While this piece is not about MMA, it involves a labor dispute over athlete health and safety, financial support and collective bargaining, areas in which many MMA fans have similar concerns.
Last January, the College Athletes Players Association (CAPA) attempted to become FBS football's first union by filing paperwork with the National Labor Relations Board (NLRB) on behalf of Northwestern University football players. In March, the NLRB's regional director determined that Northwestern's scholarship football players are university employees and a secret ballot election should be held to determine if they will unionize under CAPA. That ballot was held, but the votes have been quarantined while Northwestern appeals the decision.
The full NLRB is reviewing the decision and issued an invitation to file amicus briefs allowing interested parties the opportunity to address issues relevant to the case. Roughly 24 briefs were received from various groups and organizations including the NCAA, the Big 10 conference, Notre Dame and BYU, the Athletic Directors' Association, players associations from the big four sports plus soccer and a group of little known economists and professors of sport management. I was a signatory to the economists' brief and will explain some of its basic positions.
The NCAA is an organization of member universities and conferences. Originally founded to standardize rules across schools for football and other sports, it has elements of cooperation essential to any sports league (rule setting, scheduling, etc.). But it's also a price-fixing cartel (and sometimes the textbook example) that's been exploiting college athletes for over a century. The price that's fixed is essentially the athlete's wage. It doesn't exploit college athletes by not paying them anything, but by colluding to reduce pay from what it would have been if schools were to compete. This is the essence of price-fixing on the input/labor side of a market.
Men's Division I football and basketball players are productive inputs into extremely profitable commercial enterprises (also known as the revenue generating sports). While the athletes receive scholarships and stipends to cover tuition, room, board and other living expenses, they are forbidden from accepting compensation for competing in an athletic contest, for their name, image and likeness rights, or receiving any benefit because of their athletic ability or reputation. If players want to hold an outside job to make extra money, they have to get permission.
Meanwhile, coaches make millions with salaries rising at a faster rate than their professional counterparts, and lavish multimillion dollar facilities are constructed to attract productive talent since the rules disallow luring that talent through pay - something that happens every day in the job market as companies compete to hire the best and brightest employees. Billions of dollars are being generated and very little goes to the "amateurs" who actually generate the revenue.
The economists' brief submitted to the NLRB addresses three main points.
1. "Revenue and Profit abound in FBS Football and Finances do not create an Outside Constraint to the question of Employee Status"
This first point addresses the fact that "there is no basis to the claim that FBS football is somehow too poor to afford any envisioned increase in costs from having student-employee-athletes, whether they form a union or remain employees outside of the collective bargaining context."
Who would make such an outrageous poverty claim? The NCAA, evidently. Here's the statement from their NLRB brief:
1. The world of intercollegiate athletics as we know it could shrink because of a lack of resources. Last year, of the approximately 1,100 colleges and universities in Division I, Division II and Division III, only about 25 athletic departments had greater revenues than expenses. This year, that number decreased to 20. Virtually all of the schools invest resources into athletics because university leaders view athletics as an educational priority. There is grave concern that if student-athletes become unionized employees, resources devoted to intercollegiate athletics will shrink.
So there's not only concern, but grave concern? Setting aside for the moment universities' accounting practices that can mask football benefits and costs and their inability to capture true revenues and expenses, the NCAA conveniently focuses on athletic departments as a whole and Divisions I, II, and III together. But, as the economists' brief shows, FBS football has experienced 7-8 percent revenue growth for 30 years, it has more attendance than the NFL and it has major conferences whose television contracts pay in the range of a quarter billion dollars per year. Also, when schools report their revenues and expenses to the government as required for Title IX funding, FBS football magically becomes profitable (to the tune of $76 million over 10 years for Northwestern).
Then there are issues of the operational environment and budgetary structure. If the most productive workers (the players) wages are fixed, schools will compete for those workers through non-wage methods. Throw in use-it-or-lose-it budgets and we've got an arms war of athletic facility and dormitory spending to lure new recruits and the exploding salary of any coach who appears able to land recruits and win.
These shouldn't be thought of as true costs, but rather a reallocation of some of the money that otherwise would have gone to the players. In other words, at worst the NCAA claiming that intercollegiate athletics could shrink because of a lack of resources is like a billionaire complaining of a lack of resources while simultaneously spending billions of dollars on fancy yachts, private islands, sports team purchases, space travel and crazy gambling trips.
A final method of analyzing profitability is to simply look at university behavior over time. Economists call this revealed preference. Talk all you want, but I'm going to give more weight to your actions rather than your words.
When an industry is hurting, we're unlikely to see new players flocking to enter the market and very likely to see them leaving. Take the U.S. banking industry over the past twelve years. There were 901 new banks chartered and 21 bank failures from 2002-2007 when times were relatively good. Compare that to 134 new banks chartered and 486 bank failures from 2008-2013 when times got tough. Economic losses are revealed through more businesses exiting the market and fewer entering.
The NCAA may say one thing, but FBS entry patterns reveal another. Since 1984, 28 schools entered FBS football while only six left. For Division I basketball, over 85 schools entered and 15 left. Do these look like the entry and exit patterns of an industry that's been hurting or thriving?
In another brief, Northwestern claims it "is not in the 'business' of football...Northwestern's football revenue subsidizes its non-revenue generating sports (i.e., all other varsity sports except men's basketball) and this revenue, in turn, helps Northwestern offer a range of sports of interest to a broad and diverse student body and to offers [sic] both men's and women's varsity sports in compliance with Title IX."
While the latter part may be true, it is also a red herring to being in the business of football. Dell may decide to use the revenues from making computers to invest in manufacturing airplanes, but it's still in the business of making computers and its computer division workers would probably still like labor laws to apply to them.
2. "Giving some schools the freedom to negotiate with a recognized union will not create a competitive balance constraint within FBS football"
Competitive balance is one of the most frequently researched topics in sports economics. For some perspective, of 76 research papers presented at the recent meetings of the North American Association of Sports Economists, six examined the issue of competitive balance in sports - nearly 10 percent of the research.
FBS football and Division I basketball are already imbalanced. The general consensus of economic research on competitive balance is that the NCAA's practice of eliminating price competition for athletes has either harmed competitive balance or had no effect; it didn't improve it. When salary is out of the equation and you're a four- or five-star recruit, where are you going to go? You're likely to go to a program that wins, has nice facilities and will best set you up to be a high draft pick. Consideration of these factors over money doesn't improve balance. It turns into "winning begets winning." When workers are cheap, winning programs can easily afford to stockpile talent.
We can look to the NBA for a non-cartel, similar version of this effect with the maximum salary. Is there any way in the world LeBron James leaves Miami for Cleveland if he didn't happen to grow up around the Cleveland area? Would Kevin Love consider signing a contract extension with Cleveland if LeBron wasn't there? (Sorry Clevelanders, but I'm trying to make a point) When elite players get the same salary no matter which employer they choose, non-price factors take over such as the desirability of the city, winning tradition, teammates, weather, endorsement opportunities and, luckily for Cleveland, hometown status.
3. "No matter how the relationship between Title IX and the NLRA is interpreted, economically the two laws are not in conflict"
I won't spend a lot of time on this point, but depending on what's bargained and how Title IX is implemented, funding for women's sports would either increase or remain unchanged if football players were determined to be university employees with collective bargaining rights.
Pay-for-Work
As things currently stand, CAPA is not seeking a pay-for-play compensation model - or pay-for-work, as I like to call it. Their goals are closely aligned with those of the National College Players Association seeking improved health and safety standards, scholarship and transfer reforms and elimination of restrictions on outside employment and commercial opportunities. But if CAPA or either of the two ongoing antitrust challenges to the NCAA (the Ed O'Bannon case or the Kessler case) succeeds, some form of pay-for-work may not be far behind.
Price fixing is one of the most serious antitrust offenses possible. Its more general designation - collusion - has been called "the supreme evil of antitrust" by the U.S. Supreme Court. It is usually per se illegal under antitrust law, essentially meaning if you do it and get caught, you're guilty. But non-profits and universities sometimes have a different, lighter standard applied.
And thus we have the NCAA, a cartel that's been fixing athlete wages for over a century, and the more modern version for over 60 years. The first NCAA Executive Directory, Walter Byers, even invented a brand new term, student-athlete, in the ‘50s to help mitigate future claims of athletes as employees and workers' compensation.
Last month during the Ed O'Bannon trial, NCAA president Mark Emmert stated that any payment to an athlete would be exploitation, in reference to "agents and financial advisors, people who would use them as shills for products." Yep, that's the mindset of a price fixer, folks. I'm sure 21 year old Ariana Grande feels exploited by her agents and financial advisors (that's not to say outright fraud never happens). Peyton Manning probably feels pretty damn exploited shilling for Papa John's and Johnny Football surely would have felt exploited last year if he were allowed to do endorsements while in college.
Meanwhile, college jerseys are sold sometimes for over a hundred dollars, corporate logos are plastered all around our beloved student-athletes and billions of dollars are generated from their work. Good thing we're not exploiting them by allowing them to have a taste.
Paul Gift is Bloody Elbow's analytics writer and an Associate Professor of Economics at Pepperdine University. He's also a former antitrust litigation consultant. He did not have a hand in writing the economists' brief, but signed on stating that he agrees with and supports the economic positions taken. Complete documents for the Northwestern/CAPA case can be found here and an associated storystream here.