March Monopsony Madness: the exploitation of NCAA athletes

From Richard Vedder and Matthew Denhart in the WSJ...

Whether student-athletes should be paid, it is clear that they are compensated at a level far less than what they produce. In most cases, people find that sort of thing quite troubling. In fact, you'd expect to see labor unions rise up against an employer that clearly has tons of monopoly power over a labor force (the technical term is "monopsony").

Behind all the hoopla [of March Madness], however, is the reality that the players who entertain us receive compensation that amounts to only a very small percentage of what they would have earned if they sold their services in a competitive market.

Take Kevin Durant, for instance....agreed to a contract paying $3.5 million in the first year. By contrast, his yearly compensation (in the form of room, board, books and tuition fees at Texas) amounted to about $33,120, less than 1% of what was offered by the Supersonics. Football is the other major revenue generating sport. In 2006, Heisman Trophy winner Reggie Bush skipped his senior year...

Top-level college sports is big business, but very little of this flows to the student-athletes. Ohio State, for example, receives about $110 million in revenue each year from ticket sales, television rights, concessions, parking, logo sales, etc. -- over one-fifth of what it receives in tuition revenue from its more than 50,000 students. And its basketball players are paid about $29,500 each.

In a competitive market, companies cannot exploit workers in this way for long, as rival firms will hire them away at higher salaries. In basketball, however, the NCAA cartel prevents that, dictating limits on pay (essentially college costs) and even penalizing transfers to other schools. Strict rules also prevent college athletes from signing lucrative endorsement deals or accepting gifts beyond a certain amount. Soon after entering the NBA, Mr. Durant further augmented his earnings by signing a $72 million deal with Nike; he inked other endorsement contracts with Gatorade, EA Sports and Upper Deck.

If all of that money from ticket sales and television rights isn't going to student-athletes, where does it end up? In 2006, salaries for coaches and administrators accounted for nearly 32% of total athletic-department expenses. Many head football coaches at top universities earn five times the salary of their university president....

So why haven't players unionized already? First, the "workers" are around for only three or at most four playing seasons, making it hard to build up much of a movement. Second, coaches control playing time and enormously influence career success, so it is the rare college kid who will incur the coach's wrath to form any kind of insurrection. Finally, most players don't have a lot of contact with the members of other teams. But if you see them whispering before the tipoffs this weekend, you'll know why.