Ah, that age old question: Should student-athletes be paid big bucks for their services?
The latest flare-up of that issue comes in the form of a pending lawsuit, originally filed by former UCLA basketball player Ed O'Bannon. The lawsuit, now about four years old, is seeking compensation for college athletes -- former, and as of last week, current -- who generated revenue for their schools and the athletic governing body through everything from television broadcasts of tournaments to video games.
It could potentially have a huge economic impact on the NCAA and collegiate sports -- so much so that Moody's recently downgraded the governing body's credit outlook to negative. According to its most recent tax filings, the NCAA has about $614 million in total assets. Most of its 2011 revenue of $815 million was distributed to member schools, leaving a $41 million surplus. While technically a nonprofit organization, the NCAA is earning 40 percent more ad revenue than the NBA playoffs, and 60 percent more than post-season for Major League Baseball.
The main argument in the case comes down to an anti-trust issue -- with the plaintiffs arguing that the NCAA, video-game maker Electronic Arts, and Collegiate Licensing Co. all conspired to fix athlete compensation at $0 for all of their work.
Dr. Boyce Watkins, a finance professor at Syracuse University, has been an outspoken critic of the current compensation system, which consists entirely of scholarships. Athletes, says Watkins, should be paid for their services the same as any other worker in America -- it's a labor rights issue.
"Imagine if we lived in a world where Walmart and Target and Kmart could all conspire and say, 'OK, we're all gonna agree to pay our employees $10 an hour.' That would be entirely unacceptable," points out Watkins. "But that's what happens when Duke and North Carolina and Kentucky all agree that we're not going to compensate the athletes. It just leads to a system that I would say is inherently unfair."
While many argue that scholarships should be enough for student-athletes, a 2010 study showed that the average NCAA athlete in the big-time sports, like football and basketball, actually ends up paying around $2,951 per year due to school-related costs.
Watkins also says the system disproportionately hurts players from lower-income areas, and the African-American community.
"I think that race does play a role in that at least a billion dollars in economic value is stripped from the black community every year," he argues. He cites the example of Reggie Bush, a former USC football player who lost his Heisman trophy because his mother received money under the table.
"When you look at USC -- a school with an endowment that's larger than every historically black college in the country combined -- that this school made over $100 million from Reggie Bush's play on the field -- it's hard to argue that some people should be outraged about that," he adds.
As a college professor, he's encountered many players on campus that have struggled with issues of poverty. As these college athletes play for their schools and make millions, some hear that they're mother is going to get evicted, or that a friend in the old neighborhood was shot. The term "scholar-athlete" makes no sense in a world where students are taken out of class during the week to go play in televised games, he points out.
Meanwhile, the NCAA defends its practices, arguing that by collecting money from big-ticket games like the men's basketball finals, they can help fund other lesser-known or lesser-watched sports like women's volleyball. But Watkins doesn't buy it.
"I think that's kind of an interesting argument," Watkins says, "because when you talk about the coaches, no one ever says, when you pay the basketball coach $5 million, you've only got $100,000 to pay the volleyball coach. But for some reason when it comes to the athletes, we expect this subsidization model to apply."
The results of the court case likely won't come for months, but will the NCAA ever change its ways? In some ways, the organization does change, says Watkins, by spending more and more money to defend the system through advertising and marketing.
"I think that what's going to probably happen is that at some point some outside entity -- the IRS, or Congress, or the courts -- are going to step in and break the NCAA down," Watkins predicts. "The toughest thing about dealing with the NCAA is that they operate in a sovereign space. And when you look throughout society -- any institution that regulates itself is usually going to be filled with corruption."
Here's an infographic from H&R Block that explains where the money goes in the NCAA tournament. Click to see in full: