A Solution to the NCAA’s Compensation Problem

There are three things you can count on in life: death, taxes and college sports stars being accused of or charged with committing NCAA rules infractions. Whether it’s Johnny Manziel, Cam Newton or Reggie Bush, the stars of today’s college game are surrounded by temptation and opportunities for financial gain at a time when money is particularly tight. For most student-athletes, if athletics and academics are to be a one-two priority, there is very little time to earn money through a part-time job. And with no guarantee of future income coming from professional sports, the appeal of gaining immediate benefits becomes all the more tempting.

While we know that top collegiate athletes face myriad opportunities to violate NCAA rules, the bigger issue is this: should all parties be allowed to profit from a product, except for those most directly responsible for producing the product? The issue of pay-for-play has become increasingly polarized: one camp claims that the college game is sacred and that a college scholarship is sufficient payment, while the other vehemently argues that student-athletes are being taken advantage of, even likening the situation to a form of indentured servitude. The ongoing O’Bannon v. NCAA class-action lawsuit addresses one part of the debate – the use of student-athlete images and likeness in perpetuity – and although the lawsuit will sort out the situation in due time, this article aims to examine the key problems surrounding the situation and to dispel some commonly-held beliefs regarding collegiate athletics. Here are some need-to-knows:

1) Most universities, even at the highest level (Division I Football Bowl Subdivision), do not turn a profit from their athletics programs.

In fiscal year 2012, the median net income for all Division I FBS schools was just $458,000, meaning that 60 of the 120 highest-level NCAA programs just barely profited, and in many cases actually lost money. And that includes revenue allocated from the university directly to athletics, not just money earned in-house. The median generated net income for the same schools in the same period was actually a net loss of $12,272,000.

There are of course certain schools that do turn profits – 48 of them in FY 2011. The University of Alabama, for example, made an impressive $31.685 million, while the University of Texas kept $26.650 million. In the context of pay-for-play, it certainly seems that some schools can afford to pay their student-athletes. The numbers aren’t nearly as favorable for Division I FCS, Division II and Division III though. In FY 2012, the median generated revenue for the second tier of football schools – Division I FCS – was a paltry $3.75 million (total revenue generated through all sports, not just football).

2) Football and men’s basketball are the only two net revenue generators at most schools, and their excess dollars are used to fund other sports.

This reality is not just a Title IX byproduct; football and men’s basketball also prop up non-revenue generating male teams such as tennis and baseball. Table 1 shows the huge median losses incurred by various Division I sports. For example, at top-tier athletic schools, women’s basketball programs lose on average $1.369 million per year.

Table 1: Median Net Revenues for Division I FBS Schools in FY 2012
[table id=7 /]

In FY 2012, UCLA’s men’s basketball and football programs made a combined profit of $7,133,000. All 21 of the school’s sports programs, however, broke even at $0. This occurred because excess income from the top two sports was used to cover the losses of the bottom 19 sports. Many schools actually end up reporting a complete breakeven, likely so they don’t appear to be “for-profit” organizations even if they did turn a profit. It should be noted that the publicly-available figures include just operating revenues and expenses, not other expenses such as debt service, which is often quite costly.

In reality, the only college athletes who deserve to be paid are male football and basketball players, since 99 percent of the time they are the only two groups who contribute net revenue to a school’s bottom line. Such a rule would of course open a huge can of worms for the NCAA though. Not only would this decision likely violate Title IX requirements, but it would not address the issue of which students should be paid how much. Long-term, a negative impact would also be felt in that kids would shy away from playing non-revenue generating sports, instead turning primarily to football and basketball.

3) The NCAA does turn an annual profit, but likely not enough to pay all student-athletes a sufficient stipend.

The NCAA’s primary source of revenue is in the form of broadcasting rights for the annual men’s basketball tournament. In 2010, the association signed a contract with CBS and Turner Broadcasting worth an astounding $10.8 billion over 14 years, or approximately $771 million per year. And in FY 2012, after payouts to member institutions, championship-hosting expenses, staff salaries, etc., the NCAA actually netted $70,916,000. While I am not arguing that the NCAA can’t afford to pay student-athletes, it must be noted that in the same year, 453,347 student-athletes participated at the NCAA level. If all of the NCAA’s profits went directly back to student-athletes, each player would have received just $156 last year.

Given the financial predicament that many universities find themselves in, and the lack of abundant cash generated by the NCAA, it is difficult to find a reasonable way to pay collegiate athletes the sums that they may deserve. Under a mandate stating that each school must pay X to all student-athletes, many schools wouldn’t be able to financially stay afloat. Alternatively, if a laissez-faire market is created in which schools are free to bid for players, then the highest bidders (the University of Texas, the University of Alabama, Ohio State University, etc.) would form an oligopoly and drive all other schools out of competition.

The most practical solution to the pay-for-play issue is to continue to prohibit student-athlete pay but to relax the terms surrounding “amateurism” and to allow student-athletes to profit off of their image and likeness, just like virtually any other adult in America is free to do. In this system, universities would not be hamstrung by the financially crippling task of paying its players, while deserving players would receive earnings that could rightfully be paid to them in an open market. In the rule’s first version, a dollar limit could even be imposed on maximum annual earnings so that situations don’t go spiraling out of control. If an autograph broker is willing to pay Johnny Manziel $10,000 to appear at a signing, then Manziel is allowed to earn that money. And if the NCAA wants to continue its videogame licensing deal with EA Sports, then all featured players should get a share of the deal. This may not be a perfect solution to a messy problem, but it is a necessary step in the right direction.

For far too long, the NCAA has hid behind this idea of amateurism in an effort to strip student-athletes of any sort of commercial rights they may otherwise have. But the fact is, student-athletes are not treated as amateurs. They are worshipped on campus, celebrated in the media, and unabashedly displayed and monetized by their universities and the NCAA. Consider the all-too-perfect irony on display in the joint statement released by Texas A&M and the NCAA announcing the half-game suspension of Johnny Manziel for allegedly signing autographs for payment: in the upper-left hand corner of the announcement’s photograph was a “Buy Photo” icon.

Maintaining the status quo is the most convenient route for the NCAA and its member universities, but the tide of criticism has risen to a level too high to ignore. Regardless of the outcome of the O’Bannon v. NCAA case, the images and likenesses of student-athletes must be returned to the proper place: the individual owner. Without a doubt, the current system is broken; there are far too many rules in place and far too many opportunities to break them.

Thoughts or comments? Feel free to reach out to me at droach@rohan.sdsu.edu.

2 Replies to “A Solution to the NCAA’s Compensation Problem”

  1. I don’t think college players should get paid. It is a privilege to play college sports. They get a full-ride $40,000 scholarship and that is their compensation.

    1. Alex, thanks for reading. I agree that college scholarships serve as good compensation, whether or not student-athletes feel that way. I feel that they should be compensated for their popularity and what happens off of the playing field/court.

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