Tuesday, March 29, 2016

Economics, Ethics and Politics in the College Athlete Compensation Debate

Yesterday, I shared data which shows that the men's college basketball players who are part of the top 16 schools in terms of representation in the NBA on average make $3.3 to $5.3 million. I shared this on Twitter and received a few dozen responses from academic economists, journalists and others. This post takes a next step and offers some of my thoughts about the data and the debate over college athlete compensation.

I organize these thoughts into three categories: economics, ethics and politics. These are thoughts for discussion and debate among those inclined to such things.


Much of the discussion of the economics of college athletics, as related to the compensation debate, centers on efforts to quantify the value that athletes provide to their universities which is not shared with the athletes. This is an interesting academic question, and I am convinced, not one with with a unique answer, given the diversity of methods and assumptions characteristic of any economic analysis.

I'm not sure how relevant it is either. In the real world, as opposed to an economic analysis, people receive the compensation that they negotiate, not the compensation that they deserve. Lord knows I provide the University of Colorado a value far in excess of what I am paid (pretty sure I can gin up an economic analysis to support this) but I am paid what I negotiate. I am not part of a union of professors (and cannot collectively bargain). This is not a perfect analogy with students, but it does highlight that in universities, professors, graduate students, undergraduates and athletes all face rules and regulations on compensation. There is no such thing as a "free market."

One question that came up about my analysis is whether playing in college (in the top programs) causes the athlete to receive high salaries in the NBA. In other words, is there some latent value of attending college that is reflected in the earnings power of the athletes that should be ascribed to the college experience. This is not a debate unique to athletics, of course. Students attending Harvard Business School make more money, on average, than students who attend Colorado's Leeds Business School. What role does Harvard play in causing that higher income?

I'm not sure this issue matter much either. If we assume that college players only get a marginal benefit from playing for one of these schools - say 5% value added -- then this would still be $170k to $260k in value, which is still a lot. A few commenters suggested that playing college basketball at elite programs adds no value whatsoever. I don't find such claims, absent evidence, compelling at all. If your son was offered a basketball scholarship to Kentucky or Podunk State U, where would you recommend that he go?


There is a far more powerful argument than economics to make when it comes to arguing the case for greater compensation for college athletes and that is ethics. If athletes create value for their schools that is captured and not shared, then it is arguably fundamentally wrong. Furthermore, if athletes are not allowed to organize in some manner (not necessarily via unions) to represent their interests, then this too is wrong. College athletes should get a fair shake. Of course, this only leads to a question, what is a "fair shake"?

Economics can of course help use to understand the value created by athletes and athletic programs and the beneficiaries. I have long argued that we should treat athletes like we treat other students and faculty on campus by allowing them a share in the rewards of their intellectual property.  An op-ed in today's WSJ opposed to paying college athletes even grants this position focused on the image and likeness rights which have economic value.

The ethical issues are not clear cut however (surprise). Athletes receive compensation, and have since the notion of the "scholarship" was invented in the 1950s. According to research conducted several years ago by the Delta Cost Project, universities invest in athletes 10 times the amount invested in other students. Of course, people argue over whether that "investment" is spent appropriately or even investment at all. These are reasonable things to debate and reasonable people will no doubt find things to disagree on. And that is OK.

The issue of ethics boils down to how different people see college athletics and its role in the modern university. Some people yearn for an era (mythical, sorry) where college sports were little more than self-organized club sports - the true amateur ideal. Others want college sports to adopt a fully professional model, complete with salaries, players associations and all of the formalized trappings of the NFL or NBA. Still others think that there is little wrong with today's model under the NCAA that can't be fixed with a few tweaks here and there.

Each of these positions can be supported with good arguments from well-meaning people. Unfortunately, there is not much middle ground here, and I've come to learn little interest among many in debate or discussion. Different ethical stances often lead to such situations.


In the end, the future of college sports is going to be determined through negotiation, whether it is formal or informal. Such negotiations are already well underway, whether admitted or not.

Whatever one might think of the data that I presented yesterday, it presents a clear political problem for advocates of greater compensation for elite college athletes. Can you imagine taking the case to the public that athletes on whom universities spent hundreds of thousands of dollars more than other students and who are likely to become part of the national 1% should receive even more benefits? Really? Whether the case is ethically right or wrong, it can be a hard one to make.

This is one factor underlying why organizations like the NLRB and the US court system, have been reluctant to make sweeping changes to the landscape of college sports. Such changes not only face political obstacles, but deeply ingrained practices and culture. One reason for presenting the data as I did yesterday was to help advocates for greater compensation to better understand the political context. Little will be gained by denying the data, calling it propaganda or dismissing it as irrelevant.

Even so, college athletes today have more political power than ever. Such power will grow in proportion to the economic stakes associated with big-time college sports. In the end, college sports will evolve in an way that is informed by economics and ethics, but not determined by them. In the end, politics will determine outcomes. Hence the importance of understanding the broader context, even when the data is uncomfortable or inconvenient.


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