Chris Chegash is a Junior at the University of Michigan pursuing a degree in Financial Mathematics and Economics. He is a student in my “Monetary and Financial Theory” class. This post was selected (by self-selection and then by me) as a guest post here from 100 or so posts students in the class write each week for an internal class blog.  Here is what Chris has to say:

In a previous blog post, I outlined some reasons showing that the NCAA is more concerned with money, than with their stated goal of provided college athletes with an education.  Since the time of that post, there have been significant developments in several instances of litigation against the NCAA pertaining to the compensation of players, and the commercial rights the NCAA has over its players.  The NCAA’s monopolistic iron-grip over players and their compensation has been eroding for several years through many different pieces of ligation.  In this blog, I will quickly discuss the NCAA, the cases against it, and then outline what might happen as a result of these cases.

The NCAA is a non-profit organization that serves as the organizing and regulatory body for college athletics.  Despite all the criticism leveled against the NCAA, they are an essential organization for keeping college athletics as fair as possible for the hundreds of member schools.  Recently, the NCAA has become bloated with money; in 2010 CBS paid $11 billion over 14 years to broadcast the NCAA tournament, and ESPN agreed to pay $5.64 billion over 12 years to broadcast the College Football Playoff.  While the NCAA reaps record profits while functioning under non-profit status, many poor players struggle to afford the costs of college, even while on athletics scholarships.  Many players claim that the actual cost of college is higher than the combination of tuition, room, board, and books, and that universities cannot pay them enough, due to the rules handed down by the NCAA.

A 2002 suit, White v. NCAA, argued that “restricting a scholarship to the cost of tuition, books, housing and meals was an unlawful restraint of trade because of the billions of dollars the NCAA earned through broadcast and licensing deals”.  The NCAA settled out of court for about $10 million.  A more prominent piece of litigation is O’Bannon v. NCAA, set to go to trial in June, that questions the NCAA’s right to commercial use of player’s likeness to gain financially, even long after the player is no longer a collegiate athlete.  Video game maker Electronic Arts paid $40 million to be removed from the claim as a defendant.  Today, March 17, 2014, another lawsuit was filed against the NCAA by a sports labor attorney who has been highly successful against the major sports leagues.  The suit claims that capping the pay of student athletics, at tuition, room, board, and books is a fixed price agreed upon the NCAA and it’s member universities and is unlawful.  Besides litigation, some college football players have sought to unionize to gain more bargaining power against the NCAA, because currently they are forced to more or less sign their rights away to participate in college athletics.

The argument that athletes are making is powerful.  The NCAA is able to generates enormous revenue; for example in 2011-2012, the University of Michigan football team generated $85,209,247 in revenue, compared to $23,640,337 in costs.  This means that the football team made around $62 million in profit, and with 85 scholarship players that amounts to over $700,000 per player.  Obviously every scholarship player didn’t generate equal revenue, a player like Denard Robinson brought in millions while others brought in almost none.  Since his professional career has yet to materialize, Denard capturing some of that profit he generated seems fair. The point being, Michigan, and many other major football programs would more than be able to compensate players more fully without cutting into their bottom line too much.

The opposition from paying players often comes from schools who believe they are already paying their athletes enough or don’t have the means to pay them more.  A scholarship, and a free education, is enough and athletes should be thankful for the opportunity they have received.  I believe this statement distorts the truth.  Yes, receiving a scholarship is a great opportunity, and is significant payment, but why should school administrators and coaches benefit financially from the revenue generated by football players? Nearly all other industries reward employees for generating revenue and profits via bonuses and commissions, but not college athletes.

The NCAA has vigorously defended this system using the mystique of “amateurism”, but major college athletes are hardly treated like amateurs any more.  Football and basketball players don’t even have to stay long enough to get a degree; the top prospects leave after three years and one year respectively.

There are several systems that could be used to compensate players. One is simply increasing scholarships to the full cost of tuition to cover incidental expenses.  Another would be to set up trust funds for players that take a fraction of the revenue they create and give the players access after they leave (or perhaps they graduate).  Neither of these systems are perfect, but they are better than what exists today.