Sensible reform for student-athlete compensation will first need to address three important questions informed by an accurate understanding of preexisting market structure, say Slaughter and Rees.
College sports. The joy of victory and the agony of defeat evoked by these two words mark one of the most distinguishing features of American higher education—and, arguably, broader American society—compared with the rest of the world. And yet, historic and fundamental change is coming fast to U.S. college sports and their student-athletes.
The National Collegiate Athletic Association is a nonprofit organization that regulates athletics in its 1,098 member schools and 102 member athletics conferences. Today there are nearly 500,000 NCAA student-athletes across 24 different sports. One of the central—and most controversial—aspects of NCAA regulation involves compensation for student-athletes. To be eligible to compete for an NCAA school, a student-athlete must be certified as an amateur, a status that imposes strict limits on what sort of compensation can and cannot be received in exchange for playing (and on the process by which a student-athlete might be recruited by and matches with a school).
Compensation for any NCAA student-athlete has long been limited to two parts: a scholarship related to the cost of attending school, and a modest stipend for living expenses. On the other hand, compensation for any student-athlete has long been prohibited from including two other possible parts: payment for playing the sports themselves, and payment for services that use the athletes’ name, image, or likeness (or “NIL”; e.g., autographs, product endorsements, and social-media contributions).
Last week, the Supreme Court unanimously ruled (you can read the full decision here) that the NCAA cannot restrict a range of modest benefits, such as free laptop computers or paid internships after graduation, that are part of the payments related to school attendance. And on Monday of this week, an NCAA council that represents its Division I member schools recommended dropping the decades-long prohibition against NIL compensation. This recommendation was prompted in part by new laws in eight states that go into effect tomorrow to allow such NIL payments. If accepted by NCAA leadership in a meeting scheduled for today, this reversal would, ironically, put student-athletes on the same level as their teams’ cheerleaders, who already can and do strike NIL endorsement and social-media deals.
These two historic changes may well presage the most fundamental change of all: paying the student-athletes for playing the sports. Justice Brett Kavanaugh wrote a concurring opinion to the full-court ruling, hinting that the court might bless such payments. “The NCAA’s business model would be flatly illegal in almost any other industry in America. … The bottom line is that the NCAA and its member colleges are suppressing the pay of student athletes who collectively generate billions of dollars in revenues for colleges every year. Those enormous sums of money flow to seemingly everyone except the student athletes. … Nowhere else in America can businesses get away with agreeing not to pay their workers a fair market rate on the theory that their product is defined by not paying their workers a fair market rate.”
The question of additional compensation for student-athletes arises not in a vacuum but rather in a preexisting market structure that contains many actors, institutions, laws, policies, and precedents.
What to make of all this? Two main points should be noted. First, no one should be surprised at the economic imperative driving these changes. And second, no one should kid themselves that paying student-athletes for playing sports will be simple.
As we have written before (e.g., about Prince), globalization and technological change have for decades been allowing high-talent individuals and organizations to scale their abilities across ever-larger markets—and thus to generate ever-larger economic returns. From 2006 to 2019, revenue earned by the athletic departments of the 65 schools that constitute the NCAA Power Five conferences nearly doubled, from $4.4 billion to $8.5 billion. Most of these revenues stemmed from men’s football and basketball programs, which were commanding increasingly lucrative fees for the right to broadcast their games. Yet only a small fraction of these revenues accrued to the student-athletes in the form of scholarships and related stipends.
But allowing student-athletes to earn more from playing these games will not be simple. The question of additional compensation for student-athletes arises not in a vacuum but rather in a preexisting market structure that contains many actors, institutions, laws, policies, and precedents. Any sensible reform will need to answer three important questions informed by an accurate understanding of this initial market structure.
The balance between the perception and reality of student-athletes will tip with additional compensation for athletics: how much is okay? For example, will payment be linked to satisfactory academic performance? More generally, all sports industries and leagues make institutional choices that govern very disparate incentives and forces, such as the relative importance of absolute and relative success. Does the NCAA want to preserve or alter the current degree of competitiveness of its marquee revenue sports, basketball and football? Does the NCAA want to preserve or alter the current degree of player mobility across schools—both in the initial freshman-recruiting process and post-matriculation through transfers?
The general statement “treat student-athletes like employees and pay them” could mean several distinct features of labor markets in professional sports and beyond. Different professional sports display wide variation in the answer to this question, both across different sports and within particular sports over time. For example, today many professional U.S. sports have players unions that bargain collectively over broad issues such as work conditions, minimum salaries, and revenue-sharing with team owners—but that, unlike almost all unions in all other industries, reserve individual wage setting for bilateral negotiations between each player and team(s).
Central aspects of the supply of and demand for sports and related entertainment services tend to foster inequality among athletes’ earnings. The highest-talent players are relatively scarce, and even though they might play the same number of games as years ago, today the entertainment value of the most-gifted can be scaled almost without limit, such that the income from that scaling can be enormous. Thus do the best athletes and teams tend to garner much larger incomes. It will be important to determine where and how much income inequality among student-athletes will be permissible. Across sports? Across players? Across schools? Across conferences? Across gender?
Central aspects of the supply of and demand for sports and related entertainment services tend to foster inequality among athletes’ earnings.
For example, will a system be tolerated in which inequalities induce certain powerful schools and/or conferences to establish their own “super-leagues” with higher compensation? Or, conversely, will smaller, less-competitive schools withdraw from the NCAA because of financial pressures? Will Title IX considerations compel equal pay among men and women in like sports, even those with demonstrably different entertainment values? Can prices be raised, such that the economic cost of paying student-athletes is borne by fans through higher ticket prices, souvenir prices, or broadcast fees? Can compensation of certain parties be lowered?
Another key dimension of inequality that any reforms will need to confront is race. Last year, four scholars published a meticulous working paper, “Who Profits from Amateurism? Rent-Sharing in Modern College Sports,” that found “the [current system of] 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.” Football and men’s basketball generate far more revenues than any other sports; “roughly half of all athletes in football and men’s basketball are black, compared to only 11 percent of athletes in other sports.”
Exactly which changes will materialize, and what will be their consequences? We all will have a front-row seat. The three questions above will help make sense of the action.