespians or dancers get paid for their public performances.

A labor market for high school football and basketball players would be both chaotic and emotionally difficult for 17-year-olds. Once in college, the existence of disparate pay, where one player received $3 million and another $10,000 would be disheartening to team spirit.

Finally, non-revenue and women's sports would take a significant hit. College sports, in addition to providing entertainment and excitement for the college community, offer important developmental experiences for the participating athlete. Those positive experiences should be made equally available to men and women.

So, absent paying football and basketball players a salary, what is to be done? The leading athletes on these teams are being exploited in economic terms. Worse still, a majority of them come from low income, minority families. These players help generate the revenues that then subsidize the non-revenue sports, such as tennis, volleyball, golf and swimming, whose athletes are predominantly from white, middle-class families. There is a reverse Robin Hood, racial injustice here.

If we want to preserve the educational model of intercollegiate athletics, here's a more attractive option: Take the definition of amateurism away from its current arbitrary, hypocritical and morphing state imposed by the NCAA and follow the lead of the AAU and other amateur organizations. The working definition should be simple: an amateur athlete is one who is not paid a salary for playing his or her sport.

So, a college athlete could continue to receive the considerable benefit of a tax-free athletic scholarship and, in addition, earn outside income from use of his or her publicity rights (perhaps via a trust fund and/or group licensing). A college athlete could sign with a lawyer or an agent and enter a professional sport draft, and not become ineligible to play college sports until they sign their first professional contract.

Further, in addition to offering a cost of attendance stipend (approved at the 2015 NCAA Convention) as part of an athletic scholarship, institutions should be mandated to provide a "benefits package" consisting of: (a) year-round health insurance, (b) lifetime health insurance for injuries related to playing their sport (including concussions which might not show obvious symptoms when the athlete stops playing in college); (c) disability insurance that covers lost income, including those with a professional career trajectory; and, (d) due process rights for accused violations.

Naturally, to extend these benefits will cost money. As discussed above, there are many sources of waste in our current system -- some of which can be controlled by Congress granting the NCAA or another organizing body a limited antitrust exemption, which would be conditioned on capping coaches' and AD salaries and providing the "benefits package." It may also be necessary to cut back on the athletic scholarships issued to middle class athletes in non-revenue sports.

Lastly, the NCAA controls the postseason tournaments in all of its sports except the football playoff championship for the Power Five conferences in FBS. The NCAA should take control over that competition and use the funds (annually over $500 million in 2015 and anticipated to rise to $1 billion) to support the reform program outlined above. Congress could mandate such control and use of funds as a condition for the limited antitrust exemption or Higher Education Act funding.

The bottom line is that while the current system could be converted into a college football and basketball minor league existing outside the non-profit educational institution, there is a more attractive educational reform option available.