Econ in the News: NCAA and Athlete Pay

The NCAA recently opened the door to allowing college athletes to be compensated for the use of their likeness, names, and images. In a statement, the board of governors for the NCAA has officially begun the process, although the exact details remain uncertain.

I won’t dive too much into arguments for or against compensating student-athletes for their likeness – I’m going to stick to the facts, and point out a couple very interesting economic lessons from everything that’s going on.

Trenton Irwin (Stanford ’19) WR at Stanford, and a friend of mine. Should the NCAA have paid him for using his likeness in football branding and advertisements?

First off, the NCAA itself operates as a monopolist on college athletics (or at least competitive college athletics). Prospective applicants to the NFL and NBA, two powerhouse athletics franchises in the United States, usually have to attend college first. Through college games, student-athletes show off their prowess on the field, earn accolades, and (hopefully) get a good college education as well. Using its monopoly power\, the NCAA bans offering money and/or gifts beyond a college scholarship, in an effort to reduce an incentives “arms race” and allow various schools to compete for top-ranked student-athletes. In circumstances where colleges have been caught circumventing the rules, the NCAA can take away championships, suspend teams, or even kick them out of the NCAA altogether.

The flipside of the NCAA’s power is that students who wish to advance beyond collegiate athletics (especially in sports with high salaries) usually have to go through the NCAA first. This is often defended as a way to ensure students can benefit from at least some college education; after all, scholarships can help students attend a college that they otherwise would not have had the opportunity to attend. Critics have pointed out that the NCAA generates over $1 billion a year from student-athletes, most notably from March Madness, stuffed with star basketball players who attend college for 1 year (“one and done”) to be able to play in the NBA. Although it should be noted that much of college athletics operates on a nonprofit model, it’s undeniable that colleges and the NCAA benefit monetarily from student-athletes.

The main way that the NCAA has argued against paying student-athletes has been under the idea of “amateurism” – if students were paid, it might lead to a full commoditization of college athletics, with sports becoming an even more all-consuming “job” for these college athletes. Under the ideals of “amateurism”, students are limited to a maximum of 20 hours of scheduled practice a week, for example. For all that the NCAA attempts to do as a monopolist, this is perhaps their most benevolent argument, albeit one that comes into question with a little game theory applied.

Consider two evenly-matched football teams about to face each other in a week. To keep this simple, assume that the team with more hours of practice wins, and each team would practice up to 40 hours a week without restriction before the cost of additional practice would be too high to continue. If both teams maximize their expected utility under strict NCAA rules, then they should both practice 20 hours a week, and remain evenly matched.

Now, suppose the option to “cheat” comes into play. A common way this is done is to have team captains lead “optional” practice (where you get the “option” to play in the next game or get benched, depending on whether you show up). If the NCAA imposed high penalties for these workarounds, and strictly audited schools to ensure the 20 hour limit, the teams may not want to risk additional practice. However, if the NCAA is lax about rule enforcement, you could easily end up in a scenario where both teams practice up the full 40 hours a week.

The final piece missing is why the NCAA would choose “lax enforcement” over “strict enforcement”. Numerous recent scandals (as well as student-athletes’ own admission on official versus actual effort they put in to their sports) indicate that the NCAA has been choosing the former “lax enforcement” policy in reality, regardless of theoretical arguments on what they should choose. This choice is likely because the NCAA benefits from players putting in more hours of effort; even if the players don’t benefit (they are still evenly matched, and incur the costs of extra practice), the overall level of play is likely higher, so games are more “exciting” (and fans are more interested in buying tickets and merchandise). If this is true, then turning a blind eye to more practice benefits everyone invested in college athletics.

Everyone, except for those student-athletes.

Although the NCAA has maintained its power over college athletics for decades, it’s not invincible to outside forces and other “market events”. Speculation abounds that the NCAA’s response is a direct result of pressure from lawmakers, both on Capitol Hill and across the US. In California, a measure that will allow college athlete compensation marks a turning tide in opinions over student-athletes, and it is possible that more states will follow.

Only time will tell what the eventual results of college athlete compensation will be, including unanticipated consequences of opening college athletics to increased sponsorship and personal gain. In the meantime, I’ll keep cheering on my student-athlete friends, whether they’re in Stanford Stadium, the Super Bowl, or the Olympics.

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