The issue of compensating college athletes — for the sake of the argument, we are going to limit our focus to football – boils down to the question of whether Division I-FBS college football is worth preserving in its current form: 126 teams, 10 conferences, one [ostensible] national title. Is the greater good served by maintaining a governance structure in which schools like Vanderbilt and Kansas State compete, if only nominally, for the same championship as schools like Alabama and Oklahoma? Because if the NCAA's amateurism requirement is removed, it will set into motion a process that will eventually result in the vast majority of current Division I-FBS programs competing on a level akin to the current Division I-FCS. That means no national television appearances, decreased regional exposure and, in all likelihood, a gradual decline in attendance for all but the biggest schools.
You can argue whether such a scenario serves the greater good – I will argue that it does; the NCAA is basing much of its defense in the current O'Bannon trial on the argument that it does not – but know that if you attempt to argue that such a scenario will not occur, you will be arguing against 50 years of precedent in professional sports, 100 years of precedent in trust busting, and 300 years of precedent in capitalism.
To reach this conclusion, we must first accept the premises that college football players have a right to seek compensation for the services that they provide, and that the level of said compensation should be determined via an open labor market. The rejection of either premise is either an argument for a glorified version of the status quo, which is what the NCAA is arguing in court, or an extreme case naivete. There is no in between. For instance, there exists a school of thought that the NCAA should simply allow players to profit off their personal brand. Rather than allowing member schools to compensate players beyond the cost of attendance, the argument goes, the NCAA should allow players to sign endorsement contracts and earn royalties.
The solution seems sensible, until we realize that it would simply create an open labor market where the de facto employers are program boosters. It would enable Phil Knight to sign players to four-year contracts to “peddle Nikes,” and T. Boone Pickens to sign players to four-year contracts to “endorse energy policy.” It would lead to the formation of pools of booster money that operate very much like Political Action Committees, with individuals and businesses donating “endorsement deals” for the Football Action Committee to use to bid for players. Once again, you can argue whether such a scenario is better than the status quo – I would argue that it is – but you will be hard-pressed to argue that it would not lead to a dramatic restructuring of the sport as the schools with the biggest booster revenues outbid the rest of the current Division I-FBS member schools for players, and, ultimately, form their own major college football league that negotiates its own national television contract and stages its own playoffs, and thus reduces the vast majority of the current membership to a status akin to Division I-FCS. And at that point, we have a sports league that isn't any different from the one that would develop if schools themselves, rather than their booster proxies, competed for talent.
The presidents of Division I-FBS universities understand that any requirement that they staff their football rosters via an open labor market will create an economic landscape in which the vast majority of them cannot possibly compete. And to argue otherwise is to suggest an unprecedented cessation of the natural forces of capitalism, that, unlike every other industry, the top talent will not flock to where the compensation is greatest, and that the compensation will be greatest somewhere other than where the revenue is greatest.
Consider: In 2012, 11 different football programs generated a revenue total that was twice as large as the revenue total generated by Oregon State's football program. Ohio State, for example, earned $61.1 million in football revenue in 2012, according to data from the US Dept. of Education, while Oregon State generated $30.6 million. The key thing to note: Oregon State's football revenue ranked 39th out of 123 schools whose data the DOE provides in its database.
Marinate on that for a few moments. Theoretically, in an open labor market, 11 different football programs would have the capacity to spend twice as much on player compensation as Oregon State. If Ohio State offered a $1 million salary to each of the top 22 players in the country at their positions, and if Oregon State offered each of them a $500,000 salary, how many of those top 22 players would choose to play at Oregon State? Economic theory, and hundreds of years of experience, suggest virtually zero would. Now consider that 10 football programs generated more revenue than Ohio State in 2012, and that eight of them generated at least $10 million more, and that three of them generated at least $20 million more, and that the University of Texas generated $48 million more. Also consider that 85 football programs generated less revenue than Oregon State, and that 56 of them generated half as much revenue as Oregon State. In other words, each the top 11 programs in the country would have the capacity to outspend the bottom 45 percent of programs by a factor of four.
According to the DOE data form 2012, 16 football programs generated more operating revenue – that's revenue minus expenses — than 87 programs generated total revenue. For example, the University of Alabama reported $88.7 million in revenue and $41.6 million in expenses, leaving them with an operating profit of $47.1 million. Kansas State, on the other hand, reported $31 million in total football revenue, which ranked 37th among the 123 schools in the DOE database. In other words, if Kansas State eliminated every other football-related expense and poured all of its football revenue into player salaries, and Alabama maintained its current football expenditures and limited itself to paying players from its profits, Kansas State would still have roughly $16 million less to spend than Alabama. Arkansas ranked 16th with an operating profit of $31.6 million. Again, that’s more than the total revenue generated by 87 of the 123 football programs. And Texas, the top program in revenue, generated more than twice as much profit as Arkansas.
The issue isn’t whether those 16 teams can afford to bid for players in an open market, or whether those top 36 teams could afford to do so, or even whether all 123 teams could afford to do so. It is that those top 16 teams would be able to outbid everybody else for players, creating a landscape similar to that of Major League Baseball before the luxury tax. The only way for it to work would be revenue sharing, and the whole reason we have the current environment is that the “Big Market” schools have spent the last 50 years doing everything in their power to avoid sharing revenue with the rest of the schools.
Instead of conferences based on geography, you’d have conferences based on revenue. Except the biggest conference would become its own de facto league, because it would negotiate its own national television deal, shutting out the rest of the schools from that revenue and, in essence, leaving them to wither on the vine. That has been the progression of every other professional sport, and there is no reason to think that it would not be the progression in this one. In fact, the only thing that has prevented it from happening is the desire of the big boys to continue to operate under the veil of amateurism, which requires an organization like the NCAA to perpetuate said veil. Once that veil is removed, college football's power players will have no reason not to do what they have been contemplating for 50 years, and what they somewhat accomplished with the creation of the BCS, which is shed themselves of the rest of Division I-FBS, and seize control of the market for non-NFL football and keep the revenue from that market that they currently share for themselves.
This has been the history of every sport that pays its players on the open market. Leagues consolidate, as was the case in the NFL and the NBA, and, to a lesser extent, in baseball, with the combining of leagues in interleague play, or they break away, was the case with the 20-team English Premiere League. It's pretty clear that the national television market will bear a league that numbers about 30 teams. And make no mistake: that is the market that the MCFL will target, because it is the market that has made the other sports leagues billionaires. The only thing preventing the formation of a 30-team super conference has been the ability of the NCAA to limit its labor expenses as a collective whole. But if those limits go away, then open competition will do what it always does. The first split will see the schools who either cannot afford to compete or who choose not to compete break away from the rest of the pack and either join Division I-AA or form their own league. Kind of like the Ivy League, except instead of refusing to offer athletic scholarships, these schools would refuse to pay players. At that point, the traditional football powers would form a committee to explore the television landscape, and after doing their due diligence would decide which other teams would join them. Remember, these teams are now trying to maximize their revenue in order to land as much top talent as possible, so it behooves them to keep the exact number of teams required to maximize the amount of television revenue received by each school. Precedent suggests that number is around 30. Those 30 schools elect a commissioner and then begin the messy process of deciding the optimal number of roster spots per team based on a labor cost/benefit analysis. Remember, there is a reason why NFL rosters have 53 players, and college rosters have 85 [on scholarship]. Owners do not want to pay any more for labor than they have to.
At some point, the players will form a union and collectively bargain a salary cap and salary floor. Until we reach that point, who knows, because the University of Texas will likely have five times the spending power of the bottom third of the league. And there's plenty more fun stuff to figure out. Like, for instance, do these guys have to go to class? And, if they do, what kind of environment is a college creating if it is sending millionaires – even hundred-thousand-aires – into the classroom and the social environment of a campus? What happens when an adjunct professor earning $60,000 a year notices that a quarterback earning $250,000 a year hasn't been attending class?
Make no mistake. This will happen, just like it threatened to do when 50 top programs formed the College Football Association in the 1970's, just like it started to do when I-A schools separated from I-AA schools in 1978, just like everything that Byron “Whizzer” White wrote in his impassioned dissent in the 1984 Supreme Court decision that gave individual universities the right to negotiate their own television deals ended up happening. This is how the free market operates. This is how capitalism works. The 30 (or so) richest teams get richer. Everybody else fades into the same relative oblivion enjoyed by current members of I-AA.
I believe such a scenario would serve the greater good, because it would force the university presidents at football powers to acknowledge what they have created, which is a professional sports league that already has many of the characteristics I described, except without players sharing in the revenue. And those presidents know that, at that point, the national conversation would turn to the real issue we should be debating: What in the hell are institutions of higher education doing in the professional sports business?