Economics / Entertainment / Organizational Strategy

The NCAA: America’s Cartel

I love playing sports video games. I remember as a kid playing Madden, NBA Live, NBA 2K, MLB 2K, Tony Hawk’s Underground, Dave Mirra’s BMX, and others on my GameCube and the family computer (fortunately I had great parents who made sure I didn’t stay inside too long, and managed to kick me out of the house to get exercise). NCAA Football and Basketball games were favorites of mine (I still have NCAA Football 2005 with Larry Fitzgerald on the cover #H2P). As a kid, I loved both professional and college sports games, and most of the time it didn’t even matter what game I played. However, the compensation difference between professional and college athletes is astounding. Professional players are compensated for their image in advertisements, on the field play, jersey sales, endorsements, sports camps, commercials, and so on. College players are “student-athletes”; they have no likeness or image according to the NCAA, they’re merely amateurs. Ironically, these “amateurs” are turning college coaches and administrators into millionaires, and making the NCAA itself over billions in dollars in revenue annually.

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A Nation of College Sports

Just how profitable is the NCAA? According to a March 2015 USA TODAY Sports article, during the 2014 fiscal year alone, the NCAA hauled in total revenue of nearly $1 billion. The revenue ultimately resulted in an $80.5 million surplus for the year, $20 million more than 2013, and the fourth consecutive year with an annual surplus over $60 million. The article also pointed out that “the latest surplus increased the NCAA’s year-end net assets to nearly $708 million — more than double where they stood at the end of its 2008 fiscal year.” Most of the revenue the NCAA receives comes from multimedia and marketing rights agreements with CBS and Turner Broadcasting primarily during the Division 1 men’s basketball tournament[i]. Clearly, the NCAA generates nearly billions of dollars in revenue annually off of college players competing on nationally broadcasted television channels, off their jersey and merchandise sales, off their likeness being used in videogames, and so on. Ultimately, these college players don’t see a penny of what they produce for the NCAA, and there have been plenty of ex-players and critics who see a serious problem with this unchecked system.

As I mentioned in the opening paragraph, college athletes aren’t compensated for their play on the field, images on TV, jersey sales, or likeness in videogames. There is also a bevy of NCAA rules and regulations that are simply preposterous. In 2013, the University of Oklahoma self-reported several violations committed by the athletic department. One violation included three Oklahoma football players eating too much pasta. Yes, the previous statement is true; according to NCAA bylaw 16.11.1.10 “An institution may provide students-athletes with reasonable refreshments (e.g., soft drinks, snacks)…” Pasta counts as a full meal, not a snack, which is why Oklahoma had to report this crime-of-the-century (sarcasm) as a violation in order to be extra careful. Another “outrageous” incident occurred in 2014 when the North Florida basketball team was penalized for illegally dunking during warm-ups. Again, the previous sentence is not made up; according to NCAA rules, specifically Section 4, Class B, Article 1e, players can not dunk during the last 20 minutes of pregame warm-ups. The violation resulted in two technical free throws for the opposing team, in this case Tennessee Tech. Tennessee Tech went on to make the two free throws and win the game by…two points[ii].

College athletes are provided with athletics scholarships, but there’s more to it than just that. Only four NCAA sports provide full scholarships: football, men’s and women’s basketball, and women’s volleyball. If you exclude football and men’s basketball, the average athletic scholarship is $8,700 ($10,400 on average with football and men’s basketball). Also, the NCAA determines how many athletic scholarships each sport can offer in Division I and Division II. Coaches usually split up scholarship money to reap its maximum benefit. For example, a D1 soccer coach can dish out 10 scholarships, but he/she can split these up into smaller scholarships to recruit more athletes. This can sometimes lead to lame deals for some college athletes. Finally, athletic scholarships aren’t guaranteed; coaches decide which ones are renewed every year. This kind of stress can deter students from focusing on attaining their educational goals knowing the mountainous costs of college if their athletic scholarship is terminated. These year-to-year scholarships mean college players can have their scholarships revoked due to injury or other reasons. In the case of injury, the NCAA will only insure athletes if they suffer a catastrophic injury (such as the loss of a limb). If the injury isn’t “catastrophic” there’s little to nothing the athlete and his/her family can do to get the scholarship back[iii].

Ed O’Bannon played for UCLA’s Men’s Basketball 1995 National Championship team and was the Most Outstanding Player in the NCAA tournament that year. In July 2009, he filed a lawsuit against the NCAA due to violations of the Sherman Antitrust Act and his right of publicity. O’Bannon did this after seeing himself represented in an EA Sports NCAA Basketball videogame without giving permission. In the game, he saw a UCLA player who played O’Bannon’s power forward position, and also matched his height, weight, skin tone, bald head, jersey number, and even his signature left-handed shot. Electronic Arts (EA), the company that made these NCAA videogames, and The Collegiate Licensing Company, who were both original co-defendants with the NCAA, left the case and finalized a $40 million settlement that could net as much as $4,000 to as many as 100,000 current and former athletes who had appeared in EA Sports basketball and football video games since 2003. In the trial’s verdict on August 8, 2014, Judge Claudia Wilken ruled that the NCAA’s long standing practices of withholding any payments to players violated antitrust laws, a monumental win for ex-college athletes and NCAA critics everywhere. Wilken also ruled that schools should be allowed to offer full cost-of-attendance scholarships to athletes, which would cover cost-of-living expenses that were not currently part of NCAA scholarships. Finally, Wilken ruled that schools be permitted to place as much as $5,000 into a trust per athlete, per year of eligibility.

Wilken’s ruling was clearly a significant win for college athletes and NCAA critics, although recently this past September, the 9th US Circuit Court of Appeals ruled against the plan to pay student athletes $5,000 annually. In this decision, the three judge panel did rule Judge Wilken’s payment plan was “erroneous”, but confirmed that NCAA rules violate federal antitrust laws: “The NCAA is not above the antitrust laws, and courts cannot and must not shy away from requiring the NCAA to play by the Sherman Act’s rules.” The bottom line that came out of this ruling was: 1) the courts have dismissed the NCAA’s so-called “amateurism”, in which the NCAA deems college players as “students-athletes” who will not be compensated for their play (especially when schools like the University of Alabama and the University of Texas bring in more revenue than any NHL team!), and 2) the NCAA has the opportunity to take the O’Bannon case to the Supreme Court meaning there’s still a long way to go in determining whether college players will ever be financially compensated by the NCAA[iv].

Tim Tebow on the cover of NCAA Football 11

Tim Tebow on the cover of NCAA Football 11

EA Sports opted to stop both its NCAA Basketball and Football videogame series over the past several years. EA discontinued NCAA Basketball in 2009, and the main reason was because of the Ed O’Bannon case. O’Bannon’s huge lawsuit against the NCAA, as previously discussed, has the potential to collapse the entire NCAA “amateurism” system in the future. EA also stopped the NCAA Football series in 2013 due to lawsuits from college players-some current players at the time and other ex players including O’Bannon-looking for compensation for their likeness. Ultimately, the NCAA and even some of the most powerful athletic conferences, such as the SEC, Big Ten, and Pac-12, dropped their support for EA, which was another key factor that led to EA halting its production of any college games for the foreseeable future[v].

Another ex-college player that has been extremely outspoken on the illicit power of the NCAA is Jay Bilas, current ESPN College Basketball analyst. Bilas played for Duke’s illustrious basketball program in the mid 1980s where he graduated with a law degree. Jeffrey Kessler, another attorney (known for his role in representing Tom Brady when he fought the NFL during the Deflate-gate scandal earlier this year), filed an antitrust lawsuit last year against the NCAA. Kessler speaks highly of Bilas: “The NCAA is like the emperor with no clothes. What it takes is for people to start crying out loud…Jay performs a very valuable function in that way.” Kessler has described the NCAA as a cartel that generates billions of dollars and illegally limits the benefits that college players receive. The NCAA has defended its business, stating a system in which players share in revenue would result in them losing part of the academic experience and fans ultimately being robbed of an alternative to professional sports (Are there people who actually believe this?).

Like many, Bilas has found it incredibly simple in revealing the hypocrisy and foolishness of the NCAA’s system. Anyone who follows Jay Bilas on Twitter (@JayBilas) knows just how effectively he’s been able to uncover the NCAA’s corruption, and spread his findings to millions of followers across the social media network. On August 6, 2013, Bilas tweeted a picture of then-Texas A&M QB Johnny Manziel’s jerseys on sale on the NCAA’s Shop website along with the caption: “Go to ShopNCAAsports.com , type in “Manziel” in upper right search box, hit enter. This comes up.” Sure enough, this process worked for several notable college football players at the time, including Tajh Boyd, Jadeveon Clowney, and Teddy Bridgewater. The online player-search procedure went completely contrary to what the NCAA had long insisted that specific jerseys for sale are not connected to specific players. About two hours after Bilas had tweeted this pictures, the search engine on the website was disabled, and eventually NCAA President Mark Emmert said it was pausing sales of athletic jerseys because it could be seen as hypocritical. For Bilas and NCAA critics everywhere, this kind of duplicity that President Emmert himself proclaims can be easily exposed-whether through social media or via the legal system-on a day-to-day basis.

Plenty of people who know Bilas well enough realize it’s not that he despises college athletics, but the way it has been managed and administrated for several decades. Warren Zola, executive director of the office of corporate and government affairs at Boston College’s Carroll School of Management stated, “some are trying to overthrow the industry. That’s not Jay. He loves college athletics and understands its value. However, let’s not pretend it’s not commercial.” At a speech he made earlier this year to middle-aged college sports fans, Bilas argued that while some college assistants are paid millions of dollars, student-athletes can’t even accept a restaurant owner’s offer of a meal on the house, even if they’re regular customers[vi]. Ultimately, under this unlawful “amateur” system the NCAA imposes, college athletes do not own the right to their own name, image, likeness, or any representation of themselves. In a way, the NCAA owns these athletes and their rights, which is totally illegal, and it’s a national disgrace.

At the end of the day, the NCAA is nothing but a for-profit business, and their business is making billions of dollars off of lucrative TV and media deals, athlete merchandise, and other streams of revenue. Everybody involved in college athletics is profiting, from the NCAA itself, to universities, administrators, coaches, boosters, broadcasting companies, and others; virtually everyone except the players themselves. How can the people who actually produce the content viewers see on the field or on the court year after year, not see any of the benefits? If not for players playing at such a high level of competition, there would be no multimillionaire coaches, athletic directors, university administrators, and NCAA officials. As Bilas asserted, “It’s business. The doomsday scenario that if any athlete gets more than a scholarship, that it ceases to be college athletics is not only disingenuous, it’s an outright lie.” Drops mic.

[i] http://www.usatoday.com/story/sports/college/2015/03/11/ncaa-financial-statement-2014-1-billion-revenue/70161386/

[ii] http://mentalfloss.com/article/62221/9-most-absurd-ncaa-violations-recent-memory

[iii] http://www.usnews.com/education/blogs/the-college-solution/2010/06/22/7-things-you-need-to-know-about-sports-scholarships

[iv] : http://espn.go.com/college-sports/story/_/id/13777916/appeals-court-nixes-plan-pay-student-athletes-ed-obannon-case-agrees-ncaa-violates-antitrust-laws

[v] http://www.sbnation.com/college-football/2013/9/26/4774556/ea-sports-college-football-video-game-series/in/4340045

[vi] http://www.bloomberg.com/news/articles/2015-04-02/the-ncaa-critic-who-can-t-be-ignored