Justice Department Investigates Intercollegiate Athletics

by Matthew Denhart

Inside Higher Ed and the Chronicle of Higher Education both recently ran stories (here and here) speculating as to the position the current Justice Department inquiry into intercollegiate athletics (ICA) will take with respect to scholarship rules for student-athletes. Currently, according to NCAA guidelines, scholarships for athletes are granted on a year-by-year basis and can be revoked for academic or athletic reasons. The Justice Department is likely most concerned with the legality of this policy and seeks to clarify whether such policies impede competition in violation of anti-trust law.

The NCAA maintains that this guideline is in place because athletic based scholarships are a merit award and student-athletes must maintain eligibility throughout their collegiate careers. This eligibility hinges on both athletic and academic qualifications. If scholarships were guaranteed, the argument goes, then student-athletes not meeting eligibility requirements would face no consequences.

However, critics assert that the one year renewable scholarship model is used to mislead student-athletes and inappropriately emphasizes athletics at the expense of academics. They argue that when committing to a college, high school athletes are often misled into believing that their scholarship is guaranteed for all four (or five) years of college. Furthermore, they contend that since coaches can revoke scholarships for athletic reasons, student-athletes find themselves in a precarious position. Being a student-athlete is supposed to imply that these individuals are students first. However, the opposite is usually true as they face great pressure to perform well athletically. Even though coaches are not supposed to strip scholarships for things such as injuries, many in the college sports world admit that appeal committees are a joke and it's rare for a coach's decision to be overturned.

Compared to the real scandals associated with ICA, this argument is somewhat inconsequential. My hope is that the Justice Department condemns the NCAA for its cartel like policy that allows student-athletes to be manipulated and exploited. As Dr. Vedder and I argued last year in an article for the Wall Street Journal, many student-athletes are wildly undercompensated for the marginal product they return to their universities. In a normal market, exploitation doesn't persist for very long because rival firms offer a higher compensation package and lure away formerly exploited employees. However, the NCCA fervently insists that member schools cannot provide compensation beyond scholarships to their athletes because they are amateurs. It would be difficult to convince anyone that college sports is indeed an amateur operation. Many football coaches earn salaries in excess of $1 million and this month the NCAA just inked a new contract with CBS and Turner to cover March Madness for $10.8 billion. The only people treated as amateurs are the players who actually enable the entire system. The Justice Department would be well served to eliminate this practice.

Another issue in ICA that deserves more investigation is the highly regressive nature of the "athletics tax." Nearly all athletic departments require subsidies from the wider university, students, and taxpayers to balance their budgets, this subsidy can be thought of as a tax on resources that would have been used for other purposes. The tax is small (or non-existant) at the well-known and more wealthy institutions, but much larger at the lesser known schools that have poorer students on average.

ICA needs serious reform to help control costs and address scandals. A number of organizations such as the Knight Commission, the Drake Group, and the Coalition on Intercollegiate Athletics continue to fight. Perhaps the Justice Department will be a positive force. Time will tell.