Posted by John Vrooman on Monday, March 14, 2016 in NCAA Basketball.

Interview with CNBC 3/2/16.

NCAA Revenues / XL Charts

After the modest compensation increases through cost of attendance funding and unlimited meals, how much more financial leverage exists within the NCAA to increase compensation for athletes?

Depending on the outcome of Jenkins v. NCAA the recent cost of attendance (COA) adjustments which average about $4000 per scholarship are legally the most the conferences can compensate the players.

The overall hit for Power 5 conferences of about $1 million per season compared to Football budgets that range from $20 million to $120 million and Basketball budgets from $5 million to $45 million. There may be minor incentives to inflate COA in recruiting bidding wars but the spread appears to be from $3000

How do you rate the argument that more money could go to the athletes amid the increases in revenue for the CFP, March Madness, etc.?

While a $1 million increase in expenses is not chump change for smaller FCS schools the COA adjustment is a minor nuisance for the Power 5 Conferences who have enjoyed major manna from CFP TV rights fees.

The explosion in CFP TV money has clearly split the current FBS of 125 schools into the Power 5 and Group of 5 conferences right down the middle at football revenue of about $20 million. In the near future this economic polarization will be formalized with the Power 5 meta-division, and issues of player exploitation will then only concern the Power 5 in both football and men’s basketball.

Depending on the outcome of pending cases the relaxation of the NCAA’s no pay rule should aggravate the polarization and expedite the formal designation of the Power 5 conferences as de facto semi-pro leagues.

While paying head coaches alone — not including athletic directors, assistants or other staff — sometimes 5 percent or more of total program revenue, do conferences have legitimate grounds (other than current legal status, of course) to not boost compensation?

The traditional rule of thumb defining excess compensation (private inurement in legal lingo) in a private non-profit tax-exempt business has been any single employee’s salary being in excess of 5 percent of the revenues of the business. That ratio could now probably be adjusted to 7.5 percent.

Current FBS ratios are not sufficient to threaten IRS rules for tax-exempt non-profit status, but coaches’ salaries should probably remain in the single percentage digits, even for ambitious programs changing classification.

Private inurement of coaches’ salaries, however, would not disqualify football and basketball programs from being tax-exempt because the college salaries are determined in competition with NFL coach salaries. For example, Nick Saban’s initial salary at Alabama was originally set at the level of his previous salary for the NFL Miami Dolphins. The important factor here is the realization that the college and professional coaches’ markets are one and the same.

Even in the light of these seemingly exorbitant coaches’ salaries (compared to faculty and chancellors) that are determined in the open coaches’ labor market, the comparable compensation of college players is found in the parallel shadow markets of minor league professional sports. The underlying exploitation of younger professional players trapped in the horizontally segmented labor markets of professional sports is the ultimate source of the exploitation of college athletes.

If another antitrust case, say the Jenkins case, goes against the NCAA, do you expect that to significantly increase compensation?

The self-proclaimed Jenkins “freedom case” seeks to remove the restrictions on player compensation and establish a free labor market for FBS and D1 Power 5 talent only. United States Court of Appeals for the Ninth Circuit in O’Bannon v. NCAA found the NCAA compensation limits to be a restraint of trade but changed the limits from an arbitrary $5000 to the pre-determined COA used for all students by the respective school’s financial aid office.

The problem with the plaintiff’s free market argument in the Jenkins “freedom case” is that paying amateur athletes treats the symptom rather than the disease. A “shadow labor market” for the talents of college athletes already exists for some leagues and doesn’t exist for others. The parallel professional alternative is an indicator of the market value of an amateur athlete.

If college athletes are paid less than they receive in benefits, then a competitive parallel professional market for player development would form where the players could be paid for the true value of their talent. The coexistence of extensive minor league player development systems in MLB and the NHL gives amateur players an alternative shadow price for their talent on the professional market.

These minor league systems comprise a shadow markets that reflect the best alternative value of the player to attending college and playing at an amateur level. MLB and NHL incur the risk and cost of finding and developing their own talent and the NFL and NBA do not.

The non-existence of a professional player development league in the NFL and NBA (D-league notwithstanding) implies that these two leagues have shifted the cost and risk of player development to the NCAA cartel and serves as prima facie evidence that the current compensation for amateur players compensates them for their talent.

The deeper underlying problem of compensation of college athletes is compounded by the fact that the NCAA is only one of several cartels restricting the college football and basketball players labor market.

In the specific case of Jenkins, the NFL and the NBA cartels have both exploited NCAA Power 5 member institutions in the discovery, training and development of FBS and D1 athletes. This undue private benefit for the NFL and NBA cartels could also call into question the tax exempt status of FBS and D1 programs.

A drafted MLB or NHL player has the freedom to choose between a professional path through the minor league player development system or a parallel amateur path through college baseball or hockey. That choice reveals the implicit shadow price for the amateur college path. In the larger scheme of things, that choice is not entirely free however because the entry level salaries in all NA sports leagues are severely restricted because of payroll caps, max salaries and arbitrary service require for free agency.

When compared to amateur baseball and hockey players the shadow path option is not available to NCAA FBS football or D1 basketball players because of the age eligibility restrictions both leagues place on their respective amateur drafts.

The pro-competitive solution for exploitation of amateur college athletes is two-fold and it has nothing to do with paying all amateur college athletes. This first part of the solution is obviously for all professional leagues to relax or eliminate age eligibility requirements and allow amateur college athletes the freedom to choose their respective paths toward the professionalization of their talents. The players then have a free choice that ultimately reveals their true valuation of amateur college athletics.

The second and not so obvious part of the free market pay for play solution is for professional sport leagues to remove artificial and arbitrary seniority requirements for free agent eligibility that now currently segment the labor market for professional talent regardless of age or experience.

This improves the accuracy of the shadow price signal that is being sent by the parallel professional alternative. Current professional players in the lower seniority segments or “protected” tiers of the labor markets are being paid a fraction of the value of their production.

MLB and NHL can rightfully claim that some underpayment of players at the entry level is necessary to recover their player development expenses, but the NFL and NBA do not have that justification…and it’s not even close.

The legal problem to the economic market solution is that the amateur age eligibility requirements for league entry and restraints for free agency have been decided arbitrarily in a collective bargaining process and are therefore not subject to remedy in civil court.

Ironically the ultimate economic freedom solution to the exploitation of amateur college athletes is to hold the professional NFL and NBA cartels and the veteran NFLPA and NBPA players accountable for their direct exploitation of their own lower tier professional athletes as well as the indirect exploitation of amateur college athletics.

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