Monday, November 15, 2010

Amateur Athletics

This post spans two topics I love - finance and sports- and what triggered it was the hullabaloo over Cam Newton, Auburn's quarterback, and the purported attempts by his father to extract money from Auburn. The National Collegiate Athletic Association (NCAA) will be the ultimate arbiter on whether rules were broken and the penalties that will follow, but this entire debate about college sports strikes me as hypocrisy of the highest order.

Let us start with basic facts. College sports in the United States is big business and big money, generating hundreds of millions of dollars in revenues for the big name colleges, the television networks and bookmakers. I got my MBA and Phd at UCLA and I know that no faculty member at UCLA brought in a fraction of the revenues that the UCLA basketball coach did and none was as widely recognized in campus. In college football, Auburn is ranked second in the country and could very well be playing for a national championship this year. The New York Times has an article on the impact that Cam Newton at quarterback has had on Auburn's economics:

Here comes the hypocrisy. The NCAA likes to maintain the illusion that college sports is not  business and that college players are amateurs. While this may in fact be true for most athletes at second and third tier schools, playing lower profile sports, it is certainly not true for college football and basketball at Division I schools. The NCAA then has rigid rules on what college players can receive in return for playing their sports: not only can they not get monetary gifts from the school but the ban extends to cover the most trivial of gifts. From an economic standpoint, this strikes me as a modern version of indentured servitude. If you are a superb basketball or football player, you have to play for a college of your choice (that is the NCAA's concession to free choice) for nothing, before you can play professional football or basketball. The colleges and the networks make millions but the players (who are the stars of the system) get scholarships, worth a few thousands and risk career ending injuries while doing so.

As I watch the "amateur" label debated in college athletics, I am reminded of similar debates that occurred in tennis and the Olympics. For decades, we kept our best tennis players out of the big tournaments in the interests of maintaining the illusion that these tournaments were just for amateurs; I can only imagine how many Wimbledons that Rod Laver would have won, if he had been allowed to play in his prime. For decades, the Olympics forced great sprinters and athletes to pick between being champions and making a living, before bowing to the reality that you cannot win the 100M by practicing just on weekends.
Don't get me wrong. I love college sports, but I think it is time to strip the hypocrisy out. My proposal is that we create two classes of college athletes: The first would be "student athletes", who get scholarships, but focus on taking classes (regular classes, not Mickey Mouse ones) like other students and get college degrees. Some of them may find that they are good enough to become professional, but most of them will play college sports and then move on to bigger and better things in life. The second would be "semi-pro" athletes, who will be allowed to earn an income (we can put caps on the income and restrict what colleges can pay, if need be) while they played and earn money from advertisements and sponsorships. They would be required to be visible on campuses and allowed to take classes, if they choose to.  Colleges would also be required to set aside a portion of their revenues to cover the health and personal costs incurred by college athletes. I think I would still enjoy watching UCLA play basketball... while knowing that the Bruins on the court are making a reasonable living while playing the game.


Balaji said...

I don't think you are addressing the right problem. The problem is of excess commercialisation which has killed the spirit of sports and games. Whatever, the system may be, you will see the agents, PR managers, administrators sponsors exploiting the sportsmen for their personal benefits.

magic19 said...

Hi, Prof. Damodaran:
I can't agree with your points here.(About other subjects, I can't agree with you anymore). The propsition you raised up could eliminate the spirits of sports. In my homeland, our education adminstry sets up some authetic-orentied colleges for some students with excellent physical talents. Their puspose is aimed to build up a well-facilized place for our semi-professional players. However, the policy enternally goes into the astray. The subsidiary authorizations force most young children into all day long authetic practices at sacrifices of their rights to basical subjects. And, they also convey them with the thought that it will be prosperous after being as a national player. But we all that not all of them have the chances to be the worldwided-regonized players. Some failing in the half way, with lacking the basical understanding, will gernally lose the social judement on something right and something wrong in the follwing life or even are legitimately gulity.
I tend to let the sport thing be the sporting way in the college campus. We all know what excites us is the competitions and spirits in the games, not the money I hardly gets, right?

Aswath Damodaran said...

If you are pining for the days of amateur sports, that train has left the station. It is the equivalent of wishing that television was an educational medium, that children would read more and that life would slow down. This is exactly the nostalgia that is being used by commercial interests to make significant money of the rest of us.

Balaji said...

@Aswath - Not really! I still see some hope! If you can educate children to participate in sports for the joy of it, it might as well work. I am involved in few such initiatives and see a hope there!