Money and March Madness

Interview Andrew Zimbalist

Andrew Zimbalist

Zimbalist is a sports economist and the Robert A. Woods Professor of Economics at Smith College.This is the edited transcript of an interview conducted Jan. 29, 2011.

You were saying that this is the only country that has a sports establishment or business like [college sports]. What do you mean?

College sports is heavily commercialized in the United States. It's probably an $8 billion industry, roughly the size of the NFL.

“It's not money that brings the player; it's the coach: his reputation, his charisma. So in that system, the coach ends up getting the money that would otherwise go to the player.”

In other countries where they have intercollegiate sports competition, it's usually on a club basis; it's usually organized by the athletes themselves. ...

... What do you mean, "clubs"?

We have it in the United States also. ... We have club sports that are outside of the formal NCAA [National Collegiate Athletic Association] network where students decide: "We want to have a golf team. We want to have a rugby team." The school is not endorsing that; they're not financing it. But the students go ahead and play, and they generally raise the money for that themselves. ...

The commercialization of college sports seems to be focused on big-time basketball and football, right?

Those are the sports that have been the most successful at the professional level. Those are the sports that Americans have learned culturally over the years that you pay money to see and you sit down in front of a television for three hours to watch. ... That's what's been mimicked at the college level basically. ...

How big is this business of college sports?

If you're talking about the schools themselves and how much money they generate from providing these commercialized sports, ... it's somewhere in the neighborhood of $8 billion a year to the schools themselves.

There are ancillary businesses. There are corporate partners who make profits over and above that sum. There are licensing companies that produce jerseys that fans might buy. ... The $8 billion is looking at the schools themselves and what kind of money flows into them. ...

You say that there are 1,100 schools involved in this $8 billion [industry]. But if my information is correct, if your book is right, it's a small group of colleges that produce most of this money.

Correct. So the NCAA has three divisions. They have a Division III ... that's very uncommercialized. ... If you want to go to a Division III game, you don't pay any money; they're not shown on television or heard on radio. ...

Then there's Division II. ... That division as well, almost no money is changing hands between fans and the schools; a little bit, but very little.

Then there's Division I. ... This is the top level. This is the most commercialized level. ...

So it's Division I where the money is, most of the $8 billion.

Almost all of the $8 billion.

And the NCAA, what is it in economic terms?

The NCAA is an association of all of its member colleges. ... And within the umbrella organization of the NCAA, the members from Division I have more voting power; they have disproportionate voting power. ...

What's happened historically is the schools that generate the most money for the NCAA, if they have felt like their influence was waning and insufficient or that they were being curbed in their commercialization tendencies, they would say: "All right. You want to do that to us? We're going to form our own association." They threaten to pull out, and then the NCAA has fallen in line.

Economists often refer to the NCAA as a cartel. ... That is to say, it's a conglomeration of independent producers -- in this case athletic departments at all the schools -- that come together to set rules.

Many of those rules benefit the members of the cartel economically. So one of the rules -- of course the most prominent rule -- is that the athletes can't get paid.

They're amateurs. There are ways to remunerate them under the table, and there are scholarships and so on, but you don't pay cash. You don't sign them up to contracts. That creates a whole dynamic within this NCAA system.

The NCAA as a cartel has also imposed other restrictions. It imposes restrictions on the number of scholarships that can be given out. It imposes restrictions on the number of games that can be played, when the games are played. ... It imposes restrictions on whether athletes can do endorsement contracting or not, or whether they can receive licensing money or not.

So if you look at it economically from afar, you say, "Here's an organization that in the name of amateurism has imposed a plethora of restrictions, a large number of which seem to be consistent with trying to maximize the economic return that the schools gets." ...

Even though it says it's a nonprofit?

The NCAA is a nonprofit organization, but it operates in a way that benefits the athletic directors and the coaches and the conference commissioners, and that's the group of people that runs the NCAA. ...

You say that it's an organization that benefits the athletic directors and the coaches. ... [But its] bylaws say it's dedicated to the amateur athlete, to the student-athlete.

Yes, so there's a disjuncture. There's a contradiction. ...

How dependent is the NCAA on March Madness?

The NCAA gets approximately 95 percent of their revenue from March Madness.

Previously their contract with CBS and, going forward, their contract with Turner Sports, they receive small amounts of revenue. They charge for some of their national championships; they charge membership dues; they get some money from licensing. ...

Over the last 20 years, what has the economic development of the business of college sports been like?

... There's been a very steady development of all of its revenue streams. Television contracts have gone way up, stadiums have been modernized and gentrified, as have arenas. ...

Basically they're mimicking what's happened in the pro game. They're generating more money from the Internet. ...They're generating more money from video games and licensing of apparel related to the colleges.

So the game has exploded commercially, but it's an explosion that really dates back decades. ...

So you would agree with an NCAA official who said that student-athletes are amateurs, but intercollegiate athletics is not. Commercialism is as old as athletics itself.

In the United States, I think that's true. The first intercollegiate athletic contest happened in the 1850s. It was a rowing contest between Ivy League schools. ... Even in that contest, they were paying ringers to come row for the teams.

And the reason that contest happened was because the railroad company wanted to promote a new railroad line that they had opened and get people to come up from New York City and other places. So there was a commercial interest behind that. But it all just grew from that point.

Off of March Madness, the NCAA makes money; ... the broadcasters make money. Otherwise they wouldn't be doing it.

They can make bad contracts, but yes, presumably they make money, directly or indirectly.

The coaches.

Coaches make an awful lot of money. I think the highest paid public official in California is a coach at the University of California.

The apparel makers and the shoe companies, they make money. But the players don't make anything?

Correct. The good story for the players is that the most successful ones will go on to lucrative careers as professional athletes, and hopefully they won't be too maimed so that they'll be able to enjoy that money that they make.

The players do get scholarships. The good players, they get full scholarships that turn out to be not enough money to cover all of their expenses at school. But they're also treated royally. They're given special dormitory rooms and special eating halls, and they're heroes on the campus.

So although they generate much more money for the team, much more revenue for the school than their scholarship is worth -- and in that sense they're exploited -- there hasn't been a great public outcry about this, I think because these are people who are in preparation, in training to become professional athletes.

Now, that story works for a very small percentage of college athletes.

How small, ... 150 out of 50,000?

... If you consider the full numbers of people who are playing college football, yes. Out of 50,000 every year, there might be 100, 150 who make it onto a pro team.

Many of those who make it onto a pro team don't stick. They'll go up and get hurt, or they'll go up and it will be discovered that they're not as good as people thought that they were, and they won't have careers that develop.

So it's a very small proportion of the college football stars who make it to the big ranks and make it professionally. ...

These unpaid professionals, as you call them, are not paid, but they're doing 40 or 50 hours of work a week at the sport.

Or more, because they're traveling also to away games. And maybe there's actual work of 40 or 50 hours a week, if you include watching films and the weight lifting ... in addition to the football-specific training, which is in theory limited to 20 hours a week. ...

... They sign away all their rights to the use of their image to, let's say, the resale of a game like we might see on ESPN Classic. They don't get anything from that.

What they sign away is ... the right for the college and the NCAA to use their likenesses to promote the programs of the school or the NCAA. They don't sign away the right to have their likenesses commercialized for the profit of their schools or the NCAA. There is a distinction there.

... In other words, if the NCAA wants to run an advertisement on television that says, "Starting next week, March Madness will be on," and they have a picture of the UCLA center dunking a basketball, that's what he has signed away.

But that ... advertisement itself doesn't bring the NCAA money. What brings the NCAA money is if they then take that and they sell that image to EA Sports. EA Sports goes out and they sell that, and then they give the NCAA or UCLA [University of California, Los Angeles] or both some royalty for having sold that. ...

But the NCAA states in its bylaws that the likeness and the image of college athletes cannot be used for commercial purposes.

Is there any other economic organization that operates this way?

Not that I know of. ... If you're comparing it to other economic organizations, ... the organization wouldn't be allowed to pass a rule that says we can't pay our workers. Can't do that. ...

... By the economics of this, most schools lose money doing this?

Oh, yeah. According to the NCAA's own statistics, out of 120 schools in the top level of Division I -- the FBS [Football Bowl Subdivision] -- 14 had an operating surplus; 14 out of 120.

The median FBS school had a deficit of over $10 million. ...

They're losing $10 million?

The median school is losing $10 million on an operating basis. ... That number has been growing rapidly. If it continues to grow at the rate it's been growing the last 10 years, in 2015 it will be $22 million and in 2020 it will be $44 million. So it's an unsustainable situation. ...

... We have a nonprofit organization where the coaches are making salaries that are competitive actually with the pros in some instances.

Correct.

The players aren't paid, and the schools are losing at least $10 million. ... Who would want a business like this?

Not too many people if they were rational is the answer. ...

There have been, over the years, college presidents who have asked the question that you asked: Why on earth are we doing this? It's distracting from our educational mission. It's costing us a bundle. It's creating hypocrisy all over the place. Why don't we stop? Why don't we reform the system?

College presidents who have done that, who have gone out on a limb and made those pronunciations, have gotten the limb cut off. They've lost their job. They have been roundly criticized for stepping outside of the system. ...

Nobody's been able to do it. The commercialization juggernaut has just rolled over all of them.

College presidents have lots of things they have to do, right? They have to deal with the quality of the faculty, quality of the student body, attracting students, raising money, dealing with the physical plant at the school, dealing with alumni. They have a million important things to do.

And there has been a very clear historical lesson: If you futz around with athletics, you're not going to get anywhere, and you're just going to get a lot of negative reaction to what you're doing and possibly lose your job. ... This is a holy cow, and we can't touch it. ...

Public universities now more than ever and private schools are becoming more and more dependent on tax-deductible donations. As I understand the studies, when athletic departments raise money it is really taking away from the money that goes to the academic side in terms of donations. Is that true?

Yes, basically. ... Why is it that schools continue to do this? If they lose $10 or $20 million a year doing it properly accounted, or maybe even more, what keeps the thing going?

One of the answers that you often hear is that, OK, maybe the athletics program on its own boat loses money, but what it does for us is it gives us notoriety, gives us advertising. And that advertising ... opens the wallets of alums and other individuals to make donations to our athletics program; brings money in to us and also donations to the general fund. ...

The other argument you hear is the notoriety, the publicity gets high school kids excited. They just saw your college team play in March Madness, and now they want to apply to your school. They just saw your college team on the BCS [Bowl Championship Series] Bowl, and they want to apply to your school. ...

If it lifts applications, the schools now have more applications. They can be more selective in admitting students. They can increase the quality of the student body. And if they increase the quality of the student body, the reputation of the school goes up, and then you get more applications. ...

Of course it is the case that people who make donations to athletic programs get to deduct that from their taxable income. And indeed, even if you buy a seat at a football stadium on the 50-yard line, there are ways in which you can deduct 80 percent of that. So college athletics benefits from public subsidies.

We all help pay for college athletics.

We all help pay for it, even if we're not going to the stadiums.

But the notion that if you have a good football team or you have a good basketball team, you're going to get more donations, first of all, doesn't hold up directly in statistical tests. There are particular schools -- and especially schools that go from oblivion to national prominence -- where you'll get increases in donations.

To the athletic department.

To the athletics department, and maybe also to the general fund. There are instances where it happens. But if you look at the entirety of the school population and what happens over time when athletic performance improves, does it improve donations? ...

The clearest way to say it is that there is not definitive evidence; there's not clear evidence that athletic success helps donations to the university in general. It seems to have a small positive impact on donations to the athletics program, but that in and of itself seems to correlate with lower donations to the general fund. ...

And as I understand it, there are wealthy people ... who make large tax-deductible donations and then can put a condition on the donation and say, "But you have to give the money back to my company that will then manage that money for you and charge you fees."

That's right. ... There can be that kind of a condition.

And there can be people like [Nike co-founder] Phil Knight who give enormous amounts of money to Oregon and have unstated influence on the program just because people ask him. They don't want to alienate him. ...

A little earlier you said, ''When we get into the economics of this.'' What did you mean by that? ...

What we have is an economic entity that has all these tax subsidies and direct public subsidies from state governments and from the university itself, directly, where the producers themselves -- the athletes -- are not allowed to be paid.

And you have a lot of sports within any of these Division IA or FBS schools that are not commercialized. So what happens in this context?

One of the things that happens is that there are cross-subsidies. The football team, especially if it's a successful football team, might generate $10 or $20 million in surplus, just the football team itself. And that's on an operating basis.

That $10 or $20 million is then used, in part, to subsidize, pay for the volleyball team, the swimming team, the track and field team, etc. So these cross-subsidies are going on. That's one of the elements.

The other element is this: The coaches, who are the ones who recruit the players, end up getting the value that the players produce. In a normal marketplace, when you hire a worker, you hire an employee, you pay the employee what they're worth to you in a competitive circumstance.

In this marketplace, you're not allowed to pay the employee, right? So if you're a college coach, you're not allowed to do what the professional teams do. ... So how do you recruit players?

Presumably it has to do with the coach's personality, the coach's reputation, how well the coach is able to come on to the player and the parents of the player and so on and so forth. So it's not money that brings the player; it's the coach: his reputation, his charisma, his charm. ...

And so in that system, the coach ends up getting paid the money that would otherwise go to the player. And so you have these coaches -- Rick Pitino last year at Louisville got paid [$6.1] million.

You have coaches all over the map who are getting paid, in FBS football, $2, $3, $4, $5 million dollars. And these coaches, by the way, also have spectacular perquisites: free memberships at country clubs, free use of automobiles, $50,000 of free private jet service whenever they want.

And they're allowed to then go out and make endorsement deals with Nike and other apparel companies. They're allowed to go out and give motivational speeches. They're allowed to run summer camps. They're allowed to write books. Their incomes are truly spectacular, not just matching but surpassing their counterparts at the professional level.

So now ask yourself the question: How much does a typical NFL team generate in revenue? Somewhere around $270 million. How much does a typical FBS team generate?

This is the highest level of college.

The highest level of college. How much does the average FBS team generate? Probably in the neighborhood of $30 million. ...

How could the coaches be getting paid the same amount if one is running an organization that generates $270 million and one is running an organization that generates $30 million? After all, in a competitive marketplace, people's ... wages are supposed to correspond to how much revenue they generate.

But that can't be the case here, so what's happening is this very peculiar underlying economic dynamic where you're thwarting the market in one area. ... The coach ends up getting the lion's share of the rewards. ...

And you might compare them not only to the governor of the state, or some other administrator in the state, but to the college president, because college presidents usually get somewhere between $250,000 and $750,000. So you have the football coach getting paid five times as much, 10 times as much as the college president. ...

What are we doing here? Are we producing football players, or are we producing educated students? If the football coach is paid five or 10 times as much as the college president, the person who runs the educational institution, what kind of a message is that? What's the signal that's being sent? ...

From an economics point of view, if there were a law that said that college coaches couldn't be paid more than ... let's say it's $500,000, two things would emerge from that. The first thing that would emerge is that the college would save a lot of money. Instead of losing $10 million, maybe they'd lose $7 million or $6 million. And if it happens for football and basketball, it would be even less that they would lose.

But the other thing is this: It wouldn't affect the allocation of resources one iota. ... In the case of a college coach's salary, it's almost all economic rent. Economic rent means they're getting paid over and above what they would need to be paid in order to allocate their resource to that activity. ...

So theoretically, you could get a college coach to do it, as long as you had a free market, at a much lower price.

It wouldn't be a free market now; it would be a constrained market at a lower price. But what would happen? College coaches are not rocket scientists. They don't have Ph.D.s. Some of them have M.A.s; some of them just have bachelor's degrees. What would be their best alternative if they got really angry and said, "Five hundred thousand dollars? I'm supposed to get paid $4 million." What's their alternative? ...

His best alternative might be coaching not in FBS but the next level down, FCS [Football Championship Subdivision], where he'll get paid $100,000, or coaching in high school, where he'll get paid $40,000. There might be a college coach or two who, because of his history and because of his personality and his looks, he'd get a job as an announcer and make more. ...

There's a very strong argument to just cut it down and artificially impose a limit. ...

Why doesn't it happen? Why doesn't the NCAA legislate that? The answer is simple. The NCAA is a trade association of coaches and athletic directors and conference commissioners, and they're not going to legislate their own reduction in salaries. ...

... The concept of the student-athlete or amateur athlete: fiction or reality?

... In Division III, there are student-athletes. That is to say, there are kids who are spending it might be 20 hours, it might be more, with their team and team-related activities every week. ... They learn all sorts of positive things, and they're having a good time. And they're students; that is to say, they take a full load of real courses.

It happens certainly for a lot of the sports at Division II. It even happens in some of the sports in Division I, usually very infrequently for football players or basketball players. It can happen for isolated football and basketball players, but in the other sports that are not nearly as commercialized, it happens much more frequently. ...

In fact, the majority probably of NCAA athletes are student-athletes. But the sports that people root for and watch -- basically men's basketball and football, a little bit women's basketball, a few other sports here and there -- you're not really watching student-athletes. You're watching athletes who are pretending and trying to be students and meet certain rules and guidelines so that they can maintain their eligibility. ...

So into this whole argument, this whole debate over the nature of college sports, steps a man named Sonny Vaccaro. Who is he, and what are we to think of him?

Sonny Vaccaro is, as far as I know him and his life's work, somebody who really introduced the whole notion of developing basketball players at a younger age and making a connection -- a younger age can be early teenage years -- between these budding basketball players and the company that he's working for, Adidas or Nike, to get a relationship between the company and the individual; to get that individual to wear the Adidas sneakers on the basketball court in his neighborhood; to get the other kids in the neighborhood then also to want to get those sneakers because here's the best kid in the neighborhood; here's the kid who can dunk the ball; he's wearing Adidas sneakers; and then to establish a relationship with that kid so that he goes to Adidas camps in the summertime, and maybe eventually he ends up going to a college where the basketball team is coached by somebody who has an endorsement deal with Adidas.

So Adidas can provide benefits to this player all the way through, and Adidas extracts benefits. When this player becomes the next Michael Jordan -- which is the idea here -- or the next LeBron James, he's going to be promoting Adidas sneakers, so Adidas gets promotional value out of it.

Now, this ends up commercializing this whole process at a much earlier age, and taking advantage of a kid at a much earlier age, and creating expectations on the neighborhood basketball court where this kid plays, expectations among his friends that: "This is a possible thing. The companies are coming. All I have to do, instead of playing basketball for two hours after school every day, I'm going to play for four hours every day."

So the kids start thinking, "This is the way out for me; this is my path," instead of thinking, which would make a heck of a lot more sense probability-wise, "My way out is I'm going to be a better student; my way out is I'm going to get involved in the drama club." Instead, you get all of these kids who are thinking, "Here's the money; they're showing it to us."

So Sonny Vaccaro does this originally for Nike and then Adidas and then Reebok, and what he's doing is instilling the myth that you can make it?

I think he's spreading the myth that you can make it and showing the myth to more and more kids. And even the kids who do end up signing up and do track their way through, very few of them ever have the payoff at the end. So it's a very manipulative and potentially quite destructive activity, I believe.

Sonny was the innovator here. He's the guy who discovered this mechanism, promoted it to Nike first, and then Adidas and Reebok, did very well financially for himself. Interestingly, along the way, he would criticize what he was doing. He would say: "Look, I know this is a rotten business. I know this is dirty. I know this is hypocritical. But you know what? If I don't do it, somebody else is going to do it, so I might as well do it." Then he eventually stopped. ...

The guarantee that he would get his players, who were not being paid, to wear Sonny's shoes -- Nike shoes, or later Adidas or Reebok -- and the coaches were taking money to do that? The universities were letting them do that?

... Yes. Universities were turning their eyes the other way.

They were allowing essentially their public employees to be bribed for a commercial interest?

Yes. And the notion was that if they played along with Nike or Adidas, that Adidas and Nike would play along with them and funnel these promising prospects to their schools.

He's told us that the playing field really changed in 1989, when the University of Miami stepped up and said: "You can pay us directly for the whole school. We'll sell you the whole school, and we'll take care of the coach." He said that's when the whole game changed. It was all over after that.

I think then what happens is it becomes generalized. It becomes a mass activity. Everybody's doing it, and the schools start putting in their contracts with the coaches that, "We're going to give you a certain amount for the work that you do in connection with Nike or with Adidas." ...

... What do you mean the players aren't paid? They get a scholarship; they get room and board; they get tutors, if they need it, to stay eligible. They get all kinds of advantages -- probably hotel stays when there's a home game and special party privileges and so on, exposure to wealthy people who want to potentially give donations, who might employ them later. ...

Athletes get something, and particularly the athletes who are not in the high-profile sports do end up seriously following their course of studies and do end up getting a degree. ...

If you're on the school tennis team or you're on the school golf team or on the swimming team, you're not helping the school generate revenue, but you're getting a pretty healthy scholarship in return. So for those athletes in the non-high-profile sports, sure, that's a nice benefit.

For the athletes in the high-profile sports -- in football, about 40 percent of them ever get a degree, and those who do get a degree are getting it often under false pretenses, because they're not doing a normal course of study, and they're not doing a lot of the work themselves.

Basketball, about 50 percent graduate within six years. So the ones who do graduate are not getting a full education. So there's a dubious value there with the scholarship.

Their work is producing the money that's subsidizing these other sports' scholarships.

That's right. If you look at the stars on the basketball team and the stars on the football team in the top level of Division I, and using econometric or statistical techniques you try to estimate how much are these guys really producing for the school in value, in revenue, the answer you're going to come up with -- it will depend by school and by individual -- is going to be $800,000, $1 million, $2 million, $3 million. Those are the kinds of numbers that we're looking at per year.

How much is the value of their scholarship, even assuming that they end up with a degree, and even assuming that they really do their course of studies properly? The value of the scholarship might be $30,000.

So there is some exploitation here. There is an inequality between the value that they're producing and the value that they're getting. ...

What's the percentage of African Americans on these more successful or bigger programs -- football programs and basketball programs?

I can't tell you what the exact percentage is, but it's high.

More than half?

More than half, yeah. ...

... And you're saying that they're subsidizing these other sports, many of which are Title IX sports, right?

Yes. ...

Is there a kind of irony here that an institution of higher learning is exploiting the most exploited to subsidize other programs?

I think there's a profound irony. Again, if you go back and look at the cross-subsidies that we were talking about earlier, that you're taking teams that in men's basketball and football that have a high percentage of players who are African Americans, who come from poor backgrounds. ...

You have these ... poor kids who are generating millions of dollars for the school, who are getting paid nothing or next to nothing, producing a surplus that then gets transferred to support scholarships for the golf team and the swimming team and the ice hockey team that are staffed by people who are primarily middle-class whites, maybe upper-middle-class whites.

So you have a reverse Robin Hood transfer from poor minority kids to relatively wealthy white kids playing often elite sports. Sure that raises ethical issues. It's something that really hasn't been addressed, however, by NCAA policy. ...

The fact that these athletes sign a one-year deal, what kind of labor agreement is that? You don't get paid, and you only have one year guaranteed?

Yeah. So earlier we were talking about the history of amateurism and the NCAA. And interestingly, it's just morphed continually over time.

Back in 1956, when the NCAA first said you can give a scholarship to an individual that's room and board and tuition, and you can give that scholarship to the individual even if they don't have need -- meaning that you're going to give it to them just because they're a good athlete -- then that's when it became legislated. Before that, you weren't allowed to give money. It was thought that that's payment, and they're amateurs so they can't get paid.

In '56 when they said that, they said: "Once you bring somebody here on athletic scholarship, you can't take it away from them. If they're not a good player, if they get injured, it's theirs. They get to finish school." It said that in the legislation.

Then in 1973, they thought again. When they thought again they said: "It's really better for the coach, if the guy's not a good player, that we can get rid of the scholarship. We give it to somebody who is a good player."

Or gets injured.

Or gets injured, yeah, which is even more insidious. …

So then since 1973, you can't give a four-year scholarship; you can't give a three-year [scholarship]; you can't give a two-year scholarship. You can only give a one-year scholarship. So if the person is no longer valuable to the coach, he doesn't have to waste one of his 85 scholarships on that person, even if the person's a terrific student, even if the person broke a leg playing football.

A lot of people made the point that ... there's a quid pro quo. You get your scholarship if you play football for us or if you play basketball for us. You don't get it just for coming to be a good student.

It seems very clear now, if it didn't appear clear before, that there is a compensation for a specific skill, and that makes it look very much like a professional job.

But in a work sense, it puts the worker at greater jeopardy. There's no job security here.

There's no job security. Absolutely.

There are other things if we go on with this whole relationship of amateurism that they have that are a little bit screwy. Athletes are not allowed to use their athletic skills in the summertime to work in summer camps, but if you're a violinist in the school orchestra, you can go to a summer camp and get paid to be an assistant teaching violin. Or if you're a chemistry student, you can work in a lab in the summertime as a chemistry assistant and get paid for doing that.

The NCAA has decided no, you can't do that if you have football or basketball skills.

Because?

Because then it violates the strictures of amateurism, our pure, wonderful amateurism. ...

If they're really concerned about amateurism, why don't they say to the athletes: "Go ahead. Make a deal with a company. Have your likeness used. But you can't get paid until after you leave. Have the money put into an escrow account. Have the escrow account be used for educational expenditures later on in your life"?

There are all sorts of ways that they could handle it. There are ways that they could abide by their philosophical commitment to amateurism and still benefit and still be totally consistent, and probably more consistent, with that principle of amateurism.

Allow the athletes to have more flexibility, more freedom, and be less exploited.

Wouldn't that affect the potential incomes of the coaches, because they wouldn't be getting as much money?

Absolutely. One of the reasons why many of these restrictions are in place is that it would divert money, either today or tomorrow, to the athletes or to an athletes' fund and away from the program that the athletic director manages, and away from the coaches' salaries and the AD [athletic director] and conference commissioners' salaries.

... We have a photo of [former UCLA and New Jersey Nets star] Ed O'Bannon, and he's standing up there in the iconic picture of cutting the net off at the NCAA championship. And the ladder he's standing on has a promotional name on it; that's the NCAA ladder company.

... One of the things that's interesting about [the O'Bannon] case, of course, is that EA [Electronic Arts] has made a provision so that if you were formerly a college athlete and you have become a professional NBA or NFL athlete, they get royalties sent to you from these video games that they produce. But if you were a college athlete and you don't go on to be a pro athlete -- you go on to be a lawyer or a truck driver or whatever -- you can't get that money.

Now, what on earth does that have to do with a stricture of amateurism? It doesn't. In both cases, you're paying somebody who's no longer playing college athletics. But you say, OK, we'll pay you since you're a fancy, rich, professional athlete, but we're not going to give you anything because you're just a truck driver.

... What do you think of this case?

I think the O'Bannon case is terribly important. I think it goes to the core principles of the NCAA's amateurism.

If amateurism means anything generally that is not arbitrarily imposed by the NCAA, it means that somebody can't be a professional. And if they can't be a professional, it means they can't be paid for the activity that they do.

Now, there are all sorts of ways in which the NCAA could stick to such a principle and allow student-athletes' likenesses to be used and allow ... the use of those likenesses to result in some kind of deferred payment or payment into an escrow account that the students could not use during the time period while they were student-athletes.

But the O'Bannon case itself is brought by a former athlete. He's no longer a college student, and his co-signers, his co-plaintiffs are no longer college students. They're former college students. Whether they get paid or not has nothing to do with whether they were amateurs when they were playing the sport.

Saying to them that you can't get remunerated via royalties for us using your image -- selling footage of your games, selling videos with your likenesses, selling cards, selling all sorts of jerseys with your names on it ... -- all that's saying is not that we're defending amateurism. All it's saying is that we're preventing you from getting the money; we're going to have the money.

So I think that it's, in this case, a very clear violation of the publicity rights of the athletes. From an antitrust point of view, it's a conspiracy among the various schools and the NCAA that come together and allow this to happen. It's a restraint of trade. It's saying to the O'Bannons of the world: You can't sell these rights to Electronic Arts. Only we can sell them. We, this agglomeration of 1,100 colleges, only we can benefit from it.

So I think that it's going after the arbitrary definition of amateurism, and it's going after the exploitative way in which the NCAA uses that ... arbitrary definition. ...

And as I look at it from an economics lens, and also from a more limited legal lens that I have, it seems like they have a very, very strong argument. It will prove to be an extraordinarily interesting case.

One aspect of it involving EA Sports and the First Amendment defense that they use -- that they were going to do fair use of these images in their video games -- they've appealed. And out of the woodwork came every major media company in the United States on their side. The implications are that there are big numbers here potentially, and a big change that could take place.

... I think one of the problems that EA has is that when they make a First Amendment defense for what they're doing, they then have to explain why it is that they've signed side contracts with today's NBA players and today's NFL players to pay them for the use of these images. If they think it's in the public domain and they have the right to use it, then they're contradicting themselves by making those side deals. ...

The O'Bannon suit is much broader than that, and it has to do with selling the videos, the footage itself, and selling all sorts of other products associated with the athletes. ...

You're saying that when I watch an ESPN Classic game, the players in there don't get any money. It's a college game.

That's right. Except if they're currently NBA players or NFL players, and then there's a mechanism by which they can be receiving royalties. ...

Basketball players today could go elsewhere -- to Europe, to all kinds of places -- from high school. But now the National Basketball Association says: "We're not taking anybody anymore, like LeBron James or Kobe Bryant, out of high school. You've got to spend at least a year out of the NBA once you get out of high school ... and preferably play college basketball." Why?

... The real story is that if somebody enters the NBA at the age of 18, then they become a free agent at the age of 22, and they have a longer span of their career where they can receive a higher salary. ...

Colleges function very effectively for the NCAA, for the NBA and also the NFL, not just preparing the players but also setting up the value of a player, because when somebody is playing on the Kentucky basketball team for a year and they're going to the Final Four, all of America now knows about this player.

America's more interested in this player and how the player is going to do when he plays for the Sonics or the Knicks or whatever team, so there's kind of a built-in advertising or PR value that the NBA gets because he's been promoted. ... So I think that there's largely an economic motive behind this from the NBA's perspective. ...

Isn't it helping the colleges because it gets them better players?

It probably helps the colleges a little bit. But there's a downside, too, which is that you're playing with a rental player. ... To the extent that the mythology of the student-athlete is still prevalent, it weakens that mythology. It makes it much more nakedly clear that what's happening is you're getting players to play on your basketball team. You're not getting students who end up on the basketball team. ...

We're going to interview the president of the NCAA, [Mark Emmert]. If you were me, what would you ask him? ...

... I think one of the toughest things to defend right now is college coaches' salaries. ... So I would just pummel him. I'd say: "Look, why are they so high? How can you justify it?" ... The pro teams generate this much revenue. The college teams generate one-ninth of that. ... If this were a fair and open market, how could they be getting the same wage? ...

He'll say something to the effect, "It's not up to me," which it's not. But he is a bully pulpit. And then you say back to him: "I know that you can't mandate this -- there are no presidential edicts in the NCAA -- but I don't hear you talking about it. ... Why don't you stand up on your bully pulpit and say this is improper, and it's also contributing mightily to the financial crisis of the schools"? ...

... [Sonny Vaccaro] left his regular work, and he's pushing this litigation. His presence in this battle, how significant is it?

... He's taken a very forthright, strident position in supporting the O'Bannon case. He's a forceful fellow. He's an insider who has turned against the system, as others have, like Walter Byers, [the NCAA's first executive director].

So I think that he's playing an important role. I think that he inspires some people. He's very knowledgeable. It's valuable to the O'Bannon side to have him onboard. Ultimately how decisive his role will be is something I can't forecast. ...

In their defense, the NCAA says ... coaches' salaries don't come primarily from public money.

You hear from time to time that defense made, either by the NCAA or more likely from the university president. In fact it is public money, for a number of reasons.

A good chunk of the salary comes directly out of the university budget, first of all. Second of all, part of it is described as a media allotment, that they're using the coach to do promotional work; he has a coach's show, a radio show, a television show once a week, and he's getting paid for that. He's getting paid to do press conferences. ...

Then the notion that some of the money that the coach is getting maybe is getting funneled through Nike or through Adidas or through some apparel company, and therefore it's coming from the outside, and it's really the coach just getting paid for the work that he's doing for Adidas or Nike or another company.

Well, the reason why Nike wants to have a deal with the University of Wisconsin or the Michigan Wolverines or Oklahoma or wherever is because they want the players on the team wearing Nike sneakers, and they want the jerseys to have a Nike swoosh on them.

It's not that the coach is wearing a jacket with a lapel that has a Nike swoosh. They want that advertising on the players. They want that advertising on the courts. They want to have the players affiliated with them if they go on and become pros or not. It's basically a set of individuals and resources that the university provides that Nike or Adidas want to attach itself to.

They want to use the signage at the stadium. It's not the coach that provides the signage. It's not the coach who built the arena. It's not the coach who's wearing the basketball shorts or jersey. It's really university money, and the university is getting the money and using it. They decide to pay the coach so they can make the argument that it's not public money, but it is public money. ...

Instead of paying the coach, they can take the money from Nike and build a new science lab, or hire a chair in biology, or do all sorts of other things with it. So I'm sure that there's some money you could identify -- and it will vary from coach contract to coach contract -- there's some money you can identify as not public money, but the lion's share of it still is.

The NCAA says it's been making academic reforms, and it's a myth that they're dumb jocks like in the past.

The NCAA has been making reforms, and they've been making reforms since the inception of the NCAA back in 1905. The question is, what effectively has been the impact of those reforms? The answer is that the commercialization juggernaut has always continued to move forward.

The reforms might slow it down at points in time. The reforms might buy the NCAA some legitimacy as an amateur organization that deserves all these tax privileges and deserves the branding that it gets as an amateur activity. They need to have the reforms to legitimate what they're doing. But those reforms have never held back or reversed the tide of commercialization.

They have a reform now that was introduced under the inspiration of [the late NCAA president] Myles Brand: the academic progress rate. ... Each year you can measure how the athlete is progressing towards graduation, ... and the athlete has to pass that or the team can get penalized.

The academic progress rate sets a very low threshold. It only encourages the side curriculums that get developed and increased money being spent on tutors. There are tutoring buildings that are being constructed for athletes that cost $15 and $20 million at schools. Does this actually certify that the athletes are learning any more or they're any more involved in their intellectual life as students? I don't think it does.

I think that people who are looking at this from the standpoint of the tutoring operation, or from the standpoint of professors, or even sometimes from the standpoint of people within the athletic apparatus, are very critical. There might be a school or two where you can identify some marginal progress, but on the whole it's not really changing the underlying enterprise at all.

If anything, what it's doing is encouraging the schools to find more ways around the increased number of regulations. ...

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Posted March 29, 2011

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