Click here for Part 2 (The value created by colleges)
Click here for Part 3 (The value created by athletes)
Click here for Part 4 (How would paying players change college sports)
Of all the sports in the world, my favorite is college basketball. But I do have to admit that being a college basketball fan often feels a bit dirty. Simply put, major college sports have evolved to be a strange animal that often seems exploitive of the athletes, and counterproductive for educational institutions. This topic is top of mind due to the progression of the O’Bannon versus the NCAA lawsuit.
For those not following the case, O’Bannon versus the NCAA is an antitrust case that is concerned with NCAA rules that allow schools to profit from merchandise such as jerseys with a player’s names, or video games that feature a player’s likenesses without compensation being offered to the player. This issue is the result of the strangeness of a system whereby schools and coaches are essentially operating as profit maximizing professionals while student athletes are bound to a code of amateurism. Essentially, the O’Bannon suit argues that athletes are a vital element of the major college sports industry and that these athletes should receive a bigger portion of the revenues. The next critical date is June 20th when it will be decided if the suit can proceed as a class action lawsuit.
While the suit is classified as an antitrust case, and the key objection of the plaintiffs is that the NCAA has engaged in price fixing, my view is that this case is really about marketing issues. In particular, I view the case as about the creation of brand equity and the distribution of the value of this “marketing asset.” This is a complicated issue. Sports products are co-created by leagues, schools and players. To take a notable and extreme example, one of the most successful sports products of the 1980s and 1990s were the Bulls teams headlined by Michal Jordan. In this case the NBA, the Bulls and Jordan all reaped tremendous benefits.
At the college level, the benefits of brand equity flow more towards the coaches and institutions than the players. The NCAA and its member institutions might argue that this is a legitimate distribution because their “brands” are a product of history and alumni loyalty rather than the presence of specific players. For example, while a great many Tim Tebow jerseys may have been sold in Gainesville from 2006 to 2009, it is also clear that Florida would have continued to sell-out games, appear on television and receive significant benefits from being part of the SEC, even if Tebow had gone to another program.
In addition to being fundamentally about “marketing assets,” this topic may also be addressed through analytics. This past week the Wall Street Journal reported the results of a study conducted for the plaintiffs by Roger Noll that suggests that a 2009 Michigan basketball player would have made about $250,000 per year if revenue distribution rules used in professional leagues were employed. While the details of this analysis are not available, it sounds as though the calculations are based on revenues and revenue sharing rates across professional leagues.
Because, this case has the potential to fundamentally change the business of college athletics, we think this is an issue worthy of comment and study. Over the next few weeks, we plan to offer a series of short articles that examine several of the key issues in the case and perhaps offer some analyses that speak to the ability of players to grow a school’s brand equity.
Mike Lewis, 2013 Emory University.