Ruling against the NCAA

A federal judge ruled against the NCAA in the so-called Ed O’Bannon case, opening the way for players to share in licensing revenue (the use of their image and likeness on TV, etc) above the cost of attending college (what can be covered by a scholarship). The most consequential points:

In a 99-page opinion, U.S. District Judge Claudia Wilken issued an injunction that will prevent the NCAA “from enforcing any rules or bylaws that would prohibit its member schools and conferences from offering their FBS football or Division I basketball recruits a limited share of the revenues generated from the use of their names, images and likenesses in addition to a full grant-in-aid.” Wilken said the injunction will not prevent the NCAA from implementing rules capping the amount of money that may be paid to college athletes while they are enrolled in school, but the NCAA will not be allowed to set the cap below the cost of attendance. (my emphasis)

And

The injunction will also prohibit the NCAA from “enforcing any rules to prevent its member schools and conferences from offering to deposit a limited share of licensing revenue in trust for their FBS football and Division I basketball recruits, payable when they leave school or their eligibility expires,” Wilken wrote. Her injunction will allow the NCAA to set a cap on the trust fund at less than $5,000 in 2014 dollars for every year an athlete remains academically eligible to compete. The money would be payable to athletes upon expiration of their athletic eligibility or graduation, whichever comes first. She ruled schools could offer lower amounts of compensation if they want, but they can’t “unlawfully conspire with each other in setting these amounts.”

Basically, universities can now offer the full cost of attendance plus $5,000/year to be received upon graduation to play Division 1 basketball or FBS football (other sports aren’t included; they don’t generate much money,and are in fact, money losers). The ruling explicitly denies players from being able to individually negotiate the sale of their likeness, for example through endorsement deals while in college.

Some thoughts on this:

  • This is a fairly friendly adverse ruling, because the NCAA is allowed lots of discretion and the money still all flows through universities and conferences (no direct player endorsements). However, the purely amateur model of college sports is now officially dead.
  • The principle of athletes sharing in more of the money they help generate (beyond a scholarship) is correct, I think, and roughly in line with proposals I have made in the past.  However, a more economically appropriate “fix” would be to set a base stipend amount that the vast majority of players would get, and allow for an explicit market mechanism to determine the amount that “stars” receive. A modest stipend could be delivered while the students played; the stars could get the big bucks when they left college.
  • This decision, along with this past weeks NCAA announcement allowing the 5 FBS football conferences to make their own rules about cost of attendance coverage for athletes signal that there will be some big changes (The NW football union debate is another signal). What strikes me about where Universities like Duke stand now is how much policy making there is to undertake, especially with the decision explicitly saying Universities can set the share of licensing money below $5,000/year/player, they simply cannot collude in doing so. Overlaid on that is the ACC (and other 4 FBS football conferences) trying to determine their rules on what scholarships cover. Will there be an ACC decision about a cost of attendance calculation for football and basketball that must be complied with? Or will it be left up to members to work under a set of to be developed guidelines? And will collusion (I think that is what the ACC members agreeing to a ‘must follow’ cost of attendance decision would be) be ok, but collusion in setting the share of licensing revenue is explicitly not allowed in the judges ruling? Lots of policy making to be done.
  • It is a particularly interesting time for Duke. 5 or 6 years ago, we would likely be looking for a Georgetown solution (play Div 1 basketball, but drop to a lower level in football). But Duke just went to the ACC Championship game in football, and probabilistically speaking have to be approaching a ‘regression to the mean’ phase in basketball within the next 5-7 years. Duke is so far in that I think we will have to match the maximum package allowable, especially in basketball in the short term. Overcoming that inertia and choosing a different approach would be very difficult.
  • I am a member of the Executive Committee of the Academic Council at Duke, the primary faculty governance body at the University, so we will inevitably have to weigh in. This will of course be chaotic. The professors break down into three groups: (1) those who embrace Duke’s big time sports; (2) those who hate the attention and money given to big time sports and who want to de-escalate; (3) those who are clueless about it and don’t pay attention (on basketball national championship game day in April, 2010 I had coffee with a faculty friend who said “isn’t there some sort of match tonight?” Um…). I think that big time sports are inextricably a part of Duke’s identity and there is really no going back. We will have to learn the new rules and compete within them. I will go so far as to say that Duke’s recruitment of undergraduate students ‘niche’ are very smart students who say they want a ‘balanced’ college experience, that includes big time sports. I believe that if we dropped to D3 sports, our student body would become less competitive. This telling of Duke’s story will be bitterly opposed by other faculty. However, you cannot ‘split the difference between the two views’  as Duke either has to try and compete at the highest level of football and basketball, or not.
  • Finally, I assume that Duke makes every effort to fully comply with the rules, and  further assume that this will always be the case. The question is what are the rules, and how will people react as the reality of the new regime becomes clear.

Should be an interesting year.

Should college athletes be paid, ctd?

I think the short answer is that some of them should be paid.

Harold Pollack and I discussed whether college athletes should be paid on bloggingheads last week. Harold’s position is that asking whether paying athletes will harm college sports is the wrong question and I find his argument convincing. Talking with Harold over the past few weeks helped me to realize that I approached the issue as a fan who thinks there are benefits (and costs) that are broadly distributed via college sports, but there are issues of economic justice in play. This lead me to suggest the following for football and men’s basketball, the sports in which questions about economic justice are largest:

  • Scholarships should cover the full cost of attendance
  • All players in these two sports should get a modest “spending money” stipend
  • Star players should receive a share of the money earned from the sale of their likeness and/or jersey

An analysis in a story by Ryan McGee in the latest issue of ESPN The Magazine generally supports my idea, I think. ESPN worked with Jeff Phillips and and Tyler Williams of MIT’s Sloan Entertainment, Media and Sports Club to estimate the fair market salary that 10 University Florida student athletes would receive if they were able to openly and freely shop their talents. A figure adapted from the story that I created is below

The five football players analyzed would receive an estimated salary of between $1 Million and $3.1 Million* per year; these are star players as these 5 would receive a total of around $9 Million of the $57 Million annual football profit (football teams get 85 scholarships, though there are likely over 100 players counting walk ons). The two men’s basketball players (Boynton and Prather) are also team stars, but their “salary” would be lower based on the much lower profitability of men’s basketball v. football at the University of Florida (basketball gets 12 scholarships). The other three athletic programs lost money.

Such an analysis would differ from school to school, but the upshot of the story by McGee is that football is the real economic powerhouse in NCAA sports, with men’s basketball being the only other sport that consistently turns a profit at most universities. A system by which all players on teams in the two most profitable sports received some compensation beyond going to school for free with a small number of stars receiving large sums, the amount derived by some sort of market signal, would seem to be a positive change.

*The estimates were based on the net income of 5 sports programs at University of Florida (football $57.7 M, men’s basketball $1.4M, and losses of between -$1.1-$1.9M for the other three sports). The print article states the full methodology for how they assigned the different salary for the 5 football players, for example, is at ESPN.com/insider but I cannot find it on the free side of a paywall. For the football players LB=line backer; RB = running back; WR= wide receiver; OT= offensive tackle. For the two basketball players G=guard and F=forward.

update: tweaked a bit of the language.