Assessing the Efficiency Justifications for the NCAA Player Compensation Restrictions

Abstract

College football and basketball generate huge broadcast and attendance revenues. The NCAA, however, limits the compensation to athletes in these sports to cover, at most, the cost of attending college, which is well below the financial contribution to the schools of the top level college athletes. These compensation restrictions have recently come under attack in the courts in the O’Bannon and Jenkins cases, among others, as being anticompetitive. The NCAA has argued that its restrictions have procompetitive justifications. In this paper we set out first to evaluate the purported justification for the NCAA’s pay restrictions related to amateurism. We argue that the evidence from a number of Olympic and other now professional sports reveals little relationship between amateurism and demand. Rather than amateurism, we propose that the defining and distinguishing characteristic of college sports is the linkage to the universities. That athletes are also students is integral to the demand for college sports rather than whether these students get paid. We next examine the competitive balance justifications for restraints on payments to athletes. We summarize evidence that the current restrictions do not contribute to making college sports more competitively balanced. Nonetheless, we argue against going too far and lifting all restrictions on athlete compensation due to the inefficiency arising from “positional” competition, sometimes known as an “arms race.” We suggest instead that colleges and universities follow the models set up by professional sports for dealing with excessive spending, and that such models can reduce the anticompetitive effects from the NCAA’s salary restrictions. Such compensation schemes can take the form of player unions bargaining for payroll caps, tiered salary caps, and team revenue sharing.