Friday, December 06, 2013

Financing Education By Exploiting the Disadvantaged?

-- Posted by Neil H. Buchanan

When people see numbers with a lot of zeroes, they become very confused.  When those large numbers are preceded by a dollar sign, people become very confused and angry.  Exhibit A, of course, is the national debt.  Just say the words "trillion dollars," and watch the eyes roll back in people's heads.  When it comes to college football and TV, you can almost see people's minds turn off as soon as they learn that billions of dollars are involved.  They are sure that something is wrong, but they are not sure what, or who, exactly is the problem.  But boy, is that a lot of money!

In my Dorf on Law post yesterday, I returned to the fraught financial relationship between American universities and their football players.  I argued there (as well as in yesterday's Verdict column and previous writings, links to which appear in yesterday's post) that college football (and men's basketball) players should not be paid in cash, even though their labors allow universities to earn ever-increasing amounts of money (amounting to billions of dollars) from TV contracts, ticket sales, sweatshirts, and so on.

In all of my writing on this subject, I have consistently viewed the "business" of big-time college sports as a part of our system of higher education.  That is, even though many cynics are all too willing to say that the tail should (or, in any case, will inevitably) wag the dog, I believe that universities' core purpose is still educating students; and if we are thinking about possible changes in that system, we need to ask how any proposed options will affect the health of our system of higher education (not merely its athletic programs), compared to its current imperfect state.

One way to think about the money that comes from college sports is that the games (and all of the money that comes from them) amount to an elaborate fund-raising system for higher education.  That is, even if we insist on saying that college players are "entertainers" who help to generate huge amounts of money for their universities, it would be not at all worrisome that the universities are "keeping all of the money" if that money is being used to support the universities' core, nonprofit purpose.

By comparison, imagine a nonprofit entity that wants to hold a fund-raiser.  Often, such entities will be able to find a star entertainer who is willing to provide a benefit performance, the proceeds of which are then used by the nonprofit to support its good deeds.  But imagine that Rutgers (aka, The State University of New Jersey) learns that native son Bruce Springsteen is willing to play a series of concerts to raise funds for the university, but that he will only do so if he is paid a large amount of money.  (Assume that Bruce is so popular that his greed does not threaten his standing with the public.)  Rutgers might still have good reason to decide that it makes senses to pay Bruce, and to use the rest of the money for education.  If Bruce would be willing to play for free, then that is obviously all the better, but even paying him might still be worth it for Rutgers.

When people refer to football players as "entertainers," and thus deserving of the money that their performances generate, they are surely thinking about people like Bruce Springsteen and the stars who earn unimaginable sums by virtue of being a star.  They are not thinking about how poorly paid most musicians and other entertainers actually are.  If, in my hypothetical example, Bruce agreed to perform with a band of amateurs, all of whom would be more than eager to play with The Boss in front of thousands of people, there would be no shortage of people who would be willing to be the unpaid members of that band.  And the simple fact is that he could easily assemble an awesomely talented group.

In Ohio, native son Urban Meyer is a superstar, too.  His talents lie in recruiting and coaching young men to win college football games.  The Ohio State University pays him millions of dollar every year to make that happen for the Buckeyes.  If Meyer were willing to work for free, that would be even better for the university, but they are still making seriously good money by holding fund-raisers with a football team 13 or 14 times a year.  Before Meyer arrived, in 2011-12, the football team netted $24 million.  We can safely assume that, with Meyer on board (and after two straight undefeated seasons, following their 6-7 campaign in 2011), the increase in revenues is even greater than the coach's $4.6 million salary this year.

Now, let us assume that my argument in yesterday's Dorf on Law post and Verdict column is dead wrong, and that college football players are literally "paid nothing."  What would that mean?  In part, that depends on what the football powerhouses like OSU do with the extra money.  Disappointingly, it turns out that most universities partition their finances, allowing their athletic departments to be their own fiefdoms, keeping any excess money that they generate, rather than turning it over to their universities' central administrations.  As it turns out, however, all but a tiny fraction of top-division universities have athletic departments that are running annual aggregate deficits, even when the athletic department is formally separated from the university at large.

This means that there are a large number of universities with football and men's basketball teams that partially subsidize other men's and women's sports, with the universities topping up the overall athletic budgets.  For a few others, the football teams make more than enough money to fund the entire athletic departments, and the remaining funds can be used to support other parts of the universities.  For a very few, even the excess money from the most successful sports programs stays in-department, subsidizing not just the coaches' salaries but the increasingly lavish training facilities and living expenses of the athletes.

I strongly support a fully integrated financial and institutional structure, especially because the separation of the athletic department can lead to extreme dysfunction (which, for one horrific example, seems to have been a contributing part of the scandal at Penn State.)  But my larger point here is that there is nothing inherently wrong when universities receive large amounts of money.  It depends on what they do with the money, after paying the expenses necessary to raise the money in the first place.

Again, even though college players are compensated by being provided access to a completely free college education, let us continue to imagine otherwise.  The standard, cold-blooded economic retort is: "Well, did anyone hold a gun to their heads?"  I find such reasoning highly problematic on many levels, but we can at least think about things in that cramped way for a few minutes.  Just as Springsteen's would-be co-performers could "choose" to perform for free, so can Meyer's jocks.

And who are Meyer's jocks?  The anti-poster child of the exploited college athlete is currently Johnny Manziel, last year's Heisman Trophy winner from Texas A&M University, who is from a very wealthy family.  (That he is also, by all evidence, a spoiled brat and an entitled punk makes him all the more problematic as a leading case for paying athletes in cash.)  In order to make the case for paying college athlete's in money instead of in scholarships, the argument is usually framed as a matter of exploitation.  These poor kids are being used to generate millions for the greedy university presidents and coaches like Meyer, we are told, and we cannot put up with that any longer.

As a final analogy, compare the arguments for using state-run lotteries to fund K-12 education.  The argument there is that, even if lotteries really are a "tax on stupidity," they are voluntary in the sense that no one holds a gun to anyone's head when money is collected from lottery customers.  This is supposed to be a good thing, because the lottery money will be used to support education, and the lottery participants are happy to do what they are doing.

It seems to me that a person who is not worried about the morality of exploiting the people who play lotteries should not be worried about exploiting young men who are desperately anxious to play football.  (In fact, in the most cold-blooded of all ways of thinking about it, it does not even matter whether the money supports public education.  Profits are always morally right, under that view!  But we can put that sociopathic extreme aside for present purposes.)

If we stipulate, as I have done repeatedly, that college football players should be provided with adequate health and disability benefits, then the remaining question is whether it is acceptable to finance a valuable public good by taking advantage of people's willingness to pay money (lotteries) or provide free labor (amateur sports).  If anything, the lottery-like aspect of playing college sports is at least slightly better, because the chances of being "discovered" and ending up in a highly paid professional football gig is considerably better than the chances of winning the Super Lotto.  But even if there is no difference on that dimension, the idea of exploiting the less fortunate to support a public good is hardly unique to college football.

For those of us who are repelled by both forms of exploitation, of course, it actually matters whether and how we are using and compensating people.  Personally, I think that state-run lotteries are irredeemable, whereas big-time college sports could be improved substantially.  As it stands, however, it is infuriating to see people claim that the current system categorically provides nothing to the student-athletes.  (And yes, it turns out that most of them are students, too.)  If we use the money from sports to provide educations to athletes, many of whom would not otherwise go to college, and also to non-athletes, then the large sums of money that come from college football's popularity could and should be seen as a good thing, not as some kind of evidence of inherent corruption.


The Dismal Political Economist said...

Let’s imagine an alternative universe. In this universe are three highly regarded academics, and let’s call them Michael, Sherry and Neil. These three individuals teach at prestigious universities. In addition to their teaching, in order to hold their positions they must use their intellect and fame to generate income from outside lectures, consulting, publishing and the like

Their respective employers, the prestigious universities provide Michael and Sherry and Neil with an excellent salary and great fringe benefits and other forms of non-monetary compensation. However, as a condition of employment all of the revenue generated from Michael and Sherry and Neil’s outside activities accrue to their respective university employers. They are not allowed to keep any of those earnings, and are closely monitored to see that they do not. In fact, were they to retain some of the payments they would not only be summarily fired, but no other university would hire them. Every university in the United States has agreed to abide by these rules and so Michael and Sherry and Neil have no choice but to follow them if they wish to teach in higher education. Violate the rules and no college will ever allow them become professors.

The universities have great munificent arguments for imposing these rules. These individuals are already compensated by their salary and benefits, they don’t need the additional income. And by keeping the additional income the colleges and universities can support their educational mission and provide educational opportunities for individuals who might otherwise not be able to attend college. And as for violating the basic rights of Michael and Sherry and Neil, well nobody is holding a gun to their heads and making them teach.

Okay, apologies for the sarcasm here. But even if one accepts Mr. Buchanan’s position on direct payment to athletes by the schools, he still does not address the NCAA rules that prohibit college athletes from enjoying the basic economic rights that everyone else, the right to engage in commerce and to retain the proceeds from that activity.

Joel Bauman was a wrestler at Minnesota. He recorded a rap song and sold it for 99 cents a download.

Because he identified himself as a wrestler at Minnesota he was ruled ineligible by the NCAA. He has no right to appeal, no right to take his case to court, no rights whatsoever. Go ahead defenders of the college athletic system, defend that.

Michael C. Dorf said...

Actually, TDPE's example is not at all far-fetched. In engineering and the sciences, universities typically insist that they own the patents generated from the work of faculty. It's true that there's a custom by which faculty keep royalties and honoraria, but I suspect that's because for the vast majority, these are relatively small amounts. Consulting could be a different story but most universities also cap the amount of consulting their faculty can do.

The main objection in TDPE's example would be to the collusion among the employers, not to the conditions themselves.

Paul Scott said...

I have a slightly different objection to Neil's presentation. He states two principals that, in a vacuum are both true, but in context reveals simply a personal preference reflecting the status quo.

For NCAA athletes, Neil makes note that they get some compensation and that for the majority of those athletes the compensation is quite decent (though we have no real way of testing that assertion and I suspect that, in fact, even the typical "bench warmer" is earning less than he otherwise could).

The argument then proceeds that one should not willingly inset inequality into a system just to the benefit of the few stars.

Today he talks about coaches and the presentation of facts here is that, sure the coaches make millions, but they bring in to education even more!

OK, so each of those standing on their own are true, but really only reflect the status of rules as they are today. To the extent that the NCAA can control compensation to athlete's it can also control compensation to coaches. Further, it could also control what Universities do with the money brought in.

So, if we are serious about equality, then why does the NCAA not require that coaches compensations must be limited to no more than, just for example, 150% of the mean salary of tenured professors at the University. Further, to help further equality in higher education, the NCAA should require that all profits a particular University gains from a sports program be collected by the NCAA and redistributed to all NCAA Universities.

If, on the other hand, we want to hang our hats on "brings in more that he takes..." then the same logic applies to the star athletes.

The only reason to accept the current balance of inequality is that it suits ones personal preferences.

Why can the NCAA force "equality" on student athletes but not on coaches and Universities? Because student athlete's have no options and no power. If coaches and Universities similarly lacked power they would also be abused by the NCAA. If the NCAA tried something like that, however, the Universities would just leave the NCAA and (to ensure they could still abuse student athletes) recreate the NCAA.

No, there are no greater goods being served here; all we have is what we always have - the powerless are being used as best they can by the powerful.

Paul Scott said...

To clarify, on patents while it is true that the patents themselves almost always vest in the University, there is considerable revenue sharing. Usually a professor (or group of professors) will get about a third of the profits brought in by such patents. Cornell's patent policy should be open to you if you want to see what a Professor makes on new patentable inventions.

Paul Scott said...

Probably one of the better takes on this issue. Certainly the funniest.

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