How to Fix the College Basketball Scandal

Black markets exist when free markets don't.

Right now -- and for decades -- there has been a black market in college athletics when it comes to men's college basketball and football players. That's because top men's college basketball and football players have a market value that far exceeds the value of a scholarship, room and board and a stipend. This isn't a revolutionary idea or a crazy opening to a column, it's just a factual reality and it's the foundational opening that anyone examining the scandal surrounding the FBI's investigation into top college basketball recruits and programs should consider.

Why does this situation exist? (This is leaving aside the very real question of why the FBI should care about it.) It exists because of an inefficiency in the market. When that gap between actual and fair market value exists in college athletics, there will be individuals -- whether they are agents, runners or shoe companies -- ready to help fill in the difference and essentially invest in an individual that one day is going to be worth tens of millions of dollars.

This isn't a sports scandal, this is just a market doing what markets do, being efficient in the place of a clear inefficiency.

The NCAA has created an artificial market relying on the antiquated concept of amateurism. That standard may work in sports where there isn't substantial public interest -- swimming, golf, track and field, soccer and the like -- but it crumbles when actual market dynamics involving billions of dollars are at play in men's college basketball and football.

Already legendary Louisville coach Rick Pitino has lost his job and Arizona's Sean Miller may be close to losing his job as well. This morning on our Outkick radio show Yahoo Sports national columnist Dan Wetzel said he'd set the over/under on major college head coaches who lose their jobs before this entire story is complete at twenty.

Twenty!

This shows you that college coaches don't respect the NCAA, its job or its rules. And why should they? They see the hypocrisy in making millions of dollars to coach college basketball or college football while poor kids -- the ones who win them games -- can't get a free meal without being investigated for improper benefits.

When the NCAA investigates college kids for "improper benefits" what it's effectively doing is ensuring that poor kids remain poor kids. That's why I believe the phrase "improper benefits" is the most morally indefensible and repugnant phrase that has attained common usage in sports today. Do you know what isn't an improper benefit? Rich parents or rich family members.

We talk way too often, I believe, about morality when it comes to sports. Well, the idea that a poor kid should remain poor throughout the entirety of his college career is morally indefensible. On top of that, it's also anti-capitalistic and unAmerican. This entire country was founded on the principle that we should all make as much money as we possibly can based on our innate talents.

The NCAA exists to ensure that doesn't happen.

Worst of all, they pocket the profits from these kids hard work in college basketball through the NCAA tournament.

Why should college basketball and football players be any different than you or I when it comes to maximizing their earnings potential? Colleges make billions of dollars on major athletics. Are you really surprised that athletes who are responsible for that revenue want a share of those profits? Hell, the most surprising thing about this story so far is how little money they actually get. If Arizona paid $100k to get Deandre Ayton, a sure fire lottery pick, for a year, it was the best buy this side of Cam Newton.

So how do we fix the issues at play here?

It's complicated.

1. Divorce revenue producing and non-revenue producing sports. 

I've written about this before in more detail, but for all the "pay the players" advocates out there, it isn't that simple. Under existing federal law, Title IX in particular, scholarships for men and women's sports have to be equal. And male athletes playing unpopular sports and all female athletes who are playing any sport don't pay for themselves.

Only football players and men’s basketball players have a market value in excess of their scholarship and cost of attendance payments. If this were a pure business, the only college sports that would exist are men's basketball and football because they're the only sports that make money.

When you argue about whether to “pay the players,” what you’re really arguing is to pay the football and men’s basketball players. Essentially that’s a market argument, which I support. Namely, everyone has the right to sell their labor for as much as possible and right now we artificially constrain the labor value for football and men’s basketball players in college. They’re worth way more than they receive. If you’re a free markets guy, which I am, then the market should set compensation.

There are several problems with a free market argument though. First, a college football or basketball team isn’t a for profit entity. It exists as part of a non-profit affiliated with a college or university. Football and men’s basketball programs make money, but the money these guys produce isn’t all vanishing off campus and being put into the hands of shareholders or ownership interests like with a for profit entity, most of it is just being redirected to other scholarship athletes, those whom the market would never support.

Let me give you an example, a women’s soccer player or a men’s swimmer may well receive full rides to major colleges. But the market wouldn’t come anywhere near supporting their talent with a full scholarship. So the talents of those with market value — the football players and men’s basketball players — are subsidizing other scholarships for those without market-valued talent.

The result is a rough socialism in college athletics, those with superior talents that would be rewarded by the market are given less than they would otherwise receive, but many other athletes receive much more than they would otherwise receive. Effectively the football and men’s basketball players are paying a high tax on their talent to subsidize the less marketable athletes.

And if you decide to give football and men’s basketball players an extra, let’s say, $30,000 a year on top of what they make now then legally you’d probably be required to do the same for every other athlete on scholarship, both male and female.

That is, I don’t believe it’s legal under Title IX to treat some scholarship athletes differently than it is others. Everyone has to be treated equally. So if you believe players need to be paid then what you’re really arguing is that athletic departments will have to pay millions and millions of dollars to all athletes.

And most athletic departments can’t afford to do this. That’s because most athletic departments already lose money. And the few who do make money probably couldn’t afford to pay all athletes the same amount.

Plus, no matter what you paid athletes the temptation would still be there to get more than you're already receiving. Whatever men's basketball and football players were being paid, there would still be many of them who could make more off their talents. So why would this solve the problem?

The problem here is simple — you have an artificial collegiate athletic market that treats revenue and non-revenue producing athletes the exact same. If this were a pure business then the only sports that would exist would be men’s basketball and football, because those are the only two that make money.

So is it possible to treat revenue and non-revenue producing sports differently?

That seems like a real challenge under existing law.

It's the solution, but it's a real challenge.

2. What about allowing individual players to sign marketing and sponsorship deals?

This is an intriguing idea, but it opens a ton of really messy situations.

Let me give you an easy one, what if Nike is the official shoe for a school and the best player on the team signs a deal with Adidas or UnderArmour? Does that player wear Nikes in games or the shoes he has a personal deal with? If it's the latter why would a shoe company ever give a school money again? Wouldn't they just do what they do in pro sports and sign individual deals with individual players? Plus, given the fact that shoe deals are signed for a decade or more how do you deal with conflicting rules here?

The schools are making hundreds of millions to outfit their players in gear across all teams in an athletic department. How do you deal with a direct conflict from top players? (Some of you might say, easy, well, you can only sign a personal deal with the brand that already spends money with a school. But how much value does that unlock? If a shoe company is already paying to put a player in their gear through an existing contract, why would they pay more? Maybe it's worth the expense to grow the relationship, but it just seems complicated.) And it wouldn't just be shoes, this issue would arise with all team sponsorship deals.

But the bigger issue here would be this, how many guys actually have value that they could unlock?

On a big football team maybe six or seven guys are well known enough to make money off individual endorsements. And that's probably putting the number too high. How does that impact their standing in the locker room? If the quarterback is making a half million dollars a year, or more, and his entire offensive line is playing for a scholarship and free meals, does that impact the team and player dynamic?

 

Further, who is negotiating marketing and sponsorship deals on behalf of players? Are the players responding to requests to do commercials themselves? Are they fielding pitches and deciding which brands to endorse and determining that price to charge? Probably not, they'd need an entire athletic department staff to manage their careers. What's more, how will athletic departments, many of which are running at breakeven already, deal with ad revenue plummeting and going to individual players instead of schools?

If you're an Alabama booster who owns a car dealership, would you rather give money to the school or pay a player to drive, legally, in your vehicle and endorse your brand?

I think school revenues would probably decline precipitously.

I also think coaches would effectively be in the business of selling top recruits on how many money they can make if they sign with their school. How long would it be before schools were rolling up advertising packages and offering recruits multi-million dollar ad packages as an incentive to play football at their schools?

And if that happens, all fairness is gone in the sport. That's why the pro sports leagues instituted the draft, to avoid having to compete to pay as much as possible to every single draft eligible player.

3. The NFL and the NBA are to blame for the market constraints on men’s basketball and football players.

An easy way to eliminate the “pay the players” argument is to give players options. Right now an 18 year old who wants to go pro in baseball, tennis, hockey, track, or golf can go pro. But he can’t go pro in football or basketball, at least not in this country for a substantial salary. You aren’t draft eligible until you’re 19 in the NBA and three years removed from high school in the NFL.

Why is that the case? Because the leagues have collectively bargained these restrictions with the player’s unions in both sports. Why do the leagues want these age limits? Because this way they can use college football and basketball as a free minor league.

So while some people are yelling that colleges need to be paying athletes, the NCAA isn’t creating an artificial market where talented 18 year olds are required to wait to turn pro, the pro sports leagues are.

The most amazing thing about these age restrictions is that no competitive pro sports league has arisen that will pay 18 year olds large salaries to play pro sports. Why isn’t there a football league, for instance, that pays top four and five star athletes several hundred thousand dollars a year without requiring them to go to school? (This was one of my suggestions for the XFL, bring in top young players that aren't able to join the NFL yet.) Because evidently businesses have decided that market is already being filled — fans would rather watch these players play for their college teams than play for minor league football or basketball teams. That makes sense when you think about it. Alabama and Ohio State have built in fan bases and large stadiums already, how do you replicate that with relatively anonymous 18 year olds straight out of high school? The business marketplace doesn’t feel that you can.

And even if those businesses existed, would you really counsel an 18 year old to go to these leagues and just play sports? The goal of a top athlete graduating high school isn’t to to make $400,00 by the time you’re 21, it’s to make $14 or $15 million at 21 years old. Don’t you think most players would pick the free ride for education and the potential of the NFL or the NBA over a guaranteed salary of $100,000 a year or so that might eventually lead to pro sports riches? I think so. Especially when you consider that top programs now spend incredible sums of money off the penumbra of college athletes. We don’t pay you for playing in college, but we do have incredible gyms and top trainers and medical staffs and waterfall jacuzzi tubs and smoothie bars beside the bench presses. The result? The University of Tennessee’s training facilities are infinitely nicer than the Tennessee Titans training facilities.

But right now that choice is just a hypothetical — there’s no viable pro sports market for 18 year olds other than the existing collegiate framework.

And that’s the real issue here — an 18 year old star football or basketball player has no real choice to make, it’s college or college.

4. So what’s the solution?

Eliminating age limits in the NFL and NBA would help. LeBron James, Kobe Bryant, Kevin Garnett and countless other 18 year olds have proven that going directly to the NBA is possible. In fact, players going directly to the NBA were more likely to succeed in the league than players who stayed four years in college. Talent matters.

And while there aren’t that many 18 or 19 year olds who the NFL would draft, there are certainly some. Instead they’re forced to return to college, where they will risk their future earnings potential with every snap. That’s a moral hazard that I find impossible to reconcile. Football is such a violent sport that requiring anyone to play for three years before going pro is unacceptable to me.

After his freshman season Marcus Lattimore would have been a first round pick. Instead he stayed the required two more years in college, blew up both his knees, and never played in the NFL. I’m not saying that college football or basketball players should have to go pro, far from it, but I’m saying that not giving them that choice is morally wrong.

It’s also worth asking an interesting question, are football and men’s basketball players restricted from going pro partly because of their race? Not direct racism, but an example of structural racism at play, a long term lack of political power manifested in the world of collegiate sports? The NHL, Major League Baseball, tennis, and golf are all majority white sports and athletes can go pro at 18. The market works for them. Why doesn’t the market work for black 18 year olds?

Here’s the part in the article where some people argue, “Well, they need to stay in school and get their education! What if they don’t make it as pros?” My answer to that is pretty simple, why do you care? We send tens of thousands of 18 year olds all over the world to carry guns and get shot at by strangers. Once you’re 18 we let all kids make choices. Some of those choices are good, some of those choices are bad. Sometimes leaving college without graduating makes sense — ask Mark Zuckerberg or Steve Jobs — sometimes it doesn’t. Some high school athletes going straight to the pros would become billionaires like LeBron James, most wouldn’t. Just like most kids dropping out of Harvard to found a company aren’t going to start Facebook and end up among the richest humans in world history. We shouldn’t be in the business of eliminating choices for those with talent, our entire country is founded on the exact opposite premise.

Plus, college is always there. You can always go back after your pro career is over. In fact, that probably would make more sense. Right now many of the top college athletes do the least amount of work possible to stay eligible for sports. They know the drill, they aren’t there to learn, they’re there to produce on the field.

Or else.

My point is pretty simple: Arguing whether or not players should be paid misses the larger point — all players should have the ability to go pro at 18 or 19 or whatever age they so desire. College sports aren’t designed to make players rich, they’re designed to prepare players for the future, to take the proverbial next step in life. If your talent already proves you’re ready for the next level, why should you be required to stay in college?

But if you have to stay in college, let's stop pretending we're surprised that top players get paid or that top college coaches do whatever it takes to get those top college players.

Markets gonna market, y'all.