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Let's start with some background on colleges.   

College can be defined as “an institution of higher education created to educate and grant degrees; often a part of a university.” To this end, on November 8, 1965, as part of President Lyndon Johnson’s Great Society domestic agenda, LBJ signed the Higher Education Act of 1965 (HEA). The law was intended to “strengthen the educational resources of our colleges and universities and to provide financial assistance for students in post secondary and higher education.” The impetus for the HEA was LBJ’s desire to use education as a tool for economic growth and development. It increased federal money given to universities, created scholarships, gave low-interest loans for students, and established a National Teachers Corps. In other words, it was designed to make higher education more accessible to populations of persons who were previously unable to attend these educational institutions because of economic circumstances.

Furthermore, the Education Amendments of 1972 included Title IX which states (in part) that: “No person in the United States shall, on the basis of sex, be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any education program or activity receiving federal financial assistance.” Today, when we hear about Title IX, it is synonymous with equality in athletics. The legislation was not written to remedy inequality in this area.

Now we fast forward to the recent court ruling striking down NCAA regulations that prohibit student athletes from getting anything other than scholarships and the cost of attendance at schools. The NCAA can no longer stop players from selling the rights to their names, images, and likenesses. This ruling is specific to FBS football players and Division I basketball players. The judge also said that the body that governs college athletics could set a cap on the money paid to athletes, as long as it allows at least $5,000 per athlete per year of competition. This sets a floor but not a ceiling. Larger colleges could pay larger amounts if they wanted to and potentially “buy” championships. This would potentially put smaller schools at a disadvantage for bringing in student-athletes. Potentially, the best players could:

• Get a free ride through college
• Earn at least $5,000/year of completed season ($20,000 pay-out post-graduation)
• Earn money from selling the rights to their names, images, and likeness

If I am looking at a college and these three items are present, wouldn’t this behoove me to go to this college?

“This week, the NCAA's board voted to allow the five wealthiest conferences in the country to set their own rules, paving the way for the 65 schools in those conferences to potentially offer richer scholarships and health benefits to players. The NCAA also spoke of the education provided to athletes as payment for their services and said the college model has functioned well for more than a century. They contended that paying players would make college sports less popular and could force schools to cut other programs funded by the hundreds of millions of dollars taken in by big-time athletics.” So...is the NCAA saying that they are going to sacrifice academic students for the “greater athletic good?” How much is this going to cost them to pay the athletes? How much money is the athletic program bringing in? Is the program even making any money? Former athletes will not be paid. In fact, this decision will not affect any prospective recruits before July 1, 2016. This means that the college would not have to start paying out until 2020, potentially.

This ruling comes after a five-year battle. Former UCLA basketball star Ed O’Bannon and 19 others brought forward the lawsuit that challenged the NCAA’s regulation of college athletics. It is being called a “game changer.” O'Bannon, who was MVP of the 1995 UCLA national championship basketball team, said he signed on as lead plaintiff after seeing his image in a video game authorized by the NCAA that he was not paid for. There is, however, a twist to this story. O’Bannon was quoted as saying that "I was an athlete masquerading as a student. I was there strictly to play basketball. I did basically the minimum to make sure I kept my eligibility academically so I could continue to play." Several players testified during the trial that they viewed playing sports as their main occupation in college, saying the many hours they had to devote to the sport made it difficult — if not impossible — to function like regular students.

And now we find ourselves in a quandary...  

Do people go to college for academics…or athletics? Most people used to think that it was academics and those involved in sports were referred to as student-athletes. As I was looking at the references to student-athlete, I also found athlete-student. This should not be surprising. It has been going on for years. Once colleges started offering athletic scholarships, the rules of engagement changed. As far as I can see tell, the scholarships began around 1892 at the University of Chicago. It appears as though there is a “tradition” going on here. I can remember needing to do well in my classes in order to maintain my athletic eligibility. Fortunately for me, I had no problems with this. What about the athletes that are barely getting by? What about the coaches and/or instructors that give these athletes the minimum grade to fulfill their eligibility? Shouldn’t they bare some of the responsibility? If they do not go on to play professionally, have they earned a degree that will help them? Are they prepared? Did they outlive their usefulness and are now no being dropped along the side of the road? Did they realize the full impact of what being an athlete-student encompassed? This could come down to a he said/she said situation.

 And this brings about even more questions and thoughts...

 Since independent contractors have some independence and autonomy, I believe that these athletes will be considered employees with deferred compensation. Will the colleges be paying all of the benefits to the players, which are already afforded to the existing college employees? Will the college’s insurance cover these athletes since they are now considered a high-risk group? Since the athlete is now gainfully employed, would they no longer be covered under their parent’s health insurance? If the athlete is injured, will they receive disability as an employee? Will the schools carry life insurance on these players? Are the players aware that this is taxable income? Will the schools withhold income taxes when payments are earned? When distributed? Will the monies set aside for the players be invested and earn taxable interest? Will this affect the contract offers if they go on to play professionally? In other words, they have already been paid for playing for four years as a “professional.” Will the professional leagues have to increase the starting pay because of the non-amateur status? Will the ruling effect the years of eligibility in college? Can someone play for seven years or longer in college? There are plenty of potential ramifications.

I think that this story is much bigger than what this ruling states and more information will come out, in time. It is also much bigger that one blog post can cover. The bottom line is that athletics are big business. They fund a lot of what goes on at the bigger colleges/universities. What is going to happen with this ruling? It is being appealed by the NCAA. Will these collateral stories coming out cause more investigations and more damage control? I am sure that they will. We will have to keep an eye on this to see how it will unfold. At the very least, there is a lot of food for thought. I was a player and a coach. This is close to me. We welcome comments in order to continue the dialogue.

-Michael Hermanson, CPA | CGMA