Wednesday, July 24, 2013

Thinking Seriously About Paying Athletes

You can't really go anywhere on the Internet these days without reading about the call to "pay college athletes". There's a big lawsuit going on, as you might have heard.

There is a whole lot of inflamed rhetoric going on now. Athletes are regularly called slaves on a plantation (try reading what real slaves went through).

Let's try to put that inflammatory rhetoric aside and talk seriously about paying athletes. Most people who want to pay players just say "It's fair! We need to pay them!" Well, okay. How? What's your plan? What are the issues that need to be dealt with to pay them? I've already talked about the "Olympic model" here, so let's talk about the issues more popular nowadays - direct payment of athletes out of jersey sales, video game sales, tv contracts, etc.

There are some serious issues that need to be dealt with, and that you'll almost never hear the pro-playing-athletes side address. Let's go through them one by one:

1) Athletes are already compensated
2) There is no free pile of cash
3) There is almost no free market on the academic side at universities
4) If you're going to have a professional league, are you really going to have a professional league?

1) Athletes are already compensated

The common argument that you hear is a listing of how many billions are in revenue are generated by college sports, followed by "and the athletes get none of it!" I don't mean to pick on Mack Brown, but he's just the latest one to make that argument: "I do think players need to be paid. These players are killing themselves & at Texas last year we made $163M."

Well that's interesting... where does that money go? With professional leagues, the money is divided between billionaire owners and millionaire athletes, who generally split the money something like 50/50. Every time there's a labor dispute, most of us have no sympathy for either side - we don't care if the athletes get 51% or 52% of the money, we just want the leagues to play games.

Universities? They're non-profits. That money is going somewhere, and it's not into the pockets of billionaire investors. Since Mack Brown brought it up, let's look at Texas. In 2011-12 they did indeed bring in $163.3 Million... but they also spent $154.6 Million. And you'll find that they more or less spend what they bring in every year. Like I said, Texas is a non-profit institution. Any money that they bring in is spent on something.

If you bring this up, the common retort is "Ah, all that money goes to coaches!". Not really. Texas spent $23.4 Million of their $154.6 Million (15%) on coaches, though approximately half of that $23.4 Million went to coaches from non-revenue sports. And I can assure you that Mack Brown isn't taking a pay cut if his players start getting paid cash. If anything, coach salaries would likely go up if you increase the financial stakes for football and basketball programs.

What's most of that money being spent on? Well, if you look at the football budget ($24.8 Million), it goes to a lot of things. We have scholarships ($3.4 Million), equipment ($361K) and travel ($1.4 Million). But there's other stuff that doesn't count into the football budget. For example, training facilities, academic aid and, of course, the coaches and trainers.

Compensation isn't just cash. Compensation isn't even just a free education. Compensation includes being coached by top level coaches, trained by top level trainers, playing on national television and traveling around the country.

Don't think that's worth something? In one of several arguments I've had on twitter with Jay Bilas I asked him repeatedly if he would have taken $200,000 per year to play in Europe instead of playing at Duke. He refused to answer. The reason he refused to answer is because he didn't want to admit the truth - playing for Coach K, playing in Cameron Indoor, and everything else that came from playing basketball for Duke was worth a whole lot more than $200,000 per year.

Don't agree? Players turn down millions all the time to stay in college. At least ten players who were certain NBA Draft picks chose to skip the 2013 NBA Draft. And even players who can't make the NBA can go play in Europe and makes hundreds of thousands of dollars per year. How many players go that route? Nick Calathes and Terrence Oglesby are among the American-born players in the past few years who left NCAA basketball with eligibility remaining with the express intent of playing professional basketball in Europe, but guys like that are few and far between. Either these players in college basketball are all morons, or they value what they get out of college sports as being worth more than being paid a few hundred thousand dollars per year in Europe.

This website lists 31 players currently making at least $1 Million per year playing in Europe. You can get paid over there, and hundreds of guys who were playing as seniors on college basketball teams this past season will be playing in Europe next season. Many athletes are happy to play in Europe - they just value the compensation package at NCAA schools more.

Well okay. Fine, college players already get a bunch spent on them. Why don't we spend more? The schools are sitting on piles of money, right!?

2) There is no free pile of cash

I already told you that the University of Texas spent basically as much money on athletics as they brought in, and that most of the money didn't go to football or men's basketball. So.... where did it go?

Well, $3.4 Million for men's baseball, $1.5 Million for women's rowing, $1.5 Million for men's track & field, $2.4 Million women's volleyball. In all, more than $17 Million were spent on women's sports.... and those are just the operating costs. That doesn't include things that the sports share, like medical expenses ($1.7 Million across all sports) and facilities ($6.7 Million).

All of the money is already being spent. If you're going to spend more money on football or men's basketball then you have to take it from something else. Either you're getting rid of non-revenue sports or you're taking money from academics. But there is no free pile of $163 Million that Texas sits on every year - that money is already being spent on student-athletes.

Well, fine, let's make people earn their keep. Why shouldn't athletes be able to get as much money as they can via the free market, just like everybody else at a university?

3) There is almost no free market on the academic side at universities

Last year, a Chemical Engineering professor at the University of Texas named Roger Bonnecaze brought in a $13.5 Million grant to the school. How much does he get in salary each year? Approximately $174,000. How much does a theater professor who brings in zero revenue to the school make? Approximately $104,000. How is that fair?

Well, this is how public universities work. Public universities are not hedge funds - you don't get paid a fraction of the money you generate. Some professors generate a lot of revenue while others generate nothing. They all get paid more or less the same amount. Why do more productive professors subsidize less productive professors? Because that's what a public university is supposed to be. The University of Texas isn't a pharmaceutical corporation. If they were, they'd fire all of their liberal arts professors and just focus on things that made them money. Instead, they want to have a school where kids who do research for Professor Bonnecaze can also take a theater class.

This follows for sports. More money is spent on football than on volleyball, just as chemical engineering professors make a little bit more than theater professors, but football subsidizes volleyball the same way that Bonnecaze is subsidizing less productive professors. This is what universities do.

If you think that universities should switch to being free market corporations then you can argue that, but don't pretend that's how the rest of the university works. There is no free market anywhere at a public university, because there isn't supposed to be.

If you want to pay millions to players, you have to admit who you're taking the money from. You have to admit that you're either cancelling volleyball or you're firing some professors in order to give an athlete $1 Million in cash. There is no free pot of money, and you'll be going against the mission of every single public school to provide a well-rounded education and experience to tens of thousands of students - not just the ones who bring in revenue.

4) If you're going to have a professional league, are you really going to have a professional league?

This falls under the category of "You have to think through what you want". Because here's the thing - there is no professional sports league that I'm aware of that is an actual free market. For example, let's take the NBA. The athletes can't take any money that they want. Lebron James has a maximum salary. Lebron James can't be paid by a sponsor in exchange for switching teams. Lebron James was drafted. Most athletes have contracts that allow them to be traded without any of their own input.

In a free market, James Dolan (the owner of the New York Knicks) could go to Kevin Durant and say "I'll give you $50 Million in cash every year, and Adidas will toss in an extra $30 Million per year, if you'll come to the Knicks." Durant would certainly generate more than $80 Million in revenue for Dolan and Adidas every year if he came to the Knicks, so everybody would profit. But the league doesn't let him do that.

In a free market, the teams don't have to share jersey revenue to promote competitive balance. Employees can't be traded to different states (or even countries) against their will. Employees have free choice where they go.

So is that what college basketball will have? Can universities draft players? Can they trade players? Will you set limits on what the players are paid? If that's your plan, you don't have "a free market". The NCAA would still be telling players what they could and could not do, what they could make and where they could go.

So what is your plan?

This is where I want to leave the issue. If you want a plan to pay players, tell us what it is and how it will work. And tell us what the consequences and whether the pros are worth the cons. For example, do we want to allow schools to give players a $2000/semester stipend for food or whatever? That's not a "free market", but it's something worth considering if we can make the math and finances work.

But you need a plan. Shouting "SLAVES!" and saying that anybody who opposes you thinks the NCAA is a perfect organization that never does anything wrong isn't enough (a horrible strawman, by the way).

Come up with a real plan and we can talk about it. Until then, you haven't thought through this issue enough.


Jim said...

Spot on. I will book,ark this and share with friends of mine who will make such argu,ends to pay players.

DMoore said...

I don't agree. I think athletes should, and could, be compensated based on their worth. Allow me to throw out a plan. I'm sure there are many objections to it, and I'm interested in hearing them.

First, I'm going to disagree on the idea that there is no free pile of cash. There is, and I think that free pile of cash is more rightfully the property of the athlete than of anyone else.


The Ed O'Bannon case, and Jay Bilas' brilliant twitter lampooning, are based on the idea that the NCAA is making money off the likeness of the athletes. The most direct response to that is that if the NCAA is allowed to sell jerseys, games, etc., that use the athlete's image, number, etc., then the athlete should be compensated for that. The percentage would probably be very small, but it wouldn't be nothing. For some athletes, it might be substantial, and might last long beyond their playing years.

Yes, there would definitely be an impact on recruiting. Even the walk-on hoopster who is on the team solely for bench warming, towel waving, high-fiving and boosting the team GPA at Kentucky might make more merchandising revenue than the star at Nebraska. Some kids might go to a big name school rather than a small one with that in mind. It probably would lead to another stratification of teams, just in a different way than creating a Division IV would.

It might also encourage more individualistic behavior. If I'm playing an NCAA hoops video game, and I'm playing Ole Miss, I kind of want to see my avatar run back down court doing the Rooster after sinking a deep three pointer.

In any scheme that gives players money, someone loses money. On the plus side, I think this would have the smallest impact on school budgets. If that is off, please help educate me on how revenue splits of these kinds of profits work.

To my mind, the biggest thing about this approach is that it does not feel right to me that someone else should be profiting off of an individual's brand. As soon as you start using a jersey number, or a likeness, it seems less about the school and more about the person. If you want to put "QB" on the back of a jersey in a video game instead of a number, or sell a Kentucky jersey without a number, that's a different matter.

I'd like to hear thoughts and ideas on this.

Jeff said...

Well first, keep in mind that the NCAA is not "profiting" off of anything. It is a non-profit organization, and the money that they get from licensing goes back mostly to student-athletes, with some overhead going to administration. So if you take the money from the EA Sports contract and give it all in cash to college football players, that means less money for volleyball, crew and swimming, and some of those non-revenue sports will have to be shut down.

Second, how exactly are you going to disperse the money? Does every Division I basketball player get the exact same amount of cash because they're all in the same game? If you do anything other than that then you open up a massive legal problem - how do you justify giving one player more than another?

Third, be aware that individual athletes don't directly profit on their likenesses being used all the damn time. You have numerous sporting events (Olympics, Tour de France, etc) where athletes receive $0 from the host for their images and likenesses being used on merchandise. And in the MLB, NBA and NFL the players don't directly see any money from video games or other merchandise sales - that money is shared equally by all of the owners. Lebron James will make the exact same salary next season whether the NBA sells 0 Lebron jerseys or 1 million. The NCAA really isn't much different from any other sports organization.

To me, any system where players are getting paid out of one specific thing or another (autographs, video games, etc) is beating around the bush. It creates massive complications, and will create incentives for lawyers and accountants to play games in order to benefit one person or group or another.

Cash is fungible. So trying to pretend that the money is coming from video games but not jerseys, or autographs but not t-shirts, is an exercise in futility. There will always be loopholes to be exploited.

To me, the only way to pay players cash is to do it through each university, and for it to be a fixed amount of money for each player. Basically, a stipend. Give the kids $2000/year or whatever - enough to mean something, but not too much that it kills off non-revenue sports. Any other system just seemed destined to fail.

The Houston Pub Detective said...

Real simple... you allow teams and individual players to pursue licensing agreements and marketing opportunities with local businesses or nationwide businesses. If Johnny Manziel wants to work at a car dealership in College Station getting paid for a promotion weekend, this should never be prevented. Teams could do group photos and autograph sessions for local businesses. There is no doubt the system will not be equal around the country, but why do we need to protect these individuals from the reality of market forces? It is preposterous. The university system does not prevent MIT students on academic scholarship from selling their braintrust in the form of code to Google during the academic year or off periods. Why in the world wouldn't we simply allow athletes to pursue their own financial opportunity with stakeholders that operate legally and legitimately?

Jeff said...

Well here's the issue with that plan - the "market value" of the endorsements would be irrelevant.

For example, what would stop Oregon from paying $10 Million for their next batch of otherwise free Nike uniforms, and then Nike conveniently offers the top football recruit a $10 Million "endorsement" contract? You'd create a bidding war between schools and boosters to buy up the best recruits for their schools.

Now the response to that might be, well why should we care? I can think of two reasons:

1) No sports league on Earth allows totally unregulated third parties to bid on players for various teams. It would be a complete circus, and there would be no control of anything. No sports league on Earth has an unregulated free market, and there are a lot of good reasons why.

2) A lot of this would come out of the pockets of non-revenue sports and academics. How could it not? Boosters could buy up football recruits instead of donating to the school. Schools could find shady ways (such as the example I gave above) to reduce the amount of leftover money they have for non-revenue sports. There's just no way to throw tens of millions of dollars at football and basketball recruits without some of that money coming out of the pockets of everybody else at the university.

Jeff said...

This basically gets back to what I said to DMoore. I just don't think, to paraphrase Karate Kid, that we can be "half karate" on this.

Saying that athletes can't get paid except in one specific case is arbitrary, and just encourages boosters and schools to shovel as much money as possible into that one form of payments to try to attract the best recruits.

Every other sports league on Earth requires player transfers to be controlled by payments from the teams themselves, so that seems to be the only way to do it with the NCAA. All payments have to go through the schools so that they can be carefully controlled, to prevent corruption, to protect the athletes themselves, and to protect other considerations (Title IX, non-revenue sports, academics, etc).

So for example, I'd seriously consider a proposal that lets kids sell their autographs through the school, where the NCAA strictly limits the number you can sell per year and the maximum price you can offer. So perhaps you let every kid sell up to 200 autographs a year at up to $25 each, which would allow the most famous kids to make $5000/year. That wouldn't be enough to affect the non-revenue sports at the school, but would be enough for kids to take home a nice amount of money for basically zero work.

DMoore said...

Your autograph idea is along the lines of what I'm thinking. Run the sales/profits through the school or NCAA, and give the player who is being merchandised a fixed percentage. Same for video games, jerseys, etc.

I would not cap this. Yes, this opens the door for abuses. I think all options have some potential for abuse, but I think that a market based system is the most fair to the players. I think this is somewhat addressed in that the player is only getting a percentage of the revenue.

I think doing it based on sales has less of an impact on the schools than if you pay fixed amounts, but I could be wrong in that. I do realize any time there are payments, someone else is losing money, but I don't see how those getting the money today are the most deserving of it.

Jeff said...

Well it comes down to what the mission of a university is.

So for example, let's say you have unlimited payments for autographs, and so boosters use that loophole to spend tens of millions of dollars at a school like Alabama to bring in the best football players, and so that leaves the school unable to pay for nonrevenue sports. When I bring that up, a lot of people say that they don't care because non-revenue sports aren't bringing in any money and don't deserve any money.

Well, should we take that to the rest of the school? If we take the example in my article above of the engineering professor bringing in a $15 Million grant and the theater teacher who brings in nothing - should the schools eliminate their liberal arts departments so they can pay engineering professors $5 Million/year? Should every university just turn into a hedge fund where everybody gets paid a fraction of the revenue that they drive?

Also keep in mind what that system would do for competitive balance. Professional leagues like the MLB, NFL and NBA have all instituted a slew of revenue sharing and salary-limiting rules in order to help competitive balance. In a "free market" (which no sports league on Earth currently has) you would have no such competitive balance. Suddenly, the same ten teams would be the ten best teams every year, and the chasm between them and everybody else would be massive. Forget schools like Butler, Gonzaga or even Wake Forest ever contending for a Sweet 16. I just don't think that would be good for the game, and I think it would severely hurt the popularity of the sport.

Jeff said...

There's one other thing I think that should be kept in mind if we're going to unregulate how much money schools can spend on athletes.

A fundamental difference between NCAA schools and professional sports teams is that everybody on a professional sports team is being paid by the ownership group. The owners generate revenue through the team and spend it on the team, and if they want to spend more than they bring in then it's coming out of their own pockets. Because of that, very few pro franchises (if any) run sustained losses for a long period of time.

If you look at a big NCAA school, though, it's easily clearing $3+ Billion/year in total revenue. And the biggest schools only spend maybe $50 Million/year on football players and $15 Million/year on basketball players. If you assume that a school cares more about success on the football field than in the biology department, then what would be the big deal about doubling the money spent on football? It would only be taking only 1-2% of the general fund, after all. The problem is, of course, that now you're taking $1-2k/year out of the pockets of every student to pay football players. Maybe you think that's good or maybe you don't, but it's something that should be considered.

DMoore said...

Part of the problem here is that merchandising has nothing to do with the mission of a university to begin with. It is a for profit venture, and has nothing to do with education. The Ed O'Bannon case takes it one step further, and argues that the university, and the NCAA, do not have the rights to all that they are selling.

The point is that the merchandising money we are talking about is NOT the university's. If boosters and fans purchase merchandise, and a segment of the profits go to the players that are popularizing that merchandise, it's very tenuous to say that is taking money from the school. We aren't unregulating how much money the school can spend on athletes, we are unregulating how much money the fans can spend on athletes.

If you want to make arguments about competitive balance, I think there is more validity there. However, I think that assumes there is competitive balance in the first place, and I think it's pretty easy to ridicule that idea to start with. In a competitive balance world, Kentucky does not land classes containing multiple players that are considered the best incoming freshmen at their position. And does not have players taken 1 and 2 in the NBA draft. In a competitive balance world, the biggest conferences do not threaten to split off from the NCAA because the smaller conferences are voting against proposals that will give the big schools an even greater edge. I have trouble seeing that recruiting will be much more unbalanced than it is today.

BTW, the biggest football schools are approaching spending $100M a year on football now (e.g. Alabama).