To Pay or Not to Pay: Is That the Question?

The Wages of Wins Journal has featured a few posts on the topic of student-athletes and the NCAA. And the filing of papers by the football players of Northwestern with National Labor Relations Board fanned the flames of pay-for-play debates everywhere. Clearly, the issue is not going away. But, people (well—economists anyway) have been saying this for the better part of 30 years! What are the core economic principles fueling the fire? There are several and probably too many to tackle in one post; so, for starters, we will explore two: the amateurism model and marginal revenue product (readers of Wages of Wins should be very familiar with the latter).

NCAA Bylaws, Article 12 states “Student-athletes shall be amateurs in an intercollegiate sport, and their participation should be motivated primarily by education and the physical, mental, and social benefits to be derived. Student participation in intercollegiate athletics is an avocation, and student-athletes should be protected from exploitation by professional and commercial enterprises.”

As economists like Michael Leeds, Peter von Allmen, Daniel Rascher, Andrew Schwarz (and others) have pointed out the NCAA’s dealings with student-athletes can be interpreted as pure protection of the ideals described above on behalf of universities or as pure manipulation of labor power provided by athletes for the sake of millions of dollars in revenue from sports.

Rascher and Schwarz argue pointedly that amateurism is neither a reasonable nor necessary restraint to keep collegiate athletics alive and well relative to its competition from the NFL or the NBA. They take this position in spite of the fact that NCAA v. Board of Regents 468 U.S. 85 (1984) helped create precedent that virtually insulates the NCAA from actions against it. Subsequent cases have explored whether NCAA rules are necessary for preserving amateurism. Yet, Rascher and Schwarz explain the NCAA was never required to demonstrate amateurism itself was necessary or reasonable for its operations (see Rascher and Schwarz endnote number 14 for details on this open question for the courts).

Leeds and von Allmen provide a short history of amateurism in their popular economics of sports text. They take us back to the first Olympic games all the way to the development of the modern collegiate systems of play. A student of this history would be quick to point out what we call an amateur today is a very different from the amateurs of the past. Because this definition evolves over time, it is rather a curious platform to build an institution upon. Given the bylaws above you might get the idea only professional teams or commercial enterprises are capable of exploitation. In fact, in a prime example of Orwellian “double-speak” the bylaws indicate the student-athletes should seek protection from the NCAA itself.

And, that’s what more and more of them intend to do. This brings us to the second economic principle at play: marginal revenue product (MRP). Economic theory identifies the additional output produced from one more unit of a factor of production (like labor) as the marginal product of that labor. When we multiply that marginal output by the additional revenue it produces for the firm we get marginal revenue product. If this all sounds familiar–it should! The marginal product story is the basic framework for Wins Produced. Berri, Brook and Fenn estimate the Wins Produced for 15 years of college drafted NBA players. Using their familiar performance statistics it is pretty easy to measure the marginal product of a drafted basketball player (less so for football players). In the NBA it is also possible to estimate the additional revenue these player contributions generate. Hence, MRP.

Economists — like Dave Berri, Robert Brown, and Dan Rascher — have also estimated the MRP for collegiate basketball players.  The average MRP they report — across all Division 1A players in the past few years — is a value of about $100,000.  This clearly exceeds the average grant-in-aid sanctioned by the NCAA.

Where does this revenue go if it is not going to the labor that created it? You name it: coaching salaries, enhanced facilities, or other line items in the Athletic Department budget benefit from these economic rents. This extraction of rents is problematic for economists. Economists tend to emphasize efficiency in the allocation of resources; we speak and write often about optimizing on resource usage, maximizing welfare, and minimizing costs. In short, not paying student-athletes their MRP is inefficient–amateur status or not. There are other ethical and philosophical reasons to protest the status quo here, but for most economists inefficiency is a sufficient condition to protest the NCAA’s behavior.

Will the creation and sanctioning of a union of athletes result in pay for play? Maybe not immediately; but since the Labor Relations Board decided to allow the action it could increase the legal ground for athletes to stand on the next time a court hears an argument on the exploitation of this very particular form of labor.

- Jill Harris

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