A report published nearly four years ago by the National Bureau of Economic Research (NBER) makes clear the acuity of the issue and the degree to which a recent National Labor Relations (NLRB) Board ruling will upend college athletics.

This week, the NLRB certified a union that will represent Dartmouth men’s basketball players, the group that won the original NLRB decision. Although Dartmouth appealed the ruling that the players are university employees, the writing appears to be on the wall for the long-standing student-athlete model.

As reported by The Associate Press, and published by New Hampshire Public Radio:

Barring a successful appeal, the players and school will negotiate a collective bargaining agreement that would cover working conditions such as salary, practice hours and health care benefits.

Full university employment, from a legal compliance perspective, is probably not possible, which increases the likelihood that football and men’s basketball teams at the FBS level, or perhaps just P4 schools, will be spun off as separate for-profit entities aligned with the non-profit university.

Rent-seeking, the crux of the issue

The NBER report, written by economists at Northwestern and the University of Michigan, presents some startling statistics.

Fifty-eight percent of athletic department revenue comes directly from football and men’s basketball, with another 27% coming from media rights and other channels that mostly relate to those two sports. All the other sports combined account for just 15% of revenue.

While nearly 50% of revenue generated by professional football and men’s basketball players flows back to the athletes in direct compensation, less than 7% is remunerated directly to college players.

The researchers found that about 31% of revenue generated by football or men’s basketball flowed back into those sports. Contrast that with some of the major sources of rent sharing:

Complicating all this is the finding that football and men’s basketball players, on average, come from families in the 49th percentile of income, compared to the 60th percentile for all other athletes.

Success on the field has led to power conferences employing a business model that sees the athletic department as largely self sufficient, requiring only minimal contribution from the university. On the other hand, schools outside of the power conferences depend more heavily on university transfers to fund the athletic department.

As a result, power conference schools are in a much better position to compensate players directly. Still, there are many issues that make direct employment undesirable for universities, not the least of which is Title IX compliance.

Implications of direct employment on Title IX compliance

Title IX mandates that equal opportunity be afforded across gender lines. In college sports, up to this point, that has meant equal numbers of scholarships for male and female athletes.

The definition of “equal opportunity” gets trickier in a direct employment model. While litigation would ultimately settle the particulars, the risk is that courts will find that schools must allot equal amounts of money to pay both male and female athletes. Given that football and men’s basketball players generate much more revenue and have far higher market values, such a mandate from the courts would be completely untenable.

Women’s college sports have been an unquestioned success, and it would be a political disaster for everyone involved if all that progress was rolled back. Still, the current model appears to be on it’s way out, which raises the question, Now what?

Where this is all going

Ultimately, I think college sports will evolve into something resembling the sports club models used in Europe. How far things will move in that direction, I believe, will depend on each university.

At one end of the spectrum is the model in which schools (likely just the P4) spin off their football and basketball teams as separate entities that would then partner with the university. These entities would operate completely independently from the university and pay players according to what their P&L numbers could bear.

Outside entity teams would compete outside of the NCAA governance structure, necessitating a new governance body. With this acknowledgement, it’s not difficult to take the next step in conference realignment - the consolidation of the P4 into the P2, the SEC and Big Ten, which would likely become de-facto north and south leagues. The champions of these two conferences, likely decided in a playoff, would play for the National Championship.

At the other end of the spectrum is a model that sees the entire athletic department spun off as a separate entity, which would run the respective sports under its purview like separate business divisions. Under this scenario the NCAA would likely continue as the governing body with the P4 becoming an official Division I subdivision.

Schools with self-sufficient athletic departments would likely opt-in to this P4 model, while those that require university dollars to pay for athletics would not. As a result, there would be a clear separation in who gets compensated how:

• P4 subdivision players: direct employment compensation plus outside NIL

• Players at all other schools: NIL only

In between the two extremes would be a hybrid setup that sees the separate sports entity including some, but not all other sports (baseball, women’s basketball, or hockey are the most likely candidates). How governance would work in this, the most likely outcome, is anybody’s guess.

Teams that remain under the university umbrella would still be subject to Title IX and without the cash cow that is football, would be incentivized to return to playing in regional conferences (to cut down on travel costs).

However it all shakes out, college sports as we know them are changing, and the rate of change is only increasing with the passage of time. The system is far from equilibrium now, but eventually it will reach that state. When it does, there is every reason to believe that what we all love about college football (and the other sports) will remain, while much of what we don’t (like bowl representatives getting rich off players) will fall by the wayside.

Unfortunately, it’s weaker today than it was yesterday, and it was pretty weak yesterday. So, I put off recording this week’s podcast and instead will share some thoughts on the NIL lawsuit that the Virginia and Tennessee Attorneys General filed recently and for which they won a temporary injunction last week.

First, I’ve given a lot of thought as to why the Virginia AG would join in this case. Not the made-for-the-media reasons, but the real reasons. So far, I have come up with these two:

1. This is an attempt to curry favor with the SEC on behalf of Virginia and Virginia Tech, who may be looking for a new conference home sooner than later.

2. A Virginia school, I won’t speculate as to which one(s), may have been in the NCAA’s crosshairs for the same alleged violation.

Both are decent reasons, but I’m not sure either one alone merits Virginia’s AG getting involved. I can see a case for the Virginia AG to act if both were true, but I suspect there is more to the story than has publicly been revealed.

Beyond factors that would cause the political wheels to start turning in Virginia, there are real questions about the ramifications of this case, which appears likely to be decided in Tennessee’s favor.

Virginia Tech, neither by culture nor by resources, is the kind of school looking to pay big money (or perhaps any money) up front in NIL to high school recruits.

So, if the final judgement comes down as expected, Virginia Tech will probably be in a weaker position in the short-term. But long-term, it seems increasingly likely that the universities will have to employ players directly, which would make multi-year contracts easier to write and manage.

The stage was set earlier this month in a ruling by the National Labor Relations Board. As reported by the Associated Press:

A National Labor Relations Board regional official ruled on Monday that Dartmouth basketball players are employees of the school, clearing the way for an election that would create the first-ever labor union for NCAA athletes.

That leads me to my final provocation, I mean point.

Perhaps you chuckled a bit at the notion of some Ivy League basketball players gaining employment status and, likely, union status as well.

Well, chuckle ye not, because if suddenly all athletes become employees, I don’t care how much boosters in the Southeast give to their favorite athletic department, the Ivy League will win if it decides to play the game.

In terms of endowment size, four of the top six universities nationally are in the Ivy League.

Texas A&M, at seventh, is the only current member of the SEC in the top 10.

Once upon a time, the Northeast schools dominated college football. The famed Yale-Georgia series in the 1920s marked the passing of the baton.

But if money really equates to winning, the big money remains in the Northeast. And if those schools decide to start spending, well, all bets about the P2 would be off.