NCAA prepared to sue CA over “unconstitutional” name, likeness bill

mauf

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Even entities as powerful as the auto makers have capitulated to the power and influence of California.

We’ll see if the NCAA succeeds.
If the auto companies were willing to stop selling cars and trucks in California, they could have resisted the power and influence of that state’s legislature. What they were not able to do was persuade Congress to override the state legislature’s prerogatives. I would expect the NCAA’s pleas to Congress to fall similarly on deaf ears. Unlike other businesses that have been ruffled by California, however, I think cutting all ties to the state is a viable option for the NCAA.
 

Time to Mo Vaughn

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But it does with the NCAA/college sports, which is the problem. Being forced to go for-profit wrecks the business model. I think most schools would say it's not worth it to have college athletics, esp non-revenue or if they aren't making much in revenue sports.
You keep saying this, but every Ivy league and D3 school appears to believe otherwise.
 

InstaFace

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But it does with the NCAA/college sports, which is the problem. Being forced to go for-profit wrecks the business model. I think most schools would say it's not worth it to have college athletics, esp non-revenue or if they aren't making much in revenue sports.
How does it "wreck the business model"? The big-money schools may make less money on their revenue sports, but they will still make money. And, of course, every institution who would make money in this scenario already makes a lot of money today. The only difference is that the labor is going from "free" to "paid". That doesn't change an institution's nonprofit status. Perhaps obviously, they have lots of professors and administrators getting paid - and are still nonprofits!

Look, let's break this down for you. Today's large educational institutions are essentially 3 businesses in 1:

1) Education. They have thousands, sometimes tens of thousands, of students annually, who are there to get an education and pay more or less tuition. On the other side of the ledger are educators and administrators. This is at least 70%, maybe 80-90%, of their business and focus.
2) Research. These days at large universities, tenure doesn't go to the best instructors, or even the best minds, it goes to the people most able to perform research and thereby get awarded large amounts of money in the form of research grants. These grants sustain the budgets of the best of these institutions, enabling them to hire steadily-better faculty and brag about their work in order to attract better students. This is all but a tiny sliver of the remainder of their budget and focus.
3) Athletics. We spend a disproportionate amount of time talking about this because not many of us are capable of carrying on a conversation on academic-research topics, nevermind interested in it. But even at the fanciest football programs, this is a tiny, tiny fraction of the overall budget.

To put some numbers around this: Last year the #1 program, Texas, made $102M on $143M in revenue. The #30 program Clemson, made $5.7M profit on $52M revenue. Even some of the Power 5 schools don't clear very much money, and a handful even lose money in any given year - to say nothing of how many non-P5 schools there are even in D1, nevermind the hundreds in D2 and D3. By comparison, the UT budget for the Austin campus is ~$3Bn, and for the entire UT system is roughly $18Bn. That's at the #1 football-revenue school. Let's take (Without looking at who it is) the #40 school - looks like it's Iowa State. Their annual budget is $1.5Bn; their athletics department budget is about $83M, of which they spent $44M on football at a ~50% profit margin.

So even at the biggest sports powerhouses, somewhere between 95-99% of the budget is on educating people and expanding the world's knowledge. At the overwhelming majority of institutions it approaches 100%, or rather, the fraction that relates to running sports "like a business" is so small as to be rounding error.

Let's keep all this in mind when we talk about any structural changes to the equity of paying athletes as potentially affecting their parent institutions' status. To put it bluntly for a third time: it won't.
 

CFB_Rules

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If the auto companies were willing to stop selling cars and trucks in California, they could have resisted the power and influence of that state’s legislature. What they were not able to do was persuade Congress to override the state legislature’s prerogatives. I would expect the NCAA’s pleas to Congress to fall similarly on deaf ears. Unlike other businesses that have been ruffled by California, however, I think cutting all ties to the state is a viable option for the NCAA.
The only real power is in the hands of the P5 conferences and Notre Dame. So what is more likely, the P5 being willing to completely disband one conference (The PAC-12 can't survive without the California schools) and lose out on that money plus the Rose Bowl, or the P5 schools telling the NCAA to go pound sand? Keep in mind that Notre Dame also has significant ties to Stanford and USC, and will not be willing to give up on those games lightly.
 

axx

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How does it "wreck the business model"? The big-money schools may make less money on their revenue sports, but they will still make money. And, of course, every institution who would make money in this scenario already makes a lot of money today. The only difference is that the labor is going from "free" to "paid". That doesn't change an institution's nonprofit status. Perhaps obviously, they have lots of professors and administrators getting paid - and are still nonprofits!
Colleges are supposed to pay taxes like a for-profit if it's not educational related. Like that development project in Allston that Harvard is doing, if they build housing/retail/office space/etc they are supposed to pay taxes like a for-profit would.
 

SirPsychoSquints

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Colleges are supposed to pay taxes like a for-profit if it's not educational related. Like that development project in Allston that Harvard is doing, if they build housing/retail/office space/etc they are supposed to pay taxes like a for-profit would.
How does paying the players change the mission of the athletic programs from educational to non-educational? I don't understand what you're driving at.
 

mauf

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The only real power is in the hands of the P5 conferences and Notre Dame. So what is more likely, the P5 being willing to completely disband one conference (The PAC-12 can't survive without the California schools) and lose out on that money plus the Rose Bowl, or the P5 schools telling the NCAA to go pound sand? Keep in mind that Notre Dame also has significant ties to Stanford and USC, and will not be willing to give up on those games lightly.
Depends whether those schools think the cost of paying players if the California law goes national will be borne by sponsors, or if they think they will ultimately bear that cost (for example, because donations and sponsorships that currently run through the schools will be diverted to sponsorship arrangements with players).
 

InstaFace

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Colleges are supposed to pay taxes like a for-profit if it's not educational related. Like that development project in Allston that Harvard is doing, if they build housing/retail/office space/etc they are supposed to pay taxes like a for-profit would.
If you're not going to read and respond to the content of my posts, I'm not going to keep engaging with you on this subject. Just re-stating your opinion based on the first paragraph of what was a ~10 paragraph researched post does not really advance the conversation.

Let's focus on the heart of this, more briefly. The University of Texas turned a $102M profit on $143M of revenue last year in their football program. They did not pay taxes on that money - you can go and scour the 1300-odd pages of their university 2020 budget document if you like. I did, briefly, in order to bring you this example, and did not see a "taxes" line item on the athletics budget.

Let's imagine that it eventually costs the average P5 school $10M in what is effectively salary for their players, now that booster payments and everything are out in the open. So that number drops to $92M profit. Why would the tax status of the program change?
 

axx

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Let's imagine that it eventually costs the average P5 school $10M in what is effectively salary for their players, now that booster payments and everything are out in the open. So that number drops to $92M profit. Why would the tax status of the program change?
Because the players would be professionals, not amateurs. I don't know what else to say.
 

The Needler

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And it's also pretty obvious that the fact that the athletes are not amateurs as defined by the NCAA does not change the non-profit status of the colleges and universities in the eyes of the IRS.

You are simply incorrect here.

Edit: Clarity.
It’s not as cut and dry as you make it out to be, actually. The NCAA enjoys tax-free status not just under IRC 501(c)(3), but also under 501(j), which provides tax exempt status to those organizations “operated exclusively to foster national or international amateur sports competition if such organization is also organized and operated primarily to conduct national or international competition in sports or to support and develop amateur athletes for national or international competition in such sports.”

There is some debate about whether the NCAA, as it currently exists, meets the other requirements of 501(c)(3) to maintain its tax exempt status, in particular, whether it primarily fosters a charitable purpose, given its role as a de facto licensing body for media outlets that use college athletic events as a programming source. It was this very question that caused Congress to pass 501j in the 70s, and make clear that organizing *amateur* athletics was a prima facie charitable purpose.
 

Doug Beerabelli

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FWIW, my take on and non expert understanding of things: amateur status (something that high schools, the NCAA and maybe some golf tournaments cares about) is not directly related to non-profit status. The schools have obtainted IRS recognied non-profit status because of their mission/activity - education. Athletic teams are deemed part of that mission/purpose, so these teams and their operations don't adversely affect that status (despite the fact some teams and schools make boatloads of what would be deemed profit/income for a normal business entity). Athlete compensation paid for by the school (scholarships etc) is at a basic level the schools paying the athletes, but somehow this is permitted by the schools and NCAA, and doesn't affect the IRS recognized non profit status. By comparison, if a famous professor who writes and sells millions of books based upon an area of study/teaching done by that teacher, that also doesn't affect the school's non profit status. It doesnt affect NCAA eligiblity, of course, because the book writing by the professor (as well as the professor's ability to do so within the rules under which he or she operates) is not covered by the NCAA. But NCAA eligibilty does not in itself have a tie in to IRS recoginized non profit status as far as I know.

I believe it's possible that certain for-profit type activities by these institiutions that have obtained non profit status with the IRS can be subject to income taxation (or if done in too large a scale, adversely affect the non profit status) , but I believe it's permitted if limited in scope or if done in furtherance of the non profit purpose (example - my church has an unsused parsonage that is rented to some Middle Eastern Christian refugees at a below market rate, but the income doesn't affect our non profit status because supporting these refugees in within our religios/charitable purpose, and we are charging below market. If we rented to a family at market rate, could be a different story). That being said, selling food and beer at a 70K seat stadium seems a like a clear for-profit activity, but I don't believe income taxes are paid by schools for this income (I could be wrong here), or that it has an adverse effect on the IRS recognize non profit status of the schools.

The California law seems to say that athletes (not schools) being paid by third parties (again, not schools) for their likeness/image etc will not be a legal basis for that athlete to be deemed ineligible to participate in college team athletics. The schools aren't getting paid. People who attend or are employed by or are associated with their school are being paid. And yes, the athlete's ability to profit off the likeness is based in part on the school providing the platform for the activity that creates the exposure. But isn't that also the case for the book-writing famous professor?


EDIT: Needler's post about 501(j) status would certainly change my analysis. If that's the basis for the athletic programs being non-profit, the amatuer status issue would be very important. Perhaps the athletic scholarship doesn't affect the amateur status because the compensation if for another valid non profit status purpose (promote/foster education).
 
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Average Reds

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It’s not as cut and dry as you make it out to be, actually. The NCAA enjoys tax-free status not just under IRC 501(c)(3), but also under 501(j), which provides tax exempt status to those organizations “operated exclusively to foster national or international amateur sports competition if such organization is also organized and operated primarily to conduct national or international competition in sports or to support and develop amateur athletes for national or international competition in such sports.”

There is some debate about whether the NCAA, as it currently exists, meets the other requirements of 501(c)(3) to maintain its tax exempt status, in particular, whether it primarily fosters a charitable purpose, given its role as a de facto licensing body for media outlets that use college athletic events as a programming source. It was this very question that caused Congress to pass 501j in the 70s, and make clear that organizing *amateur* athletics was a prima facie charitable purpose.
If we're talking about the NCAA, then I completely agree. (Also, the NCAA's non-profit status should have been revoked years ago, as your post implies.)

The conversation we were having was about the non-profit status of the schools. I cannot see how that would possibly be threatened by players being allowed to monetize use of their likeness or otherwise receive compensation.
 

Average Reds

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Because the players would be professionals, not amateurs. I don't know what else to say.
You are conflating several unrelated factors here.

How the NCAA defines amatuerism may be very relevant to whether the NCAA as an institution gets to keep their tax exempt stauts. It is irrelevant to the question of whether colleges and universities would keep their non-profit status.

Edit: @Doug Beerabelli lays out the details in his excellent post. Although the nuance in his edit strikes me as being more applicable to the NCAA than the colleges/universities, who can make the argument that their mission remains unquestionably non-profit.
 
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axx

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You also have to look at why California is doing this in the first place, and lets face it, it's California, they're not doing it out of the goodness of their own hearts. And maybe their actual intent is to destroy the NCAA/college athetics (kind of like that Anti-Uber/Lyft bill that passed recently) but I still think it's more about the tax revenue.
 

InstaFace

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or maybe it's about justice for people who are effectively employees but have a strange legal concoction conspiring to keep them unpaid, even if they give their bodies over to the greater glory of alma mater to be battered for no meaningful gain to them in the end, while receiving a farce of an education. I'll refer you again to the overview and history by Pulitzer-prize winning author Taylor Branch. If you can read that and the result is that you're angry at the athletes rather than at the NCAA (and complicit institutions, albeit partly in an awkward position), we truly come from different moral systems.

Some legislators, sometimes, have been concerned about justice. Let's not exclude that explanation upfront when there's not evidence to the contrary.
 

SoxJox

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or maybe it's about justice for people who are effectively employees but have a strange legal concoction conspiring to keep them unpaid, even if they give their bodies over to the greater glory of alma mater to be battered for no meaningful gain to them in the end, while receiving a farce of an education. I'll refer you again to the overview and history by Pulitzer-prize winning author Taylor Branch. If you can read that and the result is that you're angry at the athletes rather than at the NCAA (and complicit institutions, albeit partly in an awkward position), we truly come from different moral systems.

Some legislators, sometimes, have been concerned about justice. Let's not exclude that explanation upfront when there's not evidence to the contrary.
You've made some very good and interesting points in this thread - especially in your excellent summary at #53 of the relative financial role athletics play in a school's overall budget , and obviously are much more knowledgeable than I about the subject. So I'd like to lean on you and pose a question to garner your thoughts. Could you see a possibility of eliminating athletic scholarships altogether and transitioning to or substituting a pay-for-play model? Would such a move necessarily "cost" more than the current expenditure on athletic scholarships? Would you see a need for some type of wage control system to be put in place, or let free market forces play out?

Edit: I guess I should add...I am uncertain if the options available are limited only to one or the other: continuation of the scholarship system now in place vs. pay-for play, or whether scholarships could still be offered to athletes who, through whatever circumstances, are unable to generate revenue /income from the use of their likeness, etc.
 
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wade boggs chicken dinner

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Colleges are supposed to pay taxes like a for-profit if it's not educational related. Like that development project in Allston that Harvard is doing, if they build housing/retail/office space/etc they are supposed to pay taxes like a for-profit would.
Because the players would be professionals, not amateurs. I don't know what else to say.
Before you discuss this topic any further I would encourage you to read this excellent post on 501c3, Unrelated Business Income, educational institutions, college sports revenues, and the NCAA: View: https://sportsgeekonomics.tumblr.com/post/78566416769/taxation-of-college-sports-is-not-at-issue-in-the


This post is basically a summary of the definitive textbook on the subject.

BTW, one reason the NCAA is fighting so hard against this is that there is a possibility that the NCAA lose their tax-exempt status well before the universities do. That would be a huge problem for the NCAA.
 

InstaFace

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Yeah the big news today is per that tweet up there. WSJ summarized as follows:

The NCAA cleared the way for college athletes to begin profiting from their name, image and likeness on Tuesday, a landmark decision that will dramatically alter the economics of college sports.

The NCAA’s governing board directed its three competition divisions to immediately consider changing the rules governing such benefits for athletes, and to make all such changes no later than January 2021. “We must embrace change,” said Michael Drake, chair of the board and president of Ohio State University.
Looks like all that whining was revealed to be such in record time. NCAA is getting dragged kicking and screaming into something resembling fairness.

This morning, Golic and Wingo were talking about this and they said that what the NCAA really doesn't want is full pay-for-play, but by resisting this half-measure they're making it likely that that eventuality - which is inevitable, they think - will come faster than it would have otherwise.

You've made some very good and interesting points in this thread - especially in your excellent summary at #53 of the relative financial role athletics play in a school's overall budget , and obviously are much more knowledgeable than I about the subject. So I'd like to lean on you and pose a question to garner your thoughts. Could you see a possibility of eliminating athletic scholarships altogether and transitioning to or substituting a pay-for-play model? Would such a move necessarily "cost" more than the current expenditure on athletic scholarships? Would you see a need for some type of wage control system to be put in place, or let free market forces play out?
I start from the position that when it comes to athletics, universities are effectively operating as a for-profit business. Scholarships are just price discrimination for customers of the education product, and using them for when the customer IS the product (revenue sports) makes sense. Why charge your employees money for the privilege of working for you? I personally think the long-run future is that there will be boundaries established of who can play for colleges' revenue-sports teams, and those players will eventually be entitled to a free education after their playing days are over, but continuing to insist that the two be done in parallel or are somehow connected is a big part of the farce. But anyway, if the university stops expending educational resources, such as they are, on pretending to educate revenue athletes, there won't be any need for the scholarship system. It doesn't reduce available funds for non-athletes.

Go read this article, if you haven't already, on how financial-aid decisions at private colleges are really made, and how the game is being leveraged against admissions officers by the privileged (But not so wealthy as to be Development cases) to actually beat back diversity efforts. Anyone concerned with scholarship availability for regular ol' students needs to be concerned with this first and foremost, and athletic scholarships for non-revenue sports secondarily. Impact from revenue-sport athletic scholarships is a sideshow by comparison.

Sooner than any disassociation between revenue athletes and scholarships will be explicit payment of the difference-makers on college teams, yeah. That's already being done today, in the shadows, by various boosters. As long as you can get tax deductions for putting them (or their families) on the payroll of your local auto dealership surreptitiously, or giving them free shit like the use of a vehicle, the difference between doing that via a direct (deductible) donation to the university is pretty minimal.

Let's imagine a world where colleges are free, or nearly free, to pay athletes whatever they want. Boosters contribute whatever they want, there's haggling over tax deductibility, but athletes are free to focus on their jobs winning on-field glory for their university rather than pretending to get an education (unless they want to take some classes in their scant spare time). There are considerable cost savings:
- Compliance officers in athletic departments can be reduced to almost nil
- The NCAA itself can probably staff way down, or at least the universities should insist that it does (Taylor Branch's article strongly suggests they are looking to preserve their expanded power and budget, so that's a longshot - but the point is they could)
- Money is managed centrally and can be spent the best way they know how rather than having to upgrade facilities to a farcical degree in order to maintain plausibility as necessary CapEx (Golic pointed out that the LSU locker room has airplane first-class-seating pods as the lockers, that it's downright stupid and all involved would prefer the money just go to the athletes directly)
- The amount of time being spent by coaches on either managing compliance-related stuff, answering questions, or dodging around plausible deniability, would also go down.

(probably other efficiencies I'm not considering, too - this is a tremendously inefficient process today, the baseline costs required to run a D1 football team are absurd, and made profitable only via unpaid labor)

As for wage controls, that's likely down to collective bargaining for the athletes involved. There is something called the College Athletics Players Association, and I bet it or some successor will become much more analogous to top-level pro leagues' players unions. I could see it going either way depending on the extent to which the universities want to ensure a level playing field vs a lower barrier-to-entry.
 

SoxJox

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Insta, very interesting article. I found of particular interest the discussion of the influence of standardized testing (SAT / ACT) on the admissions process, and the move by an increasing number of schools to make submission of scores optional ("the nonsubmitters’ low test scores were essentially a false signal, predicting an academic disaster in college that never arrived.") Wow. It likely will be a very long road to level the playing field. As the article points out, even Perez recognized that the short-term "pain" of losing tuition revenue would be outweighed by the long-term gain in reputation. I think that formula would take a very long time to work itself out (and, as the article points out, over the 3-year admissions period addressed in the article, Perez was only able to increase the diversity #s by a "couple pf percentage points"), and many schools - those without huge endowments - are caught twixt and tween. Just how long can they hold out in a negative-cash flow situation before becoming insolvement? I can see how "doing the right thing" would be a very difficult decision to make for schools in those situations.

The article also gave me a much greater appreciation for how the US public views the US News & World Report rankings - that is...keenly and with trust. But, among other things, "the U.S. News algorithm penalizes colleges if more than one-quarter of their admitted students don’t submit scores." I did not realize how sensitive the rankings are to various actions that are counterproductive to achieving the goals Perez identifies.

Also of interest, introduction of a function new to me: “financial-aid optimization”. Who knew? And I found fascinating the back-and-forth data sharing and insight gained by the author when he was permitted to observe first hand Trinity's new admissions process, including use of financial-aid optimization with Hardwick Day.

Thanks for pointing me to the article.
 

InstaFace

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No problem. For our purposes, though, the important thing is to recognize that the future of the revenue-sport athletic scholarships regime has little-to-no impact on the broader question of college scholarship "money". That's an objection that some in this thread (and the parallel V&N one) have raised to the whole notion of getting college athletes paid. It stems from a belief that college scholarship money is some sort of pot of gold which will be decreased if the universities start paying athletes money, because that money has to come from somewhere and it's all fungible in the university budget.

That belief is mistaken, for a few reasons I outlined above, but chief among them is that at the programs that would have big budgets would expect to see donations come in to match, substantially if not entirely, the money they'd then turn around and pay their players. And likewise, their cost basis could go way down, both for trying to pretend to educate these kids as well as in other staff necessary to continue pretending they're educating these kids (and didn't make any recruiting fouls, and didn't run afoul of practice limits, etc). As a practical matter, all players of any skill on revenue-sport teams already pay nothing for their educations, but there are no limits placed by the NCAA on the academic merit scholarships (the negotiations for which you read about), or the other forms of incentive they dole out e.g. for diversity purposes. If your little darling isn't a top-class player of upper-class sports like squash or crew or other stuff that are common fodder for athletic scholarships (you know, the ones the admissions scandal mostly covered), and particularly if their main qualifications are academic, then they stand only to gain from a change that frees up that money from the athletics world.