NCAA Athletes' Pay Victory May Leave Them Worse Off
(Bloomberg Opinion) -- Don’t get so excited yet about all the news of rising wages for college athletes and workers. The increases often mask other cuts in compensation.
Last week the U.S. Supreme Court made a decision that may change college sports. The judges ruled that the National Collegiate Athletic Association can’t act as a cartel to restrict how student athletes are paid. It means athletes may be paid in new ways — so long as the compensation is related to their education. Things like semesters abroad, internships and even money for graduate school are now on the table. The ruling also opens the door to future lawsuits, which could mean cash payments are next. It's seen as a win for players, but it may be a pyrrhic victory, because as we’ve seen in other jobs, often when regulation expands or changes how workers are compensated, something else gets taken away.
And odds are this will happen at colleges and universities too. We hear about the large revenues big football and basketball programs bring in, but running these programs is very expensive. Even sports programs in schools that compete in the large conferences just about breakeven. Football does bring in million-dollar profits at universities that play in major conferences, but even Division I basketball barely makes a profit at most of these schools. All women’s sports lose money.
This means that unless universities are prepared to violate Title IX (and drop women’s sports), increasing student compensation in one area will probably mean cutting it somewhere else. That could translate to fewer scholarships; students will need to pay their own way or some talented athletes just won’t go to college. Or it could mean fewer trainers or lower quality facilities. (The NCAA indicated Monday that it would soon allow athletes to make money from their name, image and likeness without forfeiting their eligibility.)
It’s not just sports. There is evidence that when the minimum wage is increased, other non-monetary perks are cut, such as predictable hours, free parking or health care. One reason teacher pay has stagnated is that every teacher must also be eligible for a defined benefit pension. But these kinds of pensions have become more expensive to finance as interest rates fell, so pension pay has increased even as wages stagnated.
These differences are important, because not all forms of pay are worth the same, especially when some of it is hard to put a value on. The minimum-wage study estimates that whichever benefit got cut was often more valuable than the wage increase the workers got instead. Benefit cuts are not always obvious and their value can be idiosyncratic to each worker. For some minimum-wage workers, especially those with children, predictable hours can be more valuable than a higher wage. For teachers who spent their career in the same school system, pensions can be incredibly valuable because they are guaranteed income for life. But for young teachers a pension is worth less. They may move or change jobs, and if they do they could lose the pension, or at best they'd still get the pension and it won’t be worth much.
The same goes for college athletes. In theory, the best outcome would be for employers to compete by offering different kinds of pay and letting workers choose what suits them. But college sports is different because of the unique role the NCAA plays in the market, and because compensation pays off years into the future. The NCAA compensates athletes in two ways: by providing a long-shot chance to secure a lucrative professional contract from the exposure, competition and good coaching that only the NCAA offers, or, if a pro career doesn't work out, with an education that can result in higher, more secure pay after graduation. This education can be valuable — even more valuable for most players than the cash pay in minor leagues.
But the long-shot pro career tends to get more attention and is more compelling for many students — and often for university administrators, too. As a result, the education part plays second fiddle. The way it's currently handled, it doesn't benefit all students. Playing a top sport can be a full-time job and many student athletes don’t have the time, resources or academic training to take full advantage of their education.
That's why having different NCAA teams compete by offering different types of compensation won't necessarily be a gain for student athletes. It merely enables universities to further obscure and degrade the education they're already offering. A better use of university funds would be to ensure athletes can benefit from what they're already offered. That might include guaranteed scholarships if they're injured, and the option to take an extra year to complete their class requirements after they're no longer eligible to play — when they'll have time to devote to their studies.
Pay increases are often not what they seem, especially when there is some market distortion that leads to other forms of compensation being cut. Even if the NCAA players continue to prevail in court, the nature of their pay and market suggests they may just wind up worse off.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Allison Schrager is a Bloomberg Opinion columnist. She is a senior fellow at the Manhattan Institute and author of "An Economist Walks Into a Brothel: And Other Unexpected Places to Understand Risk."
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