So in the first article, a figure was calculated for what a fair payment would be for NCAA football players given their contributions to college football, along with their comparative market value. While the number of $159,503.80 is inherently useful for a straight calculation, it overgeneralizes a Division 1-A football player. This article will look at how to better distribute the pool of over 1.7 Billion dollars that should be split amongst college football players.
Change 1: We will create two different types of college scholarships. One scholarship is a “Full” Scholarship worth the full value of $159,503.80. The second scholarship will only compensate for Tuition, Room, Board, with an additional payment to offset taxation. These will be Full Athletic Scholarships and Academic Athletic Scholarships (FAS and AAS). A minimum of 60 of the 85 scholarships issued must be FAS’s, although they may offer FAS’s to all 85 scholarship players.
This is created as not every football player is providing the same level of value to college. A Heisman Trophy candidate is clearly producing more than a third string Punter, for example. This is also in part a possible competitive balancing tool, as a smaller school may offer a Full Athletic Scholarship compared to a larger school only offering an Academic Athletic Scholarship.
Players who accept Athletic Scholarships cannot have their scholarships revoked except for what I will refer to as “Gross Student Misconduct”, which for all intents and purposes means “Actions that would cause a member of the student body to be expelled from college”. Additionally, a player on an Academic Athletic Scholarship may be given a Full Athletic Scholarship instead at any point, but a player with a Full Athletic Scholarship cannot have it revoked or demoted to an Academic Athletic Scholarship outside of Gross Student Misconduct. These scholarships will in all cases, pay for at least four years regardless of if the athlete remains on the team.
Change 2: Full Athletic Scholarships are now paying for tuition out of a fixed value. Full Athletic Scholarships will now factor in insurance benefits and financial investments.
A Full Athletic Scholarship is a scholarship of a fixed value, which in this case is $159,503.80. Tuition benefits must come out of this value, and tuition can of course, vary wildly between schools and even between in-state vs. out-of-state students. Tuition prices are factored in only based on what the athlete would be charged if he had no scholarship or athletic involvement. This means that yes, it is possible for athletes to be paid more by their hometown university than one across the nation. Of course, colleges have an option to increase revenue being paid to athletes: Lowering tuition (Possible positive externality 1).
So from this point forward, the value of a Full Athletic Scholarship after taxation becomes relevant. Athletic Scholarships may be taxed for everything beyond the actual cost of Tuition, which varies. We’ll continue to use the number of $20,396.57 for Tuition as a general purpose figure.
$159,503.80 (Full Athletic Scholarship value) – $20,396.57 (Tuition) = $139,107.23 (Income Post Tuition)
Since Hawaii’s rates won’t apply to most athletes, we’ll assume a value of $90,000.00 since it will make some of the math a bit easier to understand. This assumes of course, that athletes are taxed on this much income immediately. While some 18 year olds would be responsible with this much money annually, outside pressures from family, peers, agents, marketers, etc may cause this money to be utilized poorly.
If this money is invested prior to taxes, we’ll have a fairly substantial pool of money for them to rely on throughout their life. Thus, the short term needs and desires of an athlete to have spending cash must be considered along with their long term needs, as this is going to be the only football related revenue most of these athletes will ever receive. With only 255 players being drafted every year, and 10,710 players in Division 1-A Football at any time, this isn’t an unreasonable statement.
We will also consider insurance needs, such as health/disability insurance as well, and set aside $5,000.00 per year for this. I have no idea what the true cost would be, but this feels like a reasonable estimate and provides a backup if they do not have employers insurance to cover their needs.
With all of this said, our goal will be to put $30,000.00 in scholarship money directly into an athlete’s hands every year. While this is definitely a significant number, this will also allow for enough to be invested and saved for short and long term needs. When room and board and other expenses (Which are taxable) are factored in, a FAS will need to have just under $66,000.00 in taxable income in order to provide for this
$66,000.00 (Taxable Income) – $9,818.75 (Federal Income Tax*) – $4,422.72 (State Income Tax**) – $4,092.00 (Social Security Tax) – $957.00 (Medicare Tax) = $46,709.53 (Post Tax Income)
Of which $11,700.00 goes to Room, Board, Books, Supplies, and miscellaneous other expenses, $5,000.00 to long term insurance needs, and $30,009.53 going directly to the athlete after taxes.
However, with $66,000.00 of taxable income out of $139,107.23, this means that the remaining $73,107.23 would be going into long and short term investments for the athletes. This would be broken up into Long Term Portfolios, and Short Term Portfolios. One quarter of this money, or $18,276.81 would go to the Long Term Portfolios every year, while the remainder, $54,830.42 would go into Short Term Portfolios.
The Long Term Portfolios would be accessible by the players 30 years after their graduation, but with options for it to remain longer. The Short Term Portfolio would accumulate interest that is paid annually to the players, and the principal behind it would be paid back to the player 30 years after graduation or later.
If the long term portfolio can yield 5% return on investment, it will issue a one time payment to the players of $340,462.46 thirty years after their graduation. Delaying by another 10 years would increase this payment to $554,577.47. This is however, subject to taxation.
The short term portfolio would be valued at $236,325.96 when the athlete graduates college if it gains 5% interest. This portfolio would be paying $11,816.30 in interest annually if the athletes withdrew this. Alternatively, they could invest this identically to the long term portfolio, which would be worth $1,021,387.18 thirty years after graduation, or $1,663,732.09 forty years after graduation. So a Full Athletic Scholarship could be valued as such…
Free Tuition, Room, Board, Books, Supplies for Four Years ($128,278.68)
$30,000.00 Annually for Four Years in post-tax income
$11,816.30 Annually for Thirty Years after graduation ($354,489.00 Subject to Tax)
$577,088.42 One-Time Payment Thirty Years after graduation (Subject to Tax)
Long Term Insurance Benefits
Bringing the total value of the scholarship to $1,179,856.10, with $931,577.42 subject to taxes at varying points. Post taxes (VERY roughly), the net value of a FAS becomes $731,022.10.
It’s worth noting that this plan would inject an additional $782,978,433.30 into investments every year. The current model in NCAA football likely does not permit this much money to flow back into the economy, although this is something I cannot prove (Possible Positive Externality 2). Additionally, the forced savings and investments may also be utilized as a teaching tool for athletes to learn about proper investment and long term financial planning (Possible Positive Externality 3).
So to summarize, a Full Athletic Scholarship under this plan would pay…
$20,396.57 Annually in Tuition
$11,700.00 Annually to cover for Room, Board, Books, and Miscellaneous College Expenses
$19,290.47 Annually to pay for various State and Federal Taxes
$ 5,000.00 Annually to pay for Long Term Insurance Benefits
$30,009.53 Annually to the Athlete, after taxes.
$11,816.30 Annually after the Athlete is no longer on a scholarship.
$577,088.42 Thirty Years after Graduation.
The last two are subject to taxation.
Change 3: Players will receive revenue from sources other than their scholarships with some restrictions.
Recent legislation seems to make this an inevitability, so we’ll factor this element into the equation. It is my understanding that the revenue reported by the Department of Education does factor in television rights, so we won’t consider that a part of the revenues a player is additionally entitled to. However, the popular franchise NCAA Football would likely have to issue payments to the players under this umbrella of changes. At this moment, the franchise appears to be on hold, but we’ll just assume that it would restart with the same level of popularity as before.
Sales of NCAA Franchise ***
NCAA Football ’14 – 1.71 Million
NCAA Football ’13 – 1.84 Million
NCAA Football ’12 – 1.75 Million
NCAA Football ’11 – 1.72 Million
NCAA Football ’10 – 1.72 Million
On average, NCAA Football sold 1,748,000 copies every year over the last five years. While it should be abundantly clear that the players are not entitled to all or even a large portion of the revenue from this game, they’re still entitled to a decent take. I have relatively limited knowledge of licensing fees from the use of likenesses in a video game, but I would imagine that the players would be entitled to at least 3 dollars of every sale of NCAA Football. This $5,244,000.00 revenue from licensing fees would mean that each player in football is entitled to an extra $489.64. This number is in line with what the recent O’Bannon vs. NCAA settlement**** will pay most of the college players.
The last major change that I would make is that I would allow NCAA Athletes to make paid appearances and sign autographs for profit, under the following restrictions.
- These appearances and signings occur when school is not in session.
- Half or more of all proceeds generated are donated to a charity of the athlete’s choice.
- This charity is a charity that is not directly affiliated with athletes (IE: Donations may not go to the Jay Cutler Foundation or the Mia Hamm Foundation, but they may go to the ALS Association Research Program, the Salvation Army, or Veterans of Foreign Wars.).
Since the donations would be considered tax-deductible, this will benefit the athlete by reducing their tax liabilities. This will also cause an increase the the amount of money donated to charities (Possible Positive Externality 4), and increase the positive exposure of the NCAA and its athletes (Possible Positive Externality 5).
So, there we go. It’s again, not a perfect model, but one that more accurately encapsulates a true value of the contributions of college football in America. Is there room for criticism? Definitely. It’s at least a starting point.
Change 1: Creation of two types of scholarships, 1 that similar to existing “Athletic Scholarships” that only pays for college itself, and a “Full Athletic Scholarship” that also pays for their true economic output.
Change 2: Full Athletic Scholarships will now also pay for long term insurance assistance, along with diversification into investment portfolios that will pay athletes back well after they’re no longer on scholarships.
Change 3: Players will be able to capitalize on revenue from other sources.
Positive Externality 1: Colleges may be given incentive to lower tuition for all students in order to attract football talent.
Positive Externality 2: Over 750 million dollars per year will be invested into varying sectors of the economy.
Positive Externality 3: Athletes will receive education on financial planning as a result of Full Athletic Scholarships.
Positive Externality 4: Athletes who wish to utilize their name and likeness for profit will donate substantial portions of money to charity.
Positive Externality 5: Increased donations to charity by NCAA Athletes in the form of money will increase positive press on College Football.
* – Federal Taxes assumes a player has no dependents, is single, takes 1 Personal Exemptions and a Standardized Deduction. This was calculated using tax-rates.org.
** – State Taxes are calculated using Hawaii’s values, which are the highest nationally.
*** – Per VGChartz.com
**** – http://espn.go.com/college-sports/story/_/id/11055977/ncaa-reaches-20m-settlement-video-game-claims