Game change: California’s Fair Pay to Play Act
Thursday, October 10, 2019
The economics of college athletics will be changing in the Golden State. California Gov. Gavin Newsom recently signed Senate Bill 206, the Fair Pay to Play Act, into law. The legislation will let student-athletes earn money from endorsements and hire sports agents, effective Jan. 1, 2023.
The National Collegiate Athletic Association (NCAA), a nonprofit membership group, had barred that compensation option, instead providing scholarships, room and board and other assistance to student-athletes, mainly in Division I sports, and less so in Divisions II and III.
The NCAA’s exploitative business model propelled the Fair Pay to Play Act, according to Gov. Newsom. "Colleges reap billions from these student athletes’ sacrifices and success but, in the same breath, block them from earning a single dollar," he said in a statement.
The NCAA opposes the law. The group prefers a national approach to reforming the system that bars student-athletes from earning compensation for their labor.
"The NCAA agrees changes are needed to continue to support student-athletes, but improvement needs to happen on a national level through the NCAA’s rules-making process," the group said in a statement. "As more states consider their own specific legislation related to this topic, it is clear that a patchwork of different laws from different states will make unattainable the goal of providing a fair and level playing field for 1,100 campuses and nearly half a million student-athletes nationwide."
Dan A. Rascher, Ph.D., a professor of sports economics and finance at the University of San Francisco, disagrees with the NCAA’s view.
"Competitive balance does not exist in major college athletics such as men’s basketball and football," he told MultiBriefs by phone. The NCAA is incorrect and knows that the status quo of preventing student-athletes from earning compensation does not spur competitive balance, according to him.
The sentiment that the NCAA establishment is out of step with the times is spreading across the U.S. In the sports world, college and professional athletes concur.
UCLA gymnast Katelyn Ohashi; WNBA star Diana Taurasi; former UCLA basketball player Ed O’Bannon; NBA superstar LeBron James; and Rich Paul, James’ friend, agent and owner of Klutch Sports Group, which manages many high-profile pro athletes, joined Gov. Newsom when he signed the Fair Pay to Play Act.
In the world of state politics, lawmakers agree that student-athletes possibly receiving pay for their athletic pursuits is an idea whose time has come. Fortune.com reports that politicians in 11 states — both under Republican and Democratic control — are looking at legislation similar to the new California law.
There are consequences of this trend, financially speaking, for the NCAA, which earned revenue of $1.06 billion in 2017 versus $996 million in 1996. The vast bulk of the NCAA’s annual revenue, $844 million, comes from the men’s Division I basketball championship tournament via TV and marketing rights. The NCAA distributes its revenue to support scholarship funds for college athletes, team travel, food and lodging, and academic programs and services.
California’s Fair Pay to Play Act and similar laws in other states will, all things equal, shift NCAA revenue to student-athletes. The story line is straightforward. State politicians are responding to the interests of the market, which wants to pay college student-athletes, according to Prof. Rascher.
The NCAA declined a request to comment on its next move in response to California’s landmark law changing the finances of collegiate athletics.
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