Run a Business as a Business: A Policy for Revenue Sports (7/8)

Policy Six from the Future of Sports & Society Discussion Project

Image by Joseph Mallonee

The Basic Idea: Treat Sports Like any Other Industry

Sports are big business, from the 10s of billions generated by pro leagues to the billions generated by college sports and the billions generated by increasingly commercialized youth sports. Despite this trend, we tend to treat this industry as existing in a special realm outside the sphere of normal free market principles. This is especially the case with nominally “amateur” sports that in recent years have blossomed into major commercial enterprises. The focus of this policy option is on the management of these revenue-generating sports. The gist of the policy approach is to treat the business of sports like any other business within a free market economy.

Normal Competitive Market Principles Apply

What does it mean to treat the business of sports like a normal business? It can mean eliminating anti-competitive policies that interfere with the free market in sports. This policy option might get rid of anti-trust exemptions that diminish or eliminate competition in the marketplace for sports. This policy option would also challenge the notion that the business of sports should be exempt from normal labor market principles. There has often been a perception that labor in sports isn’t really work, and so it isn’t due normal workplace and labor market protections provided to other forms of labor. This policy option would say that the labor force in sports, athletes, are due the same rights to fair compensation and safe workplace practices that govern any employment. This can also mean dispensing with the notion of “amateurism” when it is applied to major revenue generating youth or collegiate sports. In these cases, the fiction of “amateurism” has enabled unjust enrichment of sports entities by virtue of the under- or uncompensated labor of athletes.

In a Free Market, Employees Get Paid

Increasingly there’s big money in sports: in youth sports (now a $15 billion industry with travel teams and tournament-vacations, aka “tournications”), in college sports (especially football and men’s basketball), and in pro leagues everywhere. Athletes do the work that generates the revenue, so they should get a fair market share of those revenues. While professional athletes, at least in major leagues, earn somewhere around half of revenues, other revenue generating athletes remain under- or uncompensated. Additionally, the notion of exceptionalism for the sports industry often means that athletes, including youth and college athletes, often face a hostile and unsafe workplace that would not be tolerated elsewhere. In response this policy eliminates these exceptions. The new model for revenue-generating sports is essentially an old one: treat this industry like any other industry. If these various sports enterprises are generating revenues, then the workers should be entitled to roughly half those revenues, as players in pro-leagues currently receive. This would extend to any athletes who currently receive well under half the revenues generated by their work.

What’s the fair market value of college athletes? One study (from 2012, so the numbers would be larger now), pegs the average annual value for college football and basketball players to be $114,153 and $265,827 respectively — and this is on top of the value of their scholarships. Of course, in a market economy not everyone is paid the same. A more recent study looked at fair market value for top-rated to low-rated college football players and came up with annual amounts of $799,000, $361,000, $29,000, and $21,000 on top of the value of scholarships.

Not All Sports Have to Be Treated the Same

This policy approach does not mean that every sport must be a revenue-generating sport. But it could mean that our notion of revenue sports might expand. If we follow the thinking of this policy idea, there could be some sports that are revenue producing and some that are not. Revenue generating sports would be treated like any other industry, and non-revenue sports would be treated as non-commercial pastimes. Plus, once we look more honestly at the economic value of sports, we might find that new possibilities to develop a market for a particular sport could open up. This might especially be true if we dispense with the notion of amateurism, a notion rooted historically in aristocratic ideals of socio-economic class, and which has been used to artificially suppress the ability of athletes to make money at their sports. In short, the number of revenue sports could grow. If there’s a market for supporting athletic talent, say for sponsoring track athletes, this policy option would let that market work openly. This same policy approach could be extended to other athletes, such as Olympic athletes, who receive less than half the revenues generated by their work.

The Special Case of US Collegiate Athletics

In respect of collegiate sports in the US, this policy option would promote a diversified rather than a one-size fits all approach. Non-revenue sports, including what we think of as Olympic sports, could be managed as student activities tied to a school’s educational mission. Revenue sports, at least the big dollar programs that have proliferated in recent decades, could be managed straightforwardly as commercial ventures. This is simply a matter of facing the fact that these revenue sports are already commercialized and part of a billion dollar profit-making industry. These sports function as professional sports in all but name, often serving the role of a developmental or minor league for the professional leagues. In certain instances they rival professional teams in status and economic importance (just think of states like Alabama that have strong college teams but no NFL team). Many of the big-time athletic programs already proclaim that they operate independently of instutional support, so they are well on the way to running athletic programs as independent business activities.

This policy option need not take the form of rampant commercialism or a green light to exploit the commercial value of sports. It simply brings out into the open the economic realities of an already existing market. Further, a free market functions with regulations that provide protections against such exploitation in order to sustain a free and fair market place. Much of this policy option’s approach would simply extend existing marketplace protections and apply them to the college sports industry.

To counter the objection that paying revenue-generating athletes would take money away from other sports, this policy option could emphasize that it’s not going to shrink the overall size of the revenue “pie”— it would just change how the slices are cut. This could just mean that coaches and administrators get a smaller slice than they currently receive. There would still be the same amount of money to support non-revenue sports. Similarly, this policy need not mean an end to the aspiration to gender equity in sports opportunities, a common objection to paying athletes.

Some Possible Features

Follow Free Market Principles

• In a market system, producers of economic value, workers, are rewarded financially with a wage or salary: athletes deserve market-based financial compensation for their work. If revenues are being generated, athletes should receive a fair-market value as a share of those revenues.
• Set the same workplace or labor protections for revenue producing athletes as in any industry. For example, eliminate workers’ compensation exemption for sports, and provide the same rights of personal representation in contract negotiations (e.g. sports agents, lawyers) and collective bargaining (unionization) as in other industries. Athletes might want to negotiate for compensation as well as for healthcare coverage beyond their athletic careers (given the prospect of lifelong injuries from sports).
• Youth sports protections: provide greater regulation of the business of youth sports (a $15 billion industry in 2017), when these sports are revenue generating activities. This would provide a corrective against abuses of the profit-making youth sports industry given the proliferation of youth travel leagues and tournaments that are huge profit-generators for everyone but the athletes. Child labor laws should protect youth athletes rather than seeing sports as a special case outside the law.

Market-based Alternatives for Big-Dollar College Programs

1. Spin off revenue producing teams

Colleges that don’t want to be an active part of the collegiate sports industry could spin off athletic teams that are no longer tied to the school’s educational mission. The school could license the use of the team’s name as well as associated mascots, etc. to provide an ongoing source of revenue for the school. The team would legally be a separate business entity. Players would be employees of the team, just as with any other pro league, and they would be financially compensated as such. Players would not need to be students or affiliated with the school in any educational capacity.

• Operate the team as a concession. Put the team out for competitive bidding to get the most return for the school (similar to having campus dining services or book stores run as concessions)
• Athletes would be employees of the concessionaire. They wouldn’t have to be students, but they could be. They would apply, or be recruited, to work for the concessionaire.

The Historical Basketball League is set to launch in 2019 or 2020. It will be based at historically black colleges and universities (HBCUs) outside the NCAA’s structure of amateurism. Players will be students, and they will earn between $50,000 and $100,000 a year (on top of their scholarships) — along with workers’ comp, health insurance, and a 401(k). Their commercial activity will not be restricted (so endorsements, deals with agents, and contact with NBA teams will be fine). The league’s season will be in the summer to minimize disruptions to students’ studies.

2. Run revenue sports as university-owned businesses

Other schools might choose to run sports teams as university-run commercial enterprises. This would be similar to having a university medical center or a university technology innovation center, etc. Running a sports team would be similar to running an enterprise like a medical center — and could similarly provide a positive way to boost a university’s public reputation in the community.

Workers in university-run businesses are compensated as they would be in any industry. In the case of a medical center, you might have a mix of staff, where some physicians have faculty status and some not. In the case of the athletes, this general approach can offer several options for the athlete:

A) Be a Student and an Athlete. Athletes could be simultaneously a student and an athlete, receiving a scholarship and a salary (or market-based financial compensation as share of revenues they help to generate)

B) Be an Athlete, then a Student. Athletes could be an athlete and a potential future student. This would mean that players would receive a salary, as any employees would, and would also receive a deferred academic scholarship for the time period after their athletic careers.

• This would solve time concerns: it is hard to study, and hard to study what one wants, while having a full-time job of competing in elite sports. And it would solve time of life concerns: biologically it makes sense to seize the moment for excellence in sports and earning from sports when athletes are in their physical prime of life.
• It would remove incentives for academic corruption surrounding academic eligibility and progress toward a degree, since academics would take place after an athletic career.

C) Be an Athlete. The players might simply be paid employees of the school’s team. They would receive a salary without any expectation of a current or future student status. This would be similar to the way employees in other college businesses are paid (medical staff in a university hospital are paid market-based compensation rather than receiving an academic scholarship in lieu of pay).

Exploring Possible Impacts

• What impacts might this policy option have on the business of sports?
• How might it affect non-revenue sports? What about women’s sports? How might it affect the overall market for sports?
• How might this policy option affect educational institutions, communities, or other possible participants in the landscape of sports?
• What consequences might there be for athletes at different levels? What specific impacts might there be on students who are athletes?
• What other broader social or cultural implications might this policy have? What tradeoffs might we face?

• Go back to the Future of Sports & Society Introduction and List of Seven Policy Options
• Go forward to Policy 7: A Department of Sports: Centralize Sports Policy
• Go back to Policy 5: Sports for Education