Should Student-Athletes be paid? Heather Bickenheuser 1. November 7, 2003

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1 Should Student-Athletes be paid? Heather Bickenheuser 1 November 7, 2003 PART ONE: CURRENT PAYMENTS TO STUDENT ATHLETES... 2 NCAA Limitations on Payments... 2 Graduation Rates... 3 Estimate wages paid to student-athletes... 4 PART TWO: CURRENT REVENUES GENERATED BY STUDENT ATHLETES... 4 PART THREE: ARGUMENTS TO PAY OR NOT TO PAY STUDENT ATHLETES... 5 CONCLUSIONS:... 7 Works Cited Appendix...Error! Bookmark not defined. Abstract The focus of this paper is to look at the current payments and the current revenues generated by student athletes to determine if they should be paid for their services. The NCAA places many limitations on these athletes prohibiting them from receiving any type of payment keeping them in the amateur status. However, graduation rates for these athletes have not been too convincing. These athletes would get a greater return; therefore create more payments to themselves, if they would improve graduation rates. Recently there has been a debate on whether or not student-athletes should be paid for playing sports. One side argues that they are students in training and should not be paid. Another says, schools make profits from the athletes and therefore they should be paid some type of salary. This paper focuses on the economics of college sports to determine if college athletes should be paid to play. The first part of the paper will discuss the current payments that are made to student-athletes. Included will be some limitations that the NCAA puts on payments to athletes. Also, there will be estimates of wages paid to the student-athletes, including the assumptions behind them. The next section of the paper will try to measure how large the current revenues generated by student-athletes really are, including profitability of various athletic programs. Next, some of the arguments to pay student-athletes will be discussed, followed by arguments not to pay student-athletes. Finally, alternatives and conclusions will be drawn about whether or not to pay student-athletes. 1 Heather Bickenheuser is an undergraduate at the University of Akron, studying Labor Economics. 1

2 PART ONE: CURRENT PAYMENTS TO STUDENT ATHLETES NCAA Limitations on Payments The National Collegiate Athletic Association (NCAA) plays a huge role in the compensation of amateur athletes and the limits it places on them. First, the NCAA limits the number of grants-inaid that a school can offer. These numbers vary by sport. Over the years, the number of scholarships has decreased with the efforts of the college presidents. This reduces the costs to the school. The NCAA also restricts the maximum grant-in-aid allowed to student-athletes. Payments are limited to scholarships covering tuition, room, board, and incidentals, such as required textbooks (Sheehan, 1996). The NCAA prohibits scholarship athletes from holding an outside job during the school year. This would be nearly impossible to do with the number of hours that athletes must commit to the sport. Nevertheless, the reason the NCAA has this rule is to prevent abuse. A booster could provide a no-show job and effectively pay an athlete for his or her athletic performance thus subverting an athlete s amateur standing (Sheehan, 1996). Thus, not letting athletes hold jobs decreases their income which is not in their best interest. This behavior by the NCAA can be seen as an attempt to create a cartel. The NCAA says they are trying to preserve amateurism by imposing these rules on student athletes. Some other restrictions the NCAA has tried to enforce include: Pay for play is prohibited Athletes cannot sign with an agent and still retain their eligibility First year students must have attained a certain SAT score and high school grade point average to be eligible to compete Athletes who sign a letter of intent to attend a college must go to that school or they are forced to sit out a year before competing for another school Athletes who transfer from one college to another must sit out a year In addition to the tuition and room and board, student-athletes are also paid in terms of education and increased athletic skills. If the student graduates, they earn payment equal to their tuition, room and board and incidentals. Those who do not graduate only receive payment equal to their room and board. 2

3 Graduation Rates The NCAA has done a lot of research on graduation rates of college athletes. The average time it takes a student to graduate is 4.8 years but when calculating graduation rates the NCAA used a 6 year period (Zimbalist, 1999). This may make the numbers seem somewhat better than they actually are. In 1999, the NCAA compiled a report regarding graduation rates of Division I athletes that enrolled in The overall graduation rate for all male students was 54%, for football players it was 50%. Of the football players that graduated 60% were white and 42% were black. The NCAA also reported that 41% of all male basketball players graduated, 53% for whites and 33% for blacks (Eitzen, 2000). There seems to be a trend that overall, male football and basketball players have a lesser graduation rate then the rate of all men. In addition, black men seem to have the worst graduation rate. As seen in table 1, in the appendix, there are some exceptions to these general observations and that averages mask huge differences between schools and races. For example, at Michigan the graduation rate for all men is 81%, while only 52% of all football players graduate, and Percent Graduation Rates Division I-A Football Teams All Men All Football Black Football only 43% of black football players. 2 This is way below the average figure for the top 25 football teams. Figure 1 shows the difference between the graduation rates of all men, all football players and black football players attending the top 25 ranked schools. As seen, all men at Division I-A schools tend to graduate at a higher rate than white or black football players. Black football players tend to have the worst graduation rates among these top 25 Division I-A schools. 2 This data was taken from Leeds, Michael and Peter von Allmen. (2002). The Economics of Sports. Boston: Pearson Education, Inc. 3

4 Estimate wages paid to student-athletes In Richard Sheehan s book, Keeping Score (1996), he estimates the implicit hourly wage of an athlete on full scholarship at a Division IA school. The basic method is to value the education at the tuition rate plus room and board, adjust the number by the proportion of athletes who graduate at the school, and to divide this Percent Graduation Rates for Division I-A Male Basketball All Male White Male Year Black Male adjusted number by the estimated number of hours a student puts into their sport. The estimated median hourly wage for men s basketball is $6.82 and for football $7.69. Compared to minor league baseball, whose salaries vary between $850 and $2,500 per month (approximately $5.00 to $14.50 an hour), these student-athletes are not doing too badly (Zimbalist, 1999). However, students playing non-revenue sports, such as swimming, volleyball, soccer, etc., receive an even larger payment, given these sports produce little if any revenue for their schools. Athletes in these sports tend to have higher graduation rates and dedicate the least amount of hours to the sport, producing a higher implicit wage than football and basketball players (Zimbalist, 1999). Therefore, athletes in these sports tend to benefit the most from intercollegiate sports. PART TWO: CURRENT REVENUES GENERATED BY STUDENT ATHLETES Schools are able to extract monopsony rents from student athletes. Rent is equal to the difference between the marginal revenue product (MRP) and the value of the scholarship. MRP is the marginal product of an additional player to the team times the marginal revenue generated. The marginal product is the physical output generated by the player and the marginal revenue puts these numbers into dollars (Leeds, 2002). Estimates suggest that the MRP of a high-quality college football player (i.e., a future NFL player) are in excess of $500,000 per year. In terms of salary, this is equal to about $500 4

5 per hour. This shows that the best college football players are substantially underpaid, but this is only a very small portion of all players (Sheehan, 1996). Estimates suggest that the MRP of a high-quality college basketball player (i.e., a future NBA player) are in excess of $850,000 per year. In terms of salary it works out to about $850 per hour. This suggests that the best college basketball players are underpaid (Sheehan, 1996). However, how many athletic programs actually show a profit on their books? Looking at Division IA Football schools only, we see that of the 103 programs less than half make a profit. Only 41 make any money after paying administrative expenses and excluding gifts. Of the 41 who do profit, 31 make more than $1 million (Sheehan, 1996). In 1997, Division IA college sports made a profit of $437,000. This may seem like a good thing, but Division IAA and II lost over one million dollars combined (Leeds, 2002). More specifically, women s sports in Division IA schools have been losing over one million dollars since 1995, while men s profits have been used to subsidize these women s sports. PART THREE: ARGUMENTS TO PAY OR NOT TO PAY STUDENT ATHLETES There are many arguments in favor of paying student athletes something more than their scholarships. According to Sheehan, there is clearly a market for football and basketball players who are not yet ready to play professionally. However, the NCAA fills this void by limiting payment to the athletes. These athletes are prohibited from having a job and earning any other income. About two years ago, a former athlete, Ramogi Huma, created an organization called the Collegiate Athletes Coalition (CAC) (Emmons, 2002). It currently has about 500 Division I football and basketball players from 12 different schools, and continues to grow. The goals of the CAC include: Secure health-care coverage for all sports-related injuries, including those incurred at offseason workouts. Make NCAA enforce safety guidelines, such as mandatory trainer-to-athlete ratios. Increase the $10,000 death benefit if an athlete dies while participating in his or her sport, and ease the restrictions for claiming the benefit. 5

6 Increase the scholarship to an amount equal to the full cost of attending a university. The CAC estimates it falls $2000 short. A waiver in employment restrictions. More protections for athletes are a good idea, but it will be difficult to give each athlete an extra $2000. Zimbalist notes that schools often have 500 to 600 athletes, so such a plan would be costly at a time when most athletic programs are losing money (Emmons, 2002). He is in favor of cutting the hours athletes are asked to devote to their sport and restricting games to nonclass days. In addition, Ernie Chambers, Nebraska s 11 th District senator, sponsored a bill to pay college football players (Dodd, 2003). He claims that athletes are overworked and subjected to routines that exceed the level of professional routines. He also sees players making millions of dollars for their school without being paid. However, less than 50% of division I colleges actually make money on athletics, and only the elite programs make a significant amount (Sheehan, 1996). Chambers suggests giving players a stipend of some amount that has not been determined. One problem is the issue of Title IX. Title IX states: No Person in the United States shall, on the basis of sex, be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any educational program or activity receiving federal financial assistance (Leeds, 2002). A stipend can not be limited to football players, and it would be very costly to pay all athletes any amount. Paying football and basketball players would limit a school s ability to subsidize other sports. If had to pay players a school would have to eliminate many other sports. Chambers does suggest that stipends could be paid by some of the NCAA s corporate sponsors, like Pizza Hut. This would eliminate pressures from athletic programs to come up with money to pay a stipend (Dodd, 2003). Paying student athletes a salary or stipend can produce even more problems for the athletes. These students are already set apart from other students at their college and by paying them it would set them even further apart (Bruinius, 2000). Ernest Boyer, former president of the Carnegie Foundation for the Advancement of Teaching said: I believe that the college sports 6

7 system is one of the most corrupting and destructive influences on higher education (Eitzen, 2000). Paying players a salary would bid up wages for best student athletes and bid down wages for others (Sheehan, 1996). Also, there is no evidence that student athletes would be better off under a system in which they were paid for their services. CONCLUSIONS: Maybe the issue that people should be worrying about has nothing to do with paying student athletes a stipend or a salary at all. The focus should be on improving graduation rates among athletes, to ensure they get the full value of their scholarship, and leave college with a diploma. D. Stanley Eitzen, author of Slaves of Big-Time College Sports, suggests changing the way the NCAA rules student-athletes. He puts an emphasis on education and replacing athletestudents with student-athletes and suggests the following: Not admitting athletes who fail to meet minimum requirements for entry to the school Eliminating freshman eligibility so students have time to adjust to the academic environment Setting a maximum 20 hours per week devoted to sports I think that all these steps are important in trying to preserve the amateurism of college athletics. If these athletes improve their graduation rates and get a return from their education, their compensation would be greatly higher. For those who still say that these athletes generating millions and should be paid, I think you need to readjust your attention to the fact these students are not getting that free education if they do not graduate. The number one priority should be graduating, because a player has about a one percent chance of ever making it to the professionals (Leeds, 2002). 7

8 Table 1: Graduation Rates for Division I-A Male Football All Men All Football Black Football Michigan 81% 52% 43% Nebraska Florida St U.of Florida U.of Florida UCLA North Carolina Tennessee Kansas State Washington St Georgia Auburn Ohio State LSU Arizona State Purdue Colorado St Washington So. Mississippi Texas A&M Syracuse Mississippi Missouri Oklahoma St Georgia Tech Table 2: Graduation Rates for Division I-A Female Basketball Year All Female White Female Black Female

9 Table 3: Graduation Rates for Division I-A Male Basketball Year All Male White Male Black Male

10 Works Cited Bruinius, H. (2000). College Sill Amateurs...But Barely. Christian Science Monitor. Retrieved February , from Dodd, D. (2003). Senator's player pay plan not as loony as some think. Sportsline.com. Retrieved February , from Eitzen, D. (2000, September). Slaves of big-time sports. USA Today. Emmons, M. (2002, March 29). Athletes uniting against ncaa rules. Mercury News. Retrieved February 20, 2003, from. Leeds, M., & von Allmen, P. (2002). The economics of sports. Boston: Pearson Education, Inc.. Sheehan, Richard. (1996). Keeping score. South Bend: Diamond Communications, Inc. Zimbalist, Andrew. (1999).Unpaid professionals: commercialism and conflict in big-time college sports. Princeton: Princeton University Press. 10

Table 1 Number of Varsity Athletic Teams at Ivy League, ACC, and Big Ten Universities in Ivy League ACC Big Ten

Table 1 Number of Varsity Athletic Teams at Ivy League, ACC, and Big Ten Universities in 1998-99 Ivy League ACC Big Ten Brown 36 Clemson 17 Illinois 18 Columbia 26 Duke 23 Indiana 20 Cornell 34 Florida