By Adam Hoffer and Jared Pincin
Tribune News Service
The NCAA recently announced it will allow college athletes to profit from their names, images, and likenesses beginning January 2021. The landmark decision is long overdue. The question on everyone’s mind is, “What happens now?”
The new era should be fairer —for athletes, for many universities, and even for fans pining for better competition.
While officials have not yet decided on the not-so-small details of how these payments will be constrained, enforced, and monitored, college athletes could soon earn what they’re worth. Markets and competition will drive wages, just not in the exact way most labor markets function.
Normally, when multiple employers compete to hire someone, it’s with wages and salaries. This very process creates a robust market for college coaches. Clemson University football coach Dabo Sweeney has surpassed Alabama’s Nick Saban as the country’s highest paid coach (and public employee) earning $9.3 million last year.
The NCAA enforces a zero-dollar wage for athletes aside from scholarship money. To-date, athletes also cannot accept side income from universities, booster programs or alumni. Eager boosters hoping to help attract top talent instead give millions to schools for facilities that sometimes outrival professional facilities. (Clemson’s football facility even includes a miniature golf course.)
After the new rule kicks in, expect change. Markets are incredibly efficient at allocating resources where they are most valued. If a price is manipulated, secondary markets arise.
Think about one very effective secondary market: sporting event tickets. At the beginning of the year, season ticket holders could buy tickets to the upcoming Alabama-LSU football game in Tuscaloosa for as little as $77; students could purchase tickets for $20. At the time of this writing, the cheapest available ticket on Stubhub.com is $269.
Expect the secondary market to step in again as those boosters redirect their money. Star athletes should find large endorsement deals waiting, especially from financial supporters of athletic programs who operate outside the umbrella of the universities. All athletes will be eligible to benefit from their likenesses being used in national products, such as a potential reboot of EA Sports’ “NCAA Football.”
Expect few financial changes from universities. Most athletic departments are not profitable or sustainable without assistance from the university. Some redistribute profits from football and men’s basketball to other, less profitable sports.
And overall, expect a win-win: student-athletes compensated for the value they create without sapping the resources of their cash-strapped schools. We opined for a similar path forward several years ago after discovering that the remarkable growth in NCAA revenues was going to coaches, as opposed to scholarships, at a rate of 7.5-to-1.
As for the fan experience, some worry about competitive balance. Surely the best schools will find financial supporters to pay players the most money, right? Nobody wants college football to resemble Major League Baseball, where spending tends to equal wins. Luckily, this fear may be misplaced.
For starters, NCAA football is already the least competitive major U.S. sport. Alabama played in the past four national title games and is the odds-on favorite in Las Vegas to win this year. Indiana still has fewer Big Ten titles than the University of Chicago, which dropped out of the conference in 1939. In college football, the good are great and the bad are ugly.
Currently, coaches largely drive success in college football and college basketball. The best coaches recruit the best talent, win, and the cycle repeats itself. If athletes’ wages are identical (zero), why play for anyone other than the best coach?
The rule change gives more schools a chance. Currently, more universities have deep-pocketed supporters than have elite programs. Alabama has Saban, and Clemson has Sweeney, but their boosters aren’t the only ones with money. It’s not clear that Alabama or Clemson’s boosters could afford all of their schools’ players on an open market.
It’s the right decision. College players will earn more for the value they create, and fans may even see a better product.
Adam J. Hoffer is the Menard Family Director of the Midwest Initiative for Economic Engagement and Research and associate professor of economics at the University of Wisconsin- La Crosse. Jared A. Pincin is an associate professor of economics at The King’s College in New York.
