Employment of College Football Players Will Upend Rent-Sharing Model of College Athletics
Or how I learned to stop worrying and love the changing face of college football
Everyone in college athletics makes money off college football players, except the players themselves. Sure, there is NIL now, but that is peanuts in dollar terms and, like endorsement deals for professional athletes, it is a side benefit for marketable players.
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.
Intercollegiate amateur athletics in the US largely bars student-athletes from sharing in any of the profits generated by their participation, which creates substantial economic rents for universities. These rents are primarily generated by men’s football and men’s basketball programs….Using complete roster data for every student-athlete playing sports at these schools in 2018, we find that the rent-sharing effectively transfers resources away from students who are more likely to be black and more likely to come from poor neighborhoods towards students who are more likely to be white and come from higher-income neighborhoods.
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.