I was a collegiate athlete 50 years ago in a National Collegiate Athletic Association Division I track and field program (University of Tennessee) and we were governed by strict rules on what kind of compensation we could have for our sport. According to NCAA rules, our compensation was limited to scholarships for tuition, room and board, and $15 a month for laundry. Any payments outside of those parameters could land a program in trouble with the NCAA.
Rules, of course, were made to be broken and most programs broke the rules. Some were caught, but most were not. To be honest, the amounts of money paid under the table to athletes were pocket change compared to what athletes can make today, thanks to court decisions and a huge change in the direction of college sports.
Almost a year ago, I wrote about these changes and concluded that while we were seeing a change in direction in college sports, it wasn’t necessarily destructive. Granted, what constitutes “destructive” is in the eyes of the beholder, so one’s view of the current college sports scene depends upon individual perspectives as to what athletic programs should be doing.
Some people believe that sports programs have no place at all on college campuses, and—having taught in higher education for 30 years—I heard some of that grumbling from some faculty members. For those institutions whose leaders believe there should be no athletic scholarships, there is NCAA Division III. There also is Division II, consisting of colleges and universities that will offer some scholarship aid for sports, but do not field programs that are as competitive as those with larger schools, such as Auburn University or the University of Michigan.
Many people (me included) are much more passionate about collegiate sports than professional sports (ask my wife about my enthusiasm for my alma mater’s teams, men and women) and they certainly care about winning. In sports, of course, for every winner there is a loser, and while participation and character building really are important, everyone loves a winner. At the high levels of collegiate athletics, however, building winners means spending money.
Last Saturday night, my alma mater played in the initial 12-team football playoff against Ohio State and, while every Tennessee fan hoped for a win, it didn’t take long to realize that it was the Buckeyes’ night. In the aftermath of the 42-17 blowout in which the game was not as close as the score indicated, Tennessee sportswriters pointed out the “talent gap” between the two teams and urged UT to get new players via the transfer portal and through NIL (Name, Image, and Likeness) spending. Wrote Gentry Estes of The Tennessean:
…there’s only one explanation for the butt-kicking that took place here Saturday night: Ohio State has much better players than Tennessee does.
With this game, on this stage, the Vols couldn’t have asked for a better advertisement to boost NIL fundraising among their supporters. That’s how undeniable the talent gap was. Pretty much everything appeared easy for Ohio State. Nothing did for Tennessee.
Unlike professional sports that have team salary caps and contracts binding players to teams for certain periods (unless they are traded), collegiate D-I sports are pretty wide open. No rules keep teams from spending what they will on attracting and maintaining athletes, but the Law of Scarcity must figure in somewhere.
Competition by Facilities
For many years, college programs tried to compete through the building of high-quality sports facilities, since they were limited to offering scholarships to athletes instead of direct financial compensation. For example, most top-level college football programs have large indoor practice facilities, something that would have been unthinkable in an earlier era. Likewise, all top athletic programs have Taj Mahal weight rooms that far outclass anything we would see in professional sports.
Why were institutions of higher learning so anxious to build these top-dollar facilities? Carl Menger provides the answer in his path-breaking Principles of Economics. The value of what we call factors of production depends upon how people value the final product that is made from those factors. In the case of professional sports, the most important “factor” would be the athletes themselves, and they receive the most compensation, not surprisingly.
College sports, thanks to NCAA rules, had to emphasize other factors because the rules forbade paying the players. Thus, we saw facilities and coaches being the point of emphasis, and that was where the money went. With players now openly being paid through NIL, we are likely to see a pullback on facilities development as well as a retreat in the coaches’ pay “arms race.” In fact, we already are seeing some high-profile coaches take pay cuts in order to better fund their NIL programs. The University of Tennessee has added a 10 percent “talent tax” to 2025 football tickets to raise more NIL money.
However, booster funds and the wallets of fans are limited (that pesky Law of Scarcity again), but the demands of star athletes are not. Perhaps we shouldn’t be surprised to see some athletes suing their programs, claiming breach of contract. On a more humorous note, one athlete who played for the University of Florida made a series of demands of his coaches, demands that were ignored, thus sending him to the transfer portal. Jack Pyburn found out his coaches were not as enamored with his talents and performance as he had believed, as they turned down his demands for:
- $45,000 per month (approximately $540,000 for one final season)
- A guaranteed starting spot at outside linebacker
- A guaranteed spot in the rotation on third downs
- An increase of snaps in the rotation
All of this presents a brave new world for coaches and college administrators to navigate. Successful championship coaches like Nick Saban of Alabama and Tony Bennett at the University of Virginia decided they didn’t like those waters and chose to retire from coaching. (Saban already had spent a couple years coaching the Miami Dolphins of the NFL without much success and was familiar with the world of having to deal with highly-paid athletes—and their agents. He was not willing to engage in a repeat performance.)
Trust the Austrians for the Best Explanation
While Austrian economics can explain why we are seeing a sea change in the determination of which factors of production receive the highest compensation, it cannot tell us whether this is a good thing for college sports and their fans. Given the enthusiasm seen so far for the expanded Division I football playoffs, however, at first glance it is hard to conclude that NIL has “destroyed college sports.”
As in any market system, both the producers and the consumers have adjustments to make. We saw that after the deregulation of telecommunications, passenger air travel, railroads, trucking, and finance, all of which occurred in the late 1970s and early 1980s. Firms in those industries had to navigate huge changes, as changes in the regulatory structures meant wholesale changes in the valuation of factors of production—and their compensation. Deregulation also changed the value of capital for those industries, just as NIL and the Transfer Portal (each athlete essentially has unlimited free agency) will change the value of new sports facilities and other amenities.
There is no doubt that NIL will change college sports. Those of us who have a strong interest in the so-called minor sports such as track and field and volleyball await the changes nervously, as athletes in these sports don’t have the same kind of draw with the fans that an all-star quarterback will have and the cross-sport subsidies that characterized much of college athletics for years are surely going to be reduced. It will be a while before we get a clear picture of things there.
Perhaps the best guide to understanding the upcoming new world of college sports is Austrian economics itself. From Carl Menger to Ludwig von Mises to Murray Rothbard, the Austrians have laid out a framework of thinking that helps us to intellectually traverse this new landscape.
Originally Posted at https://mises.org/