There's a growing movement to pay Division I players. How would that actually work? How painful might it be for nonrevenue sports? In the interest of advancing the conversation SI developed a feasibility model. See what you think ...
This is an article from the Nov. 7, 2011 issue
The realization that the business model for NCAA Division I athletics is flawed has struck different people at different times for different reasons. It struck Stephen Ross, a law professor at Penn State, after a couple of trips to the airport.
Three years ago Ross was waiting with his mother for a flight from Pittsburgh to Los Angeles. The plane was delayed, and Ross sat for several hours, people watching. "I noticed all these nonrevenue sports teams—men's lacrosse, tennis and other teams from the Big East—that were catching flights," he recalls. "One of them was the Seton Hall tennis team, which was flying back from playing Marquette. It occurred to me how little sense that made. Why was Seton Hall paying to fly tennis players to Milwaukee? Why didn't they just take a bus to a school that's close by?"
Last spring Ross was traveling again, and while waiting for a return flight to State College he was seated next to a member of the Penn State women's rugby team. "She described how wonderful her experience had been playing rugby," he says, "which is a club sport and not a varsity team that the school pays to fly all over the country."
The two trips intrigued Ross about the costs and the benefits of college athletic programs, so he did extensive research on the NCAA business model. His conclusion: It is in dire need of a dramatic overhaul. So many people have reached that verdict since the NCAA was founded in 1906 that Ross could be chided for being late to the party. Yet he became the rare critic to sit down and map out a plan to fix it, writing an academic paper and preparing a lecture for his students. The principles of Ross's analysis helped SPORTS ILLUSTRATED address one of the most hotly debated issues surrounding college sports today: Is there a viable way to compensate all Division I athletes—from the second-doubles player at Seton Hall to the quarterback at Penn State? And if so, how much money could they receive in addition to their scholarships?
The movement among athletes to gain an economic stake is stronger than ever: Last month more than 300 current football and men's basketball players sent a petition to the NCAA demanding a cut of the millions in annual TV revenue from those sports. At the same time, the NCAA and its members assert that mandating such payments is not fiscally possible. The NCAA approved a measure last week to allow conferences to give schools the option to boost scholarships by $2,000 to cover the full cost of attendance. However, several schools said that they either could not afford such stipends or that they would face a backlash from their faculty if they awarded them.
In determining the feasibility of pay-for-play, SI looked at some of the many radical reimaginings of college sports (page 59) while consulting with Ross and other experts. Finding the money and the methods to pay athletes required the expertise of a tax lawyer, two Title IX experts, an antitrust lawyer, an accountant familiar with the creative methods of athletic department financial filings, current and former college athletes, a sports agent and others. It also required rethinking how athletic departments do business.
SI is not advocating paying college players; that's a decision best left to college administrators. It's merely showing that it can be done. Ross never intended to contribute to a model for paying college athletes. Told that some of his ideas were being used to that end, he asked that it be made clear he believes the educational opportunities athletes receive are more than fair compensation. Still, he understood the need for such an exercise.
"I may not agree with paying athletes," he says, "but I recognize that plenty of people do."
—Mississippi's total operating revenue; its total operating expenses were exactly the same
SI's model used financial information filed with the Department of Education by four Division I athletic departments that varied in size, balance sheets and emphasis on certain sports: Louisville, Mississippi, Oregon and San Jose State. (The filings were the most recent available, from the 2009--10 academic year.) When examining athletic department financials, it is best to forget many of the basics of accounting and even the simple rules that apply when balancing a household budget. Athletic departments operate in a strange world where, at times, money gained or lost isn't entered as such, where the hypothetical can be recorded as fact, where, as Ross puts it, "the books are cooked."
How cooked? A few years ago the software program used by schools to file financial data with the Department of Education didn't allow a university to record a deficit. (The program has since been fixed.) An official at one university said his athletic department occasionally moves revenue from one sport to another. Look closely at athletic department financial filings, and you are likely to find the statistically improbable, such as Mississippi's spending the exact amount ($45,737,904) it earned in 2009--10. NCAA officials mention that fewer than 7% of Division I athletic programs made money between '04 and '10. That may be the case, but it's hard to tell from the numbers alone. As a result, SI was extremely conservative with its estimates.
—Deficit run by San Jose State's football team
The methodology SI used relies on a philosophy that runs contrary to the culture of D-I: Smaller is better.
The vast majority of athletic departments do not generate enough profit to pay athletes. A program like Oregon's, which netted $44,538,251 in 2009--10 thanks largely to Nike founder and chairman Phil Knight's generosity—he has reportedly donated $300 million over the years—could start writing checks tomorrow. And Louisville might be able to as well, having cleared $2,229,652. But Ole Miss claims to have spent every dollar it took in, and San Jose State reported a $452,648 deficit.
The fact is the majority of schools would need to cut expenses significantly to pay athletes even a nominal amount. SI considered alternatives to cost-cutting, including the so-called Olympic model, in which athletes would be allowed to sign endorsement deals, as well as a commonly referred to scenario in which they would be free to take money from agents. These plans come with complications (page 58). SI also attempted to draft a model that compensated only football players, using the concept of hazard pay to try to circumvent Title IX laws, which mandate equal opportunity for women athletes. Two lawyers who specialize in Title IX cases doubted that maneuver would stand up in court, leaving SI to devise a model that distributed money equally over all sports.
The first option was to adopt a Tea Party approach and slash spending across the board, beginning with football. Over the last four decades the number of football scholarships has been trimmed from 120 to 105 to 95 to 85. This has had no major impact on the product and, if anything, has improved competitive balance. Even at 85, FBS coaches have more scholarship athletes than they need. Moreover, at the FCS level (formerly Division I-AA) teams get by with 63 scholarships.
In addition to 85 scholarship players, rosters balloon with walk-ons. Mississippi had 126 students participate in football in 2009--10, Louisville 119, San Jose State 106 and Oregon 105. There is little justification for rosters that large, particularly given the expenses (equipment, training) that come with each player. Also, the more football participants a school has, the more female athletes it must accommodate to comply with Title IX.
Thus football rosters would be capped at 90, and the number of available scholarships would drop from 85 to 63. To help compensate for their losses, football coaches could fractionalize scholarships, a common measure in most nonrevenue sports, but one now prohibited in football. If a recruit received a quarter scholarship from one school but a full ride from another, he would know where he stood with each.
When SI presented this idea to some of its experts, one concern raised was that it could leave football players from low-income families who got only partial scholarships unable to pay the remainder of their tuition and room and board. Ross countered that such recruits could qualify for financial aid and grants that could make up the difference. They would also receive money as part of the model, which they could use to cover any remaining expenses. Under the model, all athletes who make a team would be eligible to receive a full stipend, whether they are on scholarship or not.
Trimming total football scholarships to 63 and capping rosters at 90 would result in enough savings to enable many schools to begin paying athletes. The savings at the four schools examined by SI would be:
San Jose State: $874,469
Those gains come with no foreseeable drop in revenue. Television rights wouldn't sell for less because schools are fractionalizing scholarships; attendance and alumni donations wouldn't decline because football rosters are capped at 90. Football programs would be leaner, but more profitable than ever.
—Operating expenses of the 12-member Oregon men's golf team
The NCAA requires schools operating an FBS program to field at least 16 total varsity sports. For universities with a Division I men's basketball program but not FBS football, the number is 14. Those minimums protect the NCAA from having to spread revenue, like its $10.8 billion TV contract for the men's basketball tournament, too thinly. The minimums have also become the single biggest contributor to the economic dysfunction in college sports.
Think of an athletic department as a company with two profitable products (football and men's basketball) and a dozen or more products that lose money, often millions, every year. A CEO would look at the balance sheet and eliminate some, if not all, of the unprofitable products. The athletic director, however, cannot. Restrained by those NCAA-mandated minimums and by Title IX, most schools go into each year knowing that they could lose millions, hoping that football and/or basketball pulls them out of the red.
The second stage of SI's model would eliminate the NCAA's minimums; there are more sensible methods to restrict membership. Once freed of those mandates, athletic departments could demote any men's sport that was unable to break even to club status.
This is the most controversial part of SI's model and for good reason: It could mean the death of every men's sport other than football and basketball. But a precedent exists for what happens when a school ties a program's viability to the bottom line. Last year Cal announced it was folding its baseball team as part of budget cuts unless $10 million could be raised. It took some persistent shaking of the tin can, but the program lives on, no longer a financial drag on the school. Cal's rugby program, considered a varsity sport even though the NCAA does not sponsor a rugby championship, has paid much of its own way for years, primarily through endowments set up by alumni.
If SI's model were implemented, a form of natural selection would occur. In the East, alumni, coaches and athletes would surely find a way to save lacrosse. In the North, men's hockey would be preserved. In the South, baseball might live on, just as sports specific to the West Coast, like water polo, would continue. The surviving sports would have a cap on total participants, and they would be run more efficiently, with regionalized travel, smaller recruiting budgets and fewer scholarships at their disposal.
Applying this model to Oregon, SI assumed that the school would find a way to save its men's track and cross-country programs. In 2009--10, those teams ran a deficit of $1,620,083. Some belt-tightening would make a dent in that number, but it would take substantially more to save them. Oregon is one of the wealthiest athletic departments in the country; it received an astonishing $73,808,575 in contributions in '09--10. Of that money all but $1,200 was recorded as unassigned, meaning the majority was not earmarked for a specific sport. Saving programs like Oregon track might not require finding new money; it would just take persuading enough donors to give directly to that team's endowment or fund-raising arm.
Under SI's model Mississippi would cut three men's teams, Oregon would cut two, San Jose State four and Louisville, which has 23 sports, seven. That trimming would result in the following savings:
San Jose State: $1,285,330
Traditionalists will bemoan the loss of some programs, claiming they provided a meaningful service to the university. Evidence of that is mainly anecdotal. For the most part, nonrevenue varsity sports serve only the participants and a small cadre of supporters, a poor return for annual losses that in many cases exceed $500,000 per team. One could easily argue that club sports offer student-athletes an experience that is at least as rewarding (right).
It is indisputable that by doing away with the 16- and 14-sport minimums and having schools field only those men's teams that are able to break even, every athletic department's financial situation would improve dramatically. It also opens the door to even more savings.
—Operating deficit of the Louisville's women's rowing team
For a moment focus on a number that isn't preceded by a dollar sign: 80.
That is the number of male athletes Mississippi would cut under SI's model: 32 football walk-ons and 48 athletes from three unprofitable men's teams. It would be reasonable to assume that in the next phase of SI's model, Ole Miss would cut a corresponding number of female athletes. But it is not that simple. Nothing with Title IX is.
For schools to be considered Title IX compliant they must meet one of three "prongs." The first—and most demanding—prong requires that a school's athletic participation mirrors the male-female ratio of its undergraduate population. The other prongs are more ambiguous, but generally state that a school is not violating the law if it's expanding athletic opportunities for women, or at least not hindering them.
When schools say they are Title IX compliant, they typically mean under Prong 2 or Prong 3. What prong a school qualifies under is important during the next stage of SI's model. A university that is compliant or close to compliant under Prong 1 can make massive cuts and save a million dollars or more. Those relying on Prong 2 or 3 cannot make any reductions, because to do so would undermine the argument that they are making progress toward gender equality.
Mississippi's sacrifice of 80 male athletes would be significant, yet its ratio of male-to-female athletes would still be slightly skewed in favor of men at a school that is 53% female. As a result, Mississippi could not cut any women's sports. Oregon's loss of 36 male participants would make the school Prong 1 compliant, but just barely. Like Ole Miss, it could not touch any of its women's programs. Louisville and San Jose State, on the other hand, were Prong 1 compliant before SI's reductions, and therefore can duplicate the reductions made on the men's side.
SI's model does not designate a financial benchmark that triggers the demotion of a women's team. Deciding what teams to trim would be entirely up to the schools, a daunting challenge that would be fraught with politicking. Schools would also be unable to cut too many women's programs that are designated Tier 1, meaning they are fully funded and thus, for Title IX purposes, match up with Tier 1 men's sports like football and basketball.
Louisville, for example, would have a difficult decision to make with its 67-member women's rowing team, which didn't exist as a varsity sport before 1999. On one hand, the university recently built a $2.65 million rowing center; on the other, the program loses a staggering amount of money ($1,033,700). Every school would face tough choices, and as with the men's cuts, geography and tradition would undoubtedly play a role in which sports were kept. Under SI's model, Louisville and San Jose State would each cut four women's programs, resulting in the following savings:
San Jose State: $1,030,085
Given the uphill battle Title IX advocates have been fighting for decades, the backlash against cuts to women's programs would be severe. But the reductions would mirror those on the men's side. That is not the kind of gender equity that has long been sought, but it is equity nonetheless.
—Oregon's unallocated expenses
When explaining what is wrong with collegiate athletics, Ross favors a simple analogy. "Think of college sports as if it were the airline industry," he says. "Now I would love it if there was a direct flight from State College to San Francisco. But the market does not support that." College athletics, he says, is full of teams that the market doesn't support, "yet universities continue to fund them year after year."
SI's model, at its core, is a market corrector. It shrinks athletic departments by trimming the fat in football and doing away with as many unsupported men's programs as possible. The total estimated savings as a result of that correction would be:
San Jose State: $3,189,884
As big as those numbers are, they could be much higher. In none of its accounting did SI factor in what schools refer to as unallocated expenses. These costs are not sport specific and might include the salaries of administrators and academic counselors, electrical bills or supplies for the training staff. Unable to break down those costs by sport, SI didn't factor them into its analysis.
It is reasonable to assume that with so many athletes and sports dropped, substantial savings in those areas would occur. If, say, Mississippi experienced only a 15% drop in its unallocated expenses it would save an additional $2,412,726. At Oregon ($6,160,779) and Louisville ($2,857,599), the savings would be even greater. Even San Jose State, which spends far less per athlete and overall than the others, would conserve $1,259,777.
It is a testament to how bloated athletic departments have become that SI's model can shave millions of dollars of expenses at four schools without touching a pool of money that accounts for between 34% and 53% of their total spending.
Determining how much of the savings should go to the athletes is tricky. Some will advocate shifting some of that money to the education side or doing away with student fees. In an effort to maintain at least the appearance of competitive balance, all schools should pay the same amount. It is vital for tax reasons that the payouts be labeled (and appear to be) stipends rather than salary or a bonus so the recipients don't get taxed. Louisville could theoretically take its $10,831,630 in savings and distribute it equally among its 335 athletes (down from 563). Handing each athlete $32,333 a year would be problematic, though, as such a large amount would make it difficult for the NCAA to continue to claim nonprofit (and thus tax-exempt) status.
So, what would be the right number? SI polled 10 current D-I athletes, asking how much money would be fair and reasonable. The amount most often mentioned? $1,000 a month. Added to a full scholarship and existing room and board payments, the athletes said that would be more than enough to pay a cellphone bill, afford gas and insurance on a car, and have some left over for incidentals. For those athletes not receiving full tuition and/or room and board, that would go a long way toward covering the remainder.
It is an intriguing amount for a different reason. San Jose State, the least prosperous of the four programs, gained $3,189,884 in revenue. If the athletic department put $452,648 toward its deficit and the rest was divided equally among the 245 remaining athletes, what would each receive? $11,172. Divided over the nine-month school calendar, that comes out to $1,241 per month.
There are schools with football programs even more unprofitable than San Jose State's that may be unable to afford a payout of that size. One risk with any pay-to-play model is that it will trigger another market correction, in which the poorer schools would be forced to drop football or stop fielding Division I teams altogether. The full ramifications of any compensation model are unknown. But if schools have the will to pay their athletes, there is a way.
THE BOTTOM LINE
By significantly reducing the number of teams they field, athletic departments could save millions and afford to pay their athletes. Here's how it could work
Current spending $77,856,232
Number of athletes 436
Number under SI's model 400
Current spending $61,257,743
Number of athletes 563
Number under SI's model 335
Current spending $45,737,904
Number of athletes 360
Number under SI's model 280
SAN JOSE STATE
Current spending $20,785,707
Number of athletes 434
Number under SI's model 245
*Minimum stipend each varsity athlete would receive
THE SAME, FOR LESS?
It costs exponentially more to field a varsity team than it does a club, but the camaraderie and competition are similar—and in some ways club athletes are better off
In 2009--10, Oregon spent $1,116,214 on its 16-member varsity women's volleyball team. It also shelled out $1,022,859 for the varsity men's tennis and golf programs, which had 21 players between them. Those amounts are mind-boggling to Katie Weatherhead, captain of the school's women's ultimate Frisbee team. Her 20-member club receives about $4,500 annually from the university, then must come up with approximately another $18,000 to cover travel, uniforms and other expenses.
Not that she's complaining. "I know athletes who play varsity sports, and there isn't much difference," Weatherhead says. "We work hard and we play hard, and there is that same sense of teamwork and camaraderie."
SI's pay-to-play plan hinges on the belief that the benefit students get from nonrevenue varsity sports like volleyball and tennis can be had at a fraction of the cost by fielding only club teams in those sports. It is a notion likely to rankle many current and former varsity athletes, but a conversation with Weatherhead—or with one of the 65 players on the men's ultimate Frisbee team—would surely placate some of them. A senior geography major from Chicago, Weatherhead came to Oregon because of its ultimate program, which won the college women's national title in 2010. "It's a different experience, but I don't know that I'd change anything," she says. "We have gained a lot more life skills having had to work for everything, by not having anything handed to us. And isn't that what college is all about?"
After the team is selected, every player must come up with $500. The additional $8,000 they raise as a group by selling Frisbees, holding car washes and bake sales, and hitting up schoolmates on well-trafficked parts of campus. Occasionally the university pays the squad up to $300 to clean up the stands after varsity volleyball, soccer and basketball games.
The men's ultimate team receives about the same amount from the university and must raise $30,000 annually. Both clubs do everything they can to keep expenses down: Their coaches are unpaid volunteers, and the teams often pass up tournaments because of the travel costs. At away games the athletes crash with former team members or at the homes of players from the host school. "Couches, the floor, whatever is available," says Ian Campbell, the sophomore coordinator of the men's team, which finished tied for fifth nationally a year ago.
How much more does Oregon get for all the money it spends on nonrevenue sports compared to its club teams? Says Campbell, "Let me put it this way: I see more people around campus throwing Frisbees than hitting tennis and golf balls."
THE FREE MARKET PLAN?
Allowing athletes to receive as much money as they can get sounds like a good idea, but it would require significant oversight. And that's where it gets tricky
Let the market decide. That is the mantra of many pay-to-play advocates. Rather than allow schools to give stipends under the watchful eye of the NCAA, advocates believe athletes should be free to make as much money as they can on their own. Imagine football stars signing endorsement deals—"This is Andrew Luck for Toyota of Palo Alto"—or a top NBA prospect, like Kentucky freshman forward Anthony Davis, accepting whatever lucrative inducements an agent might offer in the hopes of landing him as a future client.
This model—call it the Free Market Plan—is sensible and popular with athletes and fans. It would also likely require something that many of its advocates would be loath to embrace: more oversight.
Much of the NCAA rule book has been written with one idea in mind: that one school should not, because of affluent boosters or rule-breaking coaches, have an unfair advantage over another. There is little doubt that the Free Market Plan would put an end to that notion. What would stop an alum with a car dealership from promising an SUV to every blue-chip recruit? Or a sports agent with ties to a university from taking care of all its players, even those without pro potential? Other programs would be at a competitive disadvantage unless they could offer similar inducements.
There's only one way to let the free market decide while maintaining some semblance of a level playing field: Have a clearinghouse for endorsement deals and payments from agents. That organization would review all benefits received by players similar to the way leagues review contracts to ensure that they comply with salary-cap rules. It would also make sure that no deals are made just to give a program a competitive advantage and that none of a player's compensation is being facilitated by the school. This matters because of Title IX; any benefit orchestrated by the university would also have to be provided to female athletes. And the penalties for those who don't work within this system would have to be severe to prevent abuses.
The organization best equipped to run that clearinghouse? The NCAA.
The popular proposals to spin off college football as a quasi minor league might help clean up the sport. But they can't make an end run around Title IX
It's a pay-for-play proposal that's gaining traction: Let universities spin off their football programs to create a quasi minor league (call it Football Inc.) in which the players, who wouldn't have to be full-time students, would receive salaries. Football Inc. teams would still represent their old fan bases and play in their old stadiums, but players could be compensated while schools could distance themselves from the greed, scandal and academic fraud that threaten the sport.
Last year Don Yee, the NFL agent for Tom Brady and others, presented his version of this plan in a Washington Post op-ed column, 21 years after SI writer Rick Telander introduced a similar idea in his book The Hundred Yard Lie. It is one of the more dramatic reimaginings of college sports. It would also be difficult—if not impossible—to execute.
The biggest hurdle is Title IX. One of the presumed fiscal benefits of the plan would be that universities, by excising the scholarships and expenses attached to football, would be able to make deep cuts in women's teams, thereby reducing overhead in their athletic departments. But even the slightest link between Football Inc. and its host schools would likely mean that the participation numbers and the benefits (such as salaries) associated with the football team would still have to be matched on the women's side.
Under the plan as envisioned by Yee, "The university and the company would share net profits from all revenue streams at a negotiated level." This is smart business; schools should not cut ties with their biggest source of revenue without assurance that they would continue to collect some of the bounty. But the price for maintaining these ties is steep. "If there is any financial agreement it would be difficult for a school to argue that [Football Inc.] is truly a separate entity and not just some attempt to circumvent Title IX," says Donna Lopiano, former CEO of the Women's Sports Foundation and a Title IX expert.
Not to mention that the sport's profitability would be diminished by a wide range of new expenses for Football Inc. First, there are the players' salaries, which could be in the five figures and add millions in costs. Football Inc. would also have to pay the school for the use of the stadium, practice facilities, office space and other amenities that are now provided free. Then there's marketing, insurance and other costs associated with running a business.
"Schools are struggling to finance their core mission—education," Yee says, "and this is the only model that allows college football to survive without contaminating that core mission, either financially or philosophically." That may be true, but it's still difficult to imagine a world in which players make hefty salaries representing schools they don't attend.