Please turn on JavaScript

Brooks Wilson's Economics Blog: NCAA and Wages

Friday, February 12, 2010

NCAA and Wages

I have argued that the NCAA restrictions on payments to athletes lowers their "wages" to levels well below what they would earn in a competitive labor market.  Lawrence Kahn quantifies the differential between what these athletes would earn without NCAA restrictions and what they actually earn in "Market: Cartel Behavior and Amateurism in College Sports" which was published in the Journal of Economic Perspectives (Vol. 212, No. 1, Winter 2007).
Analysis using this framework [an empirical method to estimate wages of NCAA athletes] have been performed for college football, as well as men's and women's basketball.  In constant 2005 dollars, estimates of the marginal revenue product [wage] of a draft-quality player range from about $263,000 for women's basketball (based on the 2000-2001 season) (Brown and Jewell 2006, p. 98)  to $495,000 for college football (based on the 1995 season) and $1.422 million for men's college basketball (based on the 1995-1996 season) (Brown and Jewell, 2004, p. 159).  These estimates of the marginal revenue product of a draft-quality athlete can be compared to the compensation of college athletes.  According to NCAA rules, athletes are limited to receiving a scholarship and stipend, supplemented by up to $2,000 of earnings from a job during the school year (Zimbalist, 1999, p. 26).  Since the cost of tuition, fees, room, board, and incidentals comes to roughly $40,000 at private schools (and less in most cases for public schools), compensation is far below marginal revenue produce for these revenue-producing athletes. 

Lawrence also describes NCAA attempts to limit compensation of assistant coaches.

In 1991, the NCAA set a maximum compensation level for certain assistant at $12,000 during the year and $4,000 for any summer camp earnings.  Several antitrust suits were filed against the NCAA on behalf of the assistant coaches, and they were consolidated into one class action.  In 1995, a federal court decided for the plaintiffs, and damages to the coaches were ruled in 1998 to be $22.3 million, which under the treble damages provision of antitrust law were multiplied to $67 million.  The NCAA appealed, but the parties eventually settled for $55.5 million, to be divided among roughly 1,000 assistant coaches (Hamilton, 2003). 
The article contains a lot of interesting history and good economics.  I love their product but recognize that it is not an "amateur" product. The NCAA is a profit maximizing business.   

1 comment:

  1. That federal court case was just a trade between the two sides until they finally came up with a number that both sides like. NCAA wages have only gone up still since this case.

    this is Matthew Kent